EX-99.1 2 a4686491ex99.txt EXHIBIT 99.1 EARNINGS PRESS RELEASE Exhibit 99.1 Mentor Graphics Announces Second Quarter Results WILSONVILLE, Ore.--(BUSINESS WIRE)--July 22, 2004--Mentor Graphics Corporation (Nasdaq:MENT) today announced second quarter pro forma diluted earnings per share of $.14, up 17% year on year, on revenue of $169.6 million. Earnings on a GAAP basis were a loss of $.47 per share, a result principally of income tax charges on a one-time dividend from a foreign subsidiary. Revenue grew 8% over the year ago quarter, while bookings grew 6%. "While the overall electronic design automation business climate remains challenging, Mentor's strength in products for new design methodologies continues to fuel growth," said Walden C. Rhines, chairman and CEO, Mentor Graphics. "Examples include Calibre(R) resolution enhancement technology, automotive cabling, analog/mixed-signal design and new printed circuit board (PCB) design tools. We also had seven product families that set bookings records for the second quarter." During the quarter, Mentor launched its Catapult(TM) C Synthesis product at the Design Automation Conference (DAC). Called the "most important announcement of DAC" by Gartner Dataquest's EDA analyst Gary Smith, Catapult C Synthesis opens the way for new C-based design methodologies which offer significant performance over existing design methods. Mentor also recently introduced the I/O Designer(TM) tool, a new product that facilitates concurrent chip-to-board design of field-programmable gate arrays (FPGAs) and the PCB, as the number of pins on the FPGA grows. By geography, Japan was particularly robust. Bookings in Japan climbed 25%, North America was up 5%, while Europe was flat and Pacific Rim was down 5%. Revenue by region was 50% Americas, 25% Europe, 15% Japan, and 10% Pacific Rim. Pro forma gross margin was an all-time record 86%. Gross margin on a GAAP basis was 85%. GAAP taxes for the quarter were $38 million, $36.6 million of which was a charge arising from a one-time dividend declared by the company's Irish subsidiary to the US parent company in the amount of $120 million. Approximately $2.5 million of these taxes will be paid in cash; the balance will be settled through utilization of a portion of our net tax return operating loss and credit carryforwards. The declaration of the dividend improves the company's operating flexibility in using current and future cash resources. In addition, special charges of $4.2 million were principally related to abandoned facilities and workforce reductions. "By region, Japan clearly is leading Mentor's overall growth, with new strength there in PCB design tools," said Gregory K. Hinckley, president, Mentor Graphics. "Despite weakness in our new and emerging product category, we saw important areas of strength. Our cabling business, for instance, won two contracts directly with automobile manufacturers this quarter, a critical milestone for the business and an indication of its growing momentum." The company continues to see mixed signals of strength in the electronic design automation market: -- Maintenance contract reinstatements remained at record levels, while maintenance contract terminations continued to drop. -- Book-to-bill was near 1. -- Mentor won orders from 132 new customers in the quarter, compared to orders from 143 new customers in the year ago quarter. While overall new customer activity was weaker, the company did see increased dollar value of business from startup companies. "Mentor's focus on new design methodologies is sustaining the company's growth, even in the mixed business environment we continue to experience," said Rhines. About Mentor Graphics Mentor Graphics Corporation (Nasdaq: MENT) is a world leader in electronic hardware and software design solutions, providing products, consulting services and award-winning support for the world's most successful electronics and semiconductor companies. Established in 1981, the company reported revenues over the last 12 months of about $675 million and employs approximately 3,800 people worldwide. Corporate headquarters are located at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777; Silicon Valley headquarters are located at 1001 Ridder Park Drive, San Jose, California 95131-2314. World Wide Web site: http://www.mentor.com/. In the calculation of pro forma earnings, gross margin and operating expenses, Mentor Graphics excludes amortization of acquired intangibles and write-offs of in-process R&D from acquisitions. Also excluded are non-operating and non-recurring items classified as special charges such as restructure expenses and asset impairments, as well as income tax expense in excess of a normalized 17% effective tax rate. These excluded items are generally infrequent, less predictable and are often non-cash in nature. Mentor