Exhibit 99.1
Mentor Graphics Reports Fourth Quarter Results
Delivers Record Bookings, Revenue and Earnings
WILSONVILLE, Ore.--(BUSINESS WIRE)--Feb. 1, 2007--Mentor Graphics
Corporation (Nasdaq: MENT) today announced record fourth quarter
revenue of $246.2 million, up 11% from the prior year fourth quarter.
On a GAAP basis, diluted earnings per share were $.36. Earnings per
share were $.55 on a non-GAAP basis. Bookings were up 20% over the
previous fourth quarter, as well as for the full year. For the year,
GAAP earnings per share were up from $.07 in 2005 to $.33 in 2006,
while non-GAAP earnings per share more than doubled from $.41 to $.86.
"2006 was a great year across all of our product lines," said
Walden C. Rhines, chairman and CEO of Mentor Graphics. "Customers'
needs for new design platforms, particularly in functional
verification, physical verification and yield enhancement, drove
strong growth. We expect these needs for new tools and technologies to
continue to fuel customer demand."
Compared to the fourth quarter of 2005, bookings more than doubled
in Scalable Verification, and were also up about 35% over the whole
year. New and Emerging bookings were up 30% for the quarter and 10%
for the year. IC Design to Silicon bookings, up 35% for the year, were
down 10% for the quarter. This reflected the concentration of systems
company contract renewals, rather than IC company contract renewals,
in the quarter. Integrated Systems Design bookings were up 5% for both
the quarter and for the year.
IC Design to Silicon continued to extend its lead in
design-for-manufacturing with the announcement of its third-generation
resolution enhancement technology product, Calibre(R) nmOPC. The
company also announced a relationship with Mercury Computer Systems to
create a hybrid computing platform based on the Cell BE processor to
accelerate the increasingly time-consuming task of computational
lithography.
For the quarter, strong renewals drove North America bookings up
50%, year on year, to record levels. Pacific Rim bookings were up 5%,
while Europe and Japan bookings were down 10% and 30% respectively as
a result of contract renewal timing. Split of revenue by geography was
55% North America, 25% Europe, 10% Pacific Rim, and 10% Japan.
"2006 saw significant improvement in operating margins as the
investments the company has made in new technologies served us well,"
said Gregory K. Hinckley, president of Mentor Graphics. "On top of the
record results of 2006, and in particular the fourth quarter, we also
exited the year with the second strongest book-to-bill the company has
ever had."
Special charges of $2.9 million were acquisition related.
The company is moving to a new fiscal year ending January 31st,
rather than December 31st. As a result, fiscal 2007 will be the month
of January 2007 and fiscal 2008 will run February 2007 to January
2008.
Guidance
For full year fiscal 2008, the company expects revenue of about
$830 million, GAAP earnings per share of approximately $.69 and
non-GAAP earnings per share of approximately $.95.
After the accounting close of fiscal 2007, Mentor will provide
further quarterly guidance.
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 gross margin, operating margin and net
income (loss), which we refer to as non-GAAP gross margin, operating
margin and net income (loss), respectively. These non-GAAP measures
are derived from the revenues of our product, maintenance and services
business operations and the costs directly related to the generation
of those revenues, 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. These non-GAAP measures exclude amortization of purchased
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.
Purchased 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.
During the twelve months ended December 31, 2006, $7.23 million 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
twelve months ended December 31, 2006 and 2005, $895 thousand and $800
thousand of gain on investment earnout income was excluded,
respectively. During the twelve months ended December 31, 2005, a
$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.
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.
Non-GAAP gross margin, operating margin and net income (loss) are
supplemental measures of our performance that are not required by, or
presented in accordance with, GAAP. Moreover, they should not be
considered as an alternative to any 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 gross
margin, operating margin and net income (loss) because we consider
them to be important supplemental measures of our operating
performance and profitability trends, and because we believe they give
investors useful information on period-to-period performance as
evaluated by management.
