Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
Commission file number 0 - 13442
MENTOR GRAPHICS CORPORATION
(Exact name of registrant as specified in its charter)
Oregon 93-0786033
(State or other jurisdiction of (IRS Employer
ncorporation or organization) Identification No.)
8005 SW Boeckman Road 97070-7777
Wilsonville, Oregon (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (503) 685-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, without par value
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ________
The aggregate market value of the voting stock held by non-
affiliates of the Registrant was approximately $636,268,197 on
March 1, 1994, based upon the last price of the Common Stock on
that date reported in the NASDAQ National Market System. On March
1, 1994, there were 48,017,410 shares of the Registrant's Common
Stock outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or in any amendment to
this Form 10-K. X
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K into
which incorporated
Portions of 1993 Annual Report Parts I, II and IV
to Shareholders
Portions of the 1994 Proxy Statement Part III
PART I
Item 1. Business
General
Mentor Graphics Corporation (Mentor Graphics or Company), an
Oregon corporation organized in 1981, is headquartered in
Wilsonville, Oregon. The Company's common stock is traded in the
NASDAQ National Market System under the symbol MENT.
Products and Services
The Company designs, manufactures, markets and supports electronic
design automation (EDA) software for the integrated circuit (IC)
and systems design markets. The Company provides a broad range of
EDA tools developed either by the Company or together with third
parties to support the entire electronic design process. The
Company's software products enable engineers and designers to
design, analyze, place and route, and test custom ICs, application
specific ICs (ASICs), printed circuit boards, multichip modules
and other electronic systems and subsystems. The Company^s Falcon
Framework software provides a common foundation for the Company's
EDA software products. Falcon Framework software also allows for
the integration of third party software tools developed by other
commercial EDA vendors and by customers for their own internal
use. The Company's products help customers reduce development
time while producing innovative hardware products of high quality.
In addition to software products, Mentor Graphics' Value Added
Services division also offers consulting, support and training
services to enhance customers' success in the design and
manufacture of hardware products.
Platforms
The Company's software runs on UNIX workstations in a broad range
of price and performance levels, including workstations
manufactured by Hewlett-Packard Company, Sun Microsystems, Inc.,
Digital Equipment Corporation, NEC Corporation and International
Business Machines Corporation. The above major computer
manufacturers have a substantial installed base of workstations,
and make frequent introductions of new products with significant
price/performance improvements.
The Company has written virtually all of its software in the high
level languages C++, C, Pascal, or Fortran to facilitate its
portability to other platforms in the future, should availability
of the Company's software on such platforms prove desirable.
Marketing and Sales
The Company's marketing strategy emphasizes customer support,
Value Added Services, a strong direct sales force and large
corporate account penetration in the semiconductor, aerospace,
computer, telecommunications and consumer electronics industries.
Customers use the Company's products in the design of such diverse
products as supercomputers, automotive electronics, missile
guidance systems, signal processors, personal computers, gallium
arsenide circuits, microprocessors and telecommunication switching
systems.
Mentor Graphics sells and licenses its products primarily through
its direct sales force in the United States, through the direct
sales forces of its wholly-owned subsidiaries in Asia and Europe
and through distributors. During 1993, the Company transitioned
from direct sales to distributorships in some Asian markets by
assisting former employees to set up distributorship businesses
for Company products. The Company is considering making similar
transitions to distributorships in other geographies. During the
years ended December 31, 1993 and 1992, sales outside of North
America accounted for 46 and 48 percent, respectively, of total
sales. Additional information relating to foreign and domestic
operations is contained in Note 15 of Notes to Consolidated
Financial Statements on pages 34-35 of the 1993 Annual Report to
Shareholders and is incorporated by this reference. Fluctuating
exchange rates and other factors beyond the Company's control,
such as tariff and trade policies, domestic and foreign tax and
economic policies and the relative stability of international
economic and monetary conditions should continue to affect the
level and profitability of sales outside the United States.
The Company's OpenDoor program coordinates and supports the
integration of commercial EDA products and customers' internal
products into the Company's EDA environment. Under this program,
the Company enables OpenDoor participant companies to develop
interfaces from their products to the Company's products.
OpenDoor participants can select from a range of integration
technologies to achieve an optimal degree of integration for their
products. There are now approximately 115 OpenDoor participants.
No material portion of the Company's business is dependent on a
single customer. The Company has traditionally experienced some
seasonal fluctuations in receipt of orders, which are typically
stronger in the second and fourth quarters of the year. As is
typical of many other companies in the electronics industry, the
Company generally ships its products to customers within 10 to 90
days after receipt of an order, and a substantial portion of
quarterly shipments tend to be made in the last month of each
quarter. The Company believes that the dollar amount of its
backlog is not material to an understanding of the Company's
business.
The Company sells and licenses its products and some third-party
products pursuant to purchase orders and master purchase and
license agreements. The Company has corporate agreements
providing the general terms and conditions of sales and discounts
to certain of its customers. The Company schedules deliveries
only after receipt of purchase orders under these agreements.
Manufacturing Operations
The Company's manufacturing operations primarily consist of
reproduction of the Company's software and documentation. In
North America, manufacturing occurs at the Company's facility in
Wilsonville, Oregon. Software and documentation distribution
centers in The Netherlands, Japan and Singapore serve their
respective regions. The Company generally does not integrate
Company software with hardware from suppliers. The Company uses a
manufacturing resource planning system which integrates
purchasing, inventory control and accounting in all regions.
Product Development
The EDA market is competitive and characterized by rapid
technological change, which requires continuous high expenditures
for the enhancement of existing products and the development of
new products. The Company is committed to the creation of new
products and intends to continue to enhance its existing products.
During the years ended December 31, 1993, 1992 and 1991, the
Company expensed approximately $77,598,000, $73,947,000 and
$79,539,000 respectively, and capitalized approximately
$3,609,000, $6,120,000, and $9,917,000, respectively, related to
product development. Substantially all of these costs were
related to the development of the Company's proprietary
application software.
Suppliers
The Company contracts with several suppliers who provide software
products which the Company integrates into its product line,
allowing the Company to both concentrate its development efforts
on its core product line and offer its customers a more complete
design solution.
The Company no longer integrates and resells computer hardware
with the Company's products. The Company believes that its
customers realize little value in purchasing hardware through the
Company. As a service to its customers in Europe and Japan, where
some customers prefer to purchase both hardware and software from
one source, the Company will continue to accept orders for
hardware which is shipped directly from the supplier to customers.
Customer Support and Professional Services
The Company has a worldwide organization to meet its customers'
needs for software support, training, consulting, custom IC design
and documentation. The Company offers support contracts providing
software updates and support. Most of the Company's customers are
covered by software support contracts. Some hardware support is
provided to customers under subcontract by third-party hardware
suppliers, although the Company will not be entering into any new
hardware support agreements with customers in 1994. The Company
provides technical support for its products through a direct
telephone support line and an electronic communications system.
Additional professional services are offered through the Company's
Value Added Services division which provides consulting and
training to help the Company's customers improve their design
processes and make the most efficient use of their EDA software
tools.
Competition
The EDA industry is competitive and has been characterized by
rapid technological advances in application software, operating
systems and hardware. The Company's principal competitors are
Cadence Design Systems Inc., Synopsys Inc., Viewlogic Systems,
Inc., COMPASS Design Automation, Inc., Zuken Incorporated, Racal
Redac, Ltd., Intergraph Corporation, and Seiko Corporation. The
Company believes that other companies may be developing EDA
systems.
Some of the Company's competitors and potential competitors may
have greater financial and marketing resources than Mentor
Graphics. However, the Company believes the main competitive
factors in the EDA industry are breadth and quality of application
software, product integration, ability to respond to technological
change, quality of a company's sales force, price, size of the
installed base, level of customer support and value added
services. The Company believes that it generally competes
favorably in these areas. The Company can give no assurance,
however, that it will have the financial resources, marketing,
distribution and service capability, depth of key personnel or
technological knowledge to compete successfully in the EDA market.
Employees
The Company and its subsidiaries employed approximately 2,100
persons full time as of December 31, 1993 compared with
approximately 2,200 persons at the end of 1992. The Company's
success will depend in part on its ability to attract and retain
employees who are in great demand. The Company continues to enjoy
good employee relations. No Company employees are represented by
a collective bargaining unit.
Patents and Licenses
The Company owns United States and Canadian patents covering the
technology underlying several of its software products. The
Company has also filed other patent applications on technology it
has developed and intends to file additional patent applications
in the future. While the Company believes the pending
applications relate to patentable devices, there can be no
assurance that any patent will be issued or that any patent can be
successfully defended. The Company believes that patents are less
significant to the success of its business than technical
competence, management ability, marketing capability and customer
support.
The Company regards its application software as proprietary and
attempts to protect it with copyrights, trade secret laws, and
internal non-disclosure safeguards, as well as patents, when
appropriate, as noted above. The Company typically incorporates
restrictions on disclosure, usage and transferability into its
agreements with customers and other third parties.
Item 2. Properties
The Company's Wilsonville, Oregon facilities are located in six
owned buildings of approximately 570,000 total square feet located
on about 90 acres. All corporate functions, as well as a majority
of research and development and domestic activities, operate from
this site. In January 1993, the Company entered into a five-year
lease with a third party covering the Company's former
manufacturing and warehouse building on its Wilsonville site. The
building size is approximately 150,000 square feet.
The Company leases additional space in San Jose, California, and
in various locations throughout the United States and in foreign
countries, primarily for sales and customer service operations.
The Company believes that it will be able to renew or replace its
existing leases as they expire and that its current facilities
will be adequate through at least 1994.
Item 3. Legal Proceedings
There are no material legal proceedings pending against the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the security holders of the
Company during the fourth quarter of the fiscal year ended
December 31, 1993.
Executive Officers of Registrant
The following are the executive officers of the Company:
Name Position Age Has Served As
An Officer
of Company Since
Walden C.Rhines President, Chief 47 1993
Executive Officer
and Director
R. Douglas Norby Senior Vice 58 1993
President and Chief
Financial Officer
Waldo J Richards Senior Vice President, 54 1993
Product Operations
Frank S. Delia Vice President, Chief 47 1983
Administrative Officer,
General Counsel and
Secretary
James J.Luttenbacher Corporate Controller 38 1993
and Chief Accounting
Officer
Patricia J.O'Connor Vice President, Human 38 1990
Resources
The officers are elected by the Board of Directors of the Company
at its annual meeting. Officers hold their positions until they
resign, are terminated or their successors are elected. There are
no arrangements or understandings between the officers or any
other person pursuant to which officers were elected and none of
the officers are related.
All of the officers named have been employed by Mentor Graphics
for the last five years except:
1) Mr. Rhines, who was employed from 1972 to 1993 by Texas
Instruments, Incorporated where he held a variety of
technical and management positions and was most
recently Executive Vice President of Texas Instruments
Semiconductor Group;
2) Mr. Norby, who was employed from 1992 to 1993 by Pharmetrix
Corporation as President and Chief Executive Officer
and from 1985 to 1992 by Lucasfilm, Ltd. where he last
held the position of President and Chief Operating
Officer;
3) Mr. Richards, who was employed from 1989 to 1993 by
Sequent Computer Systems Inc. in a variety of
engineering management positions; and
4) Mr. Luttenbacher, who was employed from 1981 to 1992 by
Hewlett-Packard Company in a variety of accounting
positions, the most recent of which was Manager of the
North American Financial Services Group.
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters
The Company paid a quarterly dividend of $0.06 per share during
1992 and during the first three quarters of 1993. The Company
ceased payment of the dividend in the fourth quarter of 1993 and
does not intend to pay dividends in the foreseeable future.
Additional information required by this item is included under
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" on pages 17-22, under "Quarterly Financial
Information" on page 36 and under the shareholder information
included on page 38 of the Company's 1993 Annual Report to
Shareholders.
Item 6. Selected Financial Data
The information required by this item is included under "Selected
Consolidated Financial Data" on page 16 of the Company's 1993
Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition
The information required by this item is included under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 17-22 of the Company's 1993 Annual
Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
The financial statements are included in the Company's 1993 Annual
Report to Shareholders on pages 23-37 and are indexed here under
Item 14(a)(1). The supplementary data required by this item is
included under "Quarterly Financial Information" on page 36 of the
Company's 1993 Annual Report to Shareholders. See also the
financial statement schedules appearing here as indexed under Item
14(a)(2).
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of Registrant
The information required by this item concerning the Company's
Directors is included under "Election of Directors" in the
Company's 1994 Proxy Statement and is incorporated herein by
reference. The information concerning the Company's Executive
Officers is included herein on page 6 under the caption "Executive
Officers of the Registrant." No information is included in
response to Item 405 of Regulation S-K.
Item 11. Executive Compensation
The information required by this item is included under
"Compensation of Directors," "Information Regarding Executive
Officer Compensation" and "Certain Transactions" in the Company's
1994 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
The information required by this item is included under "Election
of Directors" and "Information Regarding Beneficial Ownership of
Principal Shareholders and Management" in the Company's 1994 Proxy
Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is included under "Certain
Transactions" in the Company's 1994 Proxy Statement and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a)
(1) Financial Statements
The documents listed are included on pages indicated in the
Company's 1993 Annual Report to Shareholders:
Page
Consolidated Statements of Operations 23
Consolidated Balance Sheets 24
Consolidated Statements of Cash Flows 25
Consolidated Statements of Stockholders' Equity 26
Notes to Consolidated Financial Statements 27-35
Independent Auditors' Report 37
(2) Financial Statement Schedules
The documents and schedules listed below are filed as part of this
report on the pages indicated:
Schedule Page
I Marketable Securities 11
II Amounts Receivable from Related Parties
and Underwriters, Promoters, and
Employees other than Related Parties 12-13
V Property, Plant and Equipment 14
VI Accumulated Depreciation and Amortization
of Property, Plant and Equipment 15
VIII Valuation and Qualifying Accounts 16
IX Short-Term Borrowings 17
X Supplementary Income Statement
Information 18
Independent Auditors^ Report on Financial
Statement Schedules 19
All other financial statement schedules have been omitted since
they are not required, not applicable or the information is
included in the consolidated financial statements or notes.
(3) Exhibits
3. A. 1987 Restated Articles of Incorporation.
Incorporated by reference to Exhibit 24 to the Company's
Registration Statement on Form S-3 (Registration No. 33-
23024).
B. Bylaws of the Company.
10. *A. 1982 Stock Option Plan. Incorporated by
reference to Exhibit 10.A to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991 (1991
10-K).
*B. Nonqualified Stock Option Plan. Incorporated by
reference to Exhibit 10.C to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1989 (1989
10-K).
*C. 1986 Stock Plan. Incorporated by reference to
Exhibit 10.D to the Company's 1989 10-K.
*D. 1987 Non-Employee Directors' Stock Option Plan.
Incorporated by reference to Exhibit 10.E. to the Company's
1989 10-K.
*E. Stock Option Agreement under the 1986 Stock Plan
dated October 15, 1993 between the Company and Walden C.
Rhines.
*F. Form of Indemnity Agreement entered into between
the Registrant and each of its officers and directors.
Incorporated by reference to Exhibit B to the Company's
1987 Proxy Statement.
G. Lease dated November 20, 1991, for 999 Ridder Park
Drive and 1051 Ridder Park Drive, San Jose, California.
Incorporated by reference to Exhibit 10.M to the Company's
Form SE dated March 25, 1992.
H. Amended and Restated Loan Agreement between Mentor
Graphics Corporation and First Interstate Bank of Oregon,
N.A. dated December 31, 1992 as amended. Incorporated by
reference to Exhibit 10.J to the Company's Form SE dated
March 25, 1993.
13. Portions of the 1993 Annual Report to Shareholders that
are incorporated herein by reference.
21. List of Subsidiaries of the Company.
23. Consent of Accountants.
___________________
* Management contract or compensatory plan or arrangement
(b) No reports on Form 8-K have been filed during the last
quarter of the period covered by this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 30, 1994.
