EXHIBIT 99.1
Mentor Graphics Reports Third Quarter Results
WILSONVILLE, Ore.--(BUSINESS WIRE)--Nov. 29, 2007--Mentor Graphics
Corporation (NASDAQ:MENT) today announced third quarter revenue of
$186.3 million. On a GAAP basis, earnings were a loss of ($.10) per
share. On a non-GAAP basis, earnings were break-even. Bookings were up
over 10% year over year. These results reflect the change in the
fiscal year with the third quarter running from August 1 to October
31.
"Bookings were strong in the quarter, and were, in fact, a record
for any non-fourth quarter. Contract renewals among our ten largest
orders increased 50% over the corresponding prior contract. We were
pleased in particular with the performance of our new Olympus-SoC(TM)
and Veloce(R) product lines both of which performed quite well in the
quarter," said Walden C. Rhines, chairman and CEO of Mentor Graphics.
"Unfortunately, revenue timing issues on certain key orders impacted
results for the quarter."
Compared to the prior year third quarter, Scalable Verification
bookings were up 25%, New and Emerging bookings were up 35%,
Integrated Systems Design bookings were flat, and IC Design to Silicon
bookings were down 5%. New and Emerging product line strength was
largely driven by new TestKompress(R) tool adoptions, though there was
also strength in embedded systems and electronic system level tools.
Year on year bookings for Pacific Rim were up 35%, for North America
were up 25%, for Japan were up 5%, and for Europe were down 15%.
"Mentor again reaffirms its guidance for fiscal 2008 and 2009,"
said Gregory K. Hinckley, president of Mentor Graphics. "We see mixed
economic signals. From our industry perspective, we see positive
forward indicators like venture company funding to fabless
semiconductor startups up sharply in the third quarter to the highest
level since 2001, our consulting bookings up 50%, training bookings up
95% and new customer logos up 10%. Nonetheless, our actual results
highly depend upon the condition of the U.S. economy where risks in
recent weeks seem to be growing. If the U.S. economy slows in the
fourth quarter, our ability to meet guidance will be challenged."
Guidance
For the full fiscal year 2008, the company expects revenue of $860
million, GAAP earnings per share of about $.50 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 $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, stock-based 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.
Stock-based 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 nine months ended October 31, 2007 and September 30,
2006, $452 thousand and $6.23 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 our core
operating performance on a period-to-period basis because such items
are not related to our 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 our 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 our net income (loss) is in the first
twelve months following the acquisition.
-- Special charges are primarily severance related and are due to
our 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 our
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
our 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 we
operate. 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 nine months ended October 31, 2007
is 9% after consideration of discrete items. Without discrete
items of $1,676 thousand, our GAAP tax rate is 31%. 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 our tax rate depending upon our 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 we expect 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.
-- We regularly engage in acquisition and assimilation activities
as part of our 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
our available funds.
-- Our 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.
