Mentor Graphics Reports Fiscal Third Quarter Results

  • 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 world’s 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 4,450 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-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) reductions in the spending on the company’s products and services by its customers due to cyclical downturns; (ii) weakness or recession in the US, EU, Japan or other economies; (iii) the company’s 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 company’s 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 company’s 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 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

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except earnings per share data)
           
 
Three Months Ended Nine Months Ended
October 31, 2008 October 31, 2007 October 31, 2008 October 31, 2007
Revenues:
System and software $ 97,312 $ 108,393 $ 289,985 $ 354,162
Service and support   87,540     82,096     256,478     240,750  
Total revenues   184,852     190,489     546,463     594,912  
Cost of revenues: (1)
System and software 3,566 4,706 13,204 16,548
Service and support 24,350 24,453 73,722 69,703
Amortization of purchased technology   3,810     2,139     9,040     7,513  
Total cost of revenues   31,726     31,298     95,966     93,764  
Gross margin   153,126     159,191     450,497     501,148  
Operating expenses:
Research and development (2)(a) 65,146 63,706 193,779 187,628
Marketing and selling (3) 76,688 74,580 226,135 222,279
General and administration (4) 24,333 24,183 71,493 71,080
Other general expense (income), net 168 178 (269 ) (38 )
Amortization of intangible assets (5) 3,129 2,704 8,099 6,361
Special charges (6) 2,214 1,115 15,099 5,160
In-process research and development (7)   6,790     -     22,075     4,100  
Total operating expenses   178,468     166,466     536,411     496,570  
Operating income (loss) (25,342 ) (7,275 ) (85,914 ) 4,578
Other income, net (8) 1,694 1,026 4,697 3,961
Interest expense (9)   (4,270 )   (5,053 )   (12,230 )   (15,112 )
Loss before income tax (27,918 ) (11,302 ) (93,447 ) (6,573 )
Income tax expense (benefit) (10)(a) 50,369 (2,506 ) 27,024 (450 )
Minority interest in net loss of subsidiary   (43 )   -     (132 )   -  
Net loss $ (78,244 ) $ (8,796 ) $ (120,339 ) $ (6,123 )
Net loss per share:
Basic $ (0.85 ) $ (0.10 ) $ (1.32 ) $ (0.07 )
Diluted $ (0.85 ) $ (0.10 ) $ (1.32 ) $ (0.07 )
Weighted average number of shares outstanding:
Basic   92,354     89,609     91,484     87,456  
Diluted   92,354     89,609     91,484     87,456  
 
Refer to following page for a description of footnotes.
 
(a) For the October 31, 2007 presentation, the 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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