Management excludes from its non-GAAP measures 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 considers our core
operating performance to be that which can be affected by our managers
in any particular period through their management of the resources
that affect our underlying revenue and profit generating operations
during that period. 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 purchased 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 view
stock-based compensation as a key element of our employee
retention and long-term incentives, not as an expense that
should be an element of evaluating core operations in any
given period. 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 twelve
months ended December 31, 2006, is 28%. 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 purchased intangibles, though not directly
affecting our current cash position, represents 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 often 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 about
$800 million and employs approximately 4,250 people worldwide.
Corporate headquarters are located at 8005 S.W. Boeckman Road,
Wilsonville, Oregon 97070-7777. World Wide Web site:
http://www.mentor.com/.
Mentor Graphics and Calibre are registered trademarks of Mentor
Graphics Corporation. All other company or product names are the
registered trademarks or trademarks of their respective owners.
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) reductions in spending on the company's products by its
customers due to cyclical downturns; (ii) the company's ability to
successfully offer products and services that compete in the highly
competitive EDA industry; (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; (v) the impact of tax audits by the IRS or
other taxing authorities, or 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 Twelve Months Ended
December 31, December 31,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Revenues:
System and software $168,205 $145,837 $486,832 $410,264
Service and support 77,988 75,433 304,751 294,985
--------- --------- --------- ---------
Total revenues 246,193 221,270 791,583 705,249
--------- --------- --------- ---------
Cost of revenues: (1)
System and software 5,532 5,305 18,070 18,034
Service and support 21,283 21,196 83,405 81,039
Amortization of purchased
technology 3,328 3,150 13,270 11,639
--------- --------- --------- ---------
Total cost of revenues 30,143 29,651 114,745 110,712
--------- --------- --------- ---------
Gross margin 216,050 191,619 676,838 594,537
--------- --------- --------- ---------
Operating expenses:
Research and development (2) 56,357 53,610 227,161 212,676
Marketing and selling (3) 84,366 77,319 292,863 274,946
General and administration (4) 25,685 19,491 92,302 76,834
Amortization of intangible
assets (5) 1,249 1,080 4,664 4,233
Special charges (6) 635 4,248 7,147 6,777
Merger and acquisition related
charges (7) 2,260 - 2,440 750
--------- --------- --------- ---------
Total operating expenses 170,552 155,748 626,577 576,216
--------- --------- --------- ---------
Operating income (loss): 45,498 35,871 50,261 18,321
Other income, net (8) 5,371 6,375 17,207 16,893
Interest expense (9) (6,157) (5,873) (29,560) (21,920)
--------- --------- --------- ---------
Income before income taxes 44,712 36,373 37,908 13,294
Provision for income taxes
(10) 13,730 19,496 10,704 7,487
--------- --------- --------- ---------
Net income $ 30,982 $ 16,877 $ 27,204 $ 5,807
========= ========= ========= =========
Net income per share:
Basic $ 0.37 $ 0.21 $ 0.33 $ 0.07
========= ========= ========= =========
Diluted (a) $ 0.36 $ 0.21 $ 0.33 $ 0.07
========= ========= ========= =========
Weighted average number of shares
outstanding:
Basic 83,020 79,202 81,303 78,633
========= ========= ========= =========
Diluted (a) 86,974 80,144 82,825 80,133
========= ========= ========= =========
Refer to following page for a description of footnotes.
(a) Diluted net income per share includes $656 of convertible debt
interest, net of tax added back to GAAP net income for the three
months ended December 31, 2006. Diluted weighted average number
of shares outstanding includes the 2,351 corresponding dilutive
shares.
Listed below are the items included in net income that management
excludes in computing the non-GAAP financial measures referred to in
the text of this press release. Items are further described under
"Discussion of Non-GAAP Financial Measures".
