Page 1 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

Gary M. Berne, OSB No. 774077 

gberne@stollberne.com 

Jennifer S. Wagner, OSB No. 024470 

jwagner@stollberne.com

STOLL STOLL BERNE LOKTING 

 & SHLACHTER P.C. 

209 S.W. Oak Street, Suite 500 

Portland, OR 97204 

Telephone: (503) 227-1600 

Facsimile: (503) 227-6840 

Shawn A. Williams, pro hac vice admission forthcoming 

shawnw@rgrdlaw.com 

Kenneth J. Black, pro hac vice admission forthcoming

kennyb@rgrdlaw.com 

ROBBINS GELLER RUDMAN 

 & DOWD LLP 

Post Montgomery Center 

One Montgomery Street, Suite 1800 

San Francisco, CA 94104 

Telephone: (415) 288-4545 

Facsimile: (415) 288-4534 

Attorneys for Plaintiff 

[Additional counsel appear on signature page.] 

UNITED STATES DISTRICT COURT 

DISTRICT OF OREGON 

PORTLAND DIVISION 

GEORGE HAROUTUNIAN, Individually and on 

Behalf of All Others Similarly Situated, 

Plaintiff, 

v. 

MENTOR GRAPHICS CORPORATION, 

WALDEN C. RHINES, GREGORY K. 

HINCKLEY and JOSEPH REINHART, 

Defendants. 

 No. 

CLASS ACTION ALLEGATION 

COMPLAINT

COMPLAINT FOR VIOLATIONS OF 

THE FEDERAL SECURITIES LAWS 

DEMAND FOR JURY TRIAL

3:16-CV-00470

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 1 of 33
Page 2 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

INTRODUCTION 

1. Plaintiff, individually and on behalf of all other persons similarly situated, by 

plaintiff’s undersigned attorneys, alleges the following based upon personal knowledge as to plaintiff 

and plaintiff’s own acts, and upon information and belief as to all other matters based on the 

investigation conducted by and through plaintiff’s attorneys, which included, among other things, a 

review of Securities and Exchange Commission (“SEC”) filings by Mentor Graphics Corporation 

(“Mentor Graphics” or the “Company”), as well as conference call transcripts and media and analyst 

reports about the Company. Plaintiff believes that substantial evidentiary support will exist for the 

allegations set forth herein after a reasonable opportunity for discovery. 

SUMMARY OF THE ACTION 

2. This is a securities class action on behalf of all persons who purchased or otherwise 

acquired the common stock of Mentor Graphics between August 21, 2014 and November 19, 2015, 

inclusive (the “Class Period”), against Mentor Graphics and certain of its officers and/or directors for 

violations of the Securities Exchange Act of 1934 (“1934 Act”), including Walden C. Rhines 

(“Rhines”), the Company’s Chief Executive Officer (“CEO”) and Chairman, Gregory K. Hinckley 

(“Hinckley”), the Company’s President, and Joseph Reinhart (“Reinhart”), Vice President, Corporate 

Development and Investor Relations. Plaintiff alleges that defendants violated the securities laws by 

disseminating materially false and misleading statements and concealing material adverse facts 

regarding Mentor Graphics’ current financial condition and growth prospects. 

BACKGROUND AND OVERVIEW 

3. Mentor Graphics develops, manufactures and distributes electronic design automation 

(“EDA”) products – computer software and emulation hardware systems – worldwide, primarily to 

large companies in the communications, computer, consumer electronics, semiconductor, 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 2 of 33
Page 3 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

networking, multimedia, military and aerospace, and transportation industries. The Company’s EDA 

products allow customers to test both hardware and software components of technologically 

complex products before they are mass produced.1 

4. During the Class Period, Mentor Graphics claimed to have substantial visibility into 

its future financial results, including revenue and earnings per share (“EPS”), long before the end of 

any fiscal year because (a) the Company’s contracts are long term, often multi-year, with generally 

recurring revenue; (b) the Company had a significant backlog of orders; and (c) the Company’s 

business is cyclical, with 60% of revenue coming in the back half of the fiscal year (i.e., August 1 to 

January 31). 

5. Throughout the Class Period, defendants also emphasized that demand for Mentor 

Graphics’ emulation and other products was robust and growing, and that the Company was 

currently leveraging that demand to grow its pipeline of customers and sign customers to long-term 

contracts. 

6. Finally, defendants assured investors that the Company’s differentiated product 

offerings insulated the Company from competitive pricing pressures competitor’s product expected 

to be released in 2015, and that mergers and acquisitions among its customer base were improving 

Mentor Graphics’ leverage in pricing, and not costing the Company business either through 

discounts or reduction in R&D spend post-consolidation. 

 

1

 Mentor Graphics reports on a fiscal year that runs from February 1 to January 31. As used herein 

“FY” means Mentor Graphics’ fiscal year. Thus, FY15 means Mentor Graphics’ fiscal year 2015, 

which ran from February 1, 2014 to January 31, 2015. The Company’s third quarter fiscal year 2016 

ran from August 1, 2015 to October 31, 2015. 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 3 of 33
Page 4 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

7. For example, the Company made the following false and misleading statements 

during the Class Period: 

 “[I]t will take a long time for people to develop the capability that we have honed 

over the last 12 years to bring us to where we are in the virtual emulation side.” 

 “Pricing has continued to improve and it gets better, so it has been a substantial 

help to us as we’ve gone through the year.” 

 “Over time, no material portion of our business is dependent on a single or a few 

customers. We do not believe that the competitive loss of one or more individual 

products at one or more of our customers would have a material adverse effect on 

our revenues.” 

 “[T]he activity for evaluations is so strong, that we are booked to capacity in the 

number of customers we can evaluate.” 

 “For the full year fiscal 2016, the company expects revenues of about $1.282 

billion, non-GAAP earnings per share of about $1.85, and GAAP earnings per share 

of approximately $1.45.” 

8. On August 20, 2015, Mentor Graphics issued a press release announcing its financial 

results for the second quarter of FY16, the period ended July 31, 2015. For the quarter, the 

Company reported record financial results due in part to early license renewals among certain 

customers and raised revenue guidance for FY16 from $1.282 billion to $1.285 billion, non-GAAP 

EPS guidance from $1.88 to $1.90, and GAAP EPS from $1.18 to $1.25: 

 “‘Revenue was an all-time second quarter record and Mentor exceeded non-GAAP 

earnings per share guidance for the 26th consecutive quarter . . . . Customer need 

for increased amounts of software drove early renewal activity and the upside in 

the quarter.’” 

 “For the full year fiscal 2016, the company is raising revenue guidance to about 

$1.285 billion; is increasing non-GAAP earnings per share guidance from $1.88 to 

about $1.90; and currently expects GAAP earnings per share of approximately 

$1.25.” 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 4 of 33
Page 5 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

9. Defendants’ statements, as described below in ¶¶26-27 and 30-40, were each 

materially false and misleading because the Company knew or deliberately disregarded, but failed to 

disclose, the following material facts: 

(a) Mentor Graphics’ customers were delaying or declining extended license 

agreements or demanding price concessions from the Company due to the unprecedented level of 

mergers and acquisitions in 2015 and earlier. 