MENTOR GRAPHICS CORPORATION
By _________________________
Walden C. Rhines
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the registrant on March 30, 1994 in the capacities
indicated.
Signature Title
(1) Principal Executive Officer:
____________________________ President, Chief Executive
Walden C. Rhines Officer and Director
(2) Principal Financial Officer:
____________________________ Senior Vice President and
R. Douglas Norby Chief Financial Officer
(3) Principal Accounting Officer:
_____________________________ Corporate Controller and
James J. Luttenbacher Chief Accounting Officer
(4) Directors:
_____________________________ Chairman of the Board and
Thomas H. Bruggere Director
_____________________________ Director
Marsha B. Congdon
_____________________________ Director
David R. Hathaway
_____________________________ Director
Fontaine K. Richardson
_____________________________ Director
Jon A. Shirley
_____________________________ Director
David N. Strohm
SCHEDULE I
MENTOR GRAPHICS CORPORATION AND SUBSIDIARIES
MARKETABLE SECURITIES (1)
(In Thousands)
Amount of Issue
Carried in the
Market Value Consolidated
Name of Title of Cost of of Issue Balance Sheet
Issuer Issue Issue at 12/31/93 at 12/31/93
Various Certificates $ 14,105 $14,105 $14,105
of Deposit
Bank of Certificate 12,510 12,510 12,510
Tokyo of Deposit
Various Euro CDs 10,477 10,477 10,477
Paper
Various Commercial 5,458 5,458 5,458
Various Money Market 5,000 5,000 5,000
Note
Various Corporate 1,515 1,515 1,515
Notes
Citibank Floating Rate 995 995 995
Notes
Various Money Funds 329 329 329
$ 50,389
________________________________
(1) Individual issues not exceeding 2% of total assets were
grouped according to type of security. This schedule includes
$36,779 of investments classified as cash equivalents on the
consolidated balance sheet.
SCHEDULE II
MENTOR GRAPHICS CORPORATION AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(In Thousands)
Beginning Ending
Balance Additions Deductions Balance
Year ended December 31, 1991:
Richard Anderson(1) $ 170 $ 0 $ 0 $ 170
John Goldsworthy(2) 100 0 100 0
Michael Burstein(3) 150 0 150 0
Marvin Wolfson(4) 332 0 186 146
James Hammock(5) 505 0 505 0
Kathleen Herder(6) 140 0 140 0
James Painter(7) 150 0 30 120
Wendell Roberts(8) 100 0 100 0
Gary Geaslen (9) 0 110 0 110
Dottie Wanat (10) 0 125 0 125
Donald Ramble (11) 0 250 0 250
$ 1,647 $ 485 $ 1,211 $ 921
Year ended December 31, 1992:
Richard Anderson $ 170 $ 0 $ 170 $ 0
Marvin Wolfson 146 0 146 0
James Painter 120 0 30 90
Gary Geaslen 110 0 110 0
Dottie Wanat 125 0 125 0
Donald Ramble 250 0 50 200
James Luttenbacher (12) 0 100 100 0
Garry Burt (13) 0 150 0 150
$ 921 $ 250 $ 731 $ 440
Year ended December 31, 1993:
James Painter $ 90 0 90 $ 0
Donald Ramble 200 0 50 150
Garry Burt 150 0 0 150
$ 440 $ 0 $ 140 $ 300
(1) Interest rate was 9% per annum. Note was secured by
shares of the Company's common stock, covered by various stock
options granted to debtor and a second trust deed on real
property owned by debtor. Payment was made in full on
February 26, 1992. Individual is no longer employed by the
Company.
(2) Interest rate was 8% per annum. Note was secured by
a second trust deed on real property owned by debtor. The
employee was terminated and note was forgiven as part of the
restructure in August 1991.
(3) Interest rate was 8.34% per annum. Note was secured
by shares of the Company's common stock. Payment was made in
full on May 2, 1991.
(4) Interest rate was 10.5% per annum (with no interest
payable for the last six months of 1990). Notes were secured
by shares of the Company's common stock. Payment of $186 was
received January 29, 1991. The remaining balance of $146 was
paid in full on March 17, 1992.
(5) Interest rate was 10% per annum. Note was secured by
shares of the Company's common stock. Payment was made in
full on February 13, 1991.
(6) Interest rate was 10% per annum. The Relocation
Bridge Note was secured by a second trust deed on real
property owned by debtor. Payment was made in full on
February 14, 1991.
(7) Interest rate was 8.36% per annum. Note was secured
by a second trust deed on real property owned by debtor. Loan
was to be forgiven at a rate of 20% per year, as long as
employee remained employed by the Company on September 14 of
each year through 1995. Employee was terminated on January
15, 1993 and $40 was forgiven by the Company at that time.
The promissory note was revised to $50. Payment was made in
full on June 29, 1993.
(8) Interest rate was 10% per annum. Note was secured by
a second trust deed on real property owned by debtor. The
employee was terminated and note was forgiven as part of the
restructure in August 1991.
(9) Interest rate was 9% per annum. Notes were secured by
various stock options granted to debtor. Individual is no
longer employed by the Company. Payment of $12 was received
March 14, 1992. The remaining balance of $98 was paid on
September 1, 1992.
(10) Interest rate was 8.5% per annum. Note was secured
by a second trust deed on real property owned by debtor.
Payment was made in full on January 24, 1992.
(11) Interest rate is 8.5% per annum. Note is secured by
a second trust deed on real property owned by debtor. Loan
shall be forgiven a rate of 20% per year, as long as the
employee remains employed by the Company on July 1 of each
year through 1996.
(12) Interest rate was 6% per annum. The Relocation
Bridge Note was secured by a second trust deed on real
property owned by debtor. Payment of $71 was made on December
2, 1992. The remaining balance of $29 was paid in full on
December 19, 1992.
(13) Interest rate is 6.5% per annum. Note is secured by
a second trust deed on real property owned by debtor. A
replacement note was made on December 31, 1993 which requires
payment of net proceeds upon exercise of the Company's common
stock and four annual installments of $20, plus accrued interest
through December 31, 1997. Upon payment of these amounts,
remaining obligations under this note including principal and
interest will be forgiven.
SCHEDULE V
MENTOR GRAPHICS CORPORATION AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
(In Thousands)
Effect of
Beginning Additions Currency Ending
Classification Balance at Cost Retirements Changes Balance
Year ended
December 31, 1991:
Computer
equipment and
furniture $108,450 $ 33,652 $(28,518) $ (75) $113,509
Buildings
and building
equipment 0 51,815 (14) 0 51,801
Land and
improvements 5,121 9,101 0 0 14,222
Leasehold
improvements 15,942 1,400 (9,141) 40 8,241
Service spare
parts 9,123 1,001 (7,820) 179 2,483
$138,636 $ 96,969 $(45,493) $ 144 $190,256
Year ended
December 31, 1992:
Computer
equipment and
furniture $113,509 $ 16,988 $ (9,505) $ (2,464) $118,528
Buildings and
building
equipment 51,801 1,328 0 0 53,129
Land and
improvements 14,222 345 0 0 14,567
Leasehold
improvements 8,241 4,054 (1,918) (320) 10,057
Service spare
parts 2,483 2,021 (1,542) 36 2,998
$190,256 $ 24,736 $(12,965) $ (2,748) $199,279
Year ended
December 31, 1993:
Computer
equipment and
furniture $118,528 $ 24,893 $ (20,345) $ (1,101) $121,975
Buildings and
building
equipment 53,129 320 (123) 0 53,326
Land and
improvements 14,567 74 0 0 14,641
Leasehold
improvements 10,057 58 (483) (19) 9,613
Service spare
parts 2,998 1,284 (702) 277 3,857
$199,279 $ 26,629 $(21,653) $ (843) $203,412
SCHEDULE VI
MENTOR GRAPHICS CORPORATION AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(In Thousands)
Additions
Charged to Effect of
Beginning Costs and Currency Ending
Classification Balance Expenses Retirements Changes Balance
Year ended
December 31, 1991:
Computer
equipment and
furniture $ 57,676 $ 25,212 $(16,251) $ (5) $ 66,632
Buildings and
building
equipment 0 1,411 0 0 1,411
Land and
improvements 0 332 0 0 332
Leasehold
improvements 12,897 1,468 (8,844) 51 5,572
Service spare
parts 5,625 1,278 (4,943) 136 2,096
$ 76,198 $ 29,701 $(30,038) $ 182 $ 76,043
Year ended
December 31, 1992:
Computer
equipment and
furniture $ 66,632 $ 21,434 $ (7,402) $(1,552) $ 79,112
Buildings and
building
equipment 1,411 1,578 0 0 2,989
Land and
improvements 332 357 0 0 689
Leasehold
improvements 5,572 1,316 (1,499) (201) 5,188
Service spare
parts 2,096 1,065 (1,388) (52) 1,721
$ 76,043 $ 25,750 $(10,289) $(1,805) $ 89,699
Year ended
December 31, 1993:
Computer
equipment and
furniture $ 79,112 $ 23,230 $(17,202) $ (733) $ 84,407
Buildings and
building
equipment 2,989 1,578 (29) 0 4,538
Land and
improvements 689 361 0 0 1,050
Leasehold
improvements 5,188 1,398 (379) (11) 6,196
Service spare
parts 1,721 1,033 (595) 150 2,309
$ 89,699 $ 27,600 $(18,205) $ (594) $ 98,500
SCHEDULE VIII
MENTOR GRAPHICS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Additions
Charged to
Beginning Cost & Ending
Description Balance Expenses Deductions Balance
Year ended
December 31, 1991:
Allowance for
deferred
tax assets $ 0 $ 0 $ 0 $ 0
Allowance for
doubtful
accounts $ 3,155 $ 1,224 $ 643 (1) $ 3,736
Allowance for
obsolete
inventory $ 7,392 $11,198 $ 2,951 (2) $15,639
Accrued
restructure
costs $ 0 $27,100 $16,867 (3) $10,233
Year ended
December 31, 1992:
Allowance for
deferred
tax assets $ 0 $ 0 $ 0 $ 0
Allowance for
doubtful
accounts $ 3,736 $ 1,282 $ 642 (1) $ 4,376
Allowance for
obsolete
inventory $15,639 $ 2,665 $ 5,868 (2) $12,436
Accrued
restructure
costs $10,233 $14,500 $12,463 (3) $12,270
Year ended
December 31, 1993:
Allowance for
deferred
tax assets $ 0 $58,495(4) $ 0 $58,495
Allowance for
doubtful
accounts $ 4,376 $ 508 $ 956 (1) $ 3,928
Allowance for
obsolete
inventory $12,436 $ 1,924 $ 6,346 (2) $ 8,014
Accrued
restructure
costs $12,270 $26,200 $10,096 (3) $28,374
(1) Deductions primarily represent accounts written off during
the period.
(2) Deductions primarily represent inventory scrapped during
the period.
(3) Deductions primarily represent payments made to carry out
restructure plans and reversals of accrued restructure charges
due to changes in estimates of $1,400 and $1,600 for the years
ended December 31, 1993 and 1992, respectively.
(4) Addition represents adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" on
January 1, 1993 and increases to the valuation allowance during
the year. As such, the Company established a valuation
allowance for certain deferred tax assets, including net
operating loss and tax credit carryforwards. Statement No. 109
requires that such a valuation allowance be recorded when it is
more likely than not that some portion of the deferred tax
assets will not be realized.
SCHEDULE IX
MENTOR GRAPHICS CORPORATION AND SUBSIDIARIES
SHORT-TERM BORROWINGS (1)
(In Thousands)
Weighted
Maximum Average Average
Category of Weighted Amount Amount Interest
Aggregate Average Outstanding Outstanding Rate
Short-Term Ending Interest During the During the During the
Borrowings Balance Rate Period Period (3) Period (4)
Year ended
December
31, 1991:
Lines of
credit (2) $ 4,459 8.88% $14,087 $ 8,612 9.13%
Year ended
December
31, 1992:
Lines of
credit (2) $ 5,457 8.48% $11,462 $ 6,825 8.65%
Year ended
December
31, 1993:
Lines of
credit (2) $ 2,843 7.66% $ 6,839 $ 5,160 7.92%
________________
(1) Short-term borrowings on the consolidated balance sheets
consist of drawings on various multi-currency unsecured line of
credit agreements as well as the current portion of long-term
debt of $3,521, $91, and $52 for the years ended 1993, 1992,
and 1991, respectively. See note 8 in the 1993 Annual Report
to Shareholders for a more complete description of the
Company's long-term debt.
(2) The lines of credit generally have terms of one or two
years and are subject to renewal upon expiration.
(3) The average amount outstanding was computed by using the
average monthly balances during the period.
(4) The weighted average interest rates were computed by
dividing the actual interest expense by the total of the
average balance for each month for which an amount was
outstanding, and then multiplying the result by twelve months
to obtain an annual rate.
SCHEDULE X
MENTOR GRAPHICS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In Thousands)
Charged to Costs and Expenses
Year Ended December 31
1991 1992 1993
Item (1)
Advertising Costs $ 6,820 $ 8,084 $ 6,868
Maintenance & Repair $ 5,756 $ 6,296 $ 6,407
Royalty Costs $10,139 $ 9,854 $ 9,815
________________________
(1) Items not presented did not exceed 1% of revenues in any
of the above periods.
Independent Auditors' Report
The Board of Directors and Stockholders
Mentor Graphics Corporation:
Under date of February 1, 1994, we reported on the consolidated
balance sheets of Mentor Graphics Corporation and subsidiaries as
of December 31, 1993 and 1992, and the related consolidated
statements of operations, cash flows and stockholders' equity for
each of the years in the three-year period ended December 31,
1993, which are included in the 1993 annual report to
stockholders. These consolidated financial statements and our
report thereon are incorporated by reference in the annual report
on Form 10-K for the year 1993. In connection with our audits of
the aforementioned consolidated financial statements, we also have
audited the related consolidated financial statement schedules as
listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
As discussed in Notes 1 and 4 to the consolidated financial
statements, the Company adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" in 1993.
KPMG PEAT MARWICK
Portland, Oregon
February 1, 1994
EXHIBIT 3.B
Page 1 - Bylaws of Mentor Graphics Corporation
BYLAWS
OF
MENTOR GRAPHICS CORPORATION
ARTICLE I
SHAREHOLDERS
1.1 Annual Meeting. The annual meeting of the shareholders
shall be held on the third Wednesday in the month of May in each
year at the hour of 3:00 p.m., for the purpose of electing
directors and transacting such other business as may come before
the meeting. If the day fixed for the annual meeting is a legal
holiday, the meeting shall be held on the next succeeding Friday.
1.2 Failure to Hold Annual Meeting. If the annual meeting is
not held at the designated time, the President or the Board of
Directors may call the annual meeting meeting at a time fixed by
the calling party not more than 60 days after the designated time
by proper notice designating the meeting as the annual meeting.
If the annual meeting is not held at the designated time or during
the 60-day period thereafter, the annual meeting may be called by
the holders of not less than one-tenth of all the shares entitled
to vote at the meeting. In such event, notice shall be given not
more than 15 days after the expiration of such 60-day period. The
notice shall fix the time of the meeting at the earliest date
permissible under the applicable notice requirements.
1.3 Special Meetings. Special meetings of the shareholders
may be called by the President or by the Board of Directors, and
shall be called by the President at the request of the holders of
not less than one-tenth of all the outstanding shares of the
corporation entitled to vote at the meeting.
1.4 Place of Meetings. Meetings of the shareholders shall be
held at the principal business office of the corporation or at
such other place as may be determined by the Board of Directors.
1.5 Notice of Meetings. Written or printed notice stating the
place, day and hour of the meeting and, in case of a special
meeting, the purpose or purposes for which the meeting is called,
shall be mailed to each shareholder entitled to vote at the
meeting at the shareholder's address as it appears on the stock
transfer records of the corporation, with postage thereon prepaid,
not less than 10 nor more than 60 days before the date of the
meeting, by or at the direction of the President, the Secretary or
the officer or persons calling the meeting.
