Exhibit 99.1
Mentor Graphics Reports Strong Second Quarter Results, Raises Guidance
WILSONVILLE, Ore.--(BUSINESS WIRE)--July 20, 2006--Mentor Graphics
Corporation (Nasdaq:MENT) today announced second quarter revenues of
$178.4 million, up 15% from the year ago quarter. Earnings per share
were $(.01) on a GAAP basis and $.09 on a non-GAAP basis. Bookings
were at near-record levels for a second quarter and up about 20% from
the second quarter of 2005.
"Mentor Graphics turned in another strong quarter," said Walden C.
Rhines, chairman and CEO of Mentor Graphics. "Calibre continued to
drive the business as design-for-manufacturing adoption strengthened.
Customer adoption of the 90nm and 65nm process nodes, as well as
prototyping at 45nm, is driving larger customer purchases."
IC Design to Silicon bookings doubled over the second quarter of
2005, while Scalable Verification and Integrated Systems Design were
both down about 5%, and New and Emerging was down 15%.
In preparation for the Design Automation Conference, the company
announced a brand new Calibre family platform that integrates
design-for-manufacturing functionality, while offering dramatically
higher performance. During the quarter, the company launched
significant enhancements to its Questa verification platform and its
Catapult C Synthesis tool.
Year over year, North American bookings climbed 25%, European and
Japanese bookings were down 5% and Pac Rim bookings grew 80%. Split of
revenue by geography was 45% North America, 25% Europe, 15% Japan and
15% PacRim. Split of revenue by product line was 35% IC Design to
Silicon, 25% Integrated Systems Design, 25% Scalable Verification and
15% New and Emerging.
"We continue to keep a tight lid on expenses, with GAAP operating
expense rising a modest 5% on a 15% rise in revenue," said Gregory K.
Hinckley, president of Mentor Graphics. "Our renewal outlook for the
second half of the year remains solid. This, combined with strong
execution in the second quarter, strengthens our confidence in the
business."
Special charges of $0.9 million were lease abandonment and
workforce related.
Guidance
For the third quarter, the company expects revenue of
approximately $180 million, GAAP earnings per share of $(.01) and
non-GAAP earnings per share of approximately $.06.
For full year 2006, the company expects revenue of $763 million,
GAAP earnings per share of $.19 and non-GAAP earnings per share of
approximately $.70, representing 8%, 170% and 70% growth from 2005,
respectively. This guidance reflects increases over prior guidance of
$1 million in revenues, $.03 per share in GAAP earnings and $.05 per
share in non-GAAP earnings.
Discussion of Non-GAAP Financial Measures
Mentor Graphics management evaluates and makes operating decisions
using various performance measures. In addition to our GAAP results,
we also consider adjusted net income (loss), which we refer to as
non-GAAP net income (loss). Non-GAAP net income (loss) is generally
based on the revenues of our product, maintenance and services
business operations and the costs of those operations, such as cost of
revenue, research and development, sales and marketing and general and
administrative expenses, that management considers in evaluating our
ongoing core operating performance. Non-GAAP net income (loss)
consists of net income (loss) excluding amortization of intangible
assets, merger and acquisition charges, special charges, equity
plan-related compensation expenses and charges and gains which
management does not consider reflective of our core operating
business. Intangible assets consist primarily of purchased technology,
backlog, trade names, customer relationships and employment
agreements. Merger and acquisition charges represent in-process
research and development charges related to products in development
that had not reached technological feasibility at the time of
acquisition. Special charges consist of post-acquisition rebalance
costs including severance and benefits, excess facilities and
asset-related charges, and also include strategic reallocations or
reductions of personnel resources. Equity plan-related compensation
expenses represent the fair value of all share-based payments to
employees, including grants of employee stock options, as required
under SFAS No. 123 (revised 2004), "Share-Based Payment" (SFAS 123R).
