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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, 1995
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
incorporation 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 $867,360,450 on March 1, 1996, based upon
the last price of the Common Stock on that date reported in the NASDAQ
National Market System. On March 1, 1996 there were 60,867,400 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. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K into
-------- which incorporated
----------------------
Portions of 1995 Annual Report to Parts I, II and IV
Shareholders
Portions of the 1996 Proxy Statement Part III
2
PART I
Item 1. Business
General
Mentor Graphics is a leading supplier of electronic design automation
("EDA") systems -- advanced computer software used to automate the design,
analysis and testing of electronic systems. Mentor Graphics is also a
leader in providing services which augment its product offering and provide
overall EDA solutions to its customers. Mentor Graphics markets its
products primarily to large companies in the semiconductor, aerospace,
computer, telecommunications, automotive and consumer electronics
industries. Customers use Mentor Graphics' software in the design of such
diverse products as supercomputers, automotive electronics, missile
guidance systems, signal processors and personal computers. Mentor Graphics
sells and licenses its products primarily through its direct sales force in
North America, Europe and Asia, and through distributors in territories
where the volume of business does not warrant a direct sales presence.
Mentor Graphics was incorporated in Oregon in 1981 and its common stock is
traded in the NASDAQ National Market System under the symbol MENT. Mentor
Graphics' executive offices are located at 8005 S.W. Boeckman Road,
Wilsonville, Oregon 97070-7777. The telephone number at that address is
(503) 685-7000.
Products
Mentor Graphics designs, manufactures, markets and supports EDA software
for systems which may either be or contain integrated circuits ("ICs"),
application specific integrated circuits ("ASICs"), field programmable gate
arrays ("FPGAs"), printed circuit boards ("PCBs") and multichip modules
("MCMs"). Current EDA processes must manage the speed, density and
reliability tradeoffs necessary to allow customers to quickly create and
test high performance IC and electronic system designs and, as a result,
shorten product time-to-market. Mentor Graphics' software products enable
engineers to design, analyze, place and route, and test electronic systems
and subsystems prior to creating hardware prototypes. Mentor Graphics
provides a full suite of software tools covering the entire EDA design
flow, as well as high-performance software tools that can be used in other
EDA vendor design environments. Mentor Graphics believes that its products
help customers reduce development time while producing high quality,
innovative hardware products. Mentor Graphics markets and supports
worldwide over 150 software products for i) IC design flow, ii) ASIC/FPGA
design flow, and iii) MCM/PCB design flow.
Mentor Graphics' IC design flow products allow customers to create designs
for ICs. "ICs" are high performance circuits with customized logic layers
which generally allow for denser designs, increased functionality and
better optimization than ASICs. IC design flow products allow designers to
specify an IC design and check the design for errors, "layout" the
electrical components of the design in a way that balances IC performance
and the size of the IC used, and finally, create output which is used to
direct the manufacturing and testing of the IC. Mentor Graphics products
within the IC design flow include IC design and layout tools such as MS
Analyzer, Cell Builder, GDT, IC Station, MicroRoute, AutoLogic II,
QuickHDL, FastScan, and FlexTest, as well as power management and analog
and analog/mixed signal design solutions. Mentor Graphics is able to
connect its ASIC/FPGA and MCM/PCB design products with its IC design
products to create a continuum of automation from the system level to the
IC level.
Mentor Graphics' ASIC/FPGA design products allow customers to create
designs for ASICs and FPGAs. "ASICs" are special integrated circuits with
standard logic layers which are customized by interconnect layers. The
standard logic layers allow ASICs to be designed faster and manufactured at
a lower cost for small unit volumes than traditional ICs. "FPGAs", as the
name suggests, are circuits that can be programmed to include different
functionality at the point of
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manufacturing or during system startup. ASIC/FPGA design products allow
designers to simulate designs to ensure that they possess the required
performance and functionality, to test the design for errors, and to create
output which will allow the design to be manufactured and tested. Mentor
Graphics' products within the system design flow include BSDArchitect,
DFTAdvisor, FastScan, FlexTest, QuickVHDL, System Design Station, System
Architect, DSP Station, Top-Down Design Solver, AutoLogic II, FPGA Station
and Idea Station.
