WILSONVILLE, Ore. — (BUSINESS WIRE) — May 27, 2011 — Mentor Graphics Corporation (NASDAQ: MENT) today announced financial results for the company’s fiscal first quarter ended April 30, 2011. The company reported revenues of $230 million, non-GAAP earnings per share of $.20, and a GAAP loss per share of $.02. The GAAP loss was driven primarily by non-cash charges associated with retirement of convertible debt.

“Our strategy of leveraging our strength in design automation into adjacent markets is working,” said Walden C. Rhines, chairman and CEO of Mentor Graphics. “The company reported record revenues for a first quarter as our New and Emerging product category delivered strong growth. In addition, our Integrated Systems Design product category continued to strengthen with year-on-year bookings up 45%. Leading indicators of the business remain strong with services and new customers both up sharply.”

During the quarter, the company refinanced a convertible debt offering, reducing annual cash interest expense, increasing conversion price, and reducing dilution. The company also announced a new four-year $125 million revolving credit facility. During the quarter, the company unveiled its 3D integrated circuit (IC) strategy and released test products designed to support 3D IC. The company extended its Calibre^® product line with the Calibre RealTime platform which allows IC designers to optimize their designs while immediately verifying the manufacturability of the chip. The Mentor^® Embedded Sourcery CodeBench won best software product of the show at the recent Embedded Systems Conference.

“We are well on track to achieve our full year goal of a non-GAAP operating margin of 15% of revenues,” said Gregory K. Hinckley, president of Mentor Graphics. “Looking forward, we will extend our cost-cutting efforts with further consolidations of facilities and IT, while we continue to raise the bar on commission and variable compensation expense to further align rewards with increasing shareholder value.”

Outlook

For the second quarter, the company expects revenues of about $210 million, non-GAAP earnings per share of about $.05, and a GAAP loss per share of approximately $.05. For the full year, the company now expects revenues of about $1,004 million, non-GAAP earnings per share of approximately $1.01 and GAAP earnings per share of about $.67.

Fiscal Year Definition

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

Discussion of Non-GAAP Financial Measures

Mentor Graphics’ management evaluates and makes operating decisions using various performance measures. In addition to our GAAP results, we also consider adjusted gross margin, operating margin, net income (loss), and earnings (loss) per share which we refer to as non-GAAP gross margin, operating margin, net income (loss), and earnings (loss) per share, respectively. These non-GAAP measures are derived from the revenues of our product, maintenance, and services business operations and the costs directly related to the generation of those revenues, such as cost of revenue, research and development, sales and marketing, and general and administrative expenses, that management considers in evaluating our ongoing core operating performance. These non-GAAP measures exclude amortization of intangible assets, special charges, equity plan-related compensation expenses and charges, interest expense attributable to net retirement premiums or discounts on the early retirement of debt and associated debt issuance costs, interest expense associated with the amortization of debt discount and premium on convertible debt, impairment of long-lived assets, impairment of cost method investments, and the equity in income or losses of unconsolidated entities (except Frontline P.C.B. Solutions Limited Partnership (Frontline)), which management does not consider reflective of our core operating business.

Identified intangible assets consist primarily of purchased technology, backlog, trade names, customer relationships, and employment agreements. Special charges primarily consist of costs incurred for employee terminations due to a reduction of personnel resources driven by modifications of business strategy or business emphasis. Special charges may also include expenses incurred related to potential acquisitions, abandonment of in-process research and development, excess facility costs, asset-related charges, post-acquisition rebalance costs and restructuring costs, including severance and benefits. Equity plan-related compensation expenses represent the fair value of all share-based payments to employees, including grants of employee stock options. For purposes of comparability across other periods and against other companies in our industry, non-GAAP net income (loss) is adjusted by the amount of additional tax expense or benefit that we would accrue using the normalized effective tax rate described below applied to the non-GAAP results.

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