For purposes of comparability across other periods and against other
companies in our industry, non-GAAP net income (loss) is adjusted by
the amount of additional taxes or tax benefit that the company would
accrue using a normalized effective tax rate applied to the non-GAAP
results. In certain instances our GAAP results of operations may not
be profitable when our corresponding non-GAAP results are profitable
or vice versa. The number of shares on which our non-GAAP EPS is
calculated may therefore differ from the GAAP presentation due to the
anti-dilutive effect of stock options in a loss situation. In
addition, during the six months ended June 30, 2006, $5,905 thousand
of interest expense attributable to net retirement premiums and
write-offs of debt issuance costs related to the refinancing of
certain convertible debt was excluded as management does not consider
this transaction a part of its core operating performance. During the
six months ended June 30, 2005, $4.75 million purchase of technology
that had not yet reached technological feasibility, and a $957
thousand gain on the sale of a building were also excluded.
Non-GAAP net income (loss) is a supplemental measure of our
performance that is not required by, or presented in accordance with,
GAAP. Moreover, it should not be considered as an alternative to net
income, operating income or any other performance measure derived in
accordance with GAAP, or as an alternative to cash flow from operating
activities or as a measure of our liquidity. We present non-GAAP net
income (loss) because we consider it an important supplemental measure
of our performance.
Management excludes from its non-GAAP net income (loss) certain
recurring items to facilitate its review of the comparability of the
company's core operating performance on a period to period basis
because such items are not related to the company's ongoing core
operating performance as viewed by management. Management uses this
view of its operating performance for purposes of comparison with its
business plan and individual operating budgets and allocation of
resources. Additionally, when evaluating potential acquisitions,
management excludes the items described above from its consideration
of target performance and valuation. More specifically management
adjusts for the excluded items for the following reasons:
-- Amortization charges for our intangible assets are
inconsistent in amount and frequency and are significantly
impacted by the timing and magnitude of the company's
acquisition transactions. We therefore consider our operating
results without these charges when evaluating our core
performance. Generally, the most significant impact to
inter-period comparability of the company's net income (loss)
is in the first twelve months following the acquisition.
-- Special charges are primarily severance related and are due to
the company's reallocation or reduction of personnel resources
driven by modifications of business strategy or business
emphasis and by assimilation of acquired businesses. These
costs are originated based on the particular facts and
circumstances of business decisions and can vary in size.
Special charges also include excess facility and asset-related
restructuring charges. These charges are not specifically
included in the company's annual operating plan and related
budget due to the rapidly changing technology and competitive
environment in our industry. We therefore exclude them when
evaluating our managers' performance internally.
-- Merger and acquisition charges are in-process R&D charges,
which are largely disregarded as acquisition decisions are
made and which often result in charges that vary significantly
in size and amount. Management excludes these charges when
evaluating the impact of an acquisition transaction and our
ongoing performance.
-- Management supplementally considers performance without the
impact of stock-based compensation charges and believes this
information is useful to investors to compare our performance
to prior periods before SFAS 123R and to the performance of
other companies in our industry who present non-GAAP results
adjusted to exclude stock compensation expense. We therefore
exclude these charges for purposes of evaluating our core
performance.
-- Income tax expense (benefit) is adjusted by the amount of
additional tax expense or benefit that we would accrue if we
used non-GAAP results instead of GAAP results in the
calculation of our tax liability, taking into consideration
the company's long-term tax structure. We use a normalized
effective tax rate of 17%, which reflects the weighted average
tax rate applicable under the various tax jurisdictions in
which the company operates. This non-GAAP weighted average tax
rate is subject to change over time for various reasons,
including changes in the geographic business mix and changes
in statutory tax rates. Our GAAP tax rate for the six months
ended June 30, 2006, is 44%. This tax rate considers certain
mandatory and other non-scalable tax costs which may adversely
or beneficially affect the Company's tax rate depending upon
the Company's level of profitability.