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
(1) Cost of revenues:
Stock-based compensation $ 290 $ - $ 942 $ -
Amortization of purchased
intangible assets 3,328 3,150 13,270 11,639
--------- --------- --------- ---------
$ 3,618 $ 3,150 $ 14,212 $ 11,639
========= ========= ========= =========
(2) Research and development:
Stock-based compensation $ 1,774 $ - $ 5,940 $ -
Unusual charge related to
the purchase of
technology - - - 4,750
--------- --------- --------- ---------
$ 1,774 $ - $ 5,940 $ 4,750
========= ========= ========= =========
(3) Marketing and selling:
Stock-based compensation $ 1,451 $ - $ 4,791 $ -
--------- --------- --------- ---------
$ 1,451 $ - $ 4,791 $ -
========= ========= ========= =========
(4) General and administration:
Stock-based compensation $ 563 $ - $ 1,923 $ -
--------- --------- --------- ---------
$ 563 $ - $ 1,923 $ -
========= ========= ========= =========
(5) Amortization of intangible
assets:
Amortization of purchased
other intangible assets $ 1,249 $ 1,080 $ 4,664 $ 4,233
--------- --------- --------- ---------
$ 1,249 $ 1,080 $ 4,664 $ 4,233
========= ========= ========= =========
(6) Special charges:
Rebalance and
restructuring costs $ 635 $ 4,248 $ 7,147 $ 6,777
--------- --------- --------- ---------
$ 635 $ 4,248 $ 7,147 $ 6,777
========= ========= ========= =========
(7) Merger and acquisition
related charges:
In-process research and
development $ 2,260 $ - $ 2,440 $ 750
--------- --------- --------- ---------
$ 2,260 $ - $ 2,440 $ 750
========= ========= ========= =========
(8) Other income, net:
Gain on sale of building $ - $ - $ - $ (957)
Investment earnout payment
receipt - (331) (895) (800)
--------- --------- --------- ---------
$ - $ (331) $ (895) $ (1,757)
========= ========= ========= =========
(9) Interest expense:
Debt retirement costs $ 998 $ - $ 7,225 $ -
--------- --------- --------- ---------
$ 998 $ - $ 7,225 $ -
========= ========= ========= =========
(10) Provision for income
taxes:
Income tax effects $ 3,996 $ 11,927 $ (3,806) $ 740
--------- --------- --------- ---------
$ 3,996 $ 11,927 $ (3,806) $ 740
========= ========= ========= =========
MENTOR GRAPHICS CORPORATION
UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS
(In thousands, except earnings per share data)
Three Months Twelve Months
Ended Ended
December 31, December 31,
----------------- -----------------
2006 2005 2006 2005
-------- -------- -------- --------
GAAP net income $30,982 $16,877 $27,204 $ 5,807
Non-GAAP adjustments:
Stock-based compensation: (1)
Cost of revenues 290 - 942 -
Research and development (R&D) 1,774 - 5,940 -
Marketing and selling 1,451 - 4,791 -
General and administration 563 - 1,923 -
Acquisition - related items:
Amortization of purchased
intangible assets
Cost of revenues (2) 3,328 3,150 13,270 11,639
Other operating expense (3) 1,249 1,080 4,664 4,233
R&D Charge related to the
purchase of technology (4) - - - 4,750
In-process R&D (5) 2,260 - 2,440 750
Special charges (6) 635 4,248 7,147 6,777
Non-operating gains (7) - (331) (895) (1,757)
Interest expense (8) 998 - 7,225 -
Income tax effects (9) 3,996 11,927 (3,806) 740
-------- -------- -------- --------
Total of non-GAAP adjustments 16,544 20,074 43,641 27,132
-------- -------- -------- --------
Non-GAAP net income $47,526 $36,951 $70,845 $32,939
======== ======== ======== ========
GAAP weighted average shares
(diluted) 86,974 80,144 82,825 80,133
Non-GAAP adjustment (10) - 12,070 - -
-------- -------- -------- --------
Non-GAAP weighted average shares
(diluted) 86,974 92,214 82,825 80,133
======== ======== ======== ========
GAAP net income per share (diluted)$ 0.36 $ 0.21 $ 0.33 $ 0.07
Non-GAAP adjustments detailed
above (10) 0.19 0.22 0.53 0.34
-------- -------- -------- --------
Non-GAAP net income per share
(diluted) $ 0.55 $ 0.43 $ 0.86 $ 0.41
======== ======== ======== ========
- ----------------------------------------------------------------------
(1) Equity plan-related compensation expense recognized in accordance
with SFAS 123R, Share-Based Payment.