(b) Demand for Mentor’s emulation products had slowed as a result of the 

anticipated introduction of competitive products, notwithstanding defendants’ assertions that it 

would be a long time before any competitor could release a competitive virtual emulation product. 

(c) Early customer contract renewals and related bookings had the effect of 

moving expected bookings and revenue from future periods (in particular the second half of FY16) 

to earlier periods (the first half of FY16), and were not, as defendants reported, a sign that demand 

was strong and increasing. 

10. Following the Company’s August 20, 2015 increased FY16 guidance, the Company’s 

share price traded at artificial prices above $25.00 per share. 

11. Between October 9, 2015 and October 12, 2015, just two weeks before the end of the 

third quarter of FY16, defendant Rhines sold 170,000 shares of Mentor Graphics stock at prices 

above $25.00 per share for proceeds of more than $4.3 million. 

12. Then on November 19, 2015, Mentor Graphics issued a press release announcing 

highly disappointing financial results for the third quarter of FY16 and substantially reducing its 

fourth quarter FY16 financial outlook – instead of $440 million in revenue for the fourth quarter and 

$0.47 EPS, the Company announced, among other things, that its fourth quarter revenue forecast 

would be reduced by a whopping $104 million to $336 million, and that bookings for the three 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 5 of 33
Page 6 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

months ended October 31, 2015 had decreased by approximately 20% compared to the three months 

ended October 31, 2014, primarily due to a decrease in term license contract renewals: 

 “Total bookings were down 20% year-over-year and were flat to down across all 

product categories. . . . Design to Silicon, which includes our Calibre product 

family, was down 35% . . . .”

 “Scalable Verification was down 25%. It’s probable that a competitor’s recent 

announcement of the release of their next generation emulation product has 

temporarily frozen activity in that market.” 

 “‘Semiconductor consolidation and delays in emulator decisions are now having 

an adverse impact on our ability to close business . . . .’”

 “[I]immediate demand for emulation has stalled as the result of the expected 

introduction of competitive products.”

13. On November 20, 2015, Mentor’s stock price plunged 36%, closing at $17.85 per 

share, down from the previous day’s close of $27.78 per share, on high trading volume. 

JURISDICTION AND VENUE 

14. Jurisdiction is conferred by 28 U.S.C. §1331 and §27 of the 1934 Act. The claims 

asserted herein arise under §§10(b) and 20(a) of the 1934 Act [15 U.S.C. §§78j(b) and 78t(a)] and 

Rule 10b-5 promulgated thereunder [17 C.F.R. §240.10b-5]. 

15. Venue is proper in this district pursuant to 28 U.S.C. §1391(b), because Mentor 

Graphics is headquartered in this District and many of the acts and practices complained of herein 

occurred in substantial part in this District. 

PARTIES 

16. Plaintiff George Haroutunian purchased or otherwise acquired Mentor Graphics 

common stock as described in the attached certification and was damaged by the conduct alleged 

herein. 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 6 of 33
Page 7 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

17. Defendant Mentor Graphics is incorporated in Oregon and trades on the NASDAQ 

Exchange (“NASDAQ”) under the ticker symbol “MENT.” The Company’s corporate headquarters 

are located at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070 

18. Defendant Rhines is, and was at all relevant times during the Class Period, the 

Chairman, CEO and a director of the Company. 

19. Defendant Hinckley is, and was at all relevant times during the Class Period, 

President of the Company. 

20. Defendant Reinhart is, and was at all relevant times during the Class Period, Vice 

President, Corporate Development and Investor Relations of the Company. 

21. The defendants named in ¶¶18-20 are referred to herein as the “Individual 

Defendants.” 

CONTROL PERSONS 

22. As officers and controlling persons of a publicly held company whose common stock 

was and is traded on the NASDAQ and is governed by the provisions of the federal securities laws, 

the Individual Defendants each had a duty to promptly disseminate accurate and truthful information 

with respect to the Company’s financial condition, performance, growth, operations, financial 

statements, business, markets, management, earnings and present and future business prospects, and 

to correct any previously issued statements that had become materially misleading or untrue, so that 

the market price of the Company’s common stock would be based upon truthful and accurate 

information. The Individual Defendants’ misrepresentations and omissions during the Class Period 

violated these specific requirements and obligations. 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 7 of 33
Page 8 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

23. The Individual Defendants participated in the drafting, preparation and/or approval of 

the various public, shareholder and investor reports and other communications complained of herein 

and were aware of, or recklessly disregarded, the misstatements contained therein and omissions 

therefrom, and were aware of their materially false and misleading nature. Because of their Board 

membership and/or executive and managerial positions with Mentor Graphics, each of the Individual 

Defendants had access to the adverse undisclosed information about the Company’s financial 

condition and performance as particularized herein and knew (or recklessly disregarded) that these 

adverse facts rendered the positive representations made by or about Mentor Graphics and its 

business or adopted by the Company materially false and misleading. 

24. The Individual Defendants, because of their positions of control and authority as 

officers and/or directors of the Company, were able to and did control the content of the various SEC 

filings, press releases and other public statements pertaining to the Company during the Class 

Period. Each Individual Defendant was provided with copies of the documents alleged herein to be 

misleading prior to or shortly after their issuance and/or had the ability and/or opportunity to prevent 

their issuance or cause them to be corrected. Accordingly, each of the Individual Defendants is 

responsible for the accuracy of the public reports and releases detailed herein and is therefore 

primarily liable for the representations contained therein. 

25. The Company and the Individual Defendants are liable as participants in a fraudulent 

scheme and course of business that operated as a fraud or deceit on purchasers of Mentor Graphics 

common stock by disseminating materially false and misleading statements and/or concealing 

material adverse facts. The scheme: (i) deceived the investing public regarding Mentor Graphics’ 

business, operations, management and the intrinsic value of Mentor Graphics common stock; and (ii) 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 8 of 33
Page 9 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

caused plaintiff and other members of the Class to purchase Mentor Graphics common stock at 

artificially inflated prices. 

SUBSTANTIVE ALLEGATIONS 

26. On August 21, 2014, Mentor Graphics issued a press release announcing its financial 

results for the second quarter of FY15, the period ended July 31, 2014. For the quarter, the 

Company reported revenues of $291 million, non-GAAP EPS of $0.28, and GAAP EPS of $0.12, 

exceeding the Company’s financial guidance for the quarter. The Company also forecasted third 

quarter and FY15 financial results as follows: 

Mentor Graphics Reports Fiscal Second Quarter Results 

. . . Mentor Graphics Corporation today announced financial results for the 

company’s fiscal second quarter ended July 31, 2014. The company reported 

revenues of $260.2 million, non-GAAP earnings per share of $0.23, and GAAP 

earnings per share of $0.13. 

* * * 

“The second quarter was strong for Mentor and as a result we exceeded nonGAAP earnings guidance,” said Gregory K. Hinckley, president of Mentor Graphics. 

“A four percent revenue upside to guidance, along with continued attention to 

expense control, drove an over 50 percent beat in earnings per share. . . .” 