Non-GAAP net income (loss) also facilitates comparison with other
companies in our industry, which use similar financial measures to
supplement their GAAP results. However, non-GAAP net income (loss) has
limitations as an analytical tool, and you should not consider this
measure in isolation or as a substitute for analysis of our results as
reported under GAAP. In the future the company expects to continue to
incur expenses similar to the non-GAAP adjustments described above and
exclusion of these items in our non-GAAP presentation should not be
construed as an inference that these costs are unusual, infrequent or
non-recurring. Some of the limitations in relying on non-GAAP net
income (loss) are:
-- Amortization of intangibles, though not directly affecting our
current cash position, represent the loss in value as the
technology in our industry evolves, is advanced or is replaced
over time. The expense associated with this loss in value is
not included in the non-GAAP net income (loss) presentation
and therefore does not reflect the full economic effect of the
ongoing cost of maintaining our current technological position
in our competitive industry, which is addressed through our
research and development program.
-- The company regularly engages in acquisition and assimilation
activities as part of its ongoing business and therefore we
will continue to experience special charges and merger and
acquisition charges on a regular basis. These costs also
directly impact available funds of the company.
-- The company's stock option and stock purchase plans are
important components of our incentive compensation
arrangements and will be reflected as expenses in our GAAP
results for the foreseeable future under SFAS 123R.
-- The company's income tax expense (benefit) will be ultimately
based on its GAAP taxable income and actual tax rates in
effect, which may differ significantly from the 17% rate
assumed in our non-GAAP presentation.
-- Other companies, including other companies in our industry,
may calculate non-GAAP net income (loss) differently than we
do, limiting its usefulness as a comparative measure.
About Mentor Graphics
Mentor Graphics Corporation (Nasdaq:MENT) is a world leader in
electronic hardware and software design solutions, providing products,
consulting services and award-winning support for the world's most
successful electronics and semiconductor companies. Established in
1981, the company reported revenues over the last 12 months of over
$725 million and employs approximately 4,050 people worldwide.
Corporate headquarters are located at 8005 S.W. Boeckman Road,
Wilsonville, Oregon 97070-7777. World Wide Web site:
http://www.mentor.com/.
Statements in this press release regarding the company's guidance
for future periods constitute "forward-looking" statements based on
current expectations within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements
of the Company or industry results to be materially different from any
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the
following: (i) the company's ability to successfully offer products
and services that compete in the highly competitive EDA industry,
including the risk that the company's technology, products or
inventory become obsolete; (ii) reductions in spending on the
company's products by its customers due to cyclical downturns or
initiatives to increase profitability; (iii) discounting of products
and services by competitors, which could force the company to lower
its prices or offer other more favorable terms to customers; (iv)
changes in accounting or reporting rules or interpretations,
limitations on repatriation of earnings, licensing and intellectual
property rights protection; (v) changes in tax laws, regulations or
enforcement practices where the company does business; (vi) effects of
the increasing volatility of foreign currency fluctuations on the
company's business and operating results; (vii) effects of
unanticipated shifts in product mix on gross margin; (viii) effects of
customer seasonal purchasing patterns and the timing of significant
orders may negatively or positively impact the company's quarterly
results of operations; and (ix) weakness in the US or other economies,
all as may be discussed in more detail under the heading "Risk
Factors" in the company's most recent Form 10-K or Form 10-Q. Given
these uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements. In addition,
statements regarding guidance do not reflect potential impacts of
mergers or acquisitions that have not been announced or closed as of
the time the statements are made. Mentor Graphics disclaims any
obligation to update any such factors or to publicly announce the
results of any revisions to any of the forward-looking statements to
reflect future events or developments.