(2) Amount represents purchased intangible assets resulting from
acquisition transactions. Purchased intangible assets are
amortized over two to five years.
(3) Purchased other identified intangible assets are amortized to
other operating expense over two to five years. Purchased other
identified intangible assets includes tradenames, employment
agreements, customer relationships and deferred compensation
which are the result of acquisition transactions.
(4) Twelve months ended December 31, 2005: A charge of $4,750 for a
purchase of technology that had not reached technological
feasibility. This technology will be the basis for a new offering
in the Calibre product family which is expected to be introduced
in 2007.
(5) Three months ended December 31, 2006: Write off of in-process
research and development related to three acquisitions in the
fourth quarter: $280, $280, and $1,700 related to the Summit,
Next Device and Spiratech acquisitions, respectively.
Twelve months ended December 31, 2006: Write off of $2,440 for in-
process research and development, $180, related to the Evercad
acquisition in the first quarter and, $2,260 in the fourth
quarter.
Twelve months ended December 31, 2005: 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) Three months ended, December 31, 2006: Special charges consist of
(i) costs incurred related to the discontinuation of a product
line of $668, (ii) $74 incurred for employee rebalances
consisting of severance benefits, notice pay and outplacement
services, (iii) ($391) related to reoccupation of a previously
abandoned facility and (iv) $284 for the write-off of failed
acquisition costs.
Three months ended, December 31, 2005: Special charges consist of
(i) costs incurred related to the discontinuation of a product
line of $2,290, (ii) $1,242 incurred for employee rebalances
consisting of severance benefits, notice pay and outplacement
services, (iii) $551 for the abandonment of excess leased
facility space in North America, and (iv) $165 in other costs
incurred.
Twelve months ended December 30, 2006: Special charges consist of
(i) $4,407 of costs incurred for employee rebalances, which
include severance benefits, notice pay and outplacement services,
(ii) $2,293 related to the discontinuation of product lines which
included the abandonment of excess leased facility space, the
disposal of related assets and other costs, (iii) ($391) related
to a reoccupation of a previously abandoned facility, (iv) $361
for the write-off of failed acquisition costs, and (v) $477 in
other costs incurred.
Twelve months ended December 30, 2005: Special charges consist of
(i) $4,005 of costs incurred for employee rebalances, which
include severance benefits, notice pay and outplacement services,
(ii) $2,290 related to the discontinuation of a product line
which included the abandonment of excess leased facility space,
the disposal of related assets and other costs, (iii) $642
related to abandonment of excess leased facility space, (iv)
($550) reversal of previously recorded non-cancelable lease
payments due to an increase in the expected sublease income, and
(v) $390 in other costs incurred.
(7) Three months ended December 31, 2005: Investment earnout payment
received related to a sale of stock in 2003.
Twelve months ended December 31, 2006: Investment earnout payment
received related to a sale of stock in 2003.
Twelve months ended December 31, 2005: Investment earnout payments
of $800 received related to a sale of stock in 2003 and a $957
gain on sale of a building in the first quarter of 2005.
(8) Three and twelve months ended December 31, 2006: Premium and
unamortized debt costs related to the redemption of convertible
debt.
(9) Non-GAAP income tax expense adjustment reflects the application of
our assumed normalized effective 17% tax rate, instead of our
GAAP tax rate, to our GAAP pre-tax income and the application of
the 17% tax rate to our non-GAAP adjustments.