-- Our income tax expense (benefit) will be ultimately based on
our 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 Graphics, TestKompress and Veloce are registered
trademarks 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 Nine Months Ended
------------------- -------------------
October September October September
31, 2007 30, 2006 31, 2007 30, 2006
--------- --------- --------- ---------
Revenues:
System and software $104,215 $114,461 $341,764 $318,627
Service and support 82,096 76,174 240,750 226,763
--------- --------- --------- ---------
Total revenues 186,311 190,635 582,514 545,390
--------- --------- --------- ---------
Cost of revenues: (1)
System and software 4,706 4,664 16,548 12,538
Service and support 24,453 21,072 69,703 62,122
Amortization of purchased
technology 2,139 3,286 7,513 9,942
--------- --------- --------- ---------
Total cost of revenues 31,298 29,022 93,764 84,602
--------- --------- --------- ---------
Gross margin 155,013 161,613 488,750 460,788
--------- --------- --------- ---------
Operating expenses:
Research and development (2) 64,034 60,448 188,692 170,804
Marketing and selling (3) 74,580 72,192 222,279 208,497
General and administration (4) 24,183 22,822 71,080 66,617
Amortization of intangible
assets (5) 2,704 1,168 6,361 3,415
Special charges (6) 1,115 359 5,160 6,512
In-process research and
development (7) - - 4,100 180
--------- --------- --------- ---------
Total operating expenses 166,616 156,989 497,672 456,025
--------- --------- --------- ---------
Operating income (loss): (11,603) 4,624 (8,922) 4,763
Other income, net (8) 5,026 5,508 16,397 11,836
Interest expense (9) (5,053) (5,645) (15,112) (23,403)
--------- --------- --------- ---------
Income (loss) before income
taxes (11,630) 4,487 (7,637) (6,804)
Income tax expense (benefit)
(10) (2,480) 1,957 (684) (3,026)
--------- --------- --------- ---------
Net income (loss) $ (9,150) $ 2,530 $ (6,953) $ (3,778)
========= ========= ========= =========
Net income (loss) per share:
Basic $ (0.10) $ 0.03 $ (0.08) $ (0.05)
========= ========= ========= =========
Diluted $ (0.10) $ 0.03 $ (0.08) $ (0.05)
========= ========= ========= =========
Weighted average number of shares
outstanding:
Basic 89,609 81,741 87,456 80,735
========= ========= ========= =========
Diluted 89,609 83,347 87,456 80,735
========= ========= ========= =========
Refer to following section 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 Nine Months Ended
------------------- -------------------
October September October September
31, 2007 30, 2006 31, 2007 30, 2006
--------- --------- --------- ---------
(1) Cost of revenues:
Stock-based compensation $ 281 $ 200 $ 642 $ 653
Amortization of purchased
intangible assets 2,139 3,286 7,513 9,942
--------- --------- --------- ---------
$ 2,420 $ 3,486 $ 8,155 $ 10,595
========= ========= ========= =========
(2) Research and development:
Stock-based compensation $ 2,240 $ 1,301 $ 5,179 $ 4,166
--------- --------- --------- ---------
$ 2,240 $ 1,301 $ 5,179 $ 4,166
========= ========= ========= =========
(3) Marketing and selling:
Stock-based compensation $ 1,557 $ 1,033 $ 3,678 $ 3,340
--------- --------- --------- ---------
$ 1,557 $ 1,033 $ 3,678 $ 3,340
========= ========= ========= =========
(4) General and administration:
Stock-based compensation $ 892 $ 430 $ 2,987 $ 1,360
--------- --------- --------- ---------
$ 892 $ 430 $ 2,987 $ 1,360
========= ========= ========= =========
(5) Amortization of intangible
assets:
Amortization of purchased
intangible assets $ 2,704 $ 1,168 $ 6,361 $ 3,415
--------- --------- --------- ---------
$ 2,704 $ 1,168 $ 6,361 $ 3,415
========= ========= ========= =========
(6) Special charges:
Rebalance and restructuring
costs $ 1,115 $ 359 $ 5,160 $ 6,512
--------- --------- --------- ---------
$ 1,115 $ 359 $ 5,160 $ 6,512
========= ========= ========= =========
(7) In-process research and
development:
In-process research and
development $ - $ - $ 4,100 $ 180
--------- --------- --------- ---------
$ - $ - $ 4,100 $ 180
========= ========= ========= =========
