Mentor Graphics Reports Fiscal Second Quarter Results (Revenue down 12%)

  • 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 in-process research and development 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 worlds most successful electronics and semiconductor companies. Established in 1981, the company reported revenues over the last 12 months of about $850 million and employs approximately 4,500 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 and Calibre are registered trademarks and Olympus, CHS and inFact are trademarks of Mentor Graphics Corporation. All other company or product names are the registered trademarks or trademarks of their respective owners.

Statements in this press release regarding the companys guidance for future periods constitute forward-looking statements based on current expectations within the meaning of section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company or industry results to be materially different from any results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: (i) reductions in the spending on the companys products and services by its customers due to cyclical downturns; (ii) weakness or recession in the US or other economies; (iii) the companys ability to successfully offer products and services that compete in the highly competitive EDA industry; (iv) 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; (v) effects of the increasing volatility of foreign currency fluctuations on the companys business and operating results; (vi) changes in accounting or reporting rules or interpretations; (vii) 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; (viii) effects of unanticipated shifts in product mix on gross margin; and (ix) effects of customer seasonal purchasing patterns and the timing of significant orders may negatively or positively impact the companys quarterly results of operations, (x) an industry downturn that could lead to smaller customer renewals, all as may be discussed in more detail under the heading Risk Factors in the companys most recent Form 10-K or Form 10-Q. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. In addition, statements regarding guidance do not reflect potential impacts of mergers or acquisitions that have not been announced or closed as of the time the statements are made. Mentor Graphics disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements to reflect future events or developments.

MENTOR GRAPHICS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except earnings per share data)
Three Months Ended Six Months Ended
July 31, July 31, July 31, July 31,
2008 2007 2008 2007
Revenues:
System and software $ 95,830 $ 127,884 $ 192,673 $ 245,769
Service and support 86,574 82,049 168,938 158,654
Total revenues 182,404 209,933 361,611 404,423
Cost of revenues: (1)
System and software 4,356 7,354 9,638 11,842
Service and support 24,030 23,067 49,372 45,250
Amortization of purchased technology 1,992 2,332 5,230 5,374
Total cost of revenues 30,378 32,753 64,240 62,466
Gross margin 152,026 177,180 297,371 341,957
Operating expenses:
Research and development (2)(a) 64,251 65,063 128,633 123,922
Marketing and selling (3) 72,799 75,139 149,447 147,699
General and administration (4) 24,099 23,957 47,160 46,897
Other general expense (income), net (273 ) 14 (437 ) (216 )
Amortization of intangible assets (5) 2,537 2,279 4,970 3,657
Special charges (6) 3,235 (8 ) 12,885 4,045
In-process research and development (7) 15,285 4,100 15,285 4,100
Total operating expenses 181,933 170,544 357,943 330,104
Operating income (loss) (29,907 ) 6,636 (60,572 ) 11,853
Other income, net (8) 628 1,651 3,003 2,935
Interest expense (9) (3,798 ) (4,941 ) (7,960 ) (10,059 )
Income (loss) before income tax (33,077 ) 3,346 (65,529 ) 4,729
Income tax expense (benefit) (10)(a) (15,796 ) 1,165 (23,345 ) 2,056
Minority interest in net loss of subsidiary (89 ) - (89 ) -
Net income (loss) $ (17,192 ) $ 2,181 $ (42,095 ) $ 2,673
Net income (loss) per share:
Basic $ (0.19 ) $ 0.02 $ (0.46 ) $ 0.03
Diluted $ (0.19 ) $ 0.02 $ (0.46 ) $ 0.03
Weighted average number of shares outstanding:
Basic 91,352 87,526 91,054 86,361
Diluted 91,352 89,351 91,054 88,704
Refer to following page for a description of footnotes.
(a) For the July 31, 2007 presentation, the French research and development credit was reclassified from Income tax expense (benefit) to Research and development. The reclassifications were made for consistency in presentation with the current year.

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