MENTOR GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data - Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------
2006 2005 2006 2005
-------- ---------- -------- --------
Revenues:
System and software $101,226 $ 81,375 $204,166 $172,935
Service and support 77,207 73,461 150,589 146,235
-------- ---------- -------- --------
Total revenues 178,433 154,836 354,755 319,170
-------- ---------- -------- --------
Cost of revenues:
System and software 3,559 4,828 7,874 9,563
Service and support 20,800 20,339 41,050 40,247
Amortization of purchased
Technology 3,421 2,700 6,656 5,413
-------- ---------- -------- --------
Total cost of revenues 27,780 27,867 55,580 55,223
-------- ---------- -------- --------
Gross margin 150,653 126,969 299,175 263,947
-------- ---------- -------- --------
Operating expenses:
Research and development 55,293 56,193 110,356 107,503
Marketing and selling 69,334 65,324 136,305 132,899
General and administration 22,876 18,752 43,795 37,460
Amortization of intangible
assets 1,121 972 2,247 2,094
Special charges 917 1,264 6,153 2,577
Merger and acquisition related
charges - 750 180 750
-------- ---------- -------- --------
Total operating expenses 149,541 143,255 299,036 283,283
-------- ---------- -------- --------
Operating income (loss) 1,112 (16,286) 139 (19,336)
Other income, net 5,403 2,842 9,035 6,457
Interest expense (6,758) (5,638) (20,465) (10,669)
-------- ---------- -------- --------
Loss before income taxes (243) (19,082) (11,291) (23,548)
Provision (benefit) for
income taxes 205 (12,239) (4,983) (12,319)
-------- ---------- -------- --------
Net loss $ (448)$ (6,843)$ (6,308)$(11,229)
======== ========== ======== ========
Net loss per share:
Basic $ (0.01)$ (.09)$ (.08)$ (.14)
======== ========== ======== ========
Diluted $ (0.01)$ (.09)$ (.08)$ (.14)
======== ========== ======== ========
Weighted average number of
shares outstanding:
Basic and diluted 80,348 78,165 80,229 78,086
======== ========== ======== ========
MENTOR GRAPHICS CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data - Unaudited)
Three Months Ended June 30, 2006
GAAP Adjustments Non-GAAP
-------------------------------------
Revenues:
System and software $101,226 $ - $101,226
Service and support 77,207 - 77,207
-------- -------- --------
Total revenues 178,433 - 178,433
-------- -------- --------
Cost of revenues:
System and software 3,559 - 3,559
Service and support 20,800 (261)(1) 20,539
Amortization of purchased
technology 3,421 (3,421)(2) -
-------- -------- --------
Total cost of revenues 27,780 (3,682) 24,098
-------- -------- --------
Gross margin 150,653 3,682 154,335
-------- -------- --------
Gross margin
percentage 84.4% 86.5%
-------- --------
Operating expenses:
Research and development 55,293 (1,566)(1) 53,727
Marketing and selling 69,334 (1,297)(1) 68,037
General and administration 22,876 (490)(1) 22,386
Amortization of intangible
assets 1,121 (1,121)(3) -
Special charges 917 (917)(4) -
-------- -------- --------
Total operating
expenses 149,541 (5,391) 144,150
-------- -------- --------
Operating income
1,112 9,073 10,185
Other income, net 5,403 - 5,403
Interest expense (6,758) 34 (5) (6,724)
-------- -------- --------
Income (loss) before
income taxes (243) 9,107 8,864
Provision for income taxes 205 1,301 (6) 1,506
-------- -------- --------
Net income (loss) $ (448) $ 7,806 $ 7,358
======== ======== ========
Net income per share:
Basic $ (0.01) $ 0.09
======== ========
Diluted $ (0.01) $ 0.09
======== ========
Weighted average number of
shares outstanding:
Basic 80,348 80,348
======== ========
Diluted 80,348 901 (7) 81,249
- --------------------------------- ======== ========------ ========
(1) Equity plan-related compensation expense totaling $3,614
recognized in accordance with SFAS 123R, Share-Based Payment.
(2) Amortization of purchased technology acquired in 19 separate
acquisition transactions, 5 of which were completed in the last 12
months. Purchased technology is amortized over two to five years.
(3) Amortization of other identified intangible assets including
trade names, employment agreements and customer relationships
acquired in 13 separate acquisition transactions, 5 of which were
completed in the last 12 months. Other identified intangible
assets are amortized over two to five years.
(4) Special charges include (i) $352 of costs incurred for employee
rebalances, which include severance benefits, notice pay and
outplacement services, (ii) $585 charge for abandonment of excess
leased facility space, (iii) $(20) for other costs and
adjustments, net.
(5) Consists of the write-off of previously capitalized convertible
debt costs of $106 offset by a discount on the retirement of
convertible debt of $(72).
(6) Non-GAAP income tax expense adjustment is based upon the
assumption of a normalized effective rate of 17% on non-GAAP
income before income taxes.
(7) Dilutive shares related to the stock options and employee stock
purchase plan, which were anti-dilutive under GAAP.
MENTOR GRAPHICS CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data - Unaudited)
Three Months Ended June 30, 2005
GAAP Adjustments Non-GAAP
---------------------------------------
Revenues:
System and software $ 81,375 $ - $ 81,375
Service and support 73,461 - 73,461
------------------------ ---------
Total revenues 154,836 - 154,836
------------------------ ---------
Cost of revenues:
System and software 4,828 - 4,828
Service and support 20,339 - 20,339
Amortization of purchased
technology 2,700 (2,700)(1) -
------------------------ ---------
Total cost of revenues 27,867 (2,700) 25,167
------------------------ ---------
Gross margin 126,969 2,700 129,669
------------------------ ---------
Gross margin
percentage 82.0% 83.7%
------------- ---------
Operating expenses:
Research and development 56,193 (4,750)(2) 51,443
Marketing and selling 65,324 - 65,324
General and administration 18,752 - 18,752
Amortization of intangible
assets 972 (972)(3) -
Special charges 1,264 (1,264)(4) -
Merger and acquisition related
charges 750 (750)(5) -
------------------------ ---------
Total operating
expenses 143,255 (7,736) 135,519
------------------------ ---------
Operating loss
(16,286) 10,436 (5,850)
Other income, net 2,842 - 2,842
Interest expense (5,638) - (5,638)
------------------------ ---------
Loss before income
taxes (19,082) 10,436 (8,646)
Income tax benefit (12,239) 10,769 (6) (1,470)
------------------------ ---------
Net loss $(6,843) $(333) $(7,176)
======================== =========
Net loss per share:
Basic $(.09) $(.09)
============= =========
Diluted $(.09) $(.09)
============= =========
Weighted average number of
shares outstanding:
Basic 78,165 78,165
============= =========
Diluted 78,165 78,165
- -------------------------------=============-----------------=========
(1) Amortization of purchased technology acquired in 15 separate
acquisition transactions, 8 of which were completed in the 12
months ending June 30, 2005. Purchased technology is amortized
over two to five years.
(2) A charge of $4,750 for a purchase of technology that had not
reached technological feasibility.
(3) Amortization of other identified intangible assets including trade
names, employment agreements and customer relationships acquired
in 10 separate acquisition transactions, 6 of which were completed
in the 12 months ending June 30, 2005. Other identified intangible
assets are amortized over two to five years.
(4) Special charges consist of (i) $1,157 incurred for severance
benefits, notice pay and outplacement services related to employee
rebalances, (ii) a $91 charge for abandonment of excess leased
facility space, and (iii) $16 for other costs incurred.
(5) Merger and acquisition related charges consist of in-process R&D
charges related to the acquisitions of Volcano Communications
Technologies AB and Aptix Corporation.
(6) Non-GAAP income tax expense adjustment is based upon the
assumption of a normalized effective rate of 17% on non-GAAP
income before income taxes.