Outlook 

For the third quarter of fiscal 2015, the company expects revenues of about 

$275 million, non-GAAP earnings per share of about $0.21 and GAAP earnings per 

share of approximately $0.07. For the full year fiscal 2015, the company expects 

revenues of about $1.237 billion, non-GAAP earnings per share of about $1.75, and 

GAAP earnings per share of approximately $1.37. 

27. Following the issuance of the August 21, 2014 press release, defendants held a 

conference call with analysts and investors to discuss the Company’s reported earnings, guidance 

and operations. During the conference call, defendants made false statements about the Company’s 

business, operations and prospects. When specifically asked about product pricing – a key measure 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 9 of 33
Page 10 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

of industry consolidation and competitive pressures – defendants assured investors that the Company 

was positioned to leverage increased demand to maintain favorable pricing long term. Defendants 

also stated that because the Company’s virtual emulation products were unique and far more 

developed than any competitors’ current products, it would take a long time for another company 

offering a new emulation product to become competitive. Therefore, the anticipated release of a new 

emulation platform by competitor Cadence Design Systems (“Cadence”) would not materially affect 

Mentor Graphics’ financial results: 

[ANALYST:] [W]hen you look at emulation, we have heard from a few that there 

was a bit of a pricing issue with emulation. Are you seeing that with your product 

line right now? 

[RHINES:] Yes, it is a big issue. Pricing has continued to improve and it 

gets better, so it has been a substantial help to us as we’ve gone through the year. 

* * * 

[ANALYST:] It is expected sometime over the next six to nine months it is likely 

Cadence has a new platform and it could then negatively impact the growth of 

emulation on Mentor’s platform. Could you share your thoughts on that? 

[RHINES:] Well, so I think I indicated earlier that there are really two kinds 

of emulation. There is traditional in-circuit emulation and then there is the whole 

new generation of virtual emulation. We have been in the virtual emulation 

business for quite some time, over a decade . . . . 

Now, I expect our competitors will ultimately offer many of the kinds of 

features that Mentor has with virtual stimulus and accelerated test benches and the 

ability to do software development. At some time in the future when they do, I think 

we will see them more often with competitors. 

But today we are not number one in in-circuit emulation; we are clearly 

number one in virtual emulation. . . . I think it will take a long time for people to 

develop the capability that we have honed over the last 12 years to bring us to 

where we are in the virtual emulation side. 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 10 of 33
Page 11 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

28. On August 25, 2014, Seeking Alpha published a report, entitled “Mentor Graphics: 

Earn 20% With Zero Net Market Exposure,” explaining that the Company’s reported bookings and 

backlog indicated that the Company had already acquired sufficient business to meet projections for 

FY15, even if the Company were to later experience decreased demand: 

[L]arge bookings tend to alleviate risk, as a large portion of the company’s revenue 

is coming straight from the balance sheet, giving it an extra layer of cushion to meet 

analyst estimates in the event the company’s turn-based business experiences a 

slowdown. 

* * * 

Notice also that both the definition of bookings and the definition of backlog state 

that revenue from each should be realized within six to twelve months, giving us 

greater confidence these metrics bode well for fiscal 2015 as a whole (the 

company’s current fiscal year). 

29. The Seeking Alpha report also repeated defendants’ assertion that Mentor Graphics 

did not need to worry about competitors’ products, stating: “As the list of products requiring EDA 

has grown and diversified, each of the industry’s three largest players has been able to carve out its 

own empire, often with little worry of competitor intrusion.” 

30. On November 20, 2014, Mentor Graphics issued a press release announcing its 

financial results for the third quarter of FY15, the period ended October 31, 2014. For the quarter, 

the Company reported revenues of $292.7 million, non-GAAP EPS of $0.34, and GAAP EPS of 

$0.18: 

Mentor Graphics Reports Fiscal Third Quarter Results 

. . . Mentor Graphics Corporation today announced financial results for the 

company’s fiscal third quarter ended October 31, 2014. The company reported 

revenues of $292.7 million, non-GAAP earnings per share of $0.34, and GAAP 

earnings per share of $0.18. 

“We had revenue and non-GAAP earnings per share that were both records 

for a third quarter . . . .” 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 11 of 33
Page 12 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

* * * 

“Mentor had another successful quarter which again demonstrated strong 

leverage. A 6% revenue upside to guidance drove an over 60% increase in nonGAAP earnings per share,” said Gregory K. Hinckley, president of Mentor 

Graphics. “Renewals in our top ten bookings were up 55%, driven by strong 

transportation cabling demand and competitive replacement. . . .” 

Outlook 

For the fourth quarter of fiscal 2015, the company expects revenues of about 

$425 million, non-GAAP earnings per share of about $1.07 and GAAP earnings per 

share of approximately $1.01. For the full year fiscal 2015, the company expects 

revenues of about $1.230 billion, non-GAAP earnings per share of about $1.75, and 

GAAP earnings per share of approximately $1.31. 

31. Following the issuance of the November 20, 2014 press release, defendants held a 

conference call with analysts and investors to discuss the Company’s reported earnings and 

operations. The call was hosted by defendants Rhines and Hinckley. During the conference call, 

defendants stated that the Company had booked a number of newly acquired large customers and 

that the Company had not only booked sales of emulator hardware, but also created a pipeline of 

large companies to license software and other products and sell its services to over the long run: 

[ANALYST:] [J]ust wanted to get your sense of how you see the emulation business 

relative to a quarter ago. Something a little bit like bookings but very optimistic on 

the pipeline and the revenue potential fourth quarter. 

I think the last quarter you talked about that business, and I believe this is in 

terms of revenue being maybe a 20% to 25% grower [sic] this year. Anything 

changed in the last quarter? 

[RHINES:] Of course the year-to-date revenue is quite strong, and from a 

bookings point of view, I would say it’s strengthened. . . . 

So if anything, I think I’d say that our outlook has improved . . . . 

32. On February 26, 2015, Mentor Graphics issued a press release announcing its 

financial results for fourth quarter FY15 and FY15, ended January 31, 2015. For the quarter, the 

Company reported revenues of $439.1 million, non-GAAP EPS of $1.09, and GAAP EPS of $0.96. 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 12 of 33
Page 13 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

For FY15, the Company reported revenues of $1.244 billion, non-GAAP EPS of $1.77, and GAAP 

EPS of $1.26. The Company also issued revenue and earnings guidance for FY16 in the press 

release, forecasting revenue of $1.282 billion, non-GAAP EPS of $1.85, and GAAP EPS of $1.45: 

“Mentor’s board of directors is raising the quarterly dividend by 10% to $0.055 per 

share.” 

* * * 

“In the fourth quarter we posted numerous all-time records including 

bookings, revenue, and both GAAP and non-GAAP earnings per share,” said 

Gregory K. Hinckley, president of Mentor Graphics. “Similarly, we had record 

revenue and non-GAAP earnings per share for the full year. . . .” 

