WILSONVILLE, Ore. — (BUSINESS WIRE) — August 21, 2014 — Mentor Graphics Corporation (NASDAQ: MENT) today announced financial results for the company’s fiscal second quarter ended July 31, 2014. The company reported revenues of $260.2 million, non-GAAP earnings per share of $0.23, and GAAP earnings per share of $0.13.

“System design strength, particularly with automotive customers, drove the second quarter with earnings solidly beating guidance,” said Walden C. Rhines, chairman and CEO of Mentor Graphics. “The automotive industry is in transition from mechanical to electronic differentiation and the rate of change is accelerating. Electronic content in vehicles is about 40 percent of the cost of a car. This is yielding considerable opportunities for Mentor. Second quarter automotive strength was broad, with orders for wire harness, embedded software and AUTOSAR tools and products.”

During the quarter the company announced two acquisitions: XS Embedded, which has automotive-grade software and hardware to accelerate the start of production, and positions Mentor well to address integration of advanced driver assistance systems, driver information and infotainment; and Nimbic, Inc., whose leading 3D electromagnetic simulation technology enhances the Mentor® IC packaging design portfolio.

During the quarter Mentor also launched the MicRed® Industrial Power Tester 1500A. This new hardware product tests the reliability of power electronic components used in automobiles, trains, power generators and converters, and renewable energy applications such as wind turbines. In addition, the company announced the Questa® PropGen formal-based automated verification solution; and the Xpedition® Data Management product suite, the newest addition to the Xpedition Enterprise platform for PCB systems design. Other announcements covered several emulation solutions that accelerate the verification of high-performance memory products used in mobile multimedia devices and networking infrastructure; and an embedded software solution for multi-core system-on-chip architectures which combine two or more different types of microprocessors or microcontrollers.

“The second quarter was strong for Mentor and as a result we exceeded non-GAAP earnings guidance,” said Gregory K. Hinckley, president of Mentor Graphics. “A four percent revenue upside to guidance, along with continued attention to expense control, drove an over 50 percent beat in earnings per share. Automotive had an exceptional quarter, with record quarterly bookings three times the level of last year and year-to-date bookings already equal to all of fiscal 2014.”

Outlook

For the third quarter of fiscal 2015, the company expects revenues of about $275 million, non- GAAP earnings per share of about $0.21 and GAAP earnings per share of approximately $0.07. For the full year fiscal 2015, the company expects revenues of about $1.237 billion, non-GAAP earnings per share of about $1.75, and GAAP earnings per share of approximately $1.37.

Dividend and Share Repurchase

The company announced a quarterly dividend of $0.05 per share. The dividend is payable on September 30, 2014 to shareholders of record as of the close of business on September 10, 2014.

During the quarter the company repurchased approximately 1.2 million shares for $25 million. Year to date the company has repurchased 3.2 million shares for $70 million.

Fiscal Year Definition

Mentor Graphics Corporation’s fiscal year runs from February 1 to January 31. The fiscal year is dated by the calendar year in which the fiscal year ends. As a result, the first three fiscal quarters of any fiscal year will be dated with the next calendar year, rather than the current calendar year.

Discussion of Non-GAAP Financial Measures

Mentor Graphics’ management evaluates and makes operating decisions using various performance measures. In addition to our GAAP results, we also consider adjusted gross profit, operating income, operating margin, net income, and earnings per share which we refer to as non-GAAP gross profit, operating income, operating margin, net income, and earnings per share, respectively. These non-GAAP measures are derived from the revenues of our product, maintenance, and services business operations and the costs directly related to the generation of those revenues, such as cost of revenue, research and development, sales and marketing, and general and administrative expenses, that management considers in evaluating our ongoing core operating performance. These non-GAAP measures exclude amortization of intangible assets, special charges, equity plan-related compensation expenses, interest expense associated with the amortization of original issuance debt discount on convertible debt, the equity in earnings or losses of unconsolidated entities (except Frontline PCB Solutions Limited Partnership (Frontline)), and the impact on basic and diluted earnings per share of changes in the calculated redemption value of noncontrolling interests, which management does not consider reflective of our core operating business.

Management excludes from our non-GAAP measures certain recurring items to facilitate its review of the comparability of our core operating performance on a period-to-period basis because such items are not related to our ongoing core operating performance as viewed by management. Management considers our core operating performance to be that which can be affected by our managers in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period. Management uses this view of our operating performance for purposes of comparison with our business plan and individual operating budgets and allocation of resources. Additionally, when evaluating potential acquisitions, management excludes the items described above from its consideration of target performance and valuation. More specifically, management adjusts for the excluded items for the following reasons: