Exhibit 99.1
Mentor Graphics Reports Second
Quarter Results
WILSONVILLE, Ore.--(BUSINESS WIRE)--Aug. 23, 2007--Mentor Graphics
Corporation (NASDAQ:MENT) today announced second quarter revenue of
$205.7 million, up 15% over the prior second quarter. On a GAAP basis,
earnings were $.03 per share, up from a loss of $.01 in the year ago
second quarter, despite $4.1 million of in-process R&D charges related
to the Sierra Design Automation acquisition. On a non-GAAP basis,
earnings were $.15 per share, up from $.09 a year ago. These results
incorporate the change in the fiscal year with the second quarter
running from May 1 to July 31.
"During the quarter, we saw strength across all of our system
related product lines," said Walden C. Rhines, chairman and CEO of
Mentor Graphics. "In addition to strength in more traditional systems
design segments like FPGA and printed circuit board design, we also
saw significant strength in automotive design and electronic system
level (ESL) products."
Compared to the prior year second quarter, Integrated Systems
Design bookings grew 35%, New and Emerging bookings grew 5%, while
Scalable Verification was down 5% and IC Design to Silicon was down
25%. IC Design to Silicon is expected to strengthen notably in the
second half, based on a strong renewal pipeline.
Automotive networking wins during the quarter included a major
Tier 1 parts supplier, further sales to the Ford family of customers
and suppliers, and a major Chinese OEM.
During the quarter, the company acquired Sierra Design Automation,
a leading provider of high-performance place and route solutions.
Sierra's flagship product, Olympus-SOC(TM), provides the
next-generation place and route system that concurrently addresses
variations in lithography, process corners and operating modes
allowing designers to simultaneously solve for large numbers of
variables to achieve an optimal design quickly.
"We continue to see strength in our customer base with total new
customers up for the quarter and average contract values up sharply,"
said Gregory K. Hinckley, president of Mentor Graphics. "With our
excellent first-half results, as well as our visibility into our
second half business, we are confident in our outlook for fiscal 2008
and 2009."
Year on year, bookings for Europe were up 30%, Pacific Rim was
flat, North America was down 15%, and Japan was down 30%.
Guidance
For the third quarter, the company expects revenue of
approximately $200 million, GAAP earnings per share of about $.02, and
non-GAAP earnings per share of about $.10.
For the full fiscal year 2008, the company expects revenue of
approximately $860 million, GAAP earnings per share of about $.55 and
non-GAAP earnings per share of approximately $1.02.
Preliminary guidance for Fiscal 2009 is for revenues of $920
million, GAAP earnings per share of about $.78 and non-GAAP earnings
per share of approximately $1.22.
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 six months ended July 31, 2007 and June 30, 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 six months
ended July 31, 2007 is 42% after consideration of discrete
items. Without discrete items of $780 thousand, our GAAP tax
rate is 25%. Inclusive of discrete items, our full fiscal year
2008 GAAP tax rate is projected to be 30%. 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 over
$825 million and employs approximately 4,300 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 is a registered trademark and Olympus-SOC is a trademark
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) product bundling or 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 the
spending on the company's products by its customers due to cyclical
downturns; (iv) effects of the increasing volatility of foreign
currency fluctuations on the company's business and operating results;
(v) changes in accounting or reporting rules or interpretations;
(vi) the impact of tax audits by the IRS or other taxing authorities,
or changes in the tax laws, regulations or enforcement practices where
the company does business; (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
------------------- -------------------
July 31, June 30, July 31, June 30,
2007 2006 2007 2006
--------- --------- --------- ---------
Revenues:
System and software $123,691 $101,226 $237,549 $204,166
Service and support 82,049 77,207 158,654 150,589
--------- --------- --------- ---------
Total revenues 205,740 178,433 396,203 354,755
--------- --------- --------- ---------
Cost of revenues: (1)
System and software 7,354 3,559 11,842 7,874
Service and support 23,067 20,800 45,250 41,050
Amortization of purchased
technology 2,332 3,421 5,374 6,656
--------- --------- --------- ---------