Outlook 

For the first quarter of fiscal 2016, the company expects revenues of about 

$260 million, non-GAAP earnings per share of about $0.18 and GAAP earnings per 

share of approximately $0.08. For the full year fiscal 2016, the company expects 

revenues of about $1.282 billion, non-GAAP earnings per share of about $1.85, and 

GAAP earnings per share of approximately $1.45. The fiscal 2016 non-GAAP 

guidance, first quarter and full year, anticipates a normalized non-GAAP tax rate of 

19% which is an increase from the fiscal 2015 rate of 17%. 

33. On the same day, defendants held a conference call with analysts and investors to 

discuss the Company’s fourth quarter FY15 and FY15 reported earnings and operations results. The 

call was hosted by defendants Rhines and Hinckley. During the conference call, defendants made 

numerous positive statements about the Company’s business, operations and prospects, and claimed 

to be vigilant as to anticipated competition from Cadence: 

[ANALYST:] And then, I was just wondering, with one of your competitors in 

emulation with a new product, I’m wondering what your thoughts are on the 

competitive dynamics there? And whether or not the long-term – or let’s say, the 

five-year growth rate for emulation should reaccelerate after this year for you? 

. . . [RHINES:] I believe you’re referring to Cadence. Is that what the 

question is? 

[ANALYST:] Yes. 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 13 of 33
Page 14 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

[RHINES:] Yes, we haven’t seen much direct competition from Cadence, but 

we’re always wary. Customers develop new capabilities, and so we work hard to be 

sure that we are ahead of the game. 

34. On February 27, 2015, the Company’s stock continued to trade at artificially inflated 

prices above $23.00 per share. 

35. On March 16, 2015, Mentor filed its Form 10-K for FY15. In the 10-K the Company 

reported strong financial results, including, as of January 31, 2015, that the Company had a backlog 

of $142 million in firm orders, including emulation hardware systems requested for delivery within 

one year. The 10-K also explained that the Company was not overly dependent on any customer or 

product, and had developed strong leadership positions with its products that it expected to be able to 

maintain: 

Over time, no material portion of our business is dependent on a single or a 

few customers. We do not believe that the competitive loss of one or more 

individual products at one or more of our customers would have a material adverse 

effect on our revenues. 

36. On May 22, 2015, Mentor Graphics issued a press release announcing its financial 

results for the first quarter of FY16, the period ended April 30, 2015. For the quarter, the Company 

reported revenues of $272.1 million, non-GAAP EPS of $0.28, and GAAP EPS of $0.08. For FY16, 

the Company affirmed the previous revenue guidance of about $1.282 billion, increased non-GAAP 

EPS guidance from $1.85 to about $1.88, and decreased GAAP EPS guidance to $1.18 from $1.45, 

stating the decrease was “primarily the result of workforce restructuring expenses.” 

Mentor Graphics Reports Fiscal First Quarter Results and Announces 

Quarterly Dividend 

. . . Mentor Graphics Corporation today announced financial results for the 

company’s fiscal first quarter ended April 30, 2015. The company reported revenues 

of $272.1 million, non-GAAP earnings per share of $0.28, and a GAAP loss per 

share of $0.08. 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 14 of 33
Page 15 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

“The first quarter was strong for Mentor Graphics, substantially exceeding 

financial guidance,” said Walden C. Rhines, chairman and CEO. “In addition to 

more than 50% bookings growth in three of our four product categories, our 

automotive business was very strong, driven by a major win with a leading 

automotive OEM.” 

* * * 

“First quarter revenue was 5% greater than guidance, while continued 

attention to expenses drove non-GAAP earnings per share to exceed guidance by 

55%,” said Gregory K. Hinckley, president of Mentor Graphics. . . .

Outlook 

For the second quarter of fiscal 2016, the company expects revenue of about 

$250 million, non-GAAP earnings per share of about $0.14 and GAAP earnings per 

share of approximately $0.03. For the full year fiscal 2016, the company affirms 

the previous revenue guidance of about $1.282 billion; increases non-GAAP 

earnings per share guidance from $1.85 to about $1.88; and currently expects 

GAAP earnings per share of approximately $1.18. The decrease in fiscal 2016 

GAAP earnings per share from previous guidance is primarily the result of 

workforce restructuring expenses announced during the first quarter. 

37. On the same day, defendants held a conference call with analysts and investors to 

discuss the Company’s first quarter FY16 reported earnings and operations. During the conference 

call, defendants stated that the Company was booked to capacity and had more demand than it could 

handle, such that even if revenue was otherwise down, the Company had more than enough business 

in the pipeline to meet or exceed fiscal year guidance: 

[HINCKLEY:] [B]ookings were up 70%, through the second highest Q1 ever. That 

strength was dispersed, spread across all regions in most product categories. 

* * * 

[RHINES:] I have to say, at this point, that the activity for evaluations is so strong, 

that we are booked to capacity in the number of customers we can evaluate. 

* * * 

[ANALYST:] The first question is on the guidance. Why would revenue – I mean 

maybe if you could kind touch base, why the revenue will be down Q over Q? Is it 

some pull-in, in the Q1 quarter? 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 15 of 33
Page 16 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

[HINCKLEY:] That’s what Wally explained . . . . So we had some contracts 

that were expiring naturally outside of the first quarter that those customers asked us 

to renew in the first quarter. That happened. And so, it’s business that we expected 

to do later in the year, happened in the first quarter? 

[ANALYST:] Got it. Okay. And then, the scalable verification revenue is 

down year over year. So is it mainly kind of the one big emulation customer, which 

you talked about last quarter, may not be renewing this year or buying more tools? Is 

it because of that? 

[HINCKLEY:] I think what we described is – and we think the most 

compelling indicator of the strength of the business is actually what out bookings are. 

So, our revenue maybe down, and that has to do with, for example, in scalable 

verification is emulation, we have to actually build emulators, so we ship to a build 

forecast. Bookings for the quarter were, in fact, up 65%. So, the business is robust. 

38. Following its first quarter FY16 results, the Company’s stock continued to trade at 

artificially inflated prices above $26.00 per share. 

39. On August 20, 2015, Mentor Graphics issued a press release announcing its financial 

results for the second quarter of FY16, the period ended July 31, 2015. For the quarter, the 

Company reported revenues of $281.1 million, non-GAAP EPS of $0.36, and GAAP EPS of $0.26, 

and raised revenue guidance for FY16 from $1.282 billion to $1.285 billion, non-GAAP EPS 

guidance from $1.88 to $1.90, and GAAP EPS guidance from $1.18 to $1.25: 

Mentor Graphics Reports Fiscal Second Quarter Results and Announces 

Quarterly Dividend 

. . . Mentor Graphics Corporation today announced financial results for the 

company’s fiscal second quarter ended July 31, 2015. The company reported 

revenues of $281.1 million, non-GAAP earnings per share of $0.36, and GAAP 

earnings per share of $0.26.

“Revenue was an all-time second quarter record and Mentor exceeded nonGAAP earnings per share guidance for the 26th consecutive quarter . . . . 

Customer need for increased amounts of software drove early renewal activity and 

the upside in the quarter. . . . [W]e [also] added five new emulation customers, 

including both a Top Ten chip company and a start-up.” 

* * * 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 16 of 33
Page 17 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

“Second quarter revenue exceeded guidance by 12% while non-GAAP EPS was up 

over 150% versus guidance. . . .” 

Outlook 

For the third quarter of fiscal 2016, the company expects revenue of about 

$290 million, non-GAAP earnings per share of about $0.27 and GAAP earnings per 

share of approximately $0.17. For the full year fiscal 2016, the company is raising 

revenue guidance to about $1.285 billion; is increasing non-GAAP earnings per 

share guidance from $1.88 to about $1.90; and currently expects GAAP earnings 

per share of approximately $1.25. 

40. Following the issuance of the August 20, 2015 press release, defendants held a 

conference call with analysts and investors to discuss the Company’s reported earnings and 

operations. During the conference call, defendants assured investors that they were aware of 

consolidation among their customers but that the mergers and acquisitions (or “M&A”) activity was 

not a major or long-term concern and any effects from M&A activity would be muted and manifest 

only in the long term, especially from semiconductor companies who cannot adjust R&D spend 

quickly. Defendants also stated that they were very comfortable with raising the Company’s FY16 

guidance revenue to $1.285 billion and had come to expect steady growth because demand for the 

Company’s Design to Silicon and Scalable Verification products was growing, and because early 

contract renewals by customers was a result of increased demand for Mentor Graphics’ software 

products: 

[RHINES:] Second quarter of FY16 was one of records for a Q2. We substantially 

exceeded our own expectations with revenue of $281.1 million and non-GAAP 

earnings per share of $0.36.

This was largely the result of booking FY16 expiring contracts earlier than 

planned. The majority of this upside was the result of users requiring more 

software than anticipated in their prior contracts. . . . 

We were impressed by the breadth of demand growth in our two largest and 

fastest-growing product categories, Design to Silicon and Scalable Verification, 

which grew 105% and 20% respectively. 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 17 of 33
Page 18 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

* * * 

One other topic that comes up in many of my meetings is concern about the 

increased amount of M&A activity in the semiconductor industry. While the actual 

number of mergers and acquisitions is up only modesty in 2015 compared to prior 

history, the magnitude of announced deals is up dramatically. Historically, these 

changes simply add to the strength of the de facto standard leader in EDA in each 

tool category, so there are some wins and some losses for every supplier. 

* * * 

[HINCKLEY:] Fourth-quarter revenue is expected to be slightly over $440 

million, similar to the $439 million achieved in the fourth quarter of FY15. 

* * * 

[ANALYST:] And then Wally, you talked a bit about how some of the customers 

came in, they wanted to get more software so they renewed a little earlier in the 

cycle. I’m curious though why that didn’t impact the full-year view a little bit more. 

If they’re coming in and ordering more software than you thought or having to order 

sooner, shouldn’t that have impacted your full-year view a little more? 

[RHINES:] Well certainly it makes us feel better about the year, but as Greg 

reflected, the growth rate in contracts is not abnormally high. So we felt it was 

prudent to continue on the path we previously forecasted. 

* * * 

[ANALYST:] I just wanted to understand more so what drove the higher EPS for the 

year, and with that, how you would view your visibility to achieving the full-year 

guidance now versus a quarter ago? 

* * * 

[HINCKLEY:] As we see our business right now, what we are prepared to 

– albeit it is modest, a $3 million increase in revenues for the year, but it’s 

something that we feel we’re quite comfortable with. And we are now at a point, 

much like last quarter and this quarter, where most of incremental revenue goes 

down to operating income. So in our business, if costs are relatively fixed, 

somewhere around $1.5 million of revenue, pretax, creates $0.01 per share. So $3 

million more revenue in our forecast, $0.02 per share. 

41. Analysts were impressed with the Company’s second quarter FY16 financial results. 

Griffin Securities, for example, saw significant upside for the remainder of FY16 in Mentor 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 18 of 33
Page 19 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

Graphics’ second quarter FY16 results, in particular in the early and significant contract renewals 

and large number of bookings the Company reported: 

Mentor reported a material amount of revenue upside in its 2Q16, owing 

largely to early and sizeable software renewals – which translated into material 

earnings upside as well. Bookings were clearly above our estimate, though the 

product bookings for the fiscal year will turn out to be more or less the same as 

previously estimated. 

42. On August 21, 2015, the first day of trading following the after-market-hours press 

release and conference call of August 20, 2015, the Company’s stock price continued to trade at 

artificially inflated prices above $24.00 per share. 

43. Between October 9, 2015 and October 12, 2015, just two weeks before the end of the 

third quarter FY16, defendant Rhines sold 170,000 shares of Mentor Graphics stock at prices 

above $25.00 per share for proceeds of more than $4.3 million. 

44. On October 26, 2015, Seeking Alpha published a report, entitled “Mentor Graphics 

Growing Through The Roof,” which explained that Mentor Graphics’ growth showed no signs of 

abating. In particular, the analyst was impressed with “management[‘s] claim[]” that the Company 

was able to increase bookings in the second quarter of FY16 “due to customers renewing contracts to 

get more software ahead of schedule,” which suggested that demand for Mentor Graphics’ products 

continued to grow. 

45. Defendants’ statements, as described above in ¶¶26-27 and 30-40, were each 

materially false and misleading because defendants knew or deliberately disregarded, and failed to 

disclose, the following facts: 

(a) Mentor Graphics’ customers had announced and completed an unprecedented 

number of mergers and acquisitions in 2015 and earlier, resulting in the delaying or declining of 

purchases of the Company’s products, or demanding price concessions from the Company. IBM, for 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 19 of 33
Page 20 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

example, which had a “major contract” with Mentor Graphics, announced the sale of its 

microelectronics business to Global Foundries in a press release on October 20, 2014, which sale the 

two companies completed on July 1, 2015. 

(b) Demand for Mentor Graphics’ emulation products had declined as a result of 

the introduction of competitive products. This notwithstanding defendants’ assurances that it would 

be a “long time” before any competitor could release a significantly competitive virtual emulation 

product. 

(c) Early contract renewals and related bookings that had boosted financial results 

had the effect of moving expected bookings and revenue from future periods (in particular the 

second half of FY16) to earlier periods (the first half of FY16), and were not, as defendants reported, 

a sign that demand was robust and increasing, nor was Mentor Graphics “booked to capacity” so as 

to ensure a steady stream of revenue. 

(d) As a result of the foregoing, defendants lacked a reasonable basis for their 

positive statements about the Company, its earnings and prospects. 

46. Then on November 19, 2015, Mentor Graphics issued a press release announcing 

disappointing financial results for its third quarter of FY16 and substantially reducing its fourth 

quarter FY16 financial outlook – instead of $440 million in revenue for the fourth quarter of FY16 

and $0.47 EPS, the Company announced that its fourth quarter FY16 revenue forecast would be 

reduced by a whopping $104 million to $336 million: 

Mentor Graphic Reports Fiscal Third Quarter Results 

. . . Mentor Graphics Corporation today announced financial results for the 

company’s fiscal third quarter ended October 31, 2015. The company reported 

revenues of $291 million, non-GAAP earnings per share of $0.28, and GAAP 

earnings per share of $0.12. 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 20 of 33
Page 21 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

“Mentor achieved third-quarter guided results. . . . Active evaluations of 

Mentor’s Veloce emulator increased in the third quarter, but the time required for 

completion of evaluations also increased. This, along with semiconductor industry 

consolidations, is having a negative impact on our business. However, demand for 

EDA software for system design, particularly in the transportation industry, 

remains robust.” 