MCM/PCB design flow tools allow customers to determine the functionality of
a MCM/PCB. "MCMs" may be thought of as several ICs or ASICs mounted
together in a single package. "PCBs", a common way of packaging electronic
circuits, are epoxy type "boards" upon which ICs, ASICs and discrete
components such as resistors and capacitors are mounted. MCM/PCB design
flow tools allow designers to select from a library of parts to be included
in the MCM/PCB, to simulate and test the performance of the MCM/PCB, to
test for manufacturability, thermal analysis and signal integrity, and to
output data which will allow the MCM/PCB to be manufactured. Products
within the MCM and PCB design flows include Board Station, MCM Station,
Hybrid Station, AutoTherm MCM, AutoFlow, Logical Cable, Physical Test
Manager: SITE, Manufacturing Advisor and EngineerView.
Mentor Graphics believes that as computers, telecommunications, and
consumer devices converge into portable and hand-held products,
systems-on-silicon -- entire computer systems, both hardware and software,
on a single IC or ASIC -- will become a major product paradigm and will
soon account for a substantial number of design starts. As a result,
increasingly complex EDA technology will be required to design
hardware/software systems. Designs will be smaller and more densely packed
with components. In May 1995, Mentor Graphics announced its
Systems-on-Silicon Initiative (SoS Initiative), a company-wide program
created to meet the growing challenge of designing systems on a single IC
or ASIC. The SoS Initiative targets the challenge of creating entire
systems on silicon, including design reuse, design creation and simulation
at very high levels of abstraction, fully integrated design processes that
support multiple design styles and technologies, hardware/software
co-design, power management, and timing analysis. Under the SoS Initiative
program, the research and development groups of Mentor Graphics are
expected to contribute specific technology and expertise to meet the SoS
Initiative's long-term goal of fully tested EDA design processes that
support the entire design cycle for systems-on-silicon. These new
technologies are also expected to impact Mentor Graphics' products targeted
at IC, ASIC, FPGA, MCM and PCB designs.
With the closing of its acquisition of Microtec Research, Inc. in January
1996, Mentor Graphics has broadened its EDA product offering to include
software development tools, real-time operating systems and software
connectivity products. These newly acquired products facilitate the
development and operation of embedded software required by
microprocessor-based products.
Platforms
Mentor Graphics' software products run primarily 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, and International Business Machines Corporation
(IBM). These computer manufacturers have a substantial installed base of
workstations, and make frequent introductions of new products. A limited
number of Mentor Graphics' software products also support personal
computers running Microsoft Windows 95 and Windows NT operating systems.
Mentor Graphics anticipates that it will introduce additional products
which will run under Microsoft Windows 95 and Windows NT operating systems
during 1996 and 1997.
4
Marketing and Sales
Mentor Graphics' marketing strategy emphasizes customer support,
professional consulting services, a strong direct sales force and large
corporate account penetration in the semiconductor, aerospace, computer,
telecommunications, automotive and consumer electronics industries.
Customers use Mentor Graphics' products in the design of such diverse
products as supercomputers, automotive electronics, missile guidance
systems, signal processors, personal computers, gallium arsenside circuits,
microprocessors, telecommunication switching systems and wireless
communication products.
Mentor Graphics sells and licenses its products primarily through its
direct sales force in North America, Asia and Europe. Mentor Graphics also
licenses its products through distributors in territories where the volume
of business is not sufficient to warrant a direct sales presence. During
the years ending December 31, 1995 and 1994, sales outside of North America
accounted for 48 and 46 percent, respectively, of total sales. Additional
information relating to foreign and domestic operations is contained in
Note 14 of Notes to Consolidated Financial Statements on page 35 of the
1995 Annual Report to Shareholders and is incorporated by this reference.
Fluctuating exchange rates and other factors beyond Mentor Graphics'
control, such as tariff and trade policies, domestic and foreign tax and
economic policies and the relative stability of international economic and
monetary conditions are expected to continue to affect the level and
profitability of sales outside the United States.
