EXHIBIT 99.1
Mentor Graphics Reports First Quarter Results;
Bookings Up 15% Over Prior First Quarter
WILSONVILLE, Ore.--(BUSINESS WIRE)--May 24, 2007--Mentor Graphics
Corporation (Nasdaq: MENT) today announced first quarter revenue of
$190.5 million, up 8% from the prior year first quarter. On a GAAP
basis, diluted earnings per share were breakeven. Earnings per share
were $.12 on a non-GAAP basis, up 50% over the prior year first
quarter. Bookings were up 15% over the previous first quarter. These
results reflect the change in fiscal year with the first quarter
running February 1st to April 30th.
"The business momentum of 2006 has continued into 2007," said
Walden C. Rhines, chairman and CEO of Mentor Graphics. "Stronger
industry conditions, combined with company specific strengths, like
our new Veloce emulator and automotive products, should continue to
drive positive results in 2007."
Compared to the prior year first quarter, Integrated Systems
Design bookings grew 30%, Scalable Verification bookings were up over
20%, Design to Silicon was slightly up, and New and Emerging was up
45% on strong performance in Automotive, ESL (Electronic System
Level), and embedded software.
During the quarter, the company launched its next generation
Veloce(R) hardware-assisted verification platform. Already in use with
multiple customers, the platform offers as much as a 3 to 5 times
improvement over previous solutions. The company also launched Board
Station(R) XE, its next generation Board Station PCB design flow for
enterprise customers.
The strength in the company's automotive product lines continued
with further sales to the Ford family of companies, as well as wins at
two new Japanese truck manufacturers and new wins in China. Total
bookings from automotive customers nearly doubled over the year ago
quarter.
"The first quarter was strong despite a lack of significant lease
renewal activity," said Gregory K. Hinckley, president of Mentor
Graphics. "New customer accounts were up sharply in the first quarter,
which we see as a bullish sign. This, combined with a strong renewal
outlook for the second half of the year, gives us increased confidence
in our outlook."
North America bookings were up nearly 70%, year on year. Pacific
Rim bookings were up 15%, while Europe was down 5% and Japan bookings
were down 30%. Split of bookings by geography was North America 45%,
Europe 25%, Japan 15% and Pacific Rim 15%. Split of revenue by
geography was North America 45%, Europe 25%, Pacific Rim 15%, and
Japan 15%.
Special charges of $4.1 million were driven by strategic cost
reduction initiatives.
Guidance
For the second quarter, the company expects revenue of
approximately $200 million, GAAP earnings per share of $.01 to $.03,
and non-GAAP earnings per share of between $.08 and $.10.
For fiscal year 2008, revenue is expected to be approximately $844
million, unchanged from April guidance, but increased from initial
2008 guidance of $830 million.
Fiscal 2008 GAAP earnings per share are expected to be about $.56,
down from initial guidance of $.69. This change reflects a 35%
effective tax rate, an increase from prior estimates primarily because
of greater strength in the United States where the company's results
are subject to higher tax.
The company expects non-GAAP earnings per share of approximately
$1.01 in fiscal 2008, unchanged from April guidance, but increased
from initial 2008 guidance of $.95.
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, in-process research and development, 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. In-process research and development charges
represent 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 three months ended April 30, 2007 and March 31, 2006,
$164 thousand and $5.9 million, respectively of interest expense
attributable to net retirement premiums and write-offs of debt
issuance costs related to the refinancing or repurchase of certain
convertible debt was excluded as management does not consider these
transactions a part of its core operating performance.
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 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.
-- In-process research and development charges are largely
disregarded as acquisition decisions are made, as they 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 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 three months
ended April 30, 2007 is 73% after consideration of discrete
items. Without discrete items of $405 thousand, our GAAP tax
rate is 34% for the quarter. Inclusive of discrete items, our
full fiscal year 2008 GAAP tax rate is projected to be 35%.
