Exhibit 99.1
Mentor Graphics Reports Third Quarter Results Below Guidance;
Reaffirms FY2008 and FY2009 Guidance
WILSONVILLE, Ore.--(BUSINESS WIRE)--Nov. 5, 2007--Mentor Graphics
Corporation (NASDAQ: MENT) announced that third quarter fiscal 2008
results will be below guidance issued on August 23, 2007. Revenue is
expected to be approximately $185 million versus guidance of $200
million and non-GAAP earnings are expected to be slightly below
break-even as compared to a previously estimated $.10 per share. On a
GAAP basis, the company also expects a loss.
"While we are disappointed with these results, Mentor's bookings
for the quarter were strong and consistent with the assumptions
underlying our previous guidance. Veloce emulation bookings, for
example, tripled and we received our first significant order for our
newly acquired Pinnacle and Olympus place and route products. Revenue
was short of guidance because unique circumstances on several large
bookings caused revenue to lag bookings by a quarter," said Walden C.
Rhines, chairman and CEO of Mentor Graphics. "Because we see this
revenue deferred by only a quarter, Mentor reaffirms its fiscal 2008
and 2009 outlook."
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 revenue of $920
million, GAAP earnings per share of about $.78 and non-GAAP earnings
per share of approximately $1.22.
The company emphasized that the foregoing results are preliminary
and are subject to adjustments upon final closing of financial results
and completion of the quarterly review by independent accountants.
Mentor Graphics will release third quarter fiscal 2008 results after
the close of the market on Thursday, November 29, 2007.
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/.
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.
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.
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. 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.
MENTOR GRAPHICS CORPORATION
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UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP
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EARNINGS PER SHARE GUIDANCE
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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:
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FY 2008
-------
Diluted GAAP net earnings per share $0.55
Non-GAAP Adjustments:
Amortization of purchased intangible assets (1) 0.11
Amortization of other identified intangible assets (2) 0.10
Stock-based compensation (3) 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
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Non-GAAP net income $1.02
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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 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
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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:
-------
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
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Non-GAAP net income $1.22
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(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, 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