Mentor Graphics also licenses products through its newly created
subsidiary, Antares Corporation ("Antares"). Antares was established to
focus on high quality, lower cost tools for the UNIX and Microsoft Windows
market. It does not use the Mentor Graphics sales force, but relies instead
on telesales and value added resellers. Mentor Graphics' recently acquired
Model Technology and Exemplar Logic subsidiaries have been combined to form
Antares. Antares is currently wholly owned by Mentor Graphics, but over
time, Mentor Graphics plans to issue approximately 10% of Antares' stock to
Antares employees through an equity incentive program.
Mentor Graphics' OpenDoor program coordinates and supports the integration
of third party EDA software tools, both commercial products and tools
developed by customers for their own internal use, into Mentor Graphics'
design environment. Under this program, Mentor Graphics enables OpenDoor
participant companies to develop interfaces from their products to Mentor
Graphics products. OpenDoor participants select from a range of integration
technologies to achieve an optional degree of integration for their
products. There are now approximately 140 OpenDoor participants.
No material portion of Mentor Graphics' business is dependent on a single
customer. Mentor Graphics has traditionally experienced some seasonal
fluctuations in receipts 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, Mentor Graphics 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.
Mentor Graphics' backlog of firm orders was approximately $53.9 million on
December 31, 1995 as compared to $46.5 million on December 31, 1994. This
backlog includes products not shipped and unfulfilled professional services
and training. The Company does not track backlog for support services.
Support services are typically delivered under annual contracts which are
accounted for on a prorata basis over the twelve month term of each
contract. Substantially all of the December 31, 1995 backlog of orders is
expected to ship during 1996.
Mentor Graphics sells and licenses its products and some third party
products pursuant to purchase and license agreements. Mentor Graphics
schedules deliveries only after receipt of purchase orders under these
agreements.
5
Manufacturing Operations
Mentor Graphics' manufacturing operations primarily consist of reproduction
of Mentor Graphics' software and documentation. In North America,
manufacturing is substantially outsourced, with distribution to Western
Hemisphere customers occurring from major west coast sites. Software and
documentation distribution centers in The Netherlands, Japan and Singapore
serve their respective regions. Mentor Graphics uses a manufacturing
resource planning system to control its inventories and logistic processes.
Product Development
The EDA market is competitive and characterized by rapid technological
change. During the years ended December 31, 1995, 1994 and 1993, Mentor
Graphics expensed approximately $72,692,000, $67,792,000 and $75,304,000
respectively, and capitalized approximately $7,241,000, $5,156,000 and
$3,609,000, respectively, related to product development. Mentor Graphics
also seeks to expand existing product offerings and pursue new lines of
business through acquisitions. Acquisitions accommodate Mentor Graphics'
focused strategic requirements including filling gaps in existing products
or technologies, eliminating dependencies on third parties and providing
Mentor Graphics with an avenue into new lines of business.
Suppliers
Mentor Graphics seeks to provide its customers with software that addresses
the entire electronic system design process. Supplier products fill gaps in
Mentor Graphics' existing product lines and allow it to offer products
which are needed by customers but which are not core to Mentor Graphics'
business. Supplier agreements are also used by Mentor Graphics to explore
possible new lines of business. Although Mentor Graphics has supplier
agreements with several large customers who do not wish to develop a
specific internal technology into a commercial product, Mentor Graphics'
suppliers are typically small niche companies which do not have adequate
distribution channels for their products. Mentor Graphics maintains three
different types of supplier relationships: (i) a simple remarketing
relationship where the supplier's product is added to Mentor Graphics'
price list and drop shipped to the customer directly from the supplier;
(ii) a partial integration relationship where the supplier's object code is
packaged and shipped with other Mentor Graphics' products to the customer;
and (iii) a fully integrated relationship where Mentor Graphics modifies or
enhances the supplier's product before packaging and delivering it to the
customer.
Supplier agreements are typically three year agreements with royalty
payments based on a percentage of product revenue. They generally require
an escrow of the supplier's source code. Customer support for supplier
products is usually provided by Mentor Graphics with the supplier providing
backup support and research and development in the event of a problem with
the product itself.