Total cost of revenues 32,753 27,780 62,466 55,580
--------- --------- --------- ---------
Gross margin 172,987 150,653 333,737 299,175
--------- --------- --------- ---------
Operating expenses:
Research and development (2) 65,468 55,293 124,658 110,356
Marketing and selling (3) 75,139 69,334 147,699 136,305
General and administration (4) 23,293 22,876 46,233 43,795
Amortization of intangible
assets (5) 2,279 1,121 3,657 2,247
Special charges (6) (8) 917 4,045 6,153
In-process research and
development (7) 4,100 - 4,100 180
--------- --------- --------- ---------
Total operating expenses 170,271 149,541 330,392 299,036
--------- --------- --------- ---------
Operating income: 2,716 1,112 3,345 139
Other income, net 5,830 4,134 11,371 6,328
Interest expense (8) (4,941) (5,489) (10,059) (17,758)
--------- --------- --------- ---------
Income before income taxes 3,605 (243) 4,657 (11,291)
Provision for income taxes (9) 1,204 205 1,966 (4,983)
--------- --------- --------- ---------
Net income (loss) $ 2,401 $ (448) $ 2,691 $ (6,308)
========= ========= ========= =========
Net income (loss) per share:
Basic $ 0.03 $ (0.01) $ 0.03 $ (0.08)
========= ========= ========= =========
Diluted $ 0.03 $ (0.01) $ 0.03 $ (0.08)
========= ========= ========= =========
Weighted average number of shares
outstanding:
Basic 87,526 80,348 86,361 80,229
========= ========= ========= =========
Diluted 89,336 80,348 88,697 80,229
========= ========= ========= =========
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 Six Months Ended
------------------- -------------------
July 31, June 30, July 31, June 30,
2007 2006 2007 2006
--------- --------- --------- ---------
(1) Cost of revenues:
Stock-based compensation $ 200 $ 261 $ 361 $ 453
Amortization of purchased
intangible assets 2,332 3,421 5,374 6,656
--------- --------- --------- ---------
$ 2,532 $ 3,682 $ 5,735 $ 7,109
========= ========= ========= =========
(2) Research and development:
Stock-based compensation $ 1,438 $ 1,566 $ 2,687 $ 2,865
--------- --------- --------- ---------
$ 1,438 $ 1,566 $ 2,687 $ 2,865
========= ========= ========= =========
(3) Marketing and selling:
Stock-based compensation $ 1,154 $ 1,297 $ 2,121 $ 2,307
--------- --------- --------- ---------
$ 1,154 $ 1,297 $ 2,121 $ 2,307
========= ========= ========= =========
(4) General and administration:
Stock-based compensation $ 743 $ 490 $ 1,431 $ 930
--------- --------- --------- ---------
$ 743 $ 490 $ 1,431 $ 930
========= ========= ========= =========
(5) Amortization of intangible
assets:
Amortization of purchased
other intangible assets $ 2,279 $ 1,121 $ 3,657 $ 2,247
--------- --------- --------- ---------
$ 2,279 $ 1,121 $ 3,657 $ 2,247
========= ========= ========= =========
(6) Special charges:
Rebalance and
restructuring costs $ (8) $ 917 $ 4,045 $ 6,153
--------- --------- --------- ---------
$ (8) $ 917 $ 4,045 $ 6,153
========= ========= ========= =========
(7) In-process research and
development:
In-process research and
development $ 4,100 $ - $ 4,100 $ 180
--------- --------- --------- ---------
$ 4,100 $ - $ 4,100 $ 180
========= ========= ========= =========
(8) Interest expense:
Debt retirement costs $ - $ 34 $ 164 $ 5,905
--------- --------- --------- ---------
$ - $ 34 $ 164 $ 5,905
========= ========= ========= =========
(9) Provision for income taxes:
Income tax effects $ (1,489) $ (1,301) $ (2,895) $ (7,771)
--------- --------- --------- ---------
$ (1,489) $ (1,301) $ (2,895) $ (7,771)
========= ========= ========= =========
MENTOR GRAPHICS CORPORATION
- ----------------------------------------------------------------------
UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS
- ----------------------------------------------------------------------
(In thousands, except earnings per share data)
Three Months
Ended Six Months Ended
----------------- -----------------
July 31, June 30, July 31, June 30,
2007 2006 2007 2006
-------- -------- -------- --------
GAAP net income (loss) $ 2,401 $ (448) $ 2,691 $(6,308)
Non-GAAP adjustments:
Stock-based compensation: (1)
Cost of revenues 200 261 361 453
Research and development (R&D) 1,438 1,566 2,687 2,865
Marketing and selling 1,154 1,297 2,121 2,307
General and administration 743 490 1,431 930
Acquisition - related items:
Amortization of purchased
intangible assets
Cost of revenues (2) 2,332 3,421 5,374 6,656
Other operating expense (3) 2,279 1,121 3,657 2,247
In-process R&D (4) 4,100 - 4,100 180
Special charges (5) (8) 917 4,045 6,153
Interest expense (6) - 34 164 5,905
Income tax effects (7) (1,489) (1,301) (2,895) (7,771)
-------- -------- -------- --------
Total of non-GAAP adjustments 10,749 7,806 21,045 19,925
-------- -------- -------- --------