(10)Three months ended December 31, 2005: Non-GAAP weighted average
shares include dilutive shares related to the company's
convertible debt as required by EITF 04-8. Income per share
calculation includes $3,069 of convertible debt interest, net of
tax added back to non-GAAP net income to determine the non-GAAP
income per share (diluted) for the three months ended December
31, 2005.
MENTOR GRAPHICS CORPORATION
UNAUDITED RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP
FINANCIAL MEASURES
(In thousands, except margin data)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
GAAP gross margin $216,050 $191,619 $676,838 $594,537
Reconciling items to non-GAAP
gross margin
Stock-based compensation 290 - 942 -
Amortization of purchased
intangible assets 3,328 3,150 13,270 11,639
--------- --------- --------- ---------
Non-GAAP gross margin $219,668 $194,769 $691,050 $606,176
========= ========= ========= =========
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
GAAP gross margin as a percent
of total revenue 88% 87% 86% 84%
Non-GAAP adjustments detailed
above 1% 1% 1% 2%
--------- --------- --------- ---------
Non-GAAP gross margin as a
percent of total revenue 89% 88% 87% 86%
========= ========= ========= =========
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
GAAP operating expenses $170,552 $155,748 $626,577 $576,216
Reconciling items to non-GAAP
operating expenses
Stock-based compensation (3,788) - (12,654) -
Unusual charge related to the
purchase of technology - - - (4,750)
Amortization of purchased
other identified intangible
assets (1,249) (1,080) (4,664) (4,233)
Rebalance and restructuring
costs (635) (4,248) (7,147) (6,777)
In-process research and
development (2,260) - (2,440) (750)
--------- --------- --------- ---------
Non-GAAP operating expenses $162,620 $150,420 $599,672 $559,706
========= ========= ========= =========
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
GAAP operating income $ 45,498 $ 35,871 $ 50,261 $ 18,321
Reconciling items to non-GAAP
operating income
Stock-based compensation 4,078 - 13,596 -
Amortization of purchased
intangible assets 3,328 3,150 13,270 11,639
Unusual charge related to the
purchase of technology - - - 4,750
Amortization of purchased
other identified intangible
assets 1,249 1,080 4,664 4,233
Rebalance and restructuring
costs 635 4,248 7,147 6,777
In-process research and
development 2,260 - 2,440 750
--------- --------- --------- ---------
Non-GAAP operating income $ 57,048 $ 44,349 $ 91,378 $ 46,470
========= ========= ========= =========
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
GAAP operating margin as a
percent of total revenue 18% 16% 6% 3%
Non-GAAP adjustments detailed
above 5% 4% 6% 4%
--------- --------- --------- ---------
Non-GAAP operating margin as a
percent of total revenue 23% 20% 12% 7%
========= ========= ========= =========
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
GAAP other income, net and
interest expense $ (786) $ 502 $(12,353) $ (5,027)
Reconciling items to non-GAAP
other income, net and interest
expense
Gain on sale of building - - - (957)
Investment earnout payment
receipt - (331) (895) (800)
Convertible debt retirement
costs 998 - 7,225 -
--------- --------- --------- ---------
Non-GAAP other income, net and
interest expense $ 212 $ 171 $ (6,023) $ (6,784)
========= ========= ========= =========
MENTOR GRAPHICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands - Unaudited)
December 31, December 31,
2006 2005
------------ ------------
Assets
Current assets:
Cash and short-term investments $ 129,857 $ 114,410
Trade accounts receivable, net 117,003 101,593
Term receivables, short-term 146,123 133,273
Prepaid expenses and other 29,679 29,728
Deferred income taxes 12,549 13,127
------------ ------------
Total current assets 435,211 392,131
Property, plant and equipment, net 86,100 81,614
Term receivables, long term 162,157 131,676
Intangible assets, net 396,534 380,885
Other assets 46,237 34,631
------------ ------------
Total assets $ 1,126,239 $ 1,020,937