Customer Support and Professional Services
Mentor Graphics has a worldwide organization to meet its customers' needs
for software support. Mentor Graphics offers support contracts providing
software updates and support. Most of Mentor Graphics' customers have
entered into software support contracts. Mentor Graphics provides technical
support for its products through a direct telephone support line and an
on-line electronic communications system.
Mentor Graphics believes that delivery of professional services is a
rapidly expanding segment of the EDA market. Mentor Graphics' Professional
Services Division was established in 1987. This division's mission is to
team with customers' design groups to increase productivity and reduce
6
costs by assisting customers with methodology and process changes, tool
refinements, design implementation and integration services. The
Professional Services Division has a worldwide team of EDA professionals
available for on-site customer consultation providing software and services
for design data management and electronic parts data creation, design
services for ASICs, ICs, MCMs and EDA network and design environment
management and software integration.
Competition
The EDA industry is competitive and has been characterized by rapid
technological advances in application software, operating systems and
hardware. Mentor Graphics' principal competitors are Cadence Design
Systems, Inc., Synopsys, Inc., Viewlogic Systems, Inc., COMPASS Design
Automation, Inc., Zuken-Redac, Intergraph Corporation and numerous small
companies.
Some of Mentor Graphics' competitors may have greater financial and
marketing resources than Mentor Graphics. However, Mentor Graphics 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 professional services.
Mentor Graphics believes that it generally competes favorably in these
areas. Mentor Graphics can give no assurance, however, that it will have
financial resources, marketing, distribution and service capability, depth
of key personnel or technological knowledge to compete successfully in the
EDA market.
Employees
Mentor Graphics and its subsidiaries employed 2,039 persons full time as of
December 31, 1995. Mentor Graphics' success will depend in part on its
ability to attract and retain employees who are in great demand. Mentor
Graphics continues to enjoy good employee relations. No Mentor Graphics
employees are represented by a collective bargaining unit.
Patents and Licenses
Mentor Graphics owns eleven United States patents and nine foreign patents
covering portions of its technology. Mentor Graphics is currently seeking
to patent more of the inventive technology which Mentor Graphics believes
gives it a competitive advantage. Mentor Graphics presently has patent
applications pending and intends to file additional patent applications in
the future. While Mentor Graphics 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. Although Mentor
Graphics believes that patents are less significant to the success of its
business than technical competence, management ability, marketing
capability and customer support, Mentor Graphics believes that software
patents are becoming increasingly important in the software industry.
Mentor Graphics 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. Mentor Graphics typically incorporates restrictions on disclosure,
usage and transferability into its agreements with customers and other
third parties.
Item 2. Properties
Mentor Graphics' Wilsonville, Oregon facilities are located in six owned
buildings on about 90 acres and take up approximately 387,500 square feet.
All corporate functions, as well as a majority of research and development
and domestic activities, operate from this site.
7
Mentor Graphics leases additional space in San Jose, California, and in
various locations throughout the United States and in other countries,
primarily for sales and customer service operations. Mentor Graphics
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 1996.
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, 1995.
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 Executive Officer 49 1993
and Director
James W. Martin Executive Vice President 64 1996
R. Douglas Norby Senior Vice President and Chief 60 1993
Financial Officer
Frank S. Delia Vice President, Human Resources and 49 1983
the Workplace
Dean Freed Vice President, General Counsel and 37 1995
Secretary
Richard Trebing Corporate Controller and Chief 36 1996
Accounting Officer
Dennis Weldon Treasurer 47 1996
The executive 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.
Dr. Rhines has served as Director, President and Chief Executive
Officer of Mentor Graphics since October 1993. From 1972 to 1993, Dr.
Rhines was employed 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. Dr.
Rhines is currently a director of Cirrus Logic, Inc., and Triquint
Semiconductor, Inc., both semiconductor manufacturers.
8
Mr. Martin has served as Executive Vice President of Mentor Graphics
since January 1996. From February 1994 to 1996, Mr. Martin served as
Special Assistant to the President of Mentor Graphics. From 1962 to 1992,
he was employed by Texas Instruments Incorporated where he held a variety
of management positions and most recently served as Corporate Vice
President and Executive Vice President of the Information Systems Group.
