Mentor Graphics Reports Fiscal Second Quarter Results

WILSONVILLE, Ore.—(BUSINESS WIRE)—August 20, 2008— Mentor Graphics Corporation (Nasdaq:MENT) today announced fiscal second quarter revenue of $182.4 million, a GAAP loss of $.19 per share, and a non-GAAP loss of $.02 per share.

Mentor Graphics continues to execute against its plan in an environment which remains challenging, said Walden C. Rhines, chairman and CEO of Mentor Graphics. Our young and innovative product portfolio has enabled Mentor Graphics to continue to perform as customers adopt new process nodes. Customer adoption of leading-edge physical place and route technology at 45nm is accelerating, and is rapidly expanding Mentors base of Olympus-SoC users.

During the quarter, the company unveiled its sub-45nm integrated circuit (IC) implementation strategy, blending the strengths of its Calibre® design for manufacturing (DFM), Olympus-SoC place and route, design for test (DFT) and yield learning solutions. The company also built on its leadership in automotive electrical system design with a new version of its CHS software. The companys inFact intelligent testbench software was updated to allow it to automatically scale across a server farm of up to 1000 CPUs. The company announced that it had enhanced its award-winning support with personalized support web portals, allowing customers to quickly and easily access the support content they need.

The company made two acquisitions in the quarter. It acquired substantially all of the assets of Ponte Solutions to extend the companys Calibre DFM product line. The company also acquired Flomerics, a market leading provider of thermal simulation and analysis tools.

We predicted a tough environment this year, and we continue to see it. Despite this, the company performed better than our guidance for the quarter, said Gregory K. Hinckley, president of Mentor Graphics. We saw some bright spots in our newer products with Calibre DFM and automotive both performing quite well. Additionally, consulting was up 25% over last year. I view increased bookings in consulting as a leading indicator of an improving business climate. Lastly, our cost-saving initiatives are on track to meet or exceed our goals. Mentor is committed to delivering the most effective cost control program within the EDA industry.


For fiscal 2009, the company continues to expect revenue growth of about 4% to $915 million, with non-GAAP earnings per share in the range of $1.05 - $1.10 and GAAP earnings per share in the range of $0.22 - $0.27. For fiscal third quarter, the company expects revenue of about $220 million with Non-GAAP earnings per share of approximately $.15 - $.20 and GAAP earnings of $0.03 - $0.08.

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 and other identified 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 and other identified 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 Statement of Financial Accounting Standards 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 we would accrue using a normalized effective tax rate applied to the non-GAAP results.

During the six months ended July 31, 2007, we excluded $164 thousand of interest expense attributable to net retirement premiums and write-offs of debt issuance costs. The amounts were expensed in connection with the refinancing or repurchase of certain convertible debt. The amounts were excluded as management does not consider these transactions a part of its core operating performance. There were no debt repurchases during the six months ended July 31, 2008.

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