The GAAP 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 4,200 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, Veloce and Board Station 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) the company's ability to successfully offer products
and services that compete in the highly competitive EDA industry; (ii)
discounting of products and services by competitors, which could force
the company to lower its prices or offer other more favorable terms to
customers; (iii) reductions in spending on the company's products by
its customers due to cyclical downturns (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
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CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------
(In thousands, except earnings per share data - Unaudited)
Three Months Ended
April 30, March 31,
2007 2006
--------- ---------
Revenues:
System and software $113,858 $102,940
Service and support 76,605 73,382
--------- ---------
Total revenues 190,463 176,322
--------- ---------
Cost of revenues: (1)
System and software 4,488 4,315
Service and support 22,183 20,250
Amortization of purchased technology 3,042 3,235
--------- ---------
Total cost of revenues 29,713 27,800
--------- ---------
Gross margin 160,750 148,522
--------- ---------
Operating expenses:
Research and development (2) 59,190 55,063
Marketing and selling (3) 72,560 66,971
General and administration (4) 22,940 20,919
Amortization of intangible assets (5) 1,378 1,126
Special charges (6) 4,053 5,236
In-process research and development (7) - 180
--------- ---------
Total operating expenses 160,121 149,495
--------- ---------
Operating income (loss): 629 (973)
Other income, net 5,541 2,194
Interest expense (8) (5,118) (12,269)
--------- ---------
Income (loss) before income taxes 1,052 (11,048)
Income tax expense (benefit) (9) 762 (5,188)
--------- ---------
Net income (loss) $ 290 $ (5,860)
========= =========
Net income (loss) per share:
Basic $ - $ (0.07)
========= =========
Diluted $ - $ (0.07)
========= =========
Weighted average number of shares outstanding:
Basic 85,158 80,108
========= =========
Diluted 88,083 80,108
========= =========
Refer to following page for a description of
footnotes.
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
April 30, March 31,
2007 2006
--------- ---------
(1) Cost of revenues:
Stock-based compensation $ 161 $ 192
Amortization of purchased intangible assets 3,042 3,235
--------- ---------
$ 3,203 $ 3,427
========= =========
(2) Research and development:
Stock-based compensation $ 1,249 $ 1,299
--------- ---------
$ 1,249 $ 1,299
========= =========
(3) Marketing and selling:
Stock-based compensation $ 967 $ 1,010
--------- ---------
$ 967 $ 1,010
========= =========
(4) General and administration:
Stock-based compensation $ 688 $ 440
--------- ---------
$ 688 $ 440
========= =========
(5) Amortization of intangible assets:
Amortization of purchased other intangible
assets $ 1,378 $ 1,126
--------- ---------
$ 1,378 $ 1,126
========= =========
(6) Special charges:
Rebalance and restructuring costs $ 4,053 $ 5,236
--------- ---------
$ 4,053 $ 5,236
========= =========
(7) In-process research and development:
In-process research and development $ - $ 180
--------- ---------
$ - $ 180
========= =========
(8) Interest expense:
Debt retirement costs $ 164 $ 5,871
--------- ---------
$ 164 $ 5,871
========= =========
(9) Income tax expense (benefit):
Income tax effects $ (1,406) $ (6,470)
--------- ---------
$ (1,406) $ (6,470)
========= =========
MENTOR GRAPHICS CORPORATION
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UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS
- ----------------------------------------------------------------------
(In thousands, except earnings per share data)
Three Months Ended
April 30, March 31,
2007 2006
----------------------
GAAP net income (loss) $ 290 $ (5,860)
Non-GAAP adjustments:
Stock-based compensation: (1)
Cost of revenues 161 192
Research and development (R&D) 1,249 1,299
Marketing and selling 967 1,010
General and administration 688 440
Acquisition - related items:
Amortization of purchased intangible assets
Cost of revenues (2) 3,042 3,235
Other operating expense (3) 1,378 1,126
In-process R&D (4) - 180
Special charges (5) 4,053 5,236
Interest expense (6) 164 5,871
Income tax effects (7) (1,406) (6,470)
----------------------
Total of non-GAAP adjustments 10,296 12,119
----------------------
Non-GAAP net income $ 10,586 $ 6,259
======================
GAAP weighted average shares (diluted) 88,083 80,108
Non-GAAP adjustment (8) - 224
----------------------
Non-GAAP weighted average shares (diluted) 88,083 80,332
======================
GAAP net income (loss) per share (diluted) $ - $ (0.07)
Non-GAAP adjustments detailed above 0.12 0.15
----------------------
Non-GAAP net income per share (diluted) $ 0.12 $ 0.08
======================
- ----------------------------------------------------------------------
(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) Three months ended March 31, 2006: Write off of $180 for in-
process research and development related to the Evercad
acquisition.
(5) Three months ended April 30, 2007: Special charges consist of (i)
$3,969 of costs incurred for employee rebalances consisting of
severance benefits, notice pay and outplacement services, (ii)
$100 for wind-up services agreement related to the liquidation of
a subsidiary, and (iii) ($16) resulting from the true up of
previously accrued items.
Three months ended March 31, 2006: Special charges consist of (i)
$3,592 of costs incurred for employee rebalances, which include
severance benefits, notice pay and outplacement services, (ii)
$1,613 as a result of residual actions from the discontinuation
of one of the Company's intellectual product lines which included
the abandonment of excess leased facility space, the disposal of
related assets and other costs related to the discontinuation,
and (iii) $31 in other costs incurred.
(6) Three months ended April 30, 2007 and March 31, 2006: Premium and
unamortized debt costs related to the redemption of convertible
debt.
(7) 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.
(8) Three months ended March 31, 2006: Dilutive shares related to the
stock options and employee stock purchase plan, which were
antidilutive under GAAP.
MENTOR GRAPHICS CORPORATION
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UNAUDITED RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP
FINANCIAL MEASURES
- ----------------------------------------------------------------------
(In thousands, except margin data)
Three Months Ended
April 30, March 31,
--------- ---------
2007 2006
--------- ---------
GAAP gross margin $160,750 $148,522
Reconciling items to non-GAAP gross margin
Stock-based compensation 161 192
Amortization of purchased intangible assets 3,042 3,235
--------- ---------
Non-GAAP gross margin $163,953 $151,949
========= =========
Three Months Ended
April 30, March 31,
--------- ---------
2007 2006
--------- ---------
GAAP gross margin as a percent of total revenue 84% 84%
Non-GAAP adjustments detailed above 2% 2%
--------- ---------
Non-GAAP gross margin as a percent of total
revenue 86% 86%
========= =========
Three Months Ended
April 30, March 31,
--------- ---------
2007 2006
--------- ---------
GAAP operating expenses $160,121 $149,495
Reconciling items to non-GAAP operating expenses
Stock-based compensation (2,904) (2,749)
Amortization of purchased other identified
intangible assets (1,378) (1,126)
Rebalance and restructuring costs (4,053) (5,236)
In-process research and development - (180)
--------- ---------
Non-GAAP operating expenses $151,786 $140,204
========= =========
Three Months Ended
April 30, March 31,
--------- ---------
2007 2006
--------- ---------
GAAP operating income (loss) $ 629 $ (973)
Reconciling items to non-GAAP operating income
Stock-based compensation 3,065 2,941
Amortization of purchased intangible assets 3,042 3,235
Amortization of purchased other identified
intangible assets 1,378 1,126
Rebalance and restructuring costs 4,053 5,236
In-process research and development - 180
--------- ---------
Non-GAAP operating income $ 12,167 $ 11,745
========= =========
Three Months Ended
April 30, March 31,
--------- ---------
2007 2006
--------- ---------
GAAP operating margin as a percent of total
revenue 0% -1%
Non-GAAP adjustments detailed above 6% 8%
--------- ---------
Non-GAAP operating margin as a percent of total
revenue 6% 7%
========= =========
Three Months Ended
April 30, March 31,
--------- ---------
2007 2006
--------- ---------
GAAP other income (loss), net and interest expense $ 423 $(10,075)
Reconciling items to non-GAAP other income, net
and interest expense
Convertible debt retirement costs 164 5,871
--------- ---------
Non-GAAP other income (loss), net and interest
expense $ 587 $ (4,204)
========= =========
MENTOR GRAPHICS CORPORATION
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CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------
(In thousands - Unaudited)
April 30, December 31,
2007 2006
----------- ------------
Assets
Current assets:
Cash and short-term investments $ 122,876 $ 129,857
Trade accounts receivable, net 132,305 117,003
Term receivables, short-term 146,098 146,123
Prepaid expenses and other 32,550 29,679
Deferred income taxes 9,883 12,549
----------- ------------
Total current assets 443,712 435,211
Property, plant and equipment, net 90,415 86,100
Term receivables, long term 126,891 162,157
Intangible assets, net 392,299 396,534
Other assets 53,052 46,237
----------- ------------
Total assets $1,106,369 $ 1,126,239
=========== ============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 12,039 $ 7,181
Accounts payable 15,352 20,122
Income taxes payable 3,599 45,521
Accrued payroll and related liabilities 65,288 105,009
Accrued liabilities 34,940 34,938