(8) Other income, net:
Investment earnout payment
receipt $ - $ (895) $ - $ (895)
--------- --------- --------- ---------
$ - $ (895) $ - $ (895)
========= ========= ========= =========
(9) Interest expense:
Debt retirement costs $ 288 $ 322 $ 452 $ 6,227
--------- --------- --------- ---------
$ 288 $ 322 $ 452 $ 6,227
========= ========= ========= =========
(10) Income tax expense
(benefit):
Income tax effects $ (2,410) $ (30) $ (5,518) $ (7,802)
--------- --------- --------- ---------
$ (2,410) $ (30) $ (5,518) $ (7,802)
========= ========= ========= =========
MENTOR GRAPHICS CORPORATION
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UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS
- ----------------------------------------------------------------------
(In thousands, except earnings per share data)
Three Months Ended Nine Months Ended
------------------ ------------------
October September October September
31, 30, 2006 31, 30, 2006
2007 2007
-------- --------- -------- ---------
GAAP net income (loss) $(9,150) $ 2,530 $(6,953) $(3,778)
Non-GAAP adjustments:
Stock-based compensation: (1)
Cost of revenues 281 200 642 653
Research and development
(R&D) 2,240 1,301 5,179 4,166
Marketing and selling 1,557 1,033 3,678 3,340
General and administration 892 430 2,987 1,360
Acquisition - related items:
Amortization of purchased
intangible assets
Cost of revenues (2) 2,139 3,286 7,513 9,942
Amortization of intangible
assets (3) 2,704 1,168 6,361 3,415
In-process R&D (4) - - 4,100 180
Special charges (5) 1,115 359 5,160 6,512
Other income (6) - (895) - (895)
Interest expense (7) 288 322 452 6,227
Income tax effects (8) (2,410) (30) (5,518) (7,802)
-------- --------- -------- ---------
Total of non-GAAP adjustments 8,806 7,174 30,554 27,098
-------- --------- -------- ---------
Non-GAAP net income (loss) $ (344) $ 9,704 $23,601 $23,320
======== ========= ======== =========
GAAP weighted average shares
(diluted) 89,609 83,347 87,456 80,735
Non-GAAP adjustment (9) - - 2,293 1,071
-------- --------- -------- ---------
Non-GAAP weighted average shares
(diluted) 89,609 83,347 89,749 81,806
======== ========= ======== =========
GAAP net income (loss) per share
(diluted) $ (0.10) $ 0.03 $ (0.08) $ (0.05)
Non-GAAP adjustments detailed
above 0.10 0.09 0.34 0.34
-------- --------- -------- ---------
Non-GAAP net income per share
(diluted) $ (0.00) $ 0.12 $ 0.26 $ 0.29
======== ========= ======== =========
- ----------------------------------------------------------------------
(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) Nine months ended October 31, 2007: Write off of $4,100 for in-
process research and development related to the Sierra acquisition.
Nine months ended September 30, 2006: Write off of $180 for in-
process research and development related to the Evercad acquisition.
(5) Three months ended October 31, 2007: Special charges consist of
$1,115 of costs incurred for employee rebalances which includes
severance benefits, notice pay and outplacement services.
Three months ended September 30, 2006: Special charges consist of $359
of costs incurred for employee rebalances which includes severance
benefits, notice pay and outplacement services.
Nine months ended October 31, 2007: Special charges consist of (i)
$5,798 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.
Nine months ended September 30, 2006: Special charges consist of (i)
$4,333 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, and
(iii) $554 in other costs incurred, which primarily includes non-
cancelable lease payments for one facility in Europe.
(6) Three and nine months ended September 30, 2006: Non-operating gain
related to investment earn out payment received from a sale of equity
interest in 2003.
(7) Three and nine months ended October 31, 2007: Premium and
unamortized debt costs related to the redemption of convertible debt.
Three and nine months ended September 30, 2006: Premium and
unamortized debt costs related to the redemption of convertible debt.
(8) 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.
