Exhibit 99.1
Mentor Graphics Issues First Quarter Fiscal
Year 2008 Guidance: Raises Annual Guidance
WILSONVILLE, Ore.--(BUSINESS WIRE)--April 13, 2007--Mentor
Graphics Corporation (NASDAQ:MENT) today announced guidance for fiscal
quarter ending April 30, 2007, the first quarter of Fiscal 2008. At
the beginning of calendar 2007, the company changed its fiscal year to
the twelve months ending January 31 and, accordingly, had a one-month
2007 transition period. At that time, the company stated that until
completion of the accounting close for that period, the company would
not provide quarterly guidance. The company has now substantially
completed its accounting close for the one-month period ended January
31, 2007 and is in a position to provide guidance for first quarter
and full fiscal year 2008.
The company expects revenue of about $187 million, GAAP earnings
per share of approximately $.01 to $.03 and non-GAAP earnings per
share of approximately $.08 to $.10 for the fiscal quarter ending
April 30, 2008. Based on the strong bookings growth through the first
quarter, the company is also raising its full fiscal year 2008 revenue
guidance to approximately $844 million, with GAAP earnings per share
of approximately $.75 and non-GAAP earnings per share of approximately
$1.01.
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.
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.
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 for fiscal year 2006 of over $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/.
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
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP
EARNINGS PER SHARE GUIDANCE
The types of non-GAAP adjustments reflected below are consistent with
those applied by the Company in reporting its performance on a non-
GAAP basis for historical periods. For discussion of the reasons the
Company presents such adjustments and considers non-GAAP net income
to be a useful supplemental performance measure, and of the
limitations on non-GAAP performance measures, see Discussion of Non-
GAAP Financial Measures above.
The following table reconciles the estimates of specific items
excluded from GAAP earnings per share in the calculation of expected
non-GAAP earnings per share for the periods shown below:
------------- ---------
Q1 2008 FY 2008
------------- ---------
Diluted GAAP net earnings per share $ .01 to .03 $0.75
Non-GAAP Adjustments:
Amortization of purchased intangible assets
(1) 0.04 0.10
Amortization of other identified intangible
assets (2) 0.02 0.06
Stock-based compensation (3) 0.03 0.16
Income tax effects (4) (0.02) (0.06)
------------- ---------
Non-GAAP net income $ .08 to .10 $1.01
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(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
Ryerson Schwark, 503-685-1462
Public and Investor Relations Director
ry_schwark@mentor.com
or
Dennis Weldon, 503-685-1462
Investor Relations and Business Development Director
dennis_weldon@mentor.com