MENTOR GRAPHICS CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data - Unaudited)
Six Months Ended June 30, 2006
GAAP Adjustments Non-GAAP
---------------------------------
Revenues:
System and software $204,166 $ - $ 204,166
Service and support 150,589 - 150,589
-------- --------- ---------
Total revenues 354,755 - 354,755
-------- --------- ---------
Cost of revenues:
System and software 7,874 - 7,874
Service and support 41,050 (453)(1) 40,597
Amortization of purchased
technology 6,656 (6,656)(2) -
-------- --------- ---------
Total cost of revenues 55,580 (7,109) 48,471
-------- --------- ---------
Gross margin 299,175 7,109 306,284
-------- --------- ---------
Gross margin percentage 84.3% 86.3%
-------- ---------
Operating expenses:
Research and development 110,356 (2,865)(1) 107,491
Marketing and selling 136,305 (2,307)(1) 133,998
General and administration 43,795 (930)(1) 42,865
Amortization of intangible assets 2,247 (2,247)(3) -
Special charges 6,153 (6,153)(4) -
Merger and acquisition related
charges 180 (180)(5) -
-------- --------- ---------
Total operating expenses 299,036 (14,682) 284,354
-------- --------- ---------
Operating income
139 21,791 21,930
Other income, net 9,035 - 9,035
Interest expense (20,465) 5,905 (6) (14,560)
-------- --------- ---------
Income (loss) before income
taxes (11,291) 27,696 16,405
Provision (benefit) for income
taxes) (4,983) 7,771 (7) 2,788
-------- --------- ---------
Net income (loss) $ (6,308) $ 19,925 $ 13,617
======== ========= =========
Net income (loss) per share:
Basic $ (.08) $ .17
======== =========
Diluted $ (.08) $ .17
======== =========
Weighted average number of
shares outstanding:
Basic 80,229 80,229
======== =========
Diluted 80,229 647 (8) 80,876
- ------------------------------------- ======== =========--- =========
(1) Equity plan-related compensation expense totaling $6,555
recognized in accordance with SFAS 123R, Share-Based Payment.
(2) Amortization of purchased technology acquired in 20 separate
acquisition transactions, 5 of which were completed in the last 12
months. Purchased technology is amortized over two to five years.
(3) Amortization of other identified intangible assets including trade
names, employment agreements and customer relationships acquired
in 13 separate acquisition transactions, 5 of which were completed
in the last 12 months. Other identified intangible assets are
amortized over two to five years.
(4) Special charges include (i) $3,944 of costs incurred for employee
rebalances, which include severance benefits, notice pay and
outplacement services, (ii) $1,613 related to the abandonment of
excess leased facility space, the disposal of related assets and
other costs related to discontinuation of one of the company's
intellectual property product lines, (iii) $585 charge for
abandonment of excess leased facility space, and (iv) $11 in other
costs incurred.
(5) Write-off of $180 for in-process research and development related
to an acquisition.
(6) Consists of the write-off of previously capitalized
convertible debt costs of $2,260 and net premium paid on the
retirement of convertible debt of $3,645.
(7) Non-GAAP income tax expense adjustment is based upon the
assumption of a normalized effective rate of 17% on non-GAAP
income before income taxes.
(8) Dilutive shares related to the stock options and employee stock
purchase plan, which were anti-dilutive under GAAP.