1.6 Waiver of Notice. Whenever any notice is required to be
given to any shareholder of the corporation, a waiver thereof in
writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
1.7 Record Date.
(a) The Board of Directors may fix a record
date for the purpose of determining shareholders entitled to
notice of a shareholders' meeting, to demand a special meeting, to
vote or to take any other action, which date shall not be more
than 70 days before the meeting or action requiring a
determination of shareholders.
(b) If no record date is fixed for the
determination of shareholders entitled to notice of and to vote at
a shareholders' meeting, the record date shall be the close of
business on the day before the first notice is delivered to
shareholders.
(c) A determination of shareholders
entitled to notice of or to vote at a shareholders' meeting is
effective for any adjournment of the meeting unless the Board of
Directors fixes a new record date, which it must do if the meeting
is adjourned to a date more than 120 days after the date fixed for
the original meeting.
1.8 Voting Records. The officer or agent having charge of
the stock transfer books for shares of the corporation shall make,
at least 10 days before each meeting of shareholders, a complete
record of the shareholders entitled to vote at such meeting, or
any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which record,
for a period of 10 days prior to such meeting, shall be kept on
file at the registered office of the corporation and shall be
subject to inspection by any shareholder at any time during usual
business hours. Such record shall also be produced and kept open
at the time and place of the meeting and shall be subject to the
inspection of any shareholder during the whole time of the
meeting. The original stock transfer book shall be prima facie
evidence as to who are the shareholders entitled to examine such
record or transfer books or to vote at any meeting of
shareholders. Failure to comply with the requirements of this
section shall not affect the validity of any action taken at such
meeting.
1.9 Quorum. A majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of shareholders. If a
quorum is present at a meeting, a majority may adjourn the meeting
from time to time to a different time and place without further
notice. At such adjourned meeting at which a quorum is present,
any business may be transacted which might have been transacted at
the meeting as originally held. The shareholders present at a
duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough shareholders
to leave less than a quorum.
1.10 Manner of Acting. Unless otherwise required by law or
the articles of incorporation, any question submitted to the
shareholders shall be approved if the number of shares voted in
favor of such question exceeds the number of shares voted in
opposition. Any action which is required or permitted to be taken
by the shareholders at a meeting may be taken without a meeting if
a consent in writing setting forth the action so taken is signed
by all of the shareholders entitled to vote on the matter. The
action shall be effective on the date when the last signature is
placed on the consent or at such earlier time as is set forth
therein. Such consent, which shall have the same effect as a
unanimous vote of the shareholders, shall be filed with the
minutes of the corporation.
1.11 Proxies. At all meetings of shareholders, a
shareholder may vote by proxy executed in writing by the
shareholder or by a duly authorized attorney in fact. The proxy
shall be filed with the Secretary of the corporation before or at
the time of the meeting. No proxy shall be valid after 11 months
from the date of its execution, unless otherwise provided in the
proxy.
1.12 Voting of Shares by Certain Holders.
(a) Shares standing in the name of another
corporation may be voted by such officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of
such provision, as the board of directors of such corporation may
determine.
(b) Shares held be an administrator, executor,
guardian or conservator may be voted by the holder, either in
person or by proxy, without a transfer of such shares into the
holder's name. Shares standing in the name of a trustee may be
voted by that trustee, either in person or by proxy, but no
trustee shall be entitled to vote shares without a transfer of
such shares into the trustee's name.
(c) Shares standing in the name of a receiver may
be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer
thereof into the receiver's name if authority to do so is
contained in an appropriate order of the court by which such
receiver was appointed.
(d) A shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have been
transferred into the name of the pledgee, and thereafter the
pledgee shall be entitled to vote the shares so transferred.
(e) Neither treasury shares, nor shares of its own
stock held by the corporation in a fiduciary capacity, nor shares
held by another corporation if a majority of the shares entitled
to vote for the election of directors of such other corporation is
held by the corporation, shall be voted at any meeting or counted
in determining the total number of outstanding shares at any given
time.
1.13 Acquisition of Control Shares. As provided in Section
10, Chapter 820, Oregon Laws 1987 and to the fullest extent
permitted by that section, the corporation shall be authorized to
require a holder of control shares to sell the control shares to
the corporation for fair value. The term "control shares" shall
have the same meaning as that term has in Chapter 820, Oregon Laws
1987. The procedures for acquisition of control shares pursuant
to this section shall be that the Board of Directors shall
determine the fair value of the control shares and shall give
notice to the holder of the control shares of the fair value and
the time at which payment for the control shares will be
available. The corporation will then make payment for the control
shares against delivery of the shares.
ARTICLE II
BOARD OF DIRECTORS
2.1 General Powers. The business and affairs of the
corporation shall be managed by its Board of Directors.
2.2 Number, Tenure and Qualification. The number of
directors of the corporation shall be seven. The directors shall
hold office until the next annual meeting of shareholders and
until their successors shall have been elected and qualified.
Directors need not be residents of the State of Oregon or
shareholders of the corporation. The number of directors may be
increased or decreased from time to time by amendment to the
bylaws, but no decrease shall have the effect of shortening the
term of any incumbent director.
2.3 Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this bylaw
immediately after, and at the same place as, the annual meeting of
shareholders. The Board of Directors may provide, by resolution,
the time and place, either within or without the State of Oregon,
for the holding of additional regular meetings without other
notice than the resolution.
2.4 Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the President or
by one-third of the directors. The person or persons authorized
to call special meetings of the Board of Directors may fix any
place, either within or without the State of Oregon, as the place
for holding any special meeting of the Board of Directors called
by them.
2.5 Notice. Written notice of any special meeting of the
Board of Directors shall be given at least 10 days prior to the
meeting by personal delivery, by mail or by telegram. If mailed,
notice shall be deemed to be given when deposited in the United
States mails addressed to the director at the director's business
address, with postage thereon prepaid. If by telegram, notice
shall be deemed to be given when the telegram is delivered to the
telegraph company. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where
a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
2.6 Waiver of Notice. Whenever any notice is required to
be given to any director of the corporation, a waiver thereof in
writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
2.7 Quorum. A majority of the number of directors fixed
by Section 2.2 of this Article II shall constitute a quorum for
the transaction of business at any meeting of the Board of
Directors.
2.8 Manner of Acting.
(a) The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act
of the Board of Directors, unless a different number is provided
by law, the articles of incorporation or these bylaws.
(b) Members of the Board of Directors may hold a
board meeting by conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other. Participation in such a meeting
shall constitute presence in person at the meeting.
(c) Any action which is required or permitted to be
taken by the directors at a meeting may be taken without a meeting
if a consent in writing setting forth the action so taken is
signed by all of the directors entitled to vote on the matter.
The action shall be effective on the date when the last signature
is placed on the consent or at such earlier time as is set forth
therein. Such consent, which shall have the same effect as a
unanimous vote of the directors, shall be filed with the minutes
of the corporation.
2.9 Vacancies. Except as hereinafter provided, any
vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors though
less than a quorum of the Board of Directors, or by a sole
remaining director. Any directorship to be filled by reason of
any increase in the number of directors of the corporation fixed
by the bylaws may be filled by the affirmative vote of a majority
of the number of directors fixed by the bylaws prior to such
increase; provided that not more than two such directorships may
be filled by the directors during any one period between annual
meetings of the shareholders of the corporation. Any such
directorship not so filled by the directors shall be filled by
election at the next annual meeting of shareholders or at a
special meeting of shareholders called for that purpose. A
director elected to fill a vacancy shall be elected to serve until
the next annual meeting of shareholders and until a successor
shall be elected and qualified.
2.10 Compensation. By resolution of the Board of
Directors, the directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors, and may be
paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
2.11 Presumption of Assent. A director of the corporation
who is present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be presumed to have
assented to the action taken unless the director's dissent to the
action is entered in the minutes of the meeting or unless a
written dissent to the action is filed with the person acting as
the secretary of the meeting before the adjournment thereof or
forwarded by certified or registered mail to the Secretary of the
corporation immediately after the adjournment of the meeting. The
right to dissent shall not apply to a director who voted in favor
of the action.
2.12 Transactions with Directors.
(a) Any contract or other transaction or
determination between the corporation and one or more of its
directors, or between the corporation and another party in which
one or more of its directors are interested, shall be valid
notwithstanding the relationship or interest or the presence or
participation of such director or directors in a meeting of the
Board of Directors or a committee thereof which acts upon or in
reference to such contract, transaction, or determination, if:
the fact of such relationship or interest is disclosed or known to
the Board of Directors or committee and it authorizes, approves or
ratifies the contract, transaction or determination by a vote or
consent sufficient for the purpose without counting the votes or
consents of such interested directors; or the fact of such
relationship or interest is disclosed or known to the shareholders
entitled to vote and they authorize, approve or ratify such
contract, transaction or determination by vote or written consent;
or the contract, transaction or determination is fair and
reasonable to the corporation.
(b) Common or interested directors may be counted
in determining the presence of a quorum at a meeting of the Board
of Directors or committee which authorizes or ratifies such
contract, transaction or determination. The interested directors
shall not be disqualified from voting as shareholders for
ratification or approval of such contract, transaction or
determination.
(c) None of the provisions of this section shall
invalidate any contract, transaction or determination which would
otherwise be valid under applicable law.
2.13 Removal. All or any number of the directors may be
removed, with or without cause, at a meeting called expressly for
that purpose, by a vote of the holders of a majority of the shares
then entitled to vote at an election of directors.
ARTICLE III
EXECUTIVE COMMITTEE
3.1 Designation. The Board of Directors may designate two
or more directors to constitute an executive committee. The
designation of an executive committee, and the delegation of
authority to it, shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed by
law. No member of the executive committee shall continue to be a
member thereof after ceasing to be a director of the corporation.
The Board of Directors shall have the power at any time to
increase or decrease the number of members of the executive
committee, to fill vacancies thereon, to change any member thereof
and to change the functions or terminate the existence thereof.
3.2 Powers. During the interval between meetings of the
Board of Directors, and subject to such limitations as may be
imposed by resolution of the Board of Directors, the executive
committee may have and may exercise all the authority of the Board
of Directors in the management of the corporation, provided that
the executive committee shall not have the authority of the Board
of Directors in reference to amending the articles of
incorporation; adopting a plan of merger or consolidation;
recommending to the shareholders the sale, lease, exchange,
mortgage, pledge or other disposition of all or substantially all
the property and assets of the corporation otherwise than in the
usual regular course of its business; recommending to the
shareholders a voluntary dissolution of the corporation or a
revocation thereof; or amending the bylaws of the corporation.
3.3 Procedures; Meetings; Quorum.
(a) The Board of Directors shall appoint a chairman
from among the members of the executive committee and shall
appoint a secretary who may, but need not, be a member of the
executive committee. The chairman shall preside at all meetings
of the executive committee and the secretary of the executive
committee shall keep a record of its acts and proceedings.
(b) Regular meetings of the executive committee, of
which no notice shall be necessary, shall be held on such days and
at such places as shall be fixed by resolution adopted by the
executive committee. Special meetings of the executive committee
shall be called at the request of the President or of any member
of the executive committee, and shall be held upon such notice as
is required by these bylaws for special meetings of the Board of
Directors, provided that notice by word of mouth or telephone
shall be sufficient if received in the city where the meeting is
to be held not later than the day immediately preceding the day of
the meeting.
(c) Attendance of any member of the executive
committee at a meeting shall constitute a waiver of notice of the
meeting. A majority of the executive committee, from time to
time, shall be necessary to constitute a quorum for the
transaction of any business, and the act of a majority of the
members present at a meeting at which a quorum is present shall be
the act of the executive committee. Members of the executive
committee may hold a meeting of such committee by means of
conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each
other, and participation in such a meeting shall constitute
presence in person at the meeting.
(d) Any action which may be taken at a meeting of
the executive committee may be taken without a meeting if a
consent in writing setting forth the actions so taken shall be
signed by all members of the executive committee entitled to vote
with respect to the subject matter thereof. The action shall be
effective on the date when the last signature is placed on the
consent or at such earlier time as is set forth therein. The
consent shall have the same effect as a unanimous vote of the
executive committee.
(e) The Board of Directors may vote to pay the
members of the executive committee a reasonable fee as
compensation for attendance at meetings of the executive
committee.
ARTICLE IV
OFFICERS
4.1 Number. The officers of the corporation shall be a
Chairman of the Board, President and Chief Executive Officer, one
or more Executive Vice Presidents, one or more Vice Presidents, a
Secretary, and a Treasurer. Such other officers and assistant
officers as may be deemed necessary may be appointed by the Board
of Directors and shall have such powers and duties as may be
prescribed by the Board of Directors. Any two or more offices may
be held by the same person.
4.2 Election and Term of Office. The officers of the
corporation shall be appointed annually by the Board of Directors
at the first meeting of the Board of Directors held after the
annual meeting of the shareholders. If the appointment of
officers shall not be held at the meeting, it shall be held as
soon thereafter as is convenient. Each officer shall hold office
until a successor shall have been duly appointed and shall have
qualified or until the officer's death, resignation or removal in
the manner hereinafter provided.
4.3 Removal. Any officer or agent appointed by the Board
of Directors may be removed by the Board of Directors whenever in
its judgment the best interests of the corporation would be served
thereby, but removal shall be without prejudice to the contract
rights, if any, of the person so removed. Appointment of an
officer or agent shall not of itself create contract rights.
4.4 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled
by the Board of Directors for the unexpired portion of the term.
4.5 Chairman of the Board. The Chairman of the Board of
Directors shall preside at all meetings of the Board of Directors
and shall perform such other duties as may be prescribed from time
to time by the Board of Directors. In the absence of the Chairman
of the Board or in the event of the death, inability or refusal to
act of the Chairman of the Board, the Board shall appoint an
acting chair from the remaining directors; the acting chair shall
preside at all meetings of the Board of Directors until the return
of the Chairman of the Board or until a new Chairman of the Board
is selected.
4.6 President and Chief Executive Officer. The President
and Chief Executive Officer (herein referred to as the
"President") shall be the chief executive officer of the
corporation and shall be in general charge of its business and
affairs, subject to the control of the Board of Directors. The
President shall preside at all meetings of the shareholders. The
President may execute on behalf of the corporation all contracts,
agreements, stock certificates and other instruments, including
all contracts, agreements and instruments calling for the
signature of the president of the corporation. The President
shall from time to time report to the Board of Directors all
matters within the President's knowledge affecting the corporation
which should be brought to the attention of the Board. The
President may vote all shares of stock in other corporations owned
by the corporation and shall be empowered to execute proxies,
waivers of notice, consents and other instruments in the name of
the corporation with respect to such stock. The President shall
perform such other duties as may be required by the Board of
Directors.
4.7 Executive Vice President. In the absence of the
President, or in the event of the President's death, inability or
refusal to act, the Executive Vice President (or, if there is more
than one Executive Vice President, the Executive Vice Presidents,
in the order designated by the Board of Directors) shall perform
the duties of the President, and when so acting, shall have all of
the powers of and be subject to all restrictions upon the
President. The Executive Vice Presidents may vote all shares of
stock in other corporations owned by the corporation and shall be
empowered to execute proxies, waivers of notice, consents and
other instruments in the name of the corporation with respect to
such stock. The Executive Vice Presidents shall perform such
other duties as may be assigned from time to time by the President
or by the Board of Directors.
4.8 Vice Presidents. In the absence of the Executive Vice
President or in the event of the death, inability or refusal to
act of the Executive Vice President, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents
in the order designated at the time of their appointment, or in
the absence of any designation, then in the order of their
appointment) shall perform the duties of the Executive Vice
President, and when so acting shall have all of the powers of, and
be subject to all the restrictions upon, the Executive Vice
President. Any Vice President shall perform such other duties as
may be assigned from time to time by the President or the Board of
Directors.
