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.
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.
Item 3. Legal Proceedings
There are no material legal proceedings pending against the Company.
Item 4.
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.
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.
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.
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.
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
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.
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.
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.
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.
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