Deferred revenue 145,864 116,237
----------- ------------
Total current liabilities 277,082 329,008
Long-term notes payable 246,450 249,852
Other long-term liabilities 54,959 14,312
----------- ------------
Total liabilities 578,491 593,172
----------- ------------
Stockholders' equity:
Common stock 453,095 430,847
Retained earnings 42,669 72,728
Accumulated other comprehensive income 32,114 29,492
----------- ------------
Total stockholders' equity 527,878 533,067
----------- ------------
Total liabilities and stockholders'
equity $1,106,369 $ 1,126,239
=========== ============
MENTOR GRAPHICS CORPORATION
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CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------
(In thousands - Unaudited)
Three Months Ended
April 30, March 31,
--------- ----------
2007 2006
--------- ----------
Operating activities
Net income (loss) $ 290 $ (5,860)
Depreciation and amortization (1) 11,524 13,118
Other adjustments to reconcile:
Operating cash (1,087) 1,177
Changes in working capital (21,792) 8,004
--------- ----------
Net cash (used in) provided by operating
activities (11,065) 16,439
Investing activities
Net cash provided by (used in) investing
activities 8,037 (13,001)
Financing activities
Net cash provided by (used in) financing
activities 5,343 (2,896)
Effect of exchange rate changes on cash and cash
equivalents 926 151
--------- ----------
Net change in cash and cash equivalents 3,241 693
Cash and cash equivalents at beginning of period 95,232 74,653
--------- ----------
Cash and cash equivalents at end of period $ 98,473 $ 75,346
========= ==========
- ----------------------------------------------------------------------
(1) Depreciation and amortization includes a write-off of note
issuance costs in the amount of $62 during the three months ended
April 30, 2007, and $2,154 for the three months ended March 31,
2006, respectively.
MENTOR GRAPHICS CORPORATION
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SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION
- -----------------------------------------------------------------
(In thousands, except for days sales outstanding - Unaudited)
Three Months Ended
April 30, March 31,
-------------- -----------------
2007 2006
-------------- -----------------
Geographic Revenue:
Americas $ 89,619 $ 63,688
47.1% 36.1%
Europe $ 45,546 $ 49,679
23.9% 28.2%
Japan $ 29,592 $ 38,981
15.5% 22.1%
Pac Rim $ 25,706 $ 23,974
13.5% 13.6%
Other Data:
Capital expenditures $ 9,062 $ 3,222
Days sales outstanding 132 110
MENTOR GRAPHICS CORPORATION
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UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP
- ----------------------------------------------------------------------
EARNINGS PER SHARE GUIDANCE
- ----------------------------------------------------------------------
The following table reconciles management's estimates of the specific
items excluded from GAAP in the calculation of expected non-GAAP
earnings per share for the periods shown below:
-------------- ----------
Q2 FY 2008 FY 2008
-------------- ----------
Diluted GAAP net earnings per share $ .01 to .03 $ 0.56
Non-GAAP Adjustments:
Amortization of purchased intangible
assets (1) 0.02 0.09
Amortization of other identified
intangible assets (2) 0.02 0.06
Stock-based compensation (3) 0.04 0.16
Special Charges (4) - 0.05
Expense associated with convertible
debt (5) - 0.00
Income tax effects (6) (0.01) 0.09
-------------- ----------
Non-GAAP net income $ .08 to .10 $ 1.01
============== ==========
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(1) Excludes amortization of purchased intangible assets acquired in
19 separate acquisition transactions. Purchased intangible
assets are amortized over two to five years. The guidance for
fiscal year 2008 (FY2008) assumes no new acquisition
transactions.
(2) Excludes amortization of other identified intangible assets
including trade names, employment agreements and customer
relationships acquired in 15 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) Excludes special charges incurred during Q1 FY2008 consisting
primarily of costs incurred for employee rebalances, which
included severance benefits, notice pay and outplacement
services.
(5) Excludes amounts incurred during Q1 FY2008 for the write-off of
previously capitalized convertible debt costs and net premium
paid on the retirement of convertible debt.
(6) The income tax effects adjustment reflects the difference of tax
expense between the application of our assumed normalized
effective 17% non-GAAP tax rate to non-GAAP pre-tax income and
our projected 35% GAAP tax rate on GAAP pre-tax income.
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