4.9 Secretary. The Secretary shall keep the minutes of
all meetings of the directors and shareholders, and shall have
custody of the minute books and other records pertaining to the
corporate business. The Secretary may vote all shares of stock in
other corporations owned by the corporation and shall be empowered
to execute proxies, waivers of notice, consents and other
instruments in the name of the corporation with respect to such
stock. The Secretary shall countersign all stock certificates and
other instruments requiring the seal of the corporation and shall
perform such other duties as may be required by the Board of
Directors.
4.10 Treasurer. The Treasurer shall be the chief
financial and accounting officer of the corporation. The
Treasurer shall keep correct and complete records of accounts
showing the financial condition of the corporation. The Treasurer
shall be legal custodian of all moneys, notes, securities and
other valuables that may come into the possession of the
corporation. The Treasurer shall deposit all funds of the
corporation which come into the Treasurer's hands in depositories
which the Board of Directors may designate. The Treasurer shall
pay the funds out only on the check of the corporation signed in
the manner authorized by the Board of Directors. The Treasurer
shall perform such other duties as the Board of Directors may
require.
4.11 Salaries. The salaries of officers shall be fixed
from time to time by the Board of Directors and no officer shall
be prevented from receiving such salary because the officer is
also a director of the corporation.
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES
AND OTHER AGENTS
5.1 Directors and Officers. The corporation shall
indemnify its directors and officers to the fullest extent
permitted by the Oregon Business Corporation Act (Act), as the
same exists or may hereafter be amended (but, in the case of
alleged occurrences of actions or omissions preceding any such
amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than the Act
permitted the corporation to provide prior to such amendment).
5.2 Employees and Other Agents. The corporation shall
have power to indemnify its employees and other agents as set
forth in the Act.
5.3 No Presumption of Bad Faith. The termination of any
proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent shall not, of itself,
create a presumption that the person did not act in good faith and
in a manner which the person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with
respect to any criminal proceeding, that the person had reasonable
cause to believe that the conduct was unlawful.
5.4 Advances of Expenses. The expenses incurred by a
director or officer in any proceeding shall be paid by the
corporation in advance at the written request of the director or
officer, if the director or officer:
(a) furnishes the corporation a written affirmation
of such person's good faith belief that such person is entitled to
be indemnified by the corporation; and
(b) furnishes the corporation a written undertaking
to repay such advance to the extent that it is ultimately
determined by a court that such person is not entitled to be
indemnified by the corporation. Such advances shall be made
without regard to the person's ability to repay such expenses and
without regard to the person's ultimate entitlement to
indemnification under this bylaw or otherwise.
5.5 Enforcement. Without the necessity of entering into
an express contract, all rights to indemnification and advances
under this bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract
between the corporation and the director or officer who serves in
such capacity at any time while this bylaw and relevant provisions
of the Act and other applicable law, if any, are in effect. Any
right to indemnification or advances granted by this bylaw to a
director or officer shall be enforceable by or on behalf of the
person holding such right in any court of competent jurisdiction
if (a) the claim for indemnification or advances is denied, in
whole or in part, or (b) no disposition of such claim is made
within ninety (90) days of request therefor. The claimant in such
enforcement action, if successful in whole or in part, shall be
entitled to be paid also the expense of prosecuting a claim. It
shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection
with any proceeding in advance of its final disposition when the
required affirmation and undertaking have been tendered to the
corporation) that the claimant has not met the standards of
conduct which make it permissible under the Act for the
corporation to indemnify the claimant for the amount claimed, but
the burden of proving such defense shall be on the corporation.
Neither the failure of the corporation (including its Board of
Directors, independent legal counsel or its shareholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances
because the claimant has met the applicable standard of conduct
set forth in the Act, nor an actual determination by the
corporation (including its Board of Directors, independent legal
counsel or its shareholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action
or create a presumption that the claimant has not met the
applicable standard of conduct.
5.6 Non-Exclusivity of Rights. The rights conferred on
any person by this bylaw shall not be exclusive of any other right
which such person may have or hereafter acquire under any statute,
provision of the Articles of Incorporation, bylaws, agreement,
vote of shareholders or disinterested Directors or otherwise, both
as to action in the person's official capacity and as to action in
another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with
any or all of its directors, officers, employees or agents
respecting indemnification and advances, to the fullest extent
permitted by the law.
5.7 Survival of Rights. The rights conferred on any
person by this bylaw shall continue as to a person who has ceased
to be a director, officer, employee or other agent and shall inure
to the benefit of the heirs, executors and administrators of such
a person.
5.8 Insurance. To the fullest extent permitted by the
Act, the corporation, upon approval by the Board of Directors, may
purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this bylaw.
5.9 Amendments. Any repeal of this bylaw shall only be
prospective and no repeal or modification hereof shall adversely
affect the rights under this bylaw in effect at the time of the
alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
5.10 Savings Clause. If this bylaw or any portion hereof
shall be invalidated on any ground by any court of competent
jurisdiction, the corporation shall indemnify each director,
officer or other agent to the fullest extent permitted by any
applicable portion of this bylaw that shall not have been
invalidated, or by any other applicable law.
5.11 Certain Definitions. For the purposes of this bylaw,
the following definitions shall apply:
(a) The term "proceeding" shall be broadly
construed and shall include, without limitation, the
investigation, preparation, prosecution, defense, settlement and
appeal of any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative.
(b) The term "expenses" shall be broadly
construed and shall include, without limitation, expense of
investigations, judicial or administrative proceedings or appeals,
attorneys' fees and disbursements and any expenses of establishing
a right to indemnification under Section 5.5 of this bylaw, but
shall not include amounts paid in settlement, judgments or fines.
(c) The term "corporation" shall include, in
addition to the resulting or surviving corporation, any
constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this bylaw with
respect to the resulting or surviving corporation as the person
would have with respect to such constituent corporation if its
separate existence had continued.
(d) References to a "director," "officer,"
"employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request
of the corporation as a director, officer, employee, trustee or
agent of another corporation, partnership, joint venture, trust or
other enterprise.
(e) References to "other enterprises" shall
include employee benefit plans; references to "fines" in the Act
shall include any excise taxes assessed on a person with respect
to an employee benefit plan; and references to "serving at the
request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted
in good faith and in a manner the person reasonably believed to
be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner
"not opposed to the best interests of the corporation" as referred
to in this bylaw.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 Certificates for Shares.
(a) Certificates representing shares of the
corporation shall be in such form as shall be determined by the
Board of Directors. Such certificates shall be signed by the
President or a Vice President and by the Secretary or an Assistant
Secretary and may be sealed with the seal of the corporation or a
facsimile thereof. All certificates for shares shall be
consecutively numbered or otherwise identified.
(b) The name and address of the person to whom the
shares represented thereby are issued, with the number of shares
and date of issue, shall be entered on the stock transfer books of
the corporation. All certificates surrendered to the corporation
for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares
shall have been surrendered and cancelled, except that in case of
a lost, destroyed or mutilated certificate a new one may be issued
therefor upon such terms and indemnity to the corporation as the
Board of Directors may prescribe.
6.2 Transfer of Shares. Transfer of shares of the
corporation shall be made only on the stock transfer books of the
corporation by the holder of record thereof or by the holder's
legal representative, who shall furnish proper evidence of
authority to transfer, or by the holder's attorney thereunto
authorized by power of attorney duly executed and filed with the
Secretary of the corporation. The person in whose name shares
stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
6.3 Transfer Agent and Registrar. The Board of Directors
may from time to time appoint one or more Transfer Agents and one
or more Registrars for the shares of the corporation, with such
powers and duties as the Board of Directors shall determine by
resolution. The signatures of the President or Vice President and
the Secretary or Assistant Secretary upon a certificate may be
facsimiles if the certificate is manually signed on behalf of a
Transfer Agent or by a Registrar other than the corporation itself
or an employee of the corporation.
6.4 Officer Ceasing to Act. In case any officer who has
signed or whose facsimile signature has been placed upon a stock
certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the corporation with
the same effect as if the signer were such officer at the date of
its issuance.
6.5 Fractional Shares. The corporation shall not issue
certificates for fractional shares.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND OTHER INSTRUMENTS
7.1 Contracts. The Board of Directors may authorize any
officer or officers and agent or agents to enter into any contract
or execute and deliver any instrument in the name of and on behalf
of the corporation, and such authority may be general or confined
to specific instances.
7.2 Loans. No loans shall be contracted on behalf of the
corporation and no evidence of indebtedness shall be issued in its
name unless authorized by a resolution of the Board of Directors.
Such authority may be general or confined to specific instances.
7.3 Checks, Drafts, etc. All checks, drafts or other
orders for the payment of money and notes or other evidences of
indebtedness issued in the name of the corporation shall be signed
by such officer or officers and agent or agents of the corporation
and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
ARTICLE VIII
SEAL
The seal of the corporation shall be circular in form and shall
have inscribed thereon the name of the corporation and the state
of incorporation and the words "Corporate Seal."
ARTICLE IX
AMENDMENTS
These bylaws may be altered, amended or repealed and new bylaws
may be adopted by the Board of Directors at any regular or special
meeting, subject to repeal or change by action of the shareholders
of the corporation.
ADOPTED BY THE BOARD OF DIRECTORS ON DECEMBER 3, 1981.
SECTION 2.2 WAS AMENDED ON MARCH 14, 1983. SECTIONS 2.2,
2.9 AND 4.1 WERE AMENDED, SECTIONS 4.5 AND 4.6 WERE
DELETED, NEW SECTIONS 4.5-4.9 WERE ADDED AND SECTIONS 4.7-
4.9 WERE RENUMBERED AS SECTIONS 4.10-4.12 ON DECEMBER 6,
1983, EFFECTIVE DECEMBER 30, 1983. SECTION 2.2 WAS
AMENDED ON APRIL 12, 1984. SECTIONS 4.1 AND 4.8 WERE
AMENDED ON OCTOBER 11, 1984. SECTION 1.1 WAS AMENDED ON
FEBRUARY 20, 1986. SECTION V WAS DELETED AND SECTION 5.1-
5.11 WERE ADDED ON MAY 20, 1987. THE BYLAWS WERE RESTATED
BY THE BOARD OF DIRECTORS ON OCTOBER 21, 1987. SECTIONS
1.5 AND 1.7 WERE AMENDED AND SECTION 1.13 WAS ADDED ON
JANUARY 28, 1988. SECTIONS 1.10, 4.1-4.3, 4.5-4.12 WERE
AMENDED ON JULY 11, 1989. SECTIONS 1.1, 4.1, 4.5 AND 4.8
WERE AMENDED, SECTION 4.7 WAS DELETED, A NEW SECTION 4.6
WAS ADDED AND SECTIONS 4.6 AND 4.8-4.11 WERE RENUMBERED ON
DECEMBER 6, 1990. SECTION 2.2 WAS AMENDED ON JULY 24,
1991. SECTION 2.2 WAS AMENDED ON JUNE 30, 1992. SECTION
2.2 WAS AMENDED ON JULY 19, 1992. SECTION 2.2 WAS AMENDED
ON MARCH 22, 1993. SECTION 2.2 WAS AMENDED ON MAY 28,
1993.
EXHIBIT 10.E
Non-Employee Director Stock Option
April 27, 1993
1
100,000 shares $1.00 per share
STOCK OPTION AGREEMENT
Mentor Graphics Corporation
1986 Stock Option Plan
October 19, 1993
Mentor Graphics Corporation
an Oregon corporation
8005 S.W. Boeckman Road
Wilsonville, Oregon 97070-7777 Company
Walden C. Rhines
9963 Rockbrook
Dallas, Texas 75220 Optionee
The Company is pleased to inform you that it has granted you a
nonqualified stock option to purchase shares under its 1986 Stock
Option Plan (1986 Plan). The 1986 Plan is administered by
the Compensation Committee (Committee) of the Board of Directors
for the benefit of non-employee directors of the Company.
The option agreement is as follows:
1. Grant of Option. The Company grants to you an option to
purchase 100,000 shares of the
Company's common stock for $1.00 per share.
2. Vesting Provisions; Change in Control.
2.1 This option is fully vested and will terminate on
October 19, 2003, unless it is
earlier terminated as provided below.
2.2 Until it expires or is terminated and except as
provided in 2.4 or 2.5, you may
exercise this option from time to time to purchase shares up to
the following limits:
Years After 4/27/93 Percent Exercisable
Less than 1 0%
1 to 2 20%
2 to 3 40%
3 to 4 60%
4 to 5 80%
over 5 100%
2.3 The table in 2.2 is based on an
Option Year. An Option Year is a 12-month period
starting on the date specified in the table or an anniversary of
that date.
2.4 On death the exercise limit will be at least 50
percent.
2.5 Upon the occurrence of a Change in
Control, this option shall automatically become exercisable in
full for the remainder of its term. "Change in Control" means the
occurrence of any of the following events:
2.5.1 the approval by the Company's shareholders
of:
(a) any consolidation, merger or plan of
share exchange involving the Company (Merger) in which the Company
is not the continuing or surviving corporation or
pursuant to which shares of Common Stock would be converted into
cash, securities or other property, other than a Merger involving
the Company in which the holders of the Company's Common Stock
immediately prior to the Merger have the same proportionate
ownership of Common Stock of the surviving corporation immediately
after the Merger;
(b) any sale, lease,
exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, the assets of
the Company; or
(c) the adoption of any plan
or proposal for the liquidation or
dissolution of the Company;
2.5.2 at any time during a period of two
consecutive years, individuals who at the beginning of such period
constituted the Board of Directors (Incumbent Directors) shall
cease for any reason to constitute at least a majority thereof,
unless each new director elected during such two-year period was
nominated or appointed by two-thirds of the Incumbent Directors
then in office and voting (new directors nominated or appointed by
two-thirds of the Incumbent Directors shall also be deemed to be
Incumbent Directors); or
2.5.3 any person (as such term is used in Section
13(d) of the Securities Exchange Act of 1934 (1934 Act) shall, as
a result of a tender or exchange offer, open market
purchases, privately negotiated purchases or otherwise, have
become the beneficial owner (within the meaning of Rule 13d-3
under the 1934 Act), directly or indirectly, of securities of the
Company ordinarily having the right to vote in the election of
directors (Voting Securities) representing twenty percent (20%) or
more of the combined voting power of the then outstanding Voting
Securities.
3. Limited Stock Appreciation Rights.
3.1 This option is granted in tandem with a limited stock
appreciation right.
3.2 The limited stock appreciation right shall entitle
you to receive from the Company an amount equal to the excess of
the fair market value at the time of exercise of one share of the
Company's Common Stock over the option price per share under this
option, multiplied by the number of shares exercised pursuant to
the limited stock appreciation right.
3.3 The limited stock appreciation right
shall be exercisable only during the 60 calendar
days immediately following a Change in Control and only if the
immediate resale of shares acquired upon exercise of this option
would subject you to liability under Section 16(b) of the 1934
Act, provided, however, that the limited stock appreciation right
may not be exercised within six months of its date of grant. Upon
exercise of the limited stock appreciation right, the option or
portion thereof to which the right relates must be surrendered.
3.4 Payment upon exercise of the limited
stock appreciation right by the Company may
be made only in cash.
3.5 The limited stock appreciation right
may not be assigned or transferred except on
death, by will or operation of law and may be exercised only by
you or by your successor or
representative after death.
4. Exercise Requirements.
4.1 If you cease to be a director for any reason, the
Company will establish an Option Reference Date. Any portion of
the option that is not exercisable on the Option Reference Date
will lapse. The Company will fix the Option Reference Date as
follows:
4.1.1 If you cease to be a director because of
death or disability, the first day of the next Option Year will be
the Option Reference Date. You are disabled if as a result of
illness or injury you suffer from a condition of mind or body that
permanently prevents you from serving in your capacity as a
director. The Committee will conclusively determine disability.
4.1.2 If 4.1.1 does not apply, the Option Reference
Date will be your last day as a director.