MENTOR GRAPHICS CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data - Unaudited)
Six Months Ended June 30, 2005
GAAP Adjustments Non-GAAP
---------------------------------
Revenues:
System and software $172,935 $ - $ 172,935
Service and support 146,235 - 146,235
-------- --------- ---------
Total revenues 319,170 - 319,170
-------- --------- ---------
Cost of revenues:
System and software 9,563 - 9,563
Service and support 40,247 - 40,247
Amortization of purchased
technology 5,413 (5,413)(1) -
-------- --------- ---------
Total cost of revenues 55,223 (5,413) 49,810
-------- --------- ---------
Gross margin 263,947 5,413 269,360
-------- --------- ---------
Gross margin percentage 82.7% 84.4%
-------- ---------
Operating expenses:
Research and development 107,503 (4,750)(2) 102,753
Marketing and selling 132,899 - 132,899
General and administration 37,460 - 37,460
Amortization of intangible assets 2,094 (2,094)(3) -
Special charges 2,577 (2,577)(4) -
Merger and acquisition related
charges 750 (750)(5) -
-------- --------- ---------
Total operating expenses 283,283 (10,171) 273,112
-------- --------- ---------
Operating loss (19,336) 15,584 (3,752)
Other income, net 6,457 (957)(6) 5,500
Interest expense (10,669) - (10,669)
-------- --------- ---------
Loss before income taxes (23,548) 14,627 (8,921)
Income tax benefit (12,319) 10,802 (7) (1,517)
-------- --------- ---------
Net loss $(11,229) $ 3,825 $ (7,404)
======== ========= =========
Net loss per share:
Basic $ (.14) $ (.09)
======== =========
Diluted $ (.14) $ (.09)
======== =========
Weighted average number of
shares outstanding:
Basic 78,086 78,086
======== =========
Diluted 78,086 78,086
- ------------------------------------- ========------------- =========
(1) Amortization of purchased technology acquired in 15 separate
acquisition transactions, 8 of which were completed in the 12
months ending June 30, 2005. Purchased technology is amortized
over two to five years.
(2) A charge of $4,750 for a purchase of technology that had not
reached technological feasibility.
(3) Amortization of other identified intangible assets including trade
names, employment agreements and customer relationships acquired
in 10 separate acquisition transactions, 6 of which were completed
in the 12 months ending June 30, 2005. Other identified intangible
assets are amortized over two to five years.
(4) Special charges include (i) $2,348 incurred for severance
benefits, notice pay and outplacement services related to employee
rebalances, (ii) a $91 charge for abandonment of excess leased
facility space, and (iii) $138 for other costs incurred.
(5) Merger and acquisition related charges consist of in-process R&D
charges related to the acquisitions of Volcano Communications
Technologies AB and Aptix Corporation.
(6) Non-GAAP other net income excludes $957 gain on the sale of a
building.
(7) Non-GAAP income tax expense adjustment is based upon the
assumption of a normalized effective rate of 17% on non-GAAP
income before income taxes.
MENTOR GRAPHICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands - Unaudited)
As of As of
June 30, December 31,
2006 2005
- ----------------------------------------------------------------------
Assets
Current assets:
Cash and short-term investments $ 136,332 $ 114,410
Trade accounts receivable, net 101,358 101,593
Term receivables, short-term 132,003 133,273
Prepaid expenses and other 28,262 29,728
Deferred income taxes 13,448 13,127
----------- ------------
Total current assets 411,403 392,131
Property, plant and equipment, net 81,099 81,374
Term receivables, long-term 120,912 131,676
Intangibles, net 378,082 381,125
Other assets 41,239 34,631
----------- ------------
Total assets $ 1,032,735 $ 1,020,937
=========== ============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 9,651 $ 11,858
Accounts payable 12,095 15,268
Income taxes payable 32,083 37,598
Accrued payroll and related liabilities 72,040 73,244
Accrued liabilities 31,469 29,362
Deferred revenue 123,897 106,453
----------- ------------
Total current liabilities 281,235 273,783
Long-term notes payable 271,855 282,188
Other long-term liabilities 15,857 16,826
----------- ------------
Total liabilities 568,947 572,797
----------- ------------
Stockholders' equity:
Common stock 397,874 381,962
Retained earnings 39,216 45,524
Accumulated other comprehensive income 26,698 20,654
----------- ------------
Total stockholders' equity 463,788 448,140
----------- ------------
Total liabilities and stockholders'
equity $ 1,032,735 $ 1,020,937
=========== ============
MENTOR GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------
2006 2005 2006 2005
----------------------------------------
Operating Cash Flows:
Net income (loss) $(448) $(6,843) $(6,308) $(11,229)
Depreciation and amortization
(1) 11,604 10,765 24,722 22,085
Other adjustments to reconcile
Operating cash 1,675 689 2,852 (1,037)
Changes in working capital 16,928 2,412 24,949 5,630
----------------------------------------
Net cash provided by operating
activities 29,759 7,023 46,215 15,449
Net cash used in investing
activities (37,486) (11,857) (50,504) (21,044)
Net cash provided by (used in)
financing activities (4,429) (827) (7,325) 6,174
Effect of exchange rate
changes on cash and cash
equivalents 388 (1,898) 539 (2,691)
----------------------------------------
Net change in cash and cash
equivalents (11,768) (7,559) (11,075) (2,112)
Cash and cash equivalents at
beginning of period 75,346 73,363 74,653 67,916
----------------------------------------
Cash and cash equivalents at
end of period $63,578 $65,804 $63,578 $65,804
========================================
(1) Depreciation and amortization includes a write-off of note
issuance costs in the amount of $106 and $2,260 for the three and
six months ending June 30, 2006, respectively.
