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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, 1996
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 $613,647,104 on February 28, 1997, based upon the
last price of the Common Stock on that date reported in the NASDAQ National
Market System. On February 28, 1997 there were 64,695,122 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
Part of Form 10-K into
Document which incorporated
-------- ----------------------
Portions of 1996 Annual Report to Shareholders Parts I, II and IV
Portions of the 1997 Proxy Statement Part III
1
PART I
ITEM 1. BUSINESS
This Form 10-K contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from the forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those set forth under the caption "Factors That May
Affect Future Results and Financial Condition" under "Management's Discussion
and Analysis of Results of Operations and Financial Condition" in the Company's
1996 Annual Report to Shareholders, which is incorporated by reference in this
Form 10-K.
General
Mentor Graphics Corporation manufactures, markets and supports software and
hardware Electronic Design Automation ("EDA") products and provides related
services which enable engineers to design, analyze, place and route, and test
the components of electronic systems. Mentor Graphics has recently expanded its
product offerings beyond traditional EDA to include (1) intellectual property
("IP") products and services intended to increase design efficiency by
delivering standard, reusable functions for the design of hardware components
and (2) embedded software development and system verification tools intended to
shorten product time to market by allowing for simultaneous development and
testing of hardware and embedded software. Mentor Graphics markets its products
primarily to large companies in the communications, computer, semiconductor,
consumer electronics, aerospace and transportation industries. Customers use
Mentor Graphics' software in the design of such diverse products as
supercomputers, automotive electronics, telephone switching systems, cellular
base stations and handsets, computer network hubs and routers, 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
EDA Products
Mentor Graphics' EDA products support the development of integrated circuits
("ICs"), application specific integrated circuits ("ASICs"), field programmable
gate arrays ("FPGAs"), printed circuit boards ("PCBs") and multichip modules
("MCMs").
Mentor Graphics' IC design products allow designers to specify an IC design, add
structures for testing the design to remove 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. "ICs" are high performance circuits with
customized logic layers. Mentor Graphics products within the IC design flow
include IC design and layout tools such as MS Analyzer, Cell Builder, GDT, IC
Station, MicroRoute, QuickHDL, FastScan, FlexTest, and SimExpress, as well as
power management and analog and analog/mixed signal design solutions. Mentor
Graphics is able to link its ASIC/FPGA and MCM/PCB design products with its IC
design products to create a continuum of automation from the individual
component level up to the fully-integrated end-product.
Mentor Graphics' ASIC/FPGA design products allow designers to create and verify
designs to ensure that they possess the required performance and functionality
and to create output which will allow the design to be manufactured and tested.
"ASICs" are special integrated circuits with
2
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 smaller unit volumes than traditional ICs. "FPGAs" are circuits that can be
programmed to include different functionality at the point of manufacturing or
during system startup. Mentor Graphics' ASIC/FPGA products include Renoir,
QuickHDL, BSD Architect, DFTAdvisor, FastScan, FlexTest, Leonardo, Galileo,
SimExpress, FPGA Station and Idea Station.
Mentor Graphics' PCB/MCM design tools allow designers to select from a library
of parts to be included in the PCB/MCM, to simulate and test the performance of
the PCB/MCM, to test for manufacturability, to analyze thermal and signal
integrity, and to output data which will allow the PCB/MCM to be manufactured.
"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. "MCMs" may be thought of as several ICs or ASICs mounted together
in a single package. Products within the MCM and PCB design flows include Board
Station, MCM Station, Interconnect Synthesis, AutoTherm MCM, Logical Cable,
Physical Test Manager: SITE, Manufacturing Advisor/PCB and EngineerView.
Intellectual Property and Embedded Software Development Products
Mentor Graphics believes that the demand for tools to develop increasingly
complex electronic systems cannot be entirely satisfied with traditional EDA
tools. Under its Integrated System Design (ISD) strategy, Mentor Graphics
supplements its EDA products with products and services which address the rapid
development of complex systems through design re-use and the integration of
hardware and embedded software development.