(9) 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 percentages)
Three Months Ended Nine Months Ended
------------------- -------------------
October September October September
31, 2007 30, 2006 31, 2007 30, 2006
--------- --------- --------- ---------
GAAP gross margin $155,013 $161,613 $488,750 $460,788
Reconciling items to non-GAAP
gross margin
Stock-based compensation 281 200 642 653
Amortization of purchased
intangible assets 2,139 3,286 7,513 9,942
--------- --------- --------- ---------
Non-GAAP gross margin $157,433 $165,099 $496,905 $471,383
========= ========= ========= =========
Three Months Ended Nine Months Ended
------------------- -------------------
October September October September
31, 2007 30, 2006 31, 2007 30, 2006
--------- --------- --------- ---------
GAAP gross margin as a percent
of total revenue 83% 85% 84% 84%
Non-GAAP adjustments detailed
above 2% 2% 1% 2%
--------- --------- --------- ---------
Non-GAAP gross margin as a
percent of total revenue 85% 87% 85% 86%
========= ========= ========= =========
Three Months Ended Nine Months Ended
------------------- -------------------
October September October September
31, 2007 30, 2006 31, 2007 30, 2006
--------- --------- --------- ---------
GAAP operating expenses $166,616 $156,989 $497,672 $456,025
Reconciling items to non-GAAP
operating expenses
Stock-based compensation (4,689) (2,764) (11,844) (8,866)
Amortization of purchased
intangible assets (2,704) (1,168) (6,361) (3,415)
Rebalance and restructuring
costs (1,115) (359) (5,160) (6,512)
In-process research and
development - - (4,100) (180)
--------- --------- --------- ---------
Non-GAAP operating expenses $158,108 $152,698 $470,207 $437,052
========= ========= ========= =========
Three Months Ended Nine Months Ended
------------------- -------------------
October September October September
31, 2007 30, 2006 31, 2007 30, 2006
--------- --------- --------- ---------
GAAP operating income (loss) $(11,603) $ 4,624 $ (8,922) $ 4,763
Reconciling items to non-GAAP operating
income (loss)
Stock-based compensation 4,970 2,964 12,486 9,519
Amortization of purchased
intangible assets
Cost of revenues 2,139 3,286 7,513 9,942
Amortization of
intangible assets 2,704 1,168 6,361 3,415
Rebalance and restructuring
costs 1,115 359 5,160 6,512
In-process research and
development - - 4,100 180
--------- --------- --------- ---------
Non-GAAP operating income
(loss) $ (675) $ 12,401 $ 26,698 $ 34,331
========= ========= ========= =========
Three Months Ended Nine Months Ended
------------------- -------------------
October September October September
31, 2007 30, 2006 31, 2007 30, 2006
--------- --------- --------- ---------
GAAP operating margin as a
percent of total revenue -6% 2% -2% 1%
Non-GAAP adjustments detailed
above 6% 5% 7% 5%
--------- --------- --------- ---------
Non-GAAP operating margin as a
percent of total revenue 0% 7% 5% 6%
========= ========= ========= =========
Three Months Ended Nine Months Ended
------------------- -------------------
October September October September
31, 2007 30, 2006 31, 2007 30, 2006
--------- --------- --------- ---------
GAAP other income, net and
interest expense $ (27) $ (137) $ 1,285 $(11,567)
Reconciling items to non-GAAP other
income, net and interest expense
Investment earnout payment
receipt - (895) - (895)
Debt retirement costs 288 322 452 6,227
--------- --------- --------- ---------
Non-GAAP other income, net and
interest expense $ 261 $ (710) $ 1,737 $ (6,235)
========= ========= ========= =========
MENTOR GRAPHICS CORPORATION
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CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------
(In thousands - Unaudited)
Oct. 31, Dec. 31,
2007 2006
---------- ----------
Assets
Current assets:
Cash, cash equivalents and short-term
investments $ 98,063 $ 129,857
Trade accounts receivable, net 135,018 117,003
Term receivables, short-term 142,235 146,123
Prepaid expenses and other 38,496 29,679
Deferred income taxes 11,654 12,549
---------- ----------
Total current assets 425,466 435,211
Property, plant and equipment, net 97,870 86,100
Term receivables, long term 116,390 162,157
Intangible assets, net 459,934 396,534
Other assets 55,719 46,237
---------- ----------
Total assets $1,155,379 $1,126,239
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 7,687 $ 7,181