Mr. Norby has served as Senior Vice President and Chief Financial
Officer of Mentor Graphics since July 1993. From 1992 to 1993, he served as
President and Chief Executive Officer of Pharmetrix Corporation. From 1985 to
1992 he was employed by Lucasfilm, Ltd. where he last held the position of
President and Chief Operating Officer.
Mr. Delia has served as Vice President, Human Resources and the
Workplace since July 1995. From 1990 to July 1995, Mr. Delia served as Vice
President, Chief Administrative Officer, General Counsel and Secretary of
Mentor Graphics.
Mr. Freed has served as Vice President, General Counsel and Secretary of
Mentor Graphics since July 1995. Mr. Freed served as Deputy General Counsel
and Assistant Secretary of Mentor Graphics from April 1994 to July 1995, and
was Associate General Counsel and Assistant Secretary from 1990 to April 1994.
He has been employed by Mentor Graphics since January 1989.
Mr. Trebing has served as Corporate Controller and Chief Accounting
Officer since February 1996. Mr. Trebing served as Financial Planning and
Reporting Manager from January 1995 to February 1996 and as a Divisional
Controller from January 1994 to January 1995. From February 1992 to January
1994, Mr. Trebing served as a Finance Manager and from October 1989 to
February 1992, as a Planning and Analysis Manager. Mr. Trebing has been
employed by Mentor Graphics since October 1989.
Mr. Weldon has served as Treasurer since February 1996. Mr. Weldon
served as Director of Corporate Business Development from July 1994 to
February 1996 and was a Director of Finance from January 1991 to July 1994.
He has been employed by Mentor Graphics since July 1988.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company does not intend to pay dividends in the foreseeable future.
Additional information required by this item is included under "Quarterly
Financial Information" on page 37 and under the shareholder information
included on page 39 of the Company's 1995 Annual Report to Shareholders.
Item 6. Selected Financial Data
The information required by this item is included under "Selected
Consolidated Financial Data" on page 13 of the Company's 1995 Annual Report
to Shareholders.
9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is included under "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
on pages 14-21 of the Company's 1995 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
The financial statements are included in the Company's 1995 Annual Report
to Shareholders on pages 22-36 and are indexed here under Item 14(a)(1).
The supplementary data required by this item is included under "Quarterly
Financial Information" on page 37 of the Company's 1995 Annual Report to
Shareholders. See also the financial statement schedule 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 1996 Proxy
Statement and is incorporated herein by reference. The information
concerning the Company's Executive Officers is included herein on page 7
under the caption "Executive Officers of the Registrant." The information
required by Item 405 of Regulation S-K is included under "Compliance with
Section 16(a) of the Exchange Act" in the Company's 1996 Proxy Statement
and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item is included under "Compensation of
Directors," and "Information Regarding Executive Officer Compensation" in
the Company's 1996 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 1996 Proxy Statement and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is not applicable to the Company.
10
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The documents listed are included on pages indicated in the Company's
1995 Annual Report to Shareholders:
Page
----
(1) Financial Statements
Consolidated Statements of Operations 22
Consolidated Balance Sheets 23
Consolidated Statements of Cash Flows 24
Consolidated Statements of Stockholders' Equity 25
Notes to Consolidated Financial Statements 26-36
Independent Auditors' Report 38
(2) Financial Statement Schedules
The documents and schedule listed below are filed as part of this
report on the pages indicated:
Schedule Page
-------- ----
II Valuation and Qualifying Accounts 13-14
Independent Auditors' Report on Financial Statement Schedule 15
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 4A to the Company's Registration Statement on
Form S-3 (Registration No. 33-23024).
B. Bylaws of the Company. Incorporated by reference to Exhibit 4B
to the Company's Registration Statement on Form S-3 (Registration No.
33-56759).
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, 1994 (1994 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.D to the Company's 1994 10-K.
*E. Form of Indemnity Agreement entered into between the Registrant
and each of its
11
officers and directors. Incorporated by reference to
Exhibit B to the Company's 1987 Proxy Statement.
F. 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.
G. 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.
*H. Special Incentive Bonus Plan.