MENTOR GRAPHICS CORPORATION
SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION
(In thousands, except for days sales outstanding - Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
-----------------------------------
2006 2005 2006 2005
-------- ------- -------- --------
Geographic Revenue:
Americas $ 79,676 $71,112 $143,365 $142,199
44.7% 45.9% 40.4% 44.6%
Europe $ 41,820 $42,245 $ 91,499 $ 86,033
23.4% 27.3% 25.8% 26.9%
Japan $ 24,825 $23,663 $ 63,806 $ 56,085
13.9% 15.3% 18.0% 17.6%
Pac Rim $ 32,112 $17,816 $ 56,085 $ 34,853
18.0% 11.5% 15.8% 10.9%
Other Data:
Capital expenditures $ 9,272 $ 5,342 $ 12,494 $ 12,610
Days sales outstanding 118 131 - -
MENTOR GRAPHICS CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE
DILUTED NET EARNINGS PER SHARE
(Unaudited)
The following table reconciles the specific items excluded from GAAP
in the calculation of expected non-GAAP earnings per share for the
periods shown below:
Year ended
December 31,
Q3 2006 2006
----------------------
Diluted GAAP net earnings per share $(0.01) $ 0.19
Amortization of purchased technology (1) 0.03 0.13
Amortization of intangible assets (2) 0.01 0.04
Estimated impact of stock compensation expense
(3) 0.03 0.13
Special charges (4) - 0.06
Expense associate with convertible debt (5) - 0.06
Income tax adjustment (6) (0.00) 0.09
------ -------------
Diluted non-GAAP net earnings per share $ 0.06 $ 0.70
====== =============
(1) Excludes amortization of purchased technology acquired in 20
separate acquisition transactions. Purchased technology is
amortized over two to five years. The guidance for Q3 2006 and
2006 is net of tax and does not assume any new acquisition
transactions.
(2) Excludes amortization of other identified intangible assets
including trade names, employment agreements and customer
relationships acquired in 11 separate acquisition transactions.
Other identified intangible assets are amortized over two to five
years. The guidance for Q3 2006 and 2006 is net of tax and does
not assume any new acquisition transactions.
(3) Excludes the expense related to stock options and employee stock
purchase plans related to the adoption of SFAS 123R, effective Q1
2006, net of tax.
(4) Excludes special charges incurred during Q1 and Q2 2006 consisting
primarily of costs incurred for employee rebalances, which
included severance benefits, notice pay and outplacement services,
the abandonment of excess leased facility space and a loss on the
disposal of assets. The guidance for Q3 2006 and 2006 is net of
tax and does not assume any new special charges.
(5) Excludes amounts incurred during Q1 and Q2 2006 for the write-off
of previously capitalized convertible debt costs of and net
premium paid on the retirement of convertible debt, net of tax.
(6) Non-GAAP income tax expense adjustment is based upon the
assumption of a normalized effective rate of 17% on non-GAAP
income (loss) before income taxes.
CONTACT: Mentor Graphics Corporation
Ryerson Schwark, 503-685-1462
ry_schwark@mentor.com
or
Dennis Weldon, 503-685-1462
dennis_weldon@mentor.com