Accounts payable 16,925 20,122
Income taxes payable 6 45,521
Accrued payroll and related liabilities 81,543 105,009
Accrued liabilities 35,054 34,938
Deferred revenue 119,654 110,639
---------- ----------
Total current liabilities 260,869 323,410
Long-term notes payable 238,952 249,852
Other long-term liabilities 65,411 19,910
---------- ----------
Total liabilities 565,232 593,172
---------- ----------
Stockholders' equity:
Common stock 516,478 430,847
Retained earnings 35,426 72,728
Accumulated other comprehensive income 38,243 29,492
---------- ----------
Total stockholders' equity 590,147 533,067
---------- ----------
Total liabilities and stockholders' equity $1,155,379 $1,126,239
========== ==========
MENTOR GRAPHICS CORPORATION
- ----------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------
(In thousands - Unaudited)
Three Months Ended Nine Months Ended
------------------ -------------------
Oct. 31, Sept. 30, Oct. 31, Sept. 30,
2007 2006 2007 2006
-------- --------- --------- ---------
Operating activities
Net income (loss) $(9,150) $ 2,530 $ (6,953) $ (3,778)
Depreciation and amortization
(1) 12,702 11,120 36,153 35,842
Other adjustments to reconcile:
Operating cash 2,596 597 7,524 3,449
Changes in working capital 8,528 (3,969) (16,565) 20,980
-------- --------- --------- ---------
Net cash provided by operating
activities 14,676 10,278 20,159 56,493
Investing activities
Net cash provided by (used in)
investing activities 10,097 1,180 (38,306) (49,324)
Financing activities
Net cash provided by (used in)
financing activities (8,146) 8,823 4,903 1,498
Effect of exchange rate changes
on cash and cash equivalents 569 268 1,372 807
-------- --------- --------- ---------
Net change in cash and cash
equivalents 17,196 20,549 (11,872) 9,474
Cash and cash equivalents at
beginning of period 66,164 63,578 95,232 74,653
-------- --------- --------- ---------
Cash and cash equivalents at end
of period $83,360 $84,127 $ 83,360 $ 84,127
======== ========= ========= =========
- ----------------------------------------------------------------------
(1) Depreciation and amortization includes a write-off of note
issuance costs in the amount of $119 and $147 for the three months
ended October 31, 2007 and September 30, 2006, respectively, and $181
and $2,407 for the nine months ended October 31, 2007 and September
30, 2006, respectively.
MENTOR GRAPHICS CORPORATION
- ----------------------------------------------------------------------
SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION
- ----------------------------------------------------------------------
(In thousands, except for percentages and days sales outstanding -
Unaudited)
Three Months Ended Nine Months Ended
------------------ -------------------
Oct. 31, Sept. 30, Oct. 31, Sept. 30,
2007 2006 2007 2006
-------- --------- --------- ---------
Geographic revenue:
North America $76,611 $85,975 $278,216 $229,339
41.1% 45.2% 47.8% 42.0%
Europe 46,845 $47,316 $133,661 $138,815
25.2% 24.8% 22.9% 25.5%
Japan 35,963 $34,197 $ 85,090 $ 98,003
19.3% 17.9% 14.6% 18.0%
Pac Rim 26,892 $23,147 $ 85,547 $ 79,233
14.4% 12.1% 14.7% 14.5%
Other data:
Capital expenditures $ 9,154 $ 6,886 $ 29,308 $ 19,380
Days sales outstanding 134 100 - -
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
2008
-----
Diluted GAAP net earnings per share $0.50
Non-GAAP Adjustments:
Amortization of purchased intangible assets (1) 0.11
Amortization of other identified intangible assets (2) 0.10
Stock-based compensation (3) 0.19
Special Charges (4) 0.06
In-process R&D (5) 0.04
Expense associated with convertible debt (6) 0.00
Income tax effects (7) 0.02
-----
Non-GAAP net income $1.02
=====
- ----------------------------------------------------------------------
(1) Excludes amortization of purchased intangible assets resulting
from 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 resulting from 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 nine 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 nine months of FY2008 related to the Sierra
acquisition.
(6) Excludes amounts incurred during the first nine 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 resulting
from 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 resulting from 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