13. Portions of the 1995 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) During the last quarter of 1995, Mentor Graphics reported on the
signing of the Agreement and Plan of Merger among Mentor Graphics, M
Acquisition Sub, Inc., and Microtec Research, Inc. on Form 8-K under
Item 5, Other Events. The date of the event reported was October 9,
1995. No financial statements were filed.
12
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 27, 1996.
MENTOR GRAPHICS CORPORATION
By WALDEN C. RHINES
----------------------------------
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 27, 1996 in the capacities indicated.
Signature Title
(1) Principal Executive Officer:
WALDEN C. RHINES
------------------------------ President, Chief Executive Officer
Walden C. Rhines and Director
(2) Principal Financial Officer:
R. DOUGLAS NORBY
------------------------------ Senior Vice President and Chief
R. Douglas Norby Financial Officer
(3) Principal Accounting Officer:
JAMES J. LUTTENBACHER
-------------------------------- Chief Accounting Officer for 1995
James J. Luttenbacher
(4) Directors:
JON A.SHIRLEY
------------------------------ Chairman of the Board
Jon A. Shirley
MARSHA B. CONGDON
------------------------------ Director
Marsha B. Congdon
JAMES R. FIEBIGER
------------------------------ Director
James R. Fiebiger
DAVID A. HODGES
------------------------------ Director
David A. Hodges
FONTAINE K. RICHARDSON
------------------------------ Director
Fontaine K. Richardson
13
SCHEDULE II
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, 1993:
Allowance for deferred tax assets $ 0 $58,495(1) $ 0 $58,495
Allowance for doubtful accounts $ 4,376 $ 508 $ 956(2) $ 3,928
Allowance for obsolete inventory $12,436 $ 1,924 $ 6,346(3) $ 8,014
Accrued restructure costs $12,270 $26,200 $10,096(4) $28,374
Year ended December 31, 1994:
Allowance for deferred tax assets $58,495 $ 0 $12,282(1) $46,213
Allowance for doubtful accounts $ 3,928 $ 629 $ 1,559(2) $ 2,998
Allowance for obsolete inventory $ 8,014 $ 0 $ 7,155(3) $ 859
Accrued restructure costs $28,374 $ 4,000 $20,477(4) $11,897
Year ended December 31, 1995:
Allowance for deferred tax assets $46,213 $ 2,933 $ 4,859(1) $44,287
Allowance for doubtful accounts $ 2,998 $ 308 $ 535(2) $ 2,771
Allowance for obsolete inventory $ 859 $ 26 $ 496(3) $ 389
Accrued restructure costs $11,897 $ 0 $ 8,146(4) $ 3,751
- ---------------------------
(1) Addition in 1993 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. The deduction
in 1994 primarily represents the realization of net operating loss
carryforwards for the year. The valuation allowance as of December 31,
1994 was $46,213, of which $1,974 was related to deferred tax assets
of the Company's Japanese subsidiary. Based on operating income levels
before tax for the Company's Japanese subsidiary in 1995, it was
determined that it was more likely than not that the Japanese
subsidiary's deferred tax assets would be realized. As such, the tax
provision for 1995 was adjusted for the reversal of the valuation
allowance for the Japanese deferred tax assets.
(2) Deductions primarily represent accounts written off during the period.
(3) Deductions represent inventory scrapped during each period and
reclassification of demonstration equipment from inventory to property
plant and equipment in 1994.
14
(4) Deductions primarily represent payments made to carry out restructure
plans and reversals of accrued restructure charges due to changes in
estimates of $2,040, $10,045 and $1,400 for the years ended December
31, 1995, 1994 and 1993, respectively.
15
Independent Auditors' Report
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The Board of Directors and Stockholders
Mentor Graphics Corporation:
Under date of January 29, 1996, we reported on the consolidated balance
sheets of Mentor Graphics Corporation and subsidiaries as of December 31,
1995 and 1994, 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, 1995, which are included in the 1995 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 1995. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related
consolidated financial statement schedule as listed in the accompanying
index. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
As discussed in note 1 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", in 1994
and SFAS No. 109, "Accounting for Income Taxes", in 1993.
KPMG PEAT MARWICK LLP
January 29, 1996