4.2 You may exercise any portion of the option that is
exercisable on the Option Reference Date up to the earlier of the
date in 2.1 or a date fixed as follows:
4.2.1 On death or disability - one year
after your last day as a director.
4.2.2 If 4.2.1 does not apply - one month after the
Option Reference Date.
5. Nonassignability. You may not assign or transfer
this option except on death, by will or
operation of law. Only you or your successor or representative
after death may exercise this
option.
6. Method of Exercise; Closing.
6.1 You may exercise this option by
written notice to the Company, attention: General Counsel, stating
the number of shares you want to buy and the proposed date of
closing. Unless otherwise agreed to by you and the Company, the
Company will fix the date of closing as the date
the Company receives your exercise notice or the date the Company
receives full payment for the shares, whichever is later.
6.2 You or your successor purchaser must
furnish to the Company before closing such
other documents or representations as the Company may require to
assure compliance with
applicable laws and regulations.
6.3 You must pay the full purchase price
in cash or by delivery of Company stock at or
before closing. The Company will not issue any of the purchased
shares and you will not have
shareholder rights in them until you have made full payment.
6.4 The Company will value stock you
deliver in payment of the option in accordance
with Section 7.5 of the Plan.
6.5 You, or your successor purchaser, must deposit
sufficient funds with the Company at closing to cover any income
or other taxes to be withheld on account of the exercise. If
funds are not deposited or other arrangements made forwithholding,
the Company may refuse to close or may retain shares having a
value equal to the amount it is required to withhold. If, after
closing, withholding becomes required beyond any amount deposited
at closing, you, or your successor purchaser, will pay such amount
to the Company on demand.
7. Changes in Capital Structure.
7.1 If any change is made in the outstanding common
shares of the Company without the Company's receiving any
consideration, the Company will make a corresponding change in the
shares under this option so that you will be in the same position
after exercise of the option as would have been the case if you
had exercised the option before the change. The Company will
not change the total purchase price for the unexercised portion of
the option. The Company will disregard fractional shares.
7.2 If the Company consolidates with another corporation
or merges into another corporation, this will be a change to which
7.1 applies. The new corporation will revise the option
or issue a new option giving you an equivalent right to buy the
shares of the new corporation.
7.3 The Board will make the adjustment under 7.1 or 7.2
and its determination will be conclusive.
8. Successorship. Subject to the limits in 5, this agreement
will be binding upon and benefit the parties, their successors and
assigns.
9. Notices. Any notices under this option must be in
writing and will be effective when actually delivered or, if
mailed, when deposited postpaid. Each party shall direct mail to
the address stated in this option or to such other address as a
party may certify by notice to the other party. Each party will
send notices to the Board at the Company's address
MENTOR GRAPHICS CORPORATION OPTIONEE
By:___________________________ ___________________________
Frank S. Delia Marsha B. Congdon
Vice President and Chief
Administrative Officer
EXHIBIT 13
Selected Consolidated Financial Data
Year ended December31, 1993 1992 1991 1990 1989
In thousands, except per share data and percentages
Statement of Operations Data
Total revenues $339,775 $350,766 $400,127 $435,185 $426,359
Research and development
expense $ 77,598 $ 73,947 $ 79,539 $ 76,315 $ 70,891
Operating income
(loss) $(29,392)$(40,732) $(60,501) $ 20,715 $ 60,150
Net income
(loss) $(32,073)$(50,861) $(61,613) $ 23,625 $ 45,539
Gross margin percent 64.6% 56.4% 50.0% 58.3% 60.4%
Operating income(loss)
as a percent
of total revenues (8.7%) (11.6%) (15.1%) 4.8% 14.1%
Per Share Data
Net income (loss)
per common and
common equivalent
share $ (.69)$ (1.13) $ (1.43) $ .53 $ 1.06
Cash dividends
per common share
outstanding $ .18 $ .24 $ .24 $ .22 $ .15
Weighted average
number of common
and common
equivalent shares
outstanding 46,410 45,142 43,153 44,833 43,073
Balance Sheet Data
As of December 31, 1993 1992 1991 1990 1989
Cash and short-term
investments $109,568 $108,783 $144,022 $161,755 $160,343
Cash and investments,
long-term $ 30,000 $ 30,000 $ ^ $ ^ $ ^
Working capital $ 96,336 $108,892 $169,875 $208,223 $209,734
Property, plant and equipment,
net $104,912 $109,580 $114,213 $ 62,438 $ 51,563
Construction in
progress $ ^ $ ^ $ 1,156 $ 60,603 $ 15,959
Total assets $353,584 $ 378,565 $445,661 $504,287 $406,382
Short-term
borrowings $ 6,364 $ 5,548 $ 4,511 $ 11,953 $ 9,933
Long-term debt $ 54,321 $ 55,709 $ 50,554 $ 50,167 $ 7,729
Stockholders^
equity $195,711 $221,406 $267,667 $326,419 $297,850
MANAGEMENT^S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Revenues and Gross Margins
1993 Change 1992 Change 1991
System and software
revenues $191,180 (10%) $ 212,397 (19%) $262,608
System and software
gross margins $138,879 7% $ 130,404 (10%) $145,694
Percentage of
revenues 72.6% 61.4% 55.5%
Service and support
revenues $148,595 7% $ 138,369 1% $137,519
Service and support
gross margins $ 80,704 20% $ 67,394 24% $ 54,387
Percentage of
revenues 54.3% 48.7% 39.5%
Total revenues $339,775 (3%) $350,766 (12%) $400,127
Total gross
margins $219,583 11% $197,798 (1%) $200,081
Percentage of
revenues 64.6% 56.4% 50.0%
System and Software
System and software revenues declined 10% from 1992 to 1993 and
19% from 1991 to 1992. The primary factors contributing to the
decline in system and software revenues include a significant
reduction in hardware revenues and a generally poor world-wide
economy, partially offset by the transition of customers to the
Company^s Version 8 software. During the last two years, the
Company has been executing a plan to exit from the hardware
business. This transition has been slow while the Company
attempted to meet the demands of some customers who prefer to
purchase their electronic design automation (EDA) solutions from
one vendor. The majority of the Company^s customers meet their
hardware needs by working directly with hardware vendors.
Hardware revenue is expected to become immaterial to the Company^s
financial statements in 1994.
The software component of system and software revenues
increased 14% from 1992. During the first quarter of 1993 the
Company shipped Version 8.2 of its software. This release
included enhanced performance and reliability and was a key factor
in the Company^s ability to increase the conversion of existing
customers. Customers who have transitioned or are in the process
of transitioning from Version 7 to Version 8 increased from 30% in
1992 to approximately 80% at the end of 1993. With a reliable
production quality release in place the Company will concentrate
more effort toward identifying and developing enhancement options
for the Version 8 software.
Revenues for the past three years continued to be negatively
impacted by a poor international economy. In 1993, the Company
experienced improved order activity in North America while
Japan and Europe results continued to reflect weakness. The
situation in Japan was particularly unfavorable as customers
remain extremely cautious in their capital spending. While
difficult to predict, the Company^s revenue will likely continue
to be negatively impacted by the economic recessions in Japan and
Europe.
System and software gross margin percentage improvements in
1993 and 1992 are a result of increased software versus hardware
sales each year. This mix shift is expected to continue to
favorably impact gross margin percentage at a much less
accelerated rate as hardware product revenues will likely become
immaterial in 1994. Gross margins were negatively impacted by
amortization of previously capitalized software development costs
to system and software cost of revenues totalling $7,449, $5,875,
and $3,961 for 1993, 1992, and 1991, respectively. The
increase is the result of higher levels of capitalization during
development of Version 8 software products. In 1994,
amortization is expected to decrease as some Version 8 software
products become fully amortized.
Service and Support
The increase in service and support revenue in 1993 and 1992 is
attributable to continued growth in professional services and
continued customer acceptance of the Company^s software support
programs. The Company has focused resources in the past two years
on development of a professional service business which provides
consulting and training to meet customer needs for
comprehensive EDA solutions. The response to these services has
been favorable as many customers seek external help to improve
their EDA processes. In 1993, the Company received
several large orders for combined software and services.
Increased professional service revenue is expected in 1994 based
on anticipated growth in customer demand.
The Company also recognized a one-time benefit from an
individual service contract in the third quarter of 1993
increasing service and support revenue by $2,100. These positive
factors were offset by reduced hardware service revenues as the
Company continued to deemphasize hardware-related activities.
Service and support gross margins have improved in 1993 and
1992 as a result of exiting the hardware service business and
focusing on higher margin software support. The Company also
experienced lower software update costs by implementing CD ROM
technology for paperless documentation, and reducing the number of
major update releases in the last two years.
Consistent with consulting and training business models, gross
margins generated by the Company^s professional services
activities have been, and are expected to continue to be, lower
than software support. Lower overall service and support gross
margins are anticipated as growth in the professional service
business is expected to be higher than growth in software support.
Operating Expense
1993 Change 1992 Change 1991
Research and
development $ 77,598 5% $ 73,947 (7%) $ 79,539
Percentage of total
revenues 22.8% 21.1% 19.9%
Marketing, general, and
administration $146,577 (3%) $151,683 (1%) $153,943
Percentage of total
revenues 43.1% 43.2% 38.5%
Restructure costs $ 24,800 92% $ 12,900 (52%) $ 27,100
Percentage of total
revenues 7.3% 3.7% 6.8%
Research and Development
Gross research and development (R&D) costs were $81,207 for
1993, a 1% increase from 1992 and a 9% reduction from 1991. R&D
expenditures were approximately flat in 1993 while the Company
focused on performance improvements of its Version 8 software
release. Offsetting these expenses was a reduction in headcount
for the year due to voluntary attrition.
1992 gross R&D costs were reduced from 1991 as a result of
lower headcount due to Company restructuring. In addition, 1991
R&D costs included a charge of $2,106 related to the write-off of
previously purchased technology.
During 1993, the Company capitalized R&D costs of $3,609,
compared to $6,120 and $9,917 for 1992 and 1991, respectively.
The decline in R&D capitalization during 1993 relates to
substantial completion of development activities associated with
Version 8, a focus on performance improvements, and an effort
toward transition of customers to the new software. Capitalization
is expected to increase in 1994 as more resources are directed
toward development of new products and enhancement of existing
products.
Gross R&D costs are expected to decline from 1993 levels due to
the Company restructuring plan approved in December 1993. See
Restructuring Costs discussion below. These cost savings are
expected to be realized in phases throughout 1994 as product group
management will execute separate plans to meet their 1994
financial goals. Also, improvement of product development
processes are expected to increase productivity in the coming
year. Negatively impacting R&D expenses will be the lifting of
the October 1992 Company-wide salary freeze, which occurred in the
third quarter of 1993. Maintaining a competitive salary structure
is a stated goal of management.
Marketing, General, and Administration
Marketing, general and administration (MG&A) expenses were
$146,577 for 1993, a 3% and 5% reduction from 1992 and 1991,
respectively. The decline in 1993 represents continued headcount
reductions due to voluntary attrition, partially offset by
increased recruiting costs associated with the successful hiring
of several key management positions.
In 1994, MG&A expenses are expected to decline as actions
associated with the December 1993 restructuring take place.
Negatively impacting MG&A expenses will be the lifting of the
October 1992 Company-wide salary freeze. Also, the Company will
experience additional costs for implementation of a new global
information system in the coming year. This system is expected to
significantly improve management^s ability to capture and analyze
financial and non-financial data.
Restructuring Costs
In December 1993, management of the Company approved a
restructuring plan aimed at reducing operating expenses by
streamlining and reorganizing Company operations. Restructure
costs of $24,800 to be incurred in executing this plan were
recognized in 1993. These costs consist primarily of costs
directly related to the severance and relocation of employees,
facilities closures, and write-offs of excess equipment and
intangible software technology assets related to discontinued
product development activities. The plan will be implemented in
phases throughout 1994. The plan will be carried out within
divisional and regional units based on their individual
business plans.
In 1994, implementation of the restructuring plan is expected
to reduce expenses by approximately $10,000 which may be partially
offset by increased expenditures in other areas. When all
elements of the restructuring plan have been fully implemented,
the Company expects future costs and expenses to be reduced even
further. Also, approximately $22,000 of the 1993 restructure
charge is expected to result in cash expenditures in 1994.
Spending associated with certain facilities closures may extend
beyond 1994.
In August 1992 and 1991, the Company executed
restructuring plans aimed at improving its focus on the core
businesses of integrated circuit design and electronic
systems design. Costs associated with the restructurings of
$12,900 and $27,100 were recognized in 1992 and 1991,
respectively. Restructuring costs included direct costs related
to the severance and relocation of employees, consolidation of
facilities, and write-offs of intangible software technology
assets related to discontinued product lines. The 1991 charge was
offset by a net gain on the sale of certain assets and the
subcontracting of the Company^s North America hardware service
business to Hewlett-Packard Company. See note 2 of Notes to
Consolidated Financial Statements.
Other Income (Expense)
1993 Change 1992 Change 1991
Interest income $ 4,338 (18%) $ 5,284 (46%) $ 9,800
Interest expense $ (4,404) (19%) $ (5,469) 1% $(5,428)
Contract settlement$ ^ ^ $ (6,150) ^ $ ^
Write-off of
non-operating
items $ ^ ^ $ (1,148) (85%) $(7,838)
Life insurance
proceeds $ ^ ^ $ ^ ^ $ 1,000
Other Income (Expense)
Interest income has declined significantly in the last three
years due to reduced average cash balances and much lower interest
rates on investments. Interest expense declined significantly in
1993 as a result of a reduction in the notional amount of the
Company^s interest rate swap agreement from $50,000 to $17,500,
and lower average debt outstanding through management of
the Company^s long-term committed revolving credit facility. The
reduction in notional amount results in subjecting $32,500 of
borrowings to more favorable floating rates. The interest rate
swap agreement converts floating rates on the remaining borrowings
of $17,500 to a fixed rate of 9.55%. 1992 interest expense was
relatively flat with 1991 levels, primarily a result of the
interest rate swap agreement which essentially fixed interest
rates on $50,000 of borrowings in each year.
Other expense for 1992 includes a charge of $6,150 related to
termination of a contractual relationship with a third-party
software supplier. The Company paid $4,250 in the fourth quarter
of 1992 and took a write-off of $1,900 in balance sheet amounts
related to the contract. In exchange, the supplier relinquished
all future claims against the Company, including cancellation of
the obligation to pay royalties on sales of certain products
through September 30, 1994. Other expense also includes write-
downs for certain non-operating assets to net realizable value,
totaling $1,148 and $7,838 for 1992 and 1991, respectively. In
addition, the Company recorded a one-time benefit of $1,000 in
other income related to the proceeds received from a key-man life
insurance policy during 1991. The Company is not the beneficiary
of any other life insurance policy on any employee.
Provision (Benefit) for Income Taxes
The provision for income taxes was $2,424 and $2,590 in 1993
and 1992, respectively. The Company recorded a benefit for income
taxes of $1,390 in 1991. The Company^s income tax position for
each year combines the effects of available tax benefits in
certain countries where the Company does business, benefits from
available net operating loss carrybacks, and tax expense for
subsidiaries with pre-tax income. As such, the Company^s income
tax position and resultant effective tax rate is uncertain in
1994.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, ^Accounting for Income
Taxes.^ The cumulative effect of the change in the method of
accounting for income taxes was not material to the Company^s
financial statements, and is therefore not disclosed separately in
the Consolidated Statement of Operations for the year ended
December 31, 1993.
Effects of Foreign Currency Fluctuations
The Company experienced net gains from foreign currency
transactions of $247, $297 and $827 in 1993, 1992 and 1991,
respectively. These amounts are composed of realized gains and
losses on cash transactions involving various foreign currencies,
and unrealized gains and losses related to foreign currency
receivables and payables resulting from exchange rate fluctuations
between the various currencies in which the Company operates.
Foreign currency gains and losses are included as a component of
other income and expense.
The ^foreign currency translation adjustment,^ as reported in
the stockholders^ equity section of the Consolidated Balance
Sheets, increased to $7,539 at December 31, 1993, from $5,467 at
the end of 1992. This reflects the increase in the value of net
assets denominated in foreign currencies since year-end 1992, as a
result of a weaker U.S. dollar at the close of 1993.
During 1993 and 1992, the U.S. dollar was volatile against the
European currencies in which the Company does business, primarily
the Deutsche mark, British pound, and French franc. The U.S.
dollar strengthened relative to the European currencies during the
first three months and last six months of the year. The dollar
weakened when compared to the yen during the first nine months of
1993 and rebounded slightly in the fourth quarter. Foreign
currency fluctuations in Europe and Japan resulted in a slightly
weaker U.S. dollar overall during 1993. A weaker U.S. dollar
results in the Company^s products being more affordable in foreign
markets, which generally results in favorable economics for the
Company. The weakening of the dollar relative to the foreign
currencies also has a positive impact on revenues as local
currency revenues translate into more U.S. dollars. However, this
translation also results in higher reported expenses in U.S.
dollar terms.
In 1994, the Company implemented a hedging strategy focused on
further reducing its exposure to foreign currency exchange rate
fluctuations. This strategy effectively hedges a percentage of
anticipated future foreign currency revenues against exchange rate
fluctuations. The Company generates approximately half of its
revenues outside of the United States and expects this to
continue in the future. As such, the Company^s business and
operating results will continue to be impacted by the effects of
future foreign currency fluctuations.
Liquidity and Capital Resources
Year Ended December 31, 1993 1992 1991
Cash and short-term investments $109,568 $108,783 $144,022
Cash and investments, long-term $ 30,000 $ 30,000 $ ^
Inventory $ 2,299 $ 9,683 $ 23,329
Other assets $ 20,584 $ 30,998 $ 35,885
Long-term debt $ 54,321 $ 55,709 $ 50,554
Cash provided by operating activities $ 25,289 $ 13,610 $ 30,790
Cash used for investing activities,
excluding short-term investments $(26,754) $(29,559)$(42,172)
Cash provided (used)
by financing activities $ 1,862 $(18,354)$ (6,429)
Cash and Investments
Total cash and investments remained relatively flat with an
increase of $785 during 1993. Cash provided by operating
activities was $25,289, an increase of $11,679 from 1992.
Negatively impacting cash provided by operating activities was the
net loss incurred for the year and reductions in accounts payable.
These uses of cash were offset by a reduction in trade accounts
receivable, continued transition out of the hardware business
resulting in lower inventory levels, and increased accrued
liabilities associated with the year-endrestructuring.
Cash and short-term investments were positively impacted by the
proceeds from issuance of common stock upon exercise of stock
options and employee stock plan purchases in the amount of
$10,672. This increase was offset by dividends paid to
stockholders during 1993 of $8,291. See Dividends discussion
below. In addition, the Company spent $22,790 for property, plant
and equipment which was primarily UNIX-based design environment
equipment. See Capital Resources discussion below.
Inventory
Inventory was down $7,384 from December 31, 1992 as a result of
the Company^s move away from selling hardware to emphasize
software sales. As this transition has been implemented, the
Company has instituted drop shipment programs to minimize the risk
of holding inventory for resale. Operating inventory levels are
near zero as the transition to a software-only business model is
in the final stages. Demonstration equipment included in
inventory amounted to $1,835 and $4,626 at December 31, 1993 and
1992, respectively.
Other Assets
Other assets were down $10,414 from December 31, 1992. Net
capitalized software development costs were lower by $4,364 as
amortization and restructuring-related write-offs exceeded
capitalization for the year. In September 1993, the Company
received a partial refund of a rent deposit totalling $4,800 as a
result of renegotiating a long-term office lease in Japan.
Capital Resources
Total capital expenditures decreased to $23,145 for 1993,
compared to $23,439 and $38,255 for 1992 and 1991, respectively.
Expenditures for property and equipment were $22,790 and $18,784
in 1993 and 1992, respectively. During 1992, the Company
continued its commitment to invest in a high quality software
development environment, purchasing the latest workstations for
engineers. In 1993, the Company made additional investments in
new computer equipment for development engineers as the Company^s
research and development efforts were fully transitioned to a
UNIX-based design environment. Future capital expenditure plans
include maintaining a state-of-the-art design environment for
research and development, maintaining updated sales demonstration
equipment, and implementing a new global information system.
Also, approximately $22,000 of the 1993 restructure charge of
$24,800 is expected to result in cash expenditures during 1994.
Spending associated with certain facilities closures may extend
beyond 1994.
Long-term Debt
Long-term debt decreased $1,388 from December 31, 1992. As of
December 31, 1993 the Company had no commercial paper outstanding
compared to borrowings of $3,096 as of December 31, 1992. The
Company does not anticipate issuing commercial paper in the
foreseeable future.
The Company had borrowings outstanding of $55,000 and $50,000
under its $55,000 committed revolving credit facility as of
December 31, 1993 and 1992 respectively. Due to required
commitment reductions of $840 annually beginning in July 1994, the
Company classified $840 of the credit facility borrowings as
current which are included in short-term borrowings on the
Consolidated Balance Sheet as of December 31, 1993.
During the third quarter of 1992, the Company^s Japanese
subsidiary entered into an agreement to borrow 300 million Yen
($2,681 and $2,405 at December 31, 1993 and 1992 exchange rates,
respectively). These borrowings mature on July 20, 1994 and have
a maximum interest rate of 5.95%. As such, the debt is classified
as current and is included in short-term borrowings on the
Consolidated Balance Sheet as of December 31, 1993.
Dividends
In October 1993, the Board of Directors voted to discontinue
paying a quarterly dividend to shareholders. The Company intends
to reinvest future earnings in opportunities for growth.
Dividends were paid during the first three quarters of 1993
totalling $8,291.
Consolidated Statements of Operations
Year ended December 31, 1993 1992 1991
In thousands, except per share data
Revenues:
System and software $191,180 $212,397 $262,608
Service and support 148,595 138,369 137,519
Total revenues 339,775 350,766 400,127
Cost of revenues:
System and software 52,301 81,993 116,914
Service and support 67,891 70,975 83,132
Total cost of revenues 120,192 152,968 200,046
Gross margin 219,583 197,798 200,081
Operating expenses:
Research and development (note 6) 77,598 73,947 79,539
Marketing, general, and
administration 146,577 151,683 153,943
Restructure costs (note 2) 24,800 12,900 27,100
Total operating expenses 248,975 238,530 260,582
Operating loss (29,392) (40,732) (60,501)
Other expense, net (note 12) (257) (7,539) (2,502)
Loss before income taxes (29,649) (48,271) (63,003)
Provision (benefit) for
income taxes (note 4) 2,424 2,590 (1,390)
Net loss $ (32,073)$ (50,861)$ (61,613)
Net loss per common
and common
equivalent share $ (.69)$ (1.13)$ (1.43)
Weighted average number
of common and
common equivalent shares
outstanding 46,410 45,142 43,153
See accompanying notes to consolidated financial statements.
Consolidated Balance Sheets
As of December 31, 1993 1992
In thousands
Assets
Current assets:
Cash and cash equivalents $ 95,958 $ 72,012
Short-term investments 13,610 36,771
Trade accounts receivable,
net of allowance for doubtful
accounts of $3,928 in 1993 and
$4,376 in 1992 72,655 75,604
Other receivables 4,167 4,678
Inventory 2,299 9,683
Prepaid expenses and other 9,399 9,239
Total current assets 198,088 207,987
Property, plant and equipment,
net (notes 5 and 8) 104,912 109,580
Cash and investments, long-term (note 8) 30,000 30,000
Other assets (note 6) 20,584 30,998
Total assets $353,584 $378,565
Liabilities and Stockholders^ Equity
Current liabilities:
Short-term borrowings
(notes 7 and 8) $ 6,364 $ 5,548
Accounts payable 10,637 17,185
Income taxes payable (note 4) 9,974 9,079
Accrued payroll and related
liabilities 14,162 12,043
Accrued restructure costs (note 2) 28,374 12,270
Accrued and other liabilities 14,603 17,122
Deferred revenue 17,638 25,848
Total current liabilities 101,752 99,095
Long-term debt (note 8) 54,321 55,709
Other long-term deferrals 1,800 2,355
Total liabilities 157,873 157,159
Stockholders^ equity: (notes 9 and 10)
Common stock, no par value, authorized
100,000 shares; 47,659 and 45,597
issued and outstanding
for 1993 and 1992,
respectively 243,951 231,354
Incentive stock, no par value,
authorized 1,200 shares;
none issued ^ ^
Accumulated deficit (55,779) (15,415)
Foreign currency translation
adjustment 7,539 5,467
Total stockholders^ equity 195,711 221,406
Commitments and contingencies (note 11)
Total liabilities and stockholders'
equity $ 353,584 $378,565
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Year ended December 31, 1993 1992 1991
In thousands
Operating Cash Flows:
Net loss $(32,073) $(50,861) $(61,613)
Adjustments to reconcile net
loss to net cash
provided by
operating activities:
Depreciation and
amortization of
property, plant
and equipment 27,600 25,750 29,701
Deferred taxes (259) 2,512 3,594
Amortization of other
assets 8,217 8,743 8,800
Amortization of nonqualified
stock options 1,418 237 676
Write-down of assets ^
restructure
(note 2) 524 935 7,895
Write-down of
assets ^ other 288 5,153 14,580
Changes in operating assets
and liabilities:
Trade accounts receivable 2,788 23,490 18,562
Inventory 7,771 13,934 593
Prepaid expenses
and other assets 6,623 9,409 (5,881)
Accounts payable (5,845) (9,383) 6,913
Accrued liabilities 16,634 (8,078) (606)
Other liabilities
and deferrals (8,397) (8,231) 7,576
Net cash provided by
operating activities 25,289 13,610 30,790
Investing Cash Flows:
Net maturities (purchases)
of short-term
investments 23,161 28,831 (4,888)
Purchases of property,
plant and equipment (22,790) (18,784) (31,235)
Capitalization of
software development
costs (3,609) (6,120) (9,917)
Development of corporate
facilities (355) (4,655) (7,020)
Proceeds from sale of
hardware service
business (note 2) ^ ^ 6,000
Net cash used by investing
activities (3,593) (728) (47,060)
Financing Cash Flows:
Proceeds from issuance
of common stock 11,179 16,074 10,864
Proceeds (repayment) of
short-term borrowings (89) 1,222 (6,836)
Proceeds (repayment) of
long-term debt (937) 5,176 (110)
Dividends paid to
stockholders (8,291) (10,826) (10,347)
Increase in cash and
investments, long-term ^ (30,000) ^
Net cash provided (used) by
financing activities 1,862 (18,354) (6,429)
Effect of exchange rate changes
on cash and cash
equivalents 388 (992) 181
Net change in cash and
cash equivalents 23,946 (6,464) (22,518)
Cash and cash equivalents at
beginning of period 72,012 78,476 100,994
Cash and cash equivalents
at end of period $ 95,958 $ 72,012 $78,476
See accompanying notes to consolidated financial statements.
Consolidated Statements of Stockholders' Equity
Retained Foreign Total
Earnings, Currency Stock-
Common Stock (Accumulated Translation holders^
In thousands,
except per
share data Shares Amount Deficit) Adjustment Equity
Balance at
December 31,
1990 42,397 $203,417 $118,232 $ 4,770 $326,419
Stock issued
under stock
option and
stock
purchase
plans 1,198 10,950 ^ ^ 10,950
Compensation
related to
nonqualified
stock
options
granted
(note 10) ^ 676 ^ ^ 676
Foreign currency
translation
adjustment ^ ^ ^ 1,582 1,582
Net loss ^ ^ (61,613) ^ (61,613)
Cash dividends
($.24 per common
share
outstanding) ^ ^ (10,347) ^ (10,347)
Balance at
December 31,
1991 43,595 215,043 46,272 6,352 267,667
Stock issued
under stock
option and
stock
purchase
plans 2,002 16,074 ^ ^ 16,074
Compensation
related to
nonqualified
stock options
granted
(note 10) ^ 237 ^ ^ 237
Foreign currency
translation
adjustment ^ ^ ^ (885) (885)
Net loss ^ ^ (50,861) ^ (50,861)
Cash dividends
($.24 per
common
share
outstanding) ^ ^ (10,826) ^ (10,826)
Balance at
December 31,
1992 45,597 231,354 (15,415) 5,467 221,406
Stock issued
under stock
option and
stock
purchase
plans 1,641 10,672 ^ ^ 10,672
Stock issued
for acquisition
of business
(note 3) 421 507 ^ ^ 507
Compensation
related to
nonqualified
stock options
granted
(note 10) ^ 1,418 ^ ^ 1,418
Foreign currency
translation
adjustment ^ ^ ^ 2,072 2,072
Net loss ^ ^ (32,073) ^ (32,073)
Cash dividends
($.18 per
common
share
outstanding) ^ ^ (8,291) ^ (8,291)
Balance at
December 31,
1993 47,659 $243,951 $(55,779) $ 7,539 $195,711
See accompanying notes to consolidated financial statements.
All numerical references in thousands, except percentages and
per share data
1. Summary of Significant
Accounting Policies
Principles of Consolidation
The consolidated financial statements include the financial
statements of Mentor Graphics Corporation and its wholly owned and
majority-owned subsidiaries (the Company). All significant
intercompany accounts and transactions are eliminated in
consolidation.
Foreign Currency Translation
Local currencies are the functional currencies in the Company^s
foreign subsidiaries except for the Netherlands and Singapore
where the U.S. dollar is used as the functional currency. Assets
and liabilities of foreign operations are translated to U.S.
dollars at current rates of exchange, and revenues and expenses
are translated using weighted average rates. Gains and losses
from foreign currency translation are included as a separate
component of stockholders^ equity. Foreign currency transaction
gains and losses are included as a component of other income and
expense (note 12).
Financial Instruments
The Company enters into forward foreign exchange contracts as a
hedge against foreign currency sales commitments. Remeasurement
gains and losses on these contracts are deferred and recognized
when the sales occur. All subsequent remeasurement gains and
losses are recognized as they occur to offset remeasurement gains
and losses recognized on the related foreign currency accounts
receivable balances (note 14).
The Company has entered into an interest rate swap agreement to
manage exposure to interest rate fluctuations. The differential
to be paid or received is accrued and recognized over the life of
the agreement as an adjustment to interest expense (note 8).
The Company places its cash equivalents and short-term
investments with major banks and financial institutions. The
investment policy limits the Company^s creditexposure to any one
financial institution. Concentrations of credit risk with respect
to trade receivables are limited due to the large number of
customers comprising the Company^s customer base, and their
dispersion across different businesses and geographic areas. The
carrying amounts of cash equivalents, short-term investments,
trade receivables, accounts payable, and short-term borrowings
approximate fair value because of the short-term nature of these
instruments.
The Company has evaluated Statement of Financial Accounting
Standards No. 115, ^Accounting for Certain Investments in Debt and
Equity Securities,^ issued in May 1993. As required, the Company
will adopt Statement No. 115 effective January 1, 1994,
prospectively. The Statement requires reporting of investments as
either held to maturity, trading or available for sale. The
Company owns common stock and common stock warrants of an
independent public company with a carrying cost of $0 and a market
value of $1,375 as of December 31, 1993. Pursuant to rule 144
under the Securities Act of 1933 the Company must follow a
restricted schedule for selling these equity securities. It is
anticipated that the shares will be sold when restriction
milestones have been met. Accordingly, under Statement No. 115,
the securities will be classified as held for sale which, upon
adoption in the first quarter of 1994, will require the difference
between carrying cost and market value to be recognized and
included as a separate component of stockholders^ equity. No
other investments owned by the Company are expected to be
materially impacted by the provisions of this Statement as the
underlying carrying values approximate market.