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 7,181 $ 11,858
Accounts payable 20,122 15,268
Income taxes payable 45,521 37,598
Accrued payroll and related liabilities 105,009 73,244
Accrued liabilities 34,938 29,362
Deferred revenue 116,237 106,453
------------ ------------
Total current liabilities 329,008 273,783
Long-term notes payable 249,852 282,188
Other long-term liabilities 14,312 16,826
------------ ------------
Total liabilities 593,172 572,797
------------ ------------
Stockholders' equity:
Common stock 430,847 381,962
Retained earnings 72,728 45,524
Accumulated other comprehensive income 29,492 20,654
------------ ------------
Total stockholders' equity 533,067 448,140
------------ ------------
Total liabilities and stockholders'
equity $ 1,126,239 $ 1,020,937
============ ============
MENTOR GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Operating activities
Net income $ 30,982 $ 16,877 $ 27,204 $ 5,807
Depreciation and amortization
(1) 11,735 10,941 47,577 44,466
Other adjustments to reconcile:
Operating cash 6,428 (11,449) 9,877 (13,856)
Changes in working capital (26,763) 1,645 (5,800) 8,242
--------- --------- --------- ---------
Net cash provided by operating
activities 22,382 18,014 78,858 44,659
Investing activities
Net cash used in investing
activities (15,736) (8,242) (65,043) (55,682)
Financing activities
Net cash provided by (used in)
financing activities (8,111) 5,082 (6,613) 18,918
Effect of exchange rate changes
on cash and cash equivalents 369 778 1,176 (1,158)
--------- --------- --------- ---------
Net change in cash and cash
equivalents (1,096) 15,632 8,378 6,737
Cash and cash equivalents at
beginning of period 84,127 59,021 74,653 67,916
--------- --------- --------- ---------
Cash and cash equivalents at
end of period $ 83,031 $ 74,653 $ 83,031 $ 74,653
========= ========= ========= =========
- ----------------------------------------------------------------------
(1) Depreciation and amortization includes a write-off of note
issuance costs in the amount of $304 during the three months ended
December 31, 2006, and $2,711 and $397 for the twelve months ending
December 31, 2006 and 2005, respectively.
MENTOR GRAPHICS CORPORATION
SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION
(In thousands, except for days sales outstanding - Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Geographic Revenue:
Americas $134,749 $100,653 $364,088 $304,554
54.8% 45.5% 46.1% 43.2%
Europe $ 65,549 $ 74,431 $204,364 $215,047
26.6% 33.7% 25.8% 30.5%
Japan $ 19,514 $ 20,227 $117,517 $ 99,301
7.9% 9.1% 14.8% 14.1%
Pac Rim $ 26,381 $ 25,959 $105,614 $ 86,347
10.7% 11.7% 13.3% 12.2%
Other Data:
Capital expenditures $ 9,909 $ 8,960 $ 29,289 $ 26,246
Days sales outstanding 96 96 - -
MENTOR GRAPHICS CORPORATION
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP
EARNINGS PER SHARE GUIDANCE
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:
---------
FY 2008
---------
Diluted GAAP net earnings per share $ 0.69
Non-GAAP Adjustments:
Amortization of purchased intangible assets (1) 0.09
Amortization of other identified intangible assets (2) 0.06
Stock-based compensation (3) 0.16
Income tax effects (4) (0.05)
---------
Non-GAAP net income $ 0.95
=========
- ----------------------------------------------------------------------
(1) Excludes amortization of purchased intangible assets acquired in
20 separate acquisition transactions. Purchased intangible assets are
amortized over two to five years. The guidance for 2008 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 14 separate acquisition transactions. Other
identified intangible assets are amortized over two to five years.
(3) Excludes equity plan-related compensation expense recognized in
accordance with SFAS 123R, Share-Based Payment.
(4) 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 and tax effect on non-GAAP adjustments.
CONTACT: Mentor Graphics
Public and Investor Relations Director
Ryerson Schwark, 503-685-1462
ry_schwark@mentor.com
or
Investor Relations and Business Development Director
Dennis Weldon, 503-685-1462
dennis_weldon@mentor.com