Non-GAAP net income $13,150 $ 7,358 $23,736 $13,617
======== ======== ======== ========
GAAP weighted average shares
(diluted) 89,336 80,348 88,697 80,229
Non-GAAP adjustment (8) - 901 - 647
-------- -------- -------- --------
Non-GAAP weighted average shares
(diluted) 89,336 81,249 88,697 80,876
======== ======== ======== ========
GAAP net income (loss) per share
(diluted) $ 0.03 $ (0.01) $ 0.03 $ (0.08)
Non-GAAP adjustments detailed
above 0.12 0.10 0.24 0.25
-------- -------- -------- --------
Non-GAAP net income per share
(diluted) $ 0.15 $ 0.09 $ 0.27 $ 0.17
======== ======== ======== ========
- ----------------------------------------------------------------------
(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 and six months ended July 31, 2007: Write off of $4,100 for
in-process research and development related to the Sierra
acquisition. Six months ended June 30, 2006: Write off of $180 for
in-process research and development related to the Evercad
acquisition.
(5) Three months ended July 31, 2007: Special charges consist of (i)
$714 of costs incurred for employee rebalances which includes
severance benefits, notice pay and outplacement services, (ii) $(721)
related to reoccupation of a previously abandoned facility, and (iii)
$(1) in other costs and adjustments, net.
Three months ended June 30, 2006: Special charges consist of (i) $352
of costs incurred for employee rebalances which includes severance
benefits, notice pay and outplacement services, (ii) $585 for the
abandonment of excess leased facility space, and (iii) $(20) in other
costs and adjustments, net.
Six months ended July 31, 2007: Special charges consist of (i) $4,683
of costs incurred for employee rebalances, which includes severance
benefits, notice pay and outplacement services, (ii) $(721) related
to reoccupation of a previously abandoned facility, (iii) $100 for a
wind-up services agreement related to the liquidation of a
subsidiary, and (iv) $(17) in other costs and adjustments, net.
Six months ended June 30, 2006: Special charges consist of (i) $3,944
of costs incurred for employee rebalances, which includes severance
benefits, notice pay and outplacement services, (ii) $1,625 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 related
to abandonment of excess leased facility space, and (iv) $(1) in
other costs and adjustments, net.
(6) Six months ended July 31, 2007: Premium and unamortized debt costs
related to the redemption of convertible debt. Three and six months
ended June 30, 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) Dilutive shares related to the stock options and employee stock
purchase plan, which were antidilutive under GAAP.
MENTOR GRAPHICS CORPORATION
- ----------------------------------------------------------------------
UNAUDITED RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP
FINANCIAL MEASURES
- ----------------------------------------------------------------------
(In thousands, except margin data)
Three Months Ended Six Months Ended
------------------- -------------------
July 31, June 30, July 31, June 30,
2007 2006 2007 2006
--------- --------- --------- ---------
GAAP gross margin $172,987 $150,653 $333,737 $299,175
Reconciling items to non-GAAP
gross margin
Stock-based compensation 200 261 361 453
Amortization of purchased
intangible assets 2,332 3,421 5,374 6,656
--------- --------- --------- ---------
Non-GAAP gross margin $175,519 $154,335 $339,472 $306,284
========= ========= ========= =========
Three Months Ended Six Months Ended
------------------- -------------------
July 31, June 30, July 31, June 30,
2007 2006 2007 2006
--------- --------- --------- ---------
GAAP gross margin as a percent
of total revenue 84% 84% 84% 84%
Non-GAAP adjustments detailed
above 1%2% 2% 2%
--------- --------- --------- ---------
Non-GAAP gross margin as a
percent of total revenue 85% 86% 86% 86%
========= ========= ========= =========
Three Months Ended Six Months Ended
------------------- -------------------
July 31, June 30, July 31, June 30,
2007 2006 2007 2006
--------- --------- --------- ---------
GAAP operating expenses $170,271 $149,541 $330,392 $299,036
Reconciling items to non-GAAP
operating expenses
Stock-based compensation (3,335) (3,353) (6,239) (6,102)
Amortization of purchased
other identified intangible
assets (2,279) (1,121) (3,657) (2,247)
Rebalance and restructuring
costs 8 (917) (4,045) (6,153)
In-process research and
development (4,100) - (4,100) (180)
--------- --------- --------- ---------
Non-GAAP operating expenses $160,565 $144,150 $312,351 $284,354
========= ========= ========= =========
Three Months Ended Six Months Ended
------------------- -------------------