Mentor Graphics' IP products and services are intended to increase engineering
productivity through the use of predefined, and preverified "building blocks" of
frequently used circuit functions for the design of hardware components. This
so-called "design reuse" frees designers to focus on optimizing system
architecture and developing proprietary functionality. Mentor Graphics believes
that companies which integrate IP into their design methodology can expect
better quality products at lower costs and faster time-to-market. IP now
available from Mentor Graphics includes a wide variety of functions key to the
design of consumer, computer and communications products. These include foundry
libraries, memories, datapath elements, processors, Universal Serial Bus (USB),
Viterbi and Reed-Solomon error correction decoders, MPEG-2, T1/E1 and Ethernet.
Embedded software development tools are provided by Mentor Graphics' Microtec
subsidiary. Embedded software controls the function of hardware components
dedicated to specialized tasks of such common consumer products as VCRs,
telephones and fax machines. Embedded software is used in a wide range of other
products in the aerospace, communications, medical instrumentation,
transportation, computer, industrial and consumer markets. Microtec's embedded
software development tools include the VRTX real-time operating system, the XRAY
family of debugger products and other software development tools including
compilers, assemblers, linkers and simulators.
Mentor Graphics' co-verification tools provide a means to verify the hardware
and embedded software comprising an electronic system against each other without
having to build a hardware prototype. Mentor Graphics believes this improves the
efficiency of its customers' product development cycle by giving customers more
time to fix software bugs and resolve hardware-software interface errors and
reduce the risk that a design problem will cause a significant delay in the
project schedule. The Company's co-verification products are marketed as the
Seamless Co-Verification Environment family of products.
3
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 and Sun Microsystems, Inc. These computer manufacturers
have a substantial installed base of workstations, and make frequent
introductions of new products. Mentor Graphics introduced four families of
products for Windows NT on personal computers in 1996.
Marketing and Customers
Mentor Graphics' marketing emphasizes its ISD strategy for the integration of
both hardware and software development for electronic systems, its IP tools, a
direct sales force and large corporate account penetration in the
communications, computer, consumer electronics, semiconductor, aerospace, and
transportation industries.
Mentor Graphics sells and licenses its products primarily through its direct
sales force in North America, Europe and Asia. 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, 1996 and 1995, 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 14 of Notes to Consolidated
Financial Statements on page 37 of the 1996 Annual Report to Shareholders and is
incorporated by this reference.
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 180 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 $74.0 million on
December 31, 1996 as compared to $53.9 million on December 31, 1995. This
backlog includes products not shipped and unfulfilled professional services and
training. Mentor Graphics 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, 1996 backlog of orders is expected to ship during 1997.
Mentor Graphics generally 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.
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. Distribution centers in The Netherlands,
Japan and Singapore serve their respective regions. Mentor Graphics' SimExpress
line of accelerated verification products, which is comprised of both hardware
and software, is currently manufactured in France. The Company anticipates that
it will also manufacture this product line in the United States in 1997.
Product Development
Mentor Graphics' research and development is focused on continued improvement of
its existing products and the development of new products. During the years
ended December 31, 1996, 1995
4
and 1994, Mentor Graphics expensed approximately $92,905,000, $86,782,000 and
$81,231,000 respectively, and capitalized approximately $5,691,000, $8,129,000
and $5,718,000, respectively, related to product research and 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. Mentor
Graphics' future success depends on its ability to develop or acquire
competitive new products which satisfy customer requirements.
Suppliers
Mentor Graphics seeks to provide its customers with software and IP that
addresses customers' electronic system design processes. 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 central 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 multi-year agreements with royalty payments
based on a percentage of product revenue. The agreements 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 Consulting
Mentor Graphics has a worldwide organization to meet its customers' needs for
software support; the Company offers support contracts providing software
updates and support. Most of Mentor Graphics' customers have entered into
software support contracts.