* * * 

“Semiconductor consolidation and delays in emulator decisions are now 

having an adverse impact on our ability to close business,” said Gregory K. 

Hinckley, president of Mentor Graphics. “Because we recognize revenue upfront on 

product sales, changes in market outlook and demand are reflected in real time in 

Mentor’s results. Nevertheless, with appropriate scaling of the business and 

continued attention to expenses, we expect to deliver FY16 non-GAAP operating 

margins consistent with our strategic objective.” 

Outlook 

For the fourth quarter of fiscal 2016, the company expects revenues of about 

$336 million, non-GAAP earnings per share of about $0.47 and GAAP earnings per 

share of approximately $0.32. For the full year fiscal 2016, the company expects 

revenues of about $1.18 billion, non-GAAP earnings per share of about $1.40, and 

GAAP earnings per share of approximately $0.63. 

47. Following the issuance of the press release, defendants held a conference call with 

analysts and investors to discuss the Company’s reported earnings and operations and its sharply 

reduced financial guidance. During the conference call, defendants explained that: (i) bookings were 

flat to down for all of Mentor Graphics’ products; (ii) a semiconductor industry consolidation had 

already impacted the Company’s Design to Silicon business; (iii) the anticipated release of a 

competitor’s product had already frozen demand for the Company’s hardware emulation products; 

and (iv) these poor business conditions were expected to continue and were also responsible for the 

Company’s dramatically reduced financial guidance. 

[RHINES:] There are two changes that will negatively impact our outlook 

for the fourth quarter of FY16 and cause us to reduce our guidance. First, we 

experienced a delay in decisions on adoption and expansion of emulation. And 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 21 of 33
Page 22 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

second, we were negatively affected by at least one of the semiconductor industry 

consolidations. 

. . . [T]he time required for completion of evaluations has been increasing, I 

believe due to anticipation of competitive product announcements during the 

quarter. 

* * * 

With regard to semiconductor industry restructuring, our third quarter growth 

in contract renewal value was affected by one major contract where a portion of the 

company was spun off from the parent. While the parent company executed an 

early renewal contract for the portion of the business they retained, we expect the 

renewal of the contract for the portion of the business that was spun off will not be 

concluded until the fourth quarter. 

* * * 

[HINCKLEY:] Total bookings were down 20% year-over-year and were flat to 

down across all product categories. After two consecutive quarters of record 

growth, Design to Silicon, which includes our Calibre product family, was down 

35% . . . .

Scalable Verification was down 25%. It’s probable that a competitor’s 

recent announcement of the release of their next generation emulation product has 

temporarily frozen activity in that market. 

* * * 

Guidance. Appropriate longer than our typical guidance, our fourth 

quarter and FY16 guidance reflects three challenges. First, there has been an 

unprecedented level of semiconductor M&A activity recently, approaching $100 

billion of announced transactions in the past 12 months, well over 10% of the 

global IC industry’s market capitalization. This is on top of a challenging demand 

environment for ICs. 

* * * 

Second, immediate demand for emulation has stalled as the result of the 

expected introduction of competitive products. 

* * * 

Taking into account these challenges, we are reducing fourth quarter and 

FY16 guidance. For the fourth quarter of FY16, we are now forecasting revenue to 

be approximately $336 million and non-GAAP and GAAP earnings per share of 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 22 of 33
Page 23 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

about $0.47 and $0.32, respectively. For the full year, we are projecting revenue of 

approximately $1.18 billion, with non-GAAP and GAAP earnings per share of $1.40 

and $0.63, respectively. 

48. Following the publication of the Company’s November 19, 2015 financial results, 

The Wall Street Journal reported at 6:03 p.m. EST on November 19, 2015, in an article entitled 

“Mentor Graphics Shares Plunge Amid Lower Forecast, Quarterly Profit,” that the Company’s stock 

price was declining because of the poor third quarter FY16 financial results, lowered guidance and 

what that revealed about the Company’s performance and prospects: 

Shares of Mentor Graphics plunged as the company slashed its profit and 

revenue outlooks, said it was having problems closing business and reported that 

profit in its latest quarter declined. 

The stock fell 23% after market hours to $21.42, which would be its lowest 

level since January. 

For the fourth quarter, Mentor projected adjusted earnings per share of about 

47 cents and revenue of about $336 million, far lower than analysts’ expectations of 

97 cents and $439 million. 

49. That same day, on November 19, 2015, Pacific Crest Securities issued an analyst 

report entitled “Mentor Graphics Corp.: Impact of Semiconductor Consolidation Could Linger; 

Downgrading to Sector Weight.” In the report, Pacific Crest described Mentor Graphics’ 

explanation for the drastically lowered guidance as “puzzling,” explaining that the numbers did not 

add up: 

Mentor Graphics Corp. 

Impact of Semiconductor Consolidation Could Linger; Downgrading to Sector 

Weight 

* * * 

Results in line, but guidance meaningfully lower. Mentor cited delayed adoption of 

emulation, impact from consolidation and currency as reasons for lower guidance. 

During the quarter, Cadence released its new emulation tool. . . . Mentor said it has 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 23 of 33
Page 24 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

not lost any customers, so the magnitude of negative impact from consolidation is 

puzzling. 

* * * 

 Mentor’s FQ4 shortfall of $105 million is a significant miss. Taking out 

currency impact, Mentor still had $92 million shortfall, per our estimates. 

* * * 

Mentor lowered its FQ4 guidance significantly by $105 million. The 

company cited delayed adoption of emulation, impact from consolidation and 

currency as the reasons for the lower guidance. Cadence released its new emulation 

tool during the quarter. Mentor said this led customers to delay decisions around 

emulation in anticipation of Cadence’s release. 

The company said revenue was down $25 million y/y due to FX. Assuming 

50% less currency impact in FQ4 (a $13 million negative impact) still leaves a $92 

million shortfall due to emulation and lower core EDA sales. 

Then assuming about $42 million adverse impact from emulation means core 

EDA sales could be down $50 million. (Our previous emulation revenue estimate for 

Mentor was about $145 million. Assuming a $42 million negative impact to 

emulation means emulation sales could be now down 29% compared with our 

previous estimate.) Since Mentor recognizes 60% revenue upfront, this would mean 

core EDA license sales could be down close to $83 million, which is a significant 

license shortfall, in our view. Mentor sounded confident when it said the company 

has not lost any customers, so the magnitude of negative impact from consolidation 

is puzzling. 