July 31, June 30, July 31, June 30,
2007 2006 2007 2006
--------- --------- --------- ---------
GAAP operating income $ 2,716 $ 1,112 $ 3,345 $ 139
Reconciling items to non-GAAP
operating income
Stock-based compensation 3,535 3,614 6,600 6,555
Amortization of purchased
intangible assets 2,332 3,421 5,374 6,656
Amortization of purchased
other identified intangible
assets 2,279 1,121 3,657 2,247
Rebalance and restructuring
costs (8) 917 4,045 6,153
In-process research and
development 4,100 - 4,100 180
--------- --------- --------- ---------
Non-GAAP operating income $ 14,954 $ 10,185 $ 27,121 $ 21,930
========= ========= ========= =========
Three Months Ended Six Months Ended
------------------- -------------------
July 31, June 30, July 31, June 30,
2007 2006 2007 2006
--------- --------- --------- ---------
GAAP operating margin as a
percent of total revenue 1% 1% 1% 0%
Non-GAAP adjustments detailed
above 6% 5% 6% 6%
--------- --------- --------- ---------
Non-GAAP operating margin as a
percent of total revenue 7% 6% 7% 6%
========= ========= ========= =========
Three Months Ended Six Months Ended
------------------- -------------------
July 31, June 30, July 31, June 30,
2007 2006 2007 2006
--------- --------- --------- ---------
GAAP other income, net and
interest expense $ 889 $ (1,355) $ 1,312 $(11,430)
Reconciling items to non-GAAP other
income, net and interest expense
Convertible debt retirement
costs - 34 164 5,905
--------- --------- --------- ---------
Non-GAAP other income, net and
interest expense $ 889 $ (1,321) $ 1,476 $ (5,525)
========= ========= ========= =========
MENTOR GRAPHICS CORPORATION
- ----------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------
(In thousands - Unaudited)
July 31, Dec. 31,
2007 2006
---------- ----------
Assets
Current assets:
Cash and short-term investments $ 100,881 $ 129,857
Trade accounts receivable, net 96,765 117,003
Term receivables, short-term 173,516 146,123
Prepaid expenses and other 34,921 29,679
Deferred income taxes 10,254 12,549
---------- ----------
Total current assets 416,337 435,211
Property, plant and equipment, net 95,205 86,100
Term receivables, long term 132,430 162,157
Intangible assets, net 462,697 396,534
Other assets 54,600 46,237
---------- ----------
Total assets $1,161,269 $1,126,239
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 9,873 $ 7,181
Accounts payable 17,109 20,122
Income taxes payable 4,217 45,521
Accrued payroll and related liabilities 78,001 105,009
Accrued liabilities 36,471 34,938
Deferred revenue 128,096 116,237
---------- ----------
Total current liabilities 273,767 329,008
Long-term notes payable 246,450 249,852
Other long-term liabilities 54,416 14,312
---------- ----------
Total liabilities 574,633 593,172
---------- ----------
Stockholders' equity:
Common stock 509,641 430,847
Retained earnings 45,070 72,728
Accumulated other comprehensive income 31,925 29,492
---------- ----------
Total stockholders' equity 586,636 533,067
---------- ----------
Total liabilities and stockholders' equity $1,161,269 $1,126,239
========== ==========
MENTOR GRAPHICS CORPORATION
- ----------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------
(In thousands - Unaudited)
Three Months Ended Six Months Ended
------------------- -------------------
July 31, June 30, July 31, June 30,
2007 2006 2007 2006
--------- --------- --------- ---------
Operating activities
Net income (loss) $ 2,401 $ (448) $ 2,691 $ (6,308)
Depreciation and amortization
(1) 11,927 11,604 23,451 24,722
Other adjustments to reconcile:
Operating cash 5,099 1,675 4,012 2,852
Changes in working capital (2,879) 16,928 (24,671) 24,949
--------- --------- --------- ---------
Net cash provided by operating
activities 16,548 29,759 5,483 46,215
Investing activities
Net cash used in investing
activities (56,440) (37,486) (48,403) (50,504)
Financing activities
Net cash provided by (used in)
financing activities 7,706 (4,429) 13,049 (7,325)
Effect of exchange rate changes
on cash and cash equivalents (123) 388 803 539
--------- --------- --------- ---------
Net change in cash and cash
equivalents (32,309) (11,768) (29,068) (11,075)
Cash and cash equivalents at
beginning of period 98,473 75,346 95,232 74,653
--------- --------- --------- ---------
Cash and cash equivalents at
end of period $ 66,164 $ 63,578 $ 66,164 $ 63,578
========= ========= ========= =========
- ----------------------------------------------------------------------
(1) Depreciation and amortization includes a write-off of note
issuance costs in the amount of $0 and $383 for the three months
ending July 31, 2007 and June 30, 2006, respectively, and $62 and
$889 for the six months ending July 31, 2007 and June 30, 2006,
respectively.