Cash, Cash Equivalents, and Short-Term Investments
The Company classifies highly liquid investments purchased with
an original maturity of three months or less as cash equivalents.
Short-term investments consist of certificates of deposit,
commercial paper and other highly liquid investments with original
maturities in excess of three months. It is the Company^s intent
to hold these investments for less than one year.
Inventory
Inventory, consisting principally of computer hardware and
demonstration equipment, is stated at the lower of average cost or
market. Demonstration equipment comprised $1,835 and $4,626 of
the total inventory balance at December 31, 1993 and 1992,
respectively.
Property, Plant and Equipment
Property, plant and equipment is stated at cost and consists of
land and land improvements, buildings and building equipment,
computer equipment and furniture, leasehold improvements,
and service spare parts (note 5). Expenditures for additions to
property, plant and equipment are capitalized. The cost of
repairs and maintenance is expensed as incurred. Depreciation of
buildings and building equipment, and land improvements, is
computed on a straight-line basis over lives of forty and
twenty years, respectively. Depreciation of computer equipment
and furniture is computed principally on a straight-line basis
over the estimated useful lives of the assets, generally three to
five years. Leasehold improvements are amortized on a straight-
line basis over the lesser of the term of the lease or estimated
useful lives of the improvements. Service spare parts are
amortized on a straight-line basis over their estimated useful
lives, generally four years.
Income Taxes
In February 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 109,
^Accounting for Income Taxes^. Statement No. 109 requires a
change from the deferred method under APB Opinion 11 to the asset
and liability method of accounting for income taxes. Under the
asset and liability method, deferred income taxes are
recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying
amounts and tax balances of existing assets and liabilities.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. Under Statement No. 109, the effect on deferred taxes of
a change in tax rates is recognized in income in the period that
includes the enactment date.
Effective January 1, 1993, the Company adopted Statement No.
109. The cumulative effect of that change in the method of
accounting for income taxes was not material to the Company^s
financial statements, and is therefore not disclosed separately in
the Consolidated Statement of Operations for the year ending
December 31, 1993.
Pursuant to the deferred method under APB Opinion 11, which was
applied in 1992 and prior years, deferred income taxes are
recognized for income and expense items that are reported in
different years for financial reporting purposes and income tax
purposes using the tax rate applicable for the year of
calculation. Under the deferred method, deferred taxes are not
adjusted for subsequent changes in tax rates.
Revenue Recognition
Revenues from system sales and software licenses are recognized
at the time of shipment. Contract service revenues are billed in
advance and recorded as deferred revenue. Service
revenues are then recognized ratably over the contractual period
as the services are performed. Training and consulting revenues
are recognized as the related services are performed. Custom
design and software porting revenues are recognized using the
percentage of completion method or as contract milestones are
achieved.
Software Development Costs
The Company capitalizes certain software development costs
incurred. These capitalized costs are amortized over the
estimated economic life of the software, not exceeding three
years, computed principally on a straight-line basis.
Amortization is included in system and software cost of
revenues in the Consolidated Statements of Operations. All other
research and development costs are expensed as incurred.
Net Loss Per Common and Common Equivalent Share
For 1993, 1992 and 1991, the weighted average number of common
and common equivalent shares outstanding was calculated using only
common shares outstanding. Common stock equivalents, related to
stock options outstanding, are anti dilutive as the Company is in
a loss situation and, therefore, are not included.
Reclassifications
Certain reclassifications have been made in the accompanying
consolidated financial statements for 1991 and 1992 to conform
with the 1993 presentation.
2. Restructuring
In December 1993, the Company recorded a charge of $24,800
associated with a restructuring plan aimed at reducing operating
expenses by streamlining and reorganizing company operations.
These costs consist primarily of direct costs related to the
severance and relocation of employees, facilities closures, and
write-offs of excess equipment and intangible software technology
assets related to discontinued product development. The plan will
be implemented in phases during 1994.
In August 1992 and 1991, the Company executed restructuring
plans aimed at improving its focus on the core businesses of
integrated circuit design and electronic systems design.
Restructure costs of $12,900 and $27,100 were recognized in 1992
and 1991, respectively. These restructuring costs included direct
costs related to the severance and relocation of employees,
consolidation of facilities, and write-offs of intangible software
technology assets related to discontinued product
lines. The 1991 restructure costs were offset by a net gain on
the sale of certain assets and the subcontracting of the Company^s
North American hardware service business to Hewlett-Packard
Company.
Following is a summary of the major elements of the
restructure charges:
Year ended December 31, 1993 1992 1991
Employee severance
and relocation $ 19,400 $ 5,700 $ 9,700
Asset write-offs
and product
discontinuance costs 2,300 6,435 16,300
Facilities closures and
consolidation 4,300 1,800 2,600
Sale of hardware
service business ^ ^ (2,400)
Reversal of accrued
restructure costs due to
change in estimates (1,400) (1,600) ^
Other 200 565 900
Total $ 24,800 $ 12,900 $ 27,100
3. Business Acquisition
On December 1, 1993, the Company issued approximately 421
shares of its common stock for all the outstanding common and
preferred stock of CheckLogic Systems, Inc. (CheckLogic). In
addition, up to 35 common shares were reserved for issuance with
respect to CheckLogic employee stock options outstanding.
CheckLogic is a developer of automatic test pattern generation
point tools used to test designs of application specific
integerated circuits. The Company has accounted for this
transaction as a pooling of interests, and the financial results
for the year ended December 31, 1993 include the accounts of
CheckLogic. The separate financial results of CheckLogic prior to
the acquisition are not material, and accordingly the consolidated
financial statements for 1992 and 1991 have not been restated.
4. Income Taxes
As discussed in Note 1, the Company adopted Statement No. 109
as of January 1, 1993. The cumulative effect of this change in
accounting for income taxes was not material to the Company^s
financial statements, and is therefore not disclosed separately in
the Consolidated Statement of Operations, for the year ended
December 31, 1993. Prior years^ financial statements have not
been restated to apply the provisions of Statement No. 109.
Domestic and foreign pre-tax income (loss) is as follows:
Year ended December 31, 1993 1992 1991
Domestic $(23,682) $(41,322) $(72,570)
Foreign (5,967) (6,949) 9,567
Total $(29,649) $(48,271) $(63,003)
The provision (benefit) for income taxes
is as follows:
Year ended December 31, 1993 1992 1991
Current:
Federal $ ^ $ (1,141) $(13,292)
State (162) 138 (311)
Foreign 2,041 1,081 8,619
1,879 78 (4,984)
Deferred:
Federal 655 102 5,515
Foreign (110) 2,410 (1,921)
545 2,512 3,594
Total $ 2,424 $ 2,590 $ (1,390)
The effective tax (benefit) rate differs from the Federal
statutory rates as follows:
Year ended December 31, 1993 1992 1991
Federal statutory tax
(benefit) rate (35.0%) (34.0%) (34.0%)
State taxes, net of Federal
tax benefits (2.3) 0.3 (0.5)
Differences in foreign
tax rates 8.0 0.3 2.9
Losses from foreign
subsidiaries 0.6 7.7 2.6
Unrealized benefit of net
operating loss carryforwards ^ 26.9 8.2
Unrealized benefit of tax
credit carryforwards ^ ^ 16.6
Alternative minimum tax ^ ^ 2.0
Adjustment of deferred
tax assets due to net
operating loss ^ 4.2 21.4
Reduction of income tax
liability due to net
operating loss ^ ^ (21.4)
Adjustment of beginning of
year balance of deferred tax
assets and liabilities for
settlement of Federal income
tax obligations 2.5 ^ ^
Change in valuation
allowance for deferred
tax assets 29.5 ^ ^
Other, net 4.9 ^ ^
Effective tax (benefit) rate 8.2% 5.4% (2.2%)
The significant components of deferred income tax expense for the
year ended December 31, 1993 are as follows:
Net changes in deferred tax
assets and liabilities $ (8,205)
Increase in beginning-of-year
balance of the
valuation allowance
for deferred tax assets 8,750
Total $ 545
For the years ended December 31, 1992 and 1991, deferred income
tax expense of $2,512 and $3,594, respectively, results from
timing differences in the recognition of income and expense for
income tax and financial reporting purposes. The sources and tax
effects of those timing differences are presented below:
As of December 31, 1992 1991
Depreciation $ 1,198 $ (5,267)
Inventory valuation
adjustments 556 (1,155)
Accrued vacation and other
compensation 822 1,562
Other asset valuation
adjustments 413 (1,040)
Capitalization of software
development costs (152) 138
Customer service accruals 901 (419)
Accrued restructure costs (292) (3,512)
Adjustment of deferred tax assets
due to net operating loss (1,296) 13,485
Other, net 362 (198)
Total $ 2,512 $ 3,594
The tax effects of temporary differences and carryforwards which
gave rise to significant portions of deferred tax assets and liabilities were as follows:
As of December 31, 1993
Deferred tax assets:
Property and equipment, principally
due to differences in depreciation
and capitalized interest $ 810
Inventories, principally due to adjustments
to lower of cost or market 3,358
Accounts receivable, principally due
to allowance for doubtful accounts 1,241
Compensated absences and other
compensation, principally due to accrual
for financial reporting purposes 3,105
Restructure costs, principally due to accrual
for financial reporting purposes 9,642
Net operating loss carryforwards 29,576
Tax credit carryforwards 11,523
Other, net 1,663
Total gross deferred tax assets 60,918
Less valuation allowance (58,495)
Net deferred tax assets 2,423
Deferred tax liabilities:
Capitalization of software development
costs for financial reporting purposes (3,634)
Net deferred tax liabilities $ (1,211)
The Company has established a valuation allowance for certain
current deferred tax assets, and net operating loss and tax credit
carryforwards. Statement No. 109 requires that such a valuation
allowance be recorded when it is more likely than not that some
portion of the deferred tax assets will not be realized. The
valuation allowance as of January 1, 1993 was $49,745.
The effect of Statement No. 109 on the consolidated effective
tax rate for 1993 and future years, compared to those rates which
would have applied under APB Opinion 11, is not expected to be
material to the Company^s financial statements.
As of December 31, 1993, the Company has net operating loss
carryforwards for income tax purposes of approximately $74,100.
Such carryforwards will expire from 1996 to 2008 if not
used by the Company to reduce income taxes payable in future
periods.
As of December 31, 1993 the Company has foreign tax credits and
research and experimentation tax credits totaling approximately
$11,500. These tax credits can be applied against Federal tax
liabilities from 1994 through 2008 subject to various limitations
under current tax law.
The Company has not provided for Federal income taxes on
approximately $64,600 of undistributed earnings of foreign
subsidiaries at December 31, 1993, since these earnings have
been invested indefinitely in subsidiary operations. Upon
repatriation, some of these earnings would generate foreign tax
credits which will reduce the Federal tax liability associated
with any future foreign dividend.
The Company has settled its Federal income tax obligations
through 1991. The Company believes the provisions for income
taxes for years since 1991 are adequate.
5. Property, plant and Equipment
A summary of property, plant and equipment follows:
As of December 31, 1993 1992
Computer equipment
and furniture $121,975 $118,528
Buildings and building
equipment 53,326 53,129
Land and improvements 14,641 14,567
Leasehold improvements 9,613 10,057
Service spare parts 3,857 2,998
203,412 199,279
Less accumulated depreciation
and amortization (98,500) (89,699)
Property, plant and
equipment, net $104,912 $109,580
In January, 1993, the Company entered into an agreement to
lease a portion of its headquarters site in Wilsonville, Oregon.
Under terms of the five-year agreement, approximately 150 square
feet of space will be made available to a third party on a firm
take-down schedule. The agreement results in rental payments of
$3,985 over the remaining term of the lease.
6. Other Assets
A summary of other assets follows:
As of December 31, 1993 1992
Software development
costs, net $ 9,085 $ 13,449
Long-term deposits 5,613 10,119
Investment in real estate 2,935 2,935
Long-term receivables 2,453 2,693
Purchased technology, net 106 744
Long-term prepaid royalties
and licenses 63 794
Other 329 264
Total $ 20,584 $ 30,998
The Company capitalized software development costs of $3,609,
$6,120, and $9,917 in 1993, 1992, and 1991, respectively. Related
amortization expense of $7,449, $5,875, and $3,961 was
recorded for the years ended December 31, 1993, 1992, and 1991,
respectively.
Purchased technology is carried at cost and is
amortized over the estimated economic life of the technology,
generally three years. Related amortization expense of $565,
$636, and $3,183 was recorded for the years ended December 31,
1993, 1992, and 1991, respectively.
During 1993, 1992 and 1991, certain purchased technology and
software development costs were written off due to product
discontinuances resulting from the December 1993, August 1992 and
August 1991 restructurings. These write-offs, combined with
write-downs of certain other software development, prepaid
royalties, and purchased technology to net realizable value,
totaled $812, $1,005 and $11,774 in 1993, 1992 and 1991,
respectively.
7. Short-Term Borrowings
Short-term borrowings represent drawings by subsidiaries under
multi-currency unsecured credit agreements and the current portion
of long-term debt. Interest rates are generally based on the
applicable country^s prime lending rate depending on the currency
borrowed. The Company has available lines of credit of
approximately $25,255 as of December 31, 1993. Certain agreements
require compensatory balances which the Company has met.
8. Long-Term Debt
Long-term debt is comprised of the following:
As of December 31, 1993 1992
Revolving term credit facility $ 55,000 $ 50,000
Bank note 2,681 2,405
Commercial paper ^ 3,096
Other 161 299
57,842 55,800
Less current portion (3,521) (91)
Total $ 54,321 $ 55,709
Effective December 31, 1992, the Company amended its committed
credit facility with First Interstate Bank of Oregon, N.A. Under
terms of the amendment, the revolving credit facility
remains in effect until July 2000 and the commitment level was
established at $55,000. Interest on borrowings under the credit
facility remain floating-rate based. Borrowings are
collateralized by cash and investments of $30,000 and a trust deed
on the Company^s headquarters site in Wilsonville, Oregon of
$25,000. The amendment requires commitment reductions of $840
annually beginning in July 1994, therefore $840 is classified as
current and included in short-term borrowings on the Consolidated
Balance Sheet as of December 31, 1993.
In conjunction with the loan amendment, the Company also
modified its interest rate swap agreement with First Interstate
Bank of Oregon, N.A., reducing the notional amount from $50,000
to $17,500 without any negative financial impact. The interest
rate swap agreement effectively converts floating rates on $17,500
of borrowings to a fixed rate of 9.55% until expiration of the
agreement in January 2000. The amendment allowed the Company to
subject $32,500 of 9.55% fixed rate borrowings to more favorable
floating rates. The average floating interest rate as of
December 31, 1993 was approximately 5%. While the Company may be
exposed to credit risk in the event of nonperformance by the
counterparty to the interest rate swap agreement, the risk of
incurring losses due to nonperformance by the counterparty is
considered remote
During 1992, the Company^s Japanese subsidiary borrowed 300
million Yen ($2,681 and $2,405 at December 31, 1993 and 1992
exchange rates, respectively) from a local bank to finance its
local operations. The interest rate on these borrowings is
floating-rate based with a cap of 5.95%. The effective rate on
these borrowings during 1993 was approximately 4%. The entire
bank note matures on July 20, 1994 and is classified as current
and included in short-term borrowings on the Consolidated Balance
Sheet as of December 31, 1993.
The fair market value of the Company^s long-term debt
approximates its carrying value as the interest rates on
borrowings are floating-rate based. The Company would incur a
cost of approximately $3,660 to terminate its interest rate swap
agreement as of December 31, 1993. This cost is based on dealer
quotes taking into consideration current interest rates and the
current creditworthiness of the counterparties.
9. Incentive Stock Plan
The Board of Directors has the authority to issue incentive
stock in one or more series and to determine the relative rights
and preferences of the incentive stock (note 10). The incentive
stock is convertible into common stock upon attainment of
specified objectives or upon the occurrence of
certain events to be determined by the Board of Directors.
10. Employee Stock and Savings Plans
The Company has five stock option plans. The three common
stock option plans provide for the granting of incentive and
nonqualified stock options to key employees, officers, and non-
employee directors of the Company and its subsidiaries.
The three stock option plans are administered by the
Compensation Committee of the Board of Directors, and permit
accelerated vesting of outstanding options upon the occurrence of
certain changes in the control of the Company.
The Company also has a stock plan which provides for the sale
of common stock to key employees of the Company and its
subsidiaries. Shares can be awarded under the plan at no purchase
price as a stock bonus, and the stock plan also provides for the
granting of nonqualified stock options.
In addition, the Company has an incentive stock option plan and
has reserved 600 shares of incentive stock for issuance. No
options have been granted under this plan.
Options under all five plans generally become exercisable over
a five-year period from the date of grant or from the commencement
of employment at prices generally not less than the fair market
value at the date of grant. The excess, if any, of the fair
market value of the shares at the measurement date over the option
price is charged to operations ratably over the vesting period.
At December 31, 1993, options for 2,451 shares were exercisable,
19,810 shares were reserved for issuance, and 1,674 shares were
available for future grant. Stock options outstanding and
transactions involving the stock option plans are summarized as
follows:
Price per
Shares Share
Balance at December 31, 1991 7,886 $ .12 ^ 19.76
Granted 4,637 6.00 ^ 20.25
Exercised (1,433) .12 ^ 18.13
Canceled (4,514) 2.08 ^ 20.25
Balance at December 31, 1992 6,576 .21 ^ 19.76
Granted 1,180 .07 ^ 12.63
Exercised (1,021) .21 ^ 13.00
Canceled (834) 4.95 ^ 18.13
Balance at December 31, 1993 5,901 $ .07 ^ 19.76
In October 1992, the Board of Directors adopted a resolution to
offer employees holding incentive and nonqualified stock options
for 5,840 shares the opportunity to exchange their existing
options for nonqualified stock options. The exchange allowed
employees to receive options for the same number of shares at
$6.00 per share, the then current market price. The new options
vest ratably over between two to five years, depending on the
vesting status of exchanged options as of January 2, 1993. The
offer was made because the Board of Directors believes lower-
priced options provide a greater incentive to key employees and
officers. Options holders elected to exchange options covering
3,808 shares.
In May 1989, the shareholders adopted the 1989 Employee Stock
Purchase Plan and reserved 1,400 shares for issuance. In April
1992, the shareholders amended the plan to reserve an
additional 2,000 shares for issuance. Under the plan, each
eligible employee may purchase up to six hundred shares of stock
per quarter at prices no less than 85% of its fair market value
determined at certain specified dates. Employees purchased 605
and 569 shares under the plan in 1993 and 1992, respectively. At
December 31, 1993, 1,324 shares remain available for future
purchase under the plan. The plan will expire upon either
issuance of all shares reserved for issuance or at the discretion
of the Board of Directors. There are no plans to terminate the
plan at this time.
The Company has an employee savings plan (the Savings Plan)
that qualifies as a deferred salary arrangement under Section
401(k) of the Internal Revenue Code. Under the Savings Plan,
participating U.S. employees may defer a portion of their pretax
earnings, up to the Internal Revenue Service annual contribution
limit. The Company currently matches 50% of eligible employee^s
contributions, up to a maximum of 6% of the employee^s earnings.
Employer matching contributions vest over 5 years, 20% for each
year of service completed. The Company^s matchingcontributions to
the Savings Plan were $1,896, $1,989, and $2,140 in 1993, 1992,
and 1991, respectively.
11. Commitments
The Company leases a majority of its field office facilities under
noncancellable operating leases. In addition, the Company leases
certain equipment used in its research and development activities.
This equipment is generally leased on a month-to-month basis after
meeting a six-month lease minimum.
The Company rents its Japanese facilities under a two-year
cancellable lease with a six month notice of cancellation. The
total commitment under this cancellable lease is $6,444, of which
the first six month^s payments in 1994 of $1,878 are included in
the schedule below. Future minimum lease payments under
noncancellable operating leases are approximately as follows:
Operating
Annual periods ending Lease
December 31: Payments
1994 $ 10,054
1995 6,704
1996 5,298
1997 4,258
1998 3,928
Later years 14,348
Total $ 44,590
Rent expense under operating leases was approximately $16,776,
$16,156, and $16,709 for the years ending December 31, 1993, 1992,
and 1991, respectively.
12. Other Expense
Other expense is comprised of the following:
Year ended December 31, 1993 1992 1991
Interest income $ 4,338 $ 5,284 $ 9,800
Interest expense (4,404) (5,469) (5,428)
Foreign exchange gain 247 297 827
Contract settlement ^ (6,150) ^
Write-off of non-
operating items ^ (1,148) (7,838)
Life insurance proceeds ^ ^ 1,000
Other, net (438) (353) (863)
Total $ (257) $ (7,539) $ (2,502)
13. Supplemental Cash Flow Information
The following provides additional information concerning
supplemental disclosures of cash flow activities:
Year ended December 31, 1993 1992 1991
Cash paid (received) for:
Interest expense, net of
capitalized interest $ 4,042 $ 5,030 $ 4,969
Income taxes $ 2,403 $ (2,662) $ 5,936
14. Forward Foreign Exchange Contracts
At December 31, 1993 and 1992, the Company had forward
contracts outstanding of $13,847 and $18,899, respectively, to buy
and sell various foreign currencies. These contracts generally
have maturities which do not exceed six months. At December 31,
1993, the estimated fair value of these contracts was $13,797
based on dealer quotes. The Company does not anticipate non-
performance by the counterparties to these contracts.
15. Industry and Geographic Information
The Company designs, manufactures, markets and provides related
service for electronic design automation software for the
integrated circuit (IC) and systems design markets. The Company^s
software products enable engineers and designers to design,
analyze, place, route, layout and test custom ICs, application
specific ICs (ASIC), printed circuit boards, multichip modules and
other electronic systems and subsystems
Foreign operations consist of offices whose principal
activities are the sale, distribution, and service of the
Company^s products. Foreign offices purchase the computer
workstations on which the Company^s software operates principally
from suppliers located in each respective geographic area.
Software reproduction facilities operate in both Europe and
Asia-Pacific to supply the Company^s software directly to these
market areas.
Intercompany transfers are accounted for at amounts generally
above cost. Corporate expenses are general expenses which are not
allocated to the operations of each geographic area. For the
purposes of determining operating income, research and development
and certain marketing expenses are allocated based on each
region^s percentage of total revenue contribution. Corporate
assets are comprised of capital assets used in research and
development activities, short-term investments, and cash and
investments classified as long-term in the consolidated balance
sheets. Geographic information for 1993, 1992 and 1991 is set
forth in the table below.
Geographic Information N. America Europe Asia-Pacific
1993
Revenues from unaffiliated
customers $184,303 $ 87,178 $68,294
Intercompany transfers 1,282 5,016 20,948
Total revenues $185,585 $ 92,194 $89,242
Operating income (loss) $ (195) $(14,564) $ 1,678
Identifiable assets $152,514 $124,956 $64,271
1992
Revenues from unaffiliated
customers $180,716 $ 99,481 $ 70,569
Intercompany transfers 1,611 11,849 15,187
Total revenues $182,327 $111,330 $ 85,756
Operating income (loss) $(21,151) $ (7,267) $ 735
Identifiable assets $164,614 $116,174 $ 53,518
1991
Revenues from unaffiliated
customers $195,796 $110,203 $ 94,128
Intercompany transfers 6,254 9,700 20,087
Total revenues $202,050 $119,903 $114,215
Operating income (loss) $(51,876) $ (5,082) $ 7,454
Identifiable assets $193,001 $117,597 $ 77,692
Geographic Information Eliminations Corporate Consolidated
1993
Revenues from unaffiliated
customers $ ^ $ ^ $339,775
Intercompany transfers (27,246) ^ ^
Total revenues $(27,246) $ ^ $339,775
Operating income (loss) $ (2,939) $(13,372) $(29,392)
Identifiable assets $(92,258) $104,101 $353,584
1992
Revenues from unaffiliated
customers $ ^ $ ^ $350,766
Intercompany transfers (28,647) ^ ^
Total revenues $(28,647) $ ^ $350,766
Operating income (loss $(1,538) $(11,511) $(40,732)
Indentifiable assets $(60,471) $104,730 $378,565
1991
Revenues from unaffiliated
customers $ ^ $ ^ $400,127
Intercompany transfers (36,041) ^ ^
Total revenues $(36,041) $ ^ 400,127
Operating income (loss) $ 985 $(11,982) $(60,501)
Identifiable assets $(54,147) $111,518 $445,661
Quarterly Financial Information (Unaudited)
Quarter ended March 31 June 30 September 30 December 31
In thousands, except per share and shareholders of record data
1993
Total revenues $ 82,639 $ 88,416 $ 84,950 $ 83,770
Gross margin $ 52,371 $ 56,214 $ 56,378 $ 54,620
Operating income
(loss) $ (3,317) $ 633 $ 1,888 $(28,596)
Net income
(loss) $ (4,298) $ 290 $ 1,490 $(29,555)
Net income (loss)
per common
and common
equivalent
share $ (.09) $ .01 $ .03 $ (.63)
1992
Total revenues $ 100,115 $ 89,085 $ 77,540 $ 84,026
Gross margin $ 55,660 $ 50,690 $ 39,385 $ 52,063
Operating income
(loss) $ 491 $ (6,819) $(35,720) $ 1,316
Net income (loss) $ 1,227 $ (6,885) $(45,550) $ 347
Net income (loss)
per common and
common
equivalent share$ .03 $ (.15) $ (1.01) $ .01
Common stock market price:
Quarter ended March 31 June 30 September 30 December 31
1993
High $ 11 $ 12 $ 11 1/2 $ 15 1/2
Low $ 7 7/8 $ 7 7/8 $ 8 3/8 $ 10
1992
High $ 22 1/4 $ 16 1/2 $ 10 1/4 $ 9 1/2
Low $ 14 1/4 $ 9 1/2 $ 6 1/2 $ 5 1/4
The table above sets forth for the quarters indicated the high and
low sales prices for the common stock as reported on the NASDAQ
National Market System. As of December 31, 1993, the Company had
1,843 shareholders of record.
Report of Management
Management of Mentor Graphics Corporation is responsible for
the preparation of the accompanying consolidated financial
statements. The consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles appropriate in the circumstances and necessarily
include some amounts which represent the best estimates and
judgments of management. The consolidated financial statements
have been audited by KPMG Peat Marwick, independent auditors,
whose report is included on this page.
The Audit Committee of the Board of Directors is comprised of
two directors who are not officers or employees of Mentor Graphics
Corporation or its subsidiaries. These directors meet with
management and the independent auditors in connection with their
review of matters relating to the Company^s annual financial
statements, the Company^s system of internal accounting controls,
and the services of the independent auditors. The Committee meets
with the independent auditors, without management present, to
discuss appropriate matters. The Committee reports its findings
to the Board of Directors and also recommends the selection and
engagement of independent auditors.
R. Douglas Norby
Senior Vice President
and Chief Financial Officer
Walden C. Rhines
President and Chief Executive Officer
Independent Auditors^ Report
To the Stockholders and Board of Directors of Mentor Graphics
Corporation:
We have audited the accompanying consolidated balance sheets of
Mentor Graphics Corporation and subsidiaries as of December 31,
1993 and 1992, and the related consolidated statements of
operations, stockholders^ equity, and cash flows for each of the
years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of the
Company^s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Mentor Graphics Corporation and subsidiaries as of
December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 4 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board^s Statement of Financial Accounting Standards No. 109, ^Accounting for Income Taxes^ in 1993.
Portland, Oregon
February 1, 1994
Shareholders' Information
Directors
Thomas H. Bruggere
Chairman of the Board of Directors Mentor Graphics Corporation
Walden C. Rhines
President and Chief Executive Officer
Mentor Graphics Corporation
Marsha B. Congdon
Vice President, Policy and Strategy US West Communications
David R. Hathaway
General Partner
Venrock Associates
Fontaine K. Richardson
General Partner
Eastech Management Company, Inc.
Jon A. Shirley
Private Investor
David N. Strohm
General Partner
Greylock Management Corporation
Corporate Office
Mentor Graphics Corporation
8005 S.W. Boeckman Road
Wilsonville, Oregon 97070-7777
(503) 685-7000
Executive Officers
Walden C. Rhines
President and Chief Executive Officer Mentor Graphics Corporation
Waldo J Richards
Senior Vice President
Product Operations
R. Douglas Norby
Senior Vice President and
Chief Financial Officer
Frank S. Delia
Vice President
Chief Administrative Officer
General Counsel and Secretary
Patricia J. O^Connor
Vice President
Human Resources
James J. Luttenbacher
Corporate Controller and
Chief Accounting Officer
Counsel
Stoel Rives Boley Jones & Grey
Attorneys-at-Law
900 S.W. Fifth Avenue, Suite 2300
Portland, Oregon 97204
Independent Certified Public Accountants
KPMG Peat Marwick
1211 S.W. Fifth Avenue
Suite 2000
Portland, Oregon 97204
Transfer Agent and Registrar
First Interstate Bank
Security Holder Relations Division
26610 West Agoura Road
Calabasas, CA 91302
1-800-522-6645
Annual Meeting
The Annual Meeting of shareholders will be held at 5:00 p.m.,
Pacific Time, on April 26, 1994 at:
Mentor Graphics Corporation
8005 S.W. Boeckman Road
Wilsonville, Oregon 97070-7777
Investor Relations
For additional information on the Company, or to obtain a copy of
Mentor Graphics^ Annual
Report on Form 10-K filed with the Securities and Exchange
Commission, contact:
Investor Relations Manager
Mentor Graphics Corporation
8005 S.W. Boeckman Road
Wilsonville, Oregon 97070-7777
For financial and company information, call 1-800-546-4628.
Stock Trading
Mentor Graphics Corporation^s common stock traded publicly in the
NASDAQ National Market
System under the symbol MENT.
All references to market share in this report are based upon
Dataquest preliminary 1993 EDA market share and growth estimates.
EXHIBIT 21
LIST OF SUBSIDIARIES OF MENTOR GRAPHICS CORPORATION
Jurisdiction of
Name Organization
Mentor Graphics (UK) Limited England
Mentor Graphics (France) SARL France
Mentor Graphics Italia SpA Italy
Mentor Graphics (Deutschland) GmbH West Germany
Mentor Graphics (Denmark) Denmark
Mentor Graphics (Netherlands) B.V. Netherlands
Mentor Graphics Finance B.V. Netherlands
Mentor Graphics (Singapore) Pte., Ltd. Singapore
Mentor Graphics Japan Co., Ltd. Japan
Mentor Graphics (Scandinavia) AB Sweden
Mentor Graphics (Finland) AB Finland
Mentor Graphics (Canada) Ltd. Canada
Mentor Graphics (Schweiz) AG Switzerland
European Development Center Belgium
EXHIBIT 23
Consent of Accountants
The Board of Directors and Shareholders
Mentor Graphics Corporation:
We consent to incorporation by reference in the registration
statements on Form S-8 (Nos. 33-11291, 33-18259, 2-90577, 33-
30036, 2-99251 and 33-30774) and on Form S-3 (33-52419) of Mentor
Graphics Corporation and subsidiaries of our reports dated
February 1, 1994, relating to the consolidated balance sheets of
Mentor Graphics Corporation and subsidiaries as of December 31,
1993 and 1992, and the related consolidated statements of
operations, cash flows and stockholders' equity and related
schedules for each of the years in the three-year period ended
December 31, 1993, which reports appear or are incorporated by
reference in the December 31, 1993 annual report on Form 10-K of
Mentor Graphics Corporation and subsidiaries. Our reports refer
to a change in the method of accounting for income taxes.
KPMG PEAT MARWICK
Portland, Oregon
March 30, 1994