50. In the same report, Pacific Crest also explained that consolidation among the 

Company’s customers was not a short-term and minor risk, but rather that Mentor Graphics had 

failed to disclose a known, substantial, and likely long-term risk: 

Preliminary F2017 Guidance Was Meaningfully Lower Than Our Estimates 

Mentor guided growth for F2017 to low single digits. Mentor’s guidance 

implies that revenue could grow only $45 million y/y in F2017. Revenue growth 

could be even lower than the negative impact in FQ4. We are concerned that 

consolidation in the semiconductor industry could continue for some time; more 

semiconductor M&A deals were announced recently. This means consolidation 

could have more impact on Mentor in the coming years. 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 24 of 33
Page 25 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

51. On November 20, 2015, Mentor Graphics’ stock price plunged 36%, closing at 

$17.85 per share, down from the previous day’s close of $27.78 per share, on over 19.9 million 

shares traded, compared to only 602,000 on November 19, 2015. 

POST CLASS PERIOD EVENTS 

52. On November 23, 2015, Griffin Securities published a report that described the $104 

million decrease in Mentor Graphics’ revenue guidance as “a uniquely large revision.” The report 

explained that while Griffin Securities had observed some flattening in the Company’s bookings as 

far back as the first quarter and second quarter of FY16, the analyst was surprised by the “dramatic 

. . . shift” since. The report also expressed surprise that while defendants’ explanations for the 

revision were “entirely possible, of course,” they did not make much sense given defendants’ prior 

assurances that the Company’s pipeline of customers was strong and that any lost emulation business 

could only have represented a small portion of the revision: 

As can be seen in Charts 11-12, the bookings flattening was confirmed through 1Q16 

and 2Q16; we hadn’t anticipated however as dramatic a shift as we’ve now seen with 

respect to the fourth quarter. 

* * * 

The impairment of emulation orders was attributed to the effect of the 

anticipation of “competitive product enhancements” meaning of course Cadence 

Design Systems’ newly shipping Palladium Z1. Such delays by customers, in order 

to evaluate the new system, are entirely possible of course, though Mentor did note 

that it had in any event experienced a substantial increase in the number of 

companies – “more than 60” – evaluating Veloce, and it expects better results in the 

fourth quarter. In any event, the scale of the emulation business is such that it 

cannot have accounted for more than a small portion of the change in revenue 

guidance, with the large majority of it having to be in software. With respect to the 

semiconductor spin-off to which the company alluded, the most likely inference 

would IBM’s sale of its microelectronics business to Global Foundries, a transaction 

that closed in July 2015. To the extent that the bulk of the operation consisted of 

manufacturing, it would have been a customer for Mentor’s Design to Silicon 

segment at least (if not as well for other segments). Global too of course would have 

been an existing DtS customer, and now the issue has become the management of 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 25 of 33
Page 26 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

additional or redundant license capacity. The licenses for the spun-out business were 

not due to renew naturally in the third quarter, hence the negotiations must still be 

underway and as Mentor noted on its call “we expect the renewal of the contract for 

the portion of the business that was spun-off will not be concluded until the fourth 

quarter” (the value of that business, at least before the spin-out, may have been a few 

tens of millions of dollars in total contract value over what was likely a several year 

duration). 

53. On December 3, 2015, defendants filed the Company’s third quarter FY16 10-Q. The 

10-Q confirmed what investors and analysts had already surmised from defendants’ November 19, 

2015 reports and statements – Mentor Graphics’ problems were not isolated to one spun-off 

company and competition from one new competitor’s product. Rather, bookings were down 20% 

year over year, while the number of new customers was down 15%: 

Bookings during the first nine months of fiscal 2016 increased by 

approximately 5% compared to the first nine months of fiscal 2015 primarily due to 

the timing of term license contract renewals. Bookings for the three months ended 

October 31, 2015 decreased by approximately 20% compared to the three months 

ended October 31, 2014 primarily due to a decrease in term license contract 

renewals. Bookings are the value of executed orders during a period for which 

revenue has been or will be recognized within six months for software products and 

within twelve months for emulation hardware systems, professional services, and 

training. Ten customers accounted for approximately 40% of total bookings for the 

first nine months of fiscal 2016 and 2015. The number of new customers during the 

first nine months of fiscal 2016 decreased approximately 15% from the levels 

experienced during the first nine months of fiscal 2015. 

* * * 

System and software revenues decreased $(9.4) for the three months ended 

October 31, 2015 compared to the three months ended October 31, 2014, primarily 

due to a decrease in sales of emulation hardware systems. 

54. It was not the case that defendants lowered guidance, dramatically, only because of 

problems that they anticipated occurring in the fourth quarter FY16 or thereafter. As defendants 

themselves explained, the issues causing them to reduce fourth quarter FY16 guidance by $104 

million, or 25%, had already occurred: 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 26 of 33
Page 27 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

There are two changes that will negatively impact our outlook for the fourth 

quarter of fiscal 2016 and cause us to reduce our guidance. First we experienced a 

delay in decisions on adoption and expansion of emulation, and second, we were 

negatively affected by at least one of the semiconductor industry consolidations. 

See ¶47, supra. 

55. The consolidation defendants referenced – as Griffin Securities explained, IBM’s sale 

of its microelectronics business to Global Foundries – had been announced by IBM in a press release 

on October 20, 2014 and finalized in July 2015 (¶52). These were not shocks that unexpectedly 

manifested late in third quarter FY16, but known headwinds that defendants had acknowledged and, 

falsely and misleadingly, dismissed. 

LOSS CAUSATION/ECONOMIC LOSS 

56. During the Class Period, as detailed herein, defendants made false and misleading 

statements by misrepresenting the Company’s business and prospects and engaged in a scheme to 

deceive the market and a course of conduct that artificially inflated the price of Mentor Graphics 

common stock and operated as a fraud or deceit on Class Period purchasers of Mentor Graphics 

common stock. Later, when these defendants’ prior misrepresentations and fraudulent conduct 

became apparent to the market, the price of Mentor Graphics common stock fell precipitously, as the 

prior artificial inflation came out of the price over time. As a result of their purchases of Mentor 

Graphics common stock during the Class Period, plaintiff and other members of the Class suffered 

economic loss, i.e., damages, under the federal securities laws. 

CLASS ACTION ALLEGATIONS 

57. Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal Rules 

of Civil Procedure on behalf of all persons who purchased or otherwise acquired Mentor Graphics 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 27 of 33
Page 28 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

common stock during the Class Period (the “Class”). Excluded from the Class are defendants and 

their family members, directors and officers of Mentor Graphics and their families and affiliates. 

58. The members of the Class are so numerous that joinder of all members is 

impracticable. The disposition of their claims in a class action will provide substantial benefits to 

the parties and the Court. Mentor Graphics has more than 117 million shares of stock outstanding, 

owned by hundreds or thousands of persons. 

59. There is a well-defined community of interest in the questions of law and fact 

involved in this case. Questions of law and fact common to the members of the Class that 

predominate over questions that may affect individual Class members include: 

(a) Whether the 1934 Act was violated by defendants; 

(b) Whether defendants omitted and/or misrepresented material facts; 

(c) Whether defendants’ statements omitted material facts necessary in order to 

make the statements made, in light of the circumstances under which they were made, not 

misleading; 

(d) Whether defendants knew or recklessly disregarded that their statements were 

false and misleading; 

(e) Whether the price of Mentor Graphics common stock was artificially inflated; 

and 

(f) The extent of damage sustained by Class members and the appropriate 

measure of damages. 