MENTOR GRAPHICS CORPORATION
- ----------------------------------------------------------------------
SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION
- ----------------------------------------------------------------------
(In thousands, except for days sales outstanding - Unaudited)
Three Months Ended Six Months Ended
------------------ -------------------
July 31, June 30, July 31, June 30,
2007 2006 2007 2006
--------- -------- --------- ---------
Geographic Revenue:
North America $111,986 $79,676 $201,605 $143,364
54.4% 44.7% 50.9% 40.4%
Europe $ 41,270 $41,820 $ 86,816 $ 91,499
20.1% 23.4% 21.9% 25.8%
Japan $ 19,535 $24,825 $ 49,127 $ 63,806
9.5% 13.9% 12.4% 18.0%
Pac Rim $ 32,949 $32,112 $ 58,655 $ 56,086
16.0% 18.0% 14.8% 15.8%
Other Data:
Capital expenditures $ 11,092 $ 9,272 $ 20,154 $ 12,494
Days sales outstanding 118 118 - -
MENTOR GRAPHICS CORPORATION
- ----------------------------------------------------------------------
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:
------- -----
Q3 FY FY
2008 2008
------- -----
Diluted GAAP net earnings per share $ 0.02 $0.55
Non-GAAP Adjustments:
Amortization of purchased intangible assets (1) 0.03 0.11
Amortization of other identified intangible assets
(2) 0.03 0.10
Stock-based compensation (3) 0.04 0.15
Special Charges (4) - 0.04
In-process R&D (5) - 0.05
Expense associated with convertible debt (6) - 0.00
Income tax effects (7) (0.02) 0.02
------- -----
Non-GAAP net income $ 0.10 $1.02
======= =====
- ----------------------------------------------------------------------
(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 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 16 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 the first six months of
FY2008 consisting primarily of costs incurred for employee
rebalances, which included severance benefits, notice pay and
outplacement services.
(5) Excludes write off of in-process research and development incurred
during the first six months of FY2008 related to the Sierra
acquisition.
(6) Excludes amounts incurred during the first six months of FY2008
for the write-off of previously capitalized convertible debt costs
and net premium paid on the retirement 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.
MENTOR GRAPHICS CORPORATION
- ----------------------------------------------------------------------
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:
-----
FY
2009
-----
Diluted GAAP net earnings per share $0.78
Non-GAAP Adjustments:
Amortization of purchased intangible assets (1) 0.08
Amortization of other identified intangible assets (2) 0.10
Stock-based compensation (3) 0.16
Income tax effects (4) 0.10
-----
Non-GAAP net income $1.22
=====
- ----------------------------------------------------------------------
(1) Excludes amortization of purchased intangible assets acquired in
13 separate acquisition transactions. Purchased intangible assets are
amortized over two to five years. The guidance for fiscal year 2009
(FY2009) assumes no new acquisition transactions.
(2) Excludes amortization of other identified intangible assets
including trade names, employment agreements and customer
relationships acquired in 10 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 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.
CONTACT: Mentor Graphics
Ryerson Schwark
Public and Investor Relations Director
503-685-1462
ry_schwark@mentor.com
or
Dennis Weldon
Investor Relations and Business Development Director
503-685-1462
dennis_weldon@mentor.com