Mentor Graphics believes that consulting services is an expanding segment of its
business. The Company's consulting group was established in 1987. Its mission is
to team with customers' design groups to increase productivity and reduce costs
by assisting customers with methodology and process changes, tool refinements,
design implementation and integration services. Mentor Graphics has a worldwide
team of consulting professionals available for on-site customer consultation
providing software and services for design data management, electronic parts
data creation, process automation, technology adoption, and ASIC, IC, MCM and
PCB design implementation.
5
Competition
The markets for Mentor Graphics' products are competitive and have been
characterized by rapid technological advances in application software, operating
systems and hardware. Mentor Graphics' principal EDA competitors are Cadence
Design Systems Inc., Synopsys Inc., Avant! Corporation, Viewlogic Systems Inc.,
Zuken-Redac, Quickturn Design Systems, Inc. and numerous small companies. Mentor
Graphics' principal competitors for embedded software development tools are Wind
River Systems Inc., and Integrated Systems Inc.
Some of Mentor Graphics' competitors may have greater financial and marketing
resources than Mentor Graphics. However, Mentor Graphics believes the main
competitive factors affecting its business 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 its markets.
Employees
Mentor Graphics and its subsidiaries employed approximately 2,500 persons full
time as of December 31, 1996. 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.
Patents and Licenses
Mentor Graphics owns numerous United States and 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 390,000 square feet. All
corporate functions, as well as a majority of research and development and
domestic activities, operate from this site.
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 1997.
6
ITEM 3. LEGAL PROCEEDINGS
During 1995, Mentor Graphics filed suit in U.S. Federal District Court against
Quickturn Design Systems, Inc. (Competitor) for a declarative judgment on
non-infringement, invalidity and unenforceability of three of Competitor's
patents as these patents relate to products of Meta System SRL (Meta), a French
company acquired by Mentor Graphics in 1996 which manufactures and sells
computers used for accelerated verification of hardware designs. In connection
with this litigation, Competitor filed an administrative complaint with the U.S.
International Trade Commission (ITC) in 1996 seeking to hinder the distribution
of Meta accelerated verification products, marketed by Mentor Graphics as
SimExpress, in the United States. The ITC has since issued a temporary ruling
allowing the importation of Meta accelerated verification products to the U.S.,
provided Mentor Graphics posts a bond for each sale. Mentor Graphics believes
that the ultimate resolution of its disputes with Competitor will not have a
material adverse impact on the Company's financial position or results of
operation.
Mentor Graphics is also a party to other legal actions arising out of the normal
course of business, none of which are expected to have a material effect on the
Company's financial position or results of operation.
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, 1996.
Executive Officers of Registrant
The following are the executive officers of the Company:
Has Served As An
Executive Officer
Name Position Age of Company Since
---- -------- --- -----------------
Walden C. Rhines President, Chief Executive Officer 50 1993
and Director
Gregory K. Hinckley Executive Vice President, Chief 50 1997
Operating Officer and Chief
Financial Officer
G. M. "Ken" Bado Senior Vice President, World Trade 42 1996
Glenn D. House, Sr. Senior Vice President, Strategy and 35 1996
Product Operations
Dean Freed Vice President, General Counsel 38 1995
and Secretary
Richard Trebing Corporate Controller and Chief 37 1996
Accounting Officer
7
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, a manufacturer of electrical and electronics
products, 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.
Mr. Hinckley has served as Executive Vice President, Chief Operating
Officer and Chief Financial Officer since joining the Company in January 1997.
From November 1995 until December 1996 he held the position of Senior Vice
President with VLSI Technology, Inc. (VLSI), a manufacturer of complex ASICs.
From August 1992 until December 1996, Mr. Hinckley held the position of Vice
President, Finance and Chief Financial Officer with VLSI. From December 1991
until August 1992, he was an independent consultant. Mr. Hinckley is a director
of OEC Medical Systems, Inc., a manufacturer of medical imaging equipment.