60. Plaintiff’s claims are typical of those of the Class because plaintiff and the Class 

sustained damages from defendants’ wrongful conduct. 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 28 of 33
Page 29 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

61. Plaintiff will adequately protect the interests of the Class and has retained counsel 

who are experienced in class action securities litigation. Plaintiff has no interests which conflict 

with those of the Class. 

62. A class action is superior to other available methods for the fair and efficient 

adjudication of this controversy. 

NO SAFE HARBOR 

63. Mentor Graphics’ verbal “Safe Harbor” warnings accompanying its oral forwardlooking statements (“FLS”) issued during the Class Period were ineffective to shield those 

statements from liability. 

64. The defendants are also liable for any false or misleading FLS pleaded because, at the 

time each FLS was made, the speaker knew the FLS was false or misleading and the FLS was 

authorized and/or approved by an executive officer of Mentor Graphics who knew that the FLS was 

false. None of the historic or present tense statements made by defendants were assumptions 

underlying or relating to any plan, projection or statement of future economic performance, as they 

were not stated to be such assumptions underlying or relating to any projection or statement of future 

economic performance when made, nor were any of the projections or forecasts made by defendants 

expressly related to or stated to be dependent on those historic or present tense statements when 

made. 

APPLICABILITY OF PRESUMPTION OF RELIANCE: 

FRAUD ON THE MARKET 

65. Plaintiff will rely upon the presumption of reliance established by the fraud-on-themarket doctrine in that, among other things: 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 29 of 33
Page 30 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

(a) Defendants made public misrepresentations or failed to disclose material facts 

during the Class Period; 

(b) The omissions and misrepresentations were material; 

(c) The Company’s stock traded in an efficient market; 

(d) The misrepresentations alleged would tend to induce a reasonable investor to 

misjudge the value of the Company’s stock; and 

(e) Plaintiff and other members of the Class purchased Mentor Graphics common 

stock between the time defendants misrepresented or failed to disclose material facts and the time the 

true facts were disclosed, without knowledge of the misrepresented or omitted facts. 

66. At all relevant times, the market for Mentor Graphics common stock was efficient for 

the following reasons, among others: 

(a) As a regulated issuer, Mentor Graphics filed periodic public reports with the 

SEC; and 

(b) Mentor Graphics regularly communicated with public investors via 

established market communication mechanisms, including through regular dissemination of press 

releases on the major news wire services and through other wide-ranging public disclosures, such as 

communications with the financial press, securities analysts and other similar reporting services. 

COUNT I

For Violation of §10(b) of the 1934 Act and Rule 10b-5 

Against All Defendants 

67. Plaintiff incorporates ¶¶1-66 by reference. 

68. During the Class Period, defendants disseminated or approved the false statements 

specified above, which they knew or deliberately disregarded were misleading in that they contained 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 30 of 33
Page 31 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

misrepresentations and failed to disclose material facts necessary in order to make the statements 

made, in light of the circumstances under which they were made, not misleading. 

69. Defendants violated §10(b) of the 1934 Act and Rule 10b-5 in that they: 

(a) Employed devices, schemes and artifices to defraud; 

(b) Made untrue statements of material facts or omitted to state material facts 

necessary in order to make the statements made, in light of the circumstances under which they were 

made, not misleading; or 

(c) Engaged in acts, practices and a course of business that operated as a fraud or 

deceit upon plaintiff and others similarly situated in connection with their purchases of Mentor 

Graphics common stock during the Class Period. 

70. Plaintiff and the Class have suffered damages in that, in reliance on the integrity of 

the market, they paid artificially inflated prices for Mentor Graphics common stock. Plaintiff and 

the Class would not have purchased Mentor Graphics common stock at the prices they paid, or at all, 

if they had been aware that the market prices had been artificially and falsely inflated by defendants’ 

misleading statements. 

COUNT II

For Violation of §20(a) of the 1934 Act 

Against All Defendants 

71. Plaintiff incorporates ¶¶1-70 by reference. 

72. The Individual Defendants acted as controlling persons of Mentor Graphics within the 

meaning of §20(a) of the 1934 Act. By virtue of their positions with the Company, and ownership of 

Mentor Graphics stock, the Individual Defendants had the power and authority to cause Mentor 

Graphics to engage in the wrongful conduct complained of herein. Mentor Graphics controlled the 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 31 of 33
Page 32 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

Individual Defendants and all of its employees. By reason of such conduct, defendants are liable 

pursuant to §20(a) of the 1934 Act. 

PRAYER FOR RELIEF 

WHEREFORE, plaintiff prays for judgment and relief as follows: 

A. Determining that this action is a proper class action, designating plaintiff as Lead 

Plaintiff and certifying plaintiff as Class representative under Rule 23 of the Federal Rules of Civil 

Procedure and plaintiff’s counsel as Lead Counsel; 

B. Awarding plaintiff and the members of the Class damages and interest; 

C. Awarding plaintiff and the members of the Class their reasonable costs and expenses 

incurred in this action, including counsel fees and expert fees; and 

D. Such other and further relief as the Court may deem just and proper. 

JURY DEMAND 

Plaintiff hereby demands a trial by jury. 

Dated this 18th day of March, 2016. 

STOLL STOLL BERNE LOKTING 

& SHLACHTER P.C. 

By: s/ Jennifer S. Wagner 

Gary M. Berne, OSB No. 774077 

gberne@stollberne.com 

Jennifer S. Wagner, OSB No. 024470 

jwagner@stollberne.com

209 S.W. Oak Street, Suite 500 

Portland, OR 97204 

Telephone: (503) 227-1600 

Facsimile: (503) 227-6840 

And 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 32 of 33
Page 33 – COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS 

{SSBLS Main Documents/9999/001/00570754-1 } 

STOLL STOLL BERNE LOKTING & SHLACHTER P.C.

209 S.W. OAK STREET, SUITE 500

PORTLAND, OREGON 97204

TEL. (503) 227‐1600   FAX (503) 227‐6840

Shawn A. Williams pro hac vice admission 

forthcoming 

shawnw@rgrdlaw.com 

Kenneth J. Black, pro hac vice admission forthcoming

kennyb@rgrdlaw.com 

ROBBINS GELLER RUDMAN 

& DOWD LLP 

Post Montgomery Center 

One Montgomery Street, Suite 1800 

San Francisco, CA 94104 

Telephone: (415) 288-4545 

Facsimile: (415) 288-4534 

And 

Corey D. Holzer, pro hac vice admission forthcoming

cholzer@holzerlaw.com 

Marshall P. Dees, pro hac vice admission forthcoming

mdees@holzerlaw.com 

HOLZER & HOLZER, LLC 

1200 Ashwood Parkway, Suite 410 

Atlanta, GA 30338 

Telephone: (770) 392-0090 

Facsimile: (770) 392-0029 

Case 3:16-cv-00470-BR Document 1 Filed 03/18/16 Page 33 of 33