Mr. Bado has served as Senior Vice President, World Trade since December
1997. From April 1994 to December 1996 he held the position of Vice President of
the Americas and was the Southern Area General Manager from January 1991 to
April 1994. Mr. Bado has been employed by Mentor Graphics since February 1990.
Mr. House has served as Senior Vice President, Strategy and Product
Operations since December 1996. From November 1995 to December 1996, he served
as the Vice President and General Manager of the Silicon Systems Division and
from June 1995 until November 1995 as Vice President and General Manager of the
IC and Mixed Signal Division. From August 1992 until June 1995, Mr. House held
the position of Engineering Director with the ASIC, Programmable Logic and Test
Division. He has been employed by Mentor Graphics since March 1990.
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.
8
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 38 and under the shareholder information included
on page 40 of the Company's 1996 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 1996 Annual Report to Shareholders.
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 14-23 of
the Company's 1996 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are included in the Company's 1996 Annual Report to
Shareholders on pages 24-37 and are indexed here under Item 14(a)(1). The
supplementary data required by this item is included under "Quarterly Financial
Information" on page 38 of the Company's 1996 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.
9
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 1997 Proxy Statement and
is incorporated herein by reference. The information concerning the Company's
Executive Officers is included herein on page 7-8 under the caption "Executive
Officers of the Registrant." The information required by Item 405 of Regulation
S-K is included under "Section 16(a) Beneficial Ownership Reporting Compliance"
in the Company's 1997 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 1997 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 1997 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 1996
Annual Report to Shareholders:
Page
(1) Financial Statements ----
Consolidated Statements of Operations 24
Consolidated Balance Sheets 25
Consolidated Statements of Cash Flows 26
Consolidated Statements of Stockholders' Equity 27
Notes to Consolidated Financial Statements 28-37
Independent Auditors' Report 39
(2) Financial Statement Schedules
The schedule and report listed below are filed as part of this report
on the pages indicated:
Schedule Page
-------- ----
II Valuation and Qualifying Accounts 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 officers and directors. Incorporated by
reference to Exhibit B to the Company's 1987 Proxy Statement.
11
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. Incorporated by reference to
Exhibit 10.H to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
13. Portions of the 1996 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 were filed by the Company during the last quarter of
1996.
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 28, 1997.
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
28, 1997 in the capacities indicated.
Signature Title
(1) Principal Executive Officer:
WALDEN C. RHINES President, Chief Executive Officer
--------------------------------- and Director
Walden C. Rhines
(2) Principal Financial Officer:
GREGORY K. HINCKLEY Executive Vice President, Chief
--------------------------------- Operating Officer and Chief
Gregory K. Hinckley Financial Officer
(3) Principal Accounting Officer:
RICHARD TREBING Corporate Controller and Chief
--------------------------------- Accounting Officer
Richard Trebing
(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, 1994:
Allowance for doubtful accounts $4,484 $629 $1,559 $3,554
Allowance for obsolete inventory $8,014 $0 $7,155 $859
Year ended December 31, 1995
Allowance for doubtful accounts $3,554 $308 $571 $3,291
Allowance for obsolete inventory $859 $26 $496 $389
Year ended December 31, 1996
Allowance for doubtful accounts $3,291 $1,168 $1,296 $3,163
Allowance for obsolete inventory $389 $308 $292 $405
Deductions primarily represent accounts written off during the period.
Deductions represent inventory scrapped during each period and
reclassification of demonstration equipment from inventory to property
plant and equipment in 1994.
14
Independent Auditors' Report
- ----------------------------
The Board of Directors and Stockholders
Mentor Graphics Corporation:
Under date of January 30, 1997, except for note 8, which is as of February 11,
1997, we reported on the consolidated balance sheets of Mentor Graphics
Corporation and subsidiaries as of December 31, 1996 and 1995, 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, 1996, which are
included in the 1996 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 1996. 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.
KPMG PEAT MARWICK LLP
Portland, Oregon
January 30, 1997, except for note 8,
which is as of February 11, 1997
15