Graphics believes that excluding these items provides investors with a representation of its core performance, and a pro forma base line for assessing the future earnings potential of Mentor Graphics. These pro forma measures should be assessed in conjunction with GAAP earnings measures for a more complete understanding of the Company's results. Since pro forma measures exclude certain items, differences in earnings from GAAP can be significant; Mentor Graphics management evaluates its performance under both measures for a complete understanding of its results. Investors are encouraged to review both measures for their evaluations and consider the GAAP earnings measures as the most complete measure of Mentor Graphics' overall performance. Statements in this press release regarding the Company's outlook for future periods constitute "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company or industry results to be materially different from any results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: (i) the Company's ability to successfully offer products and services that compete in the highly competitive and dynamic EDA industry including the risk that the Company's technology, products or inventory become obsolete; (ii) the Company's ability to successfully integrate and manage its recent and future acquisitions, (iii) changes in accounting or reporting rules or interpretations, limitations on repatriation of earnings, licensing and intellectual property rights protection; (iv) changes in tax laws, regulations or enforcement practices in the jurisdictions where the Company does business; (v) effects of the increasing volatility of foreign currency fluctuations on the Company's business and operating results; (vi) the overall instability of diverse economies, including changes in regional or worldwide economic or political conditions, government trade restrictions, or war in the Middle East or elsewhere and (vii) effects of unanticipated shifts in product mix on gross margin and unanticipated shifts in geographic mix on the overall tax rate, all as may be discussed in more detail under the heading "Factors That May Affect Future Results and Financial Condition" in the Company's most recent Form 10-K or Form 10-Q. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. In addition, statements regarding outlook do not reflect potential impacts of mergers or acquisitions that have not been announced or closed as of the time the statements are made. Mentor Graphics disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements to reflect future events or developments. MENTOR GRAPHICS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except earnings per share data-Unaudited) Three Months Ended Six Months Ended June 30, June 30, --------------------- ------------------- 2004 2003 2004 2003 --------- ---------- -------- -------- Revenues: System and software $ 98,091 $ 87,791 $192,612 $179,603 Service and support 71,551 69,677 141,435 137,205 -------- ---------- -------- -------- Total revenues 169,642 157,468 334,047 316,808 -------- ---------- -------- -------- Cost of revenues: System and software 4,623 4,781 9,185 9,596 Service and support 19,079 20,758 39,174 41,461 Amortization of purchased technology 2,504 2,269 4,970 4,478 -------- ---------- -------- -------- Total cost of revenues 26,206 27,808 53,329 55,535 -------- ---------- -------- -------- Gross margin 143,436 129,660 280,718 261,273 -------- ---------- -------- -------- Operating expenses: Research and development 48,322 43,965 96,705 86,841 Marketing and selling 64,045 58,708 127,751 117,897 General and administration 18,748 17,160 37,310 36,143 Amortization of intangible assets 790 931 1,572 2,076 Special charges 4,223 1,800 4,223 3,163 -------- ---------- -------- -------- Total operating expenses 136,128 122,564 267,561 246,120 -------- ---------- -------- -------- Operating income 7,308 7,096 13,157 15,153 Other income, net 1,990 1,925 3,220 2,412 Interest expense (4,571) (3,929) (9,026) (7,974) -------- ---------- -------- -------- Income before income taxes 4,727 5,092 7,351 9,591 Income tax expense 37,523 1,018 37,969 1,918 -------- ---------- -------- -------- Net income (loss) $(32,796) $ 4,074 $(30,618) $ 7,673 ======== ========== ======== ======== Net income (loss) per share: Basic $ (.47) $ .06 $ (.44) $ .11 ======== ========== ======== ======== Diluted $ (.47) $ .06 $ (.44) $ .11 ======== ========== ======== ======== Weighted average number of shares outstanding: Basic 70,090 67,389 69,946 67,362 ======== ========== ======== ======== Diluted 70,090 69,522 69,946 68,901 ======== ========== ======== ======== MENTOR GRAPHICS CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except earnings per share data-Unaudited) Three Months Ended June 30, 2004 GAAP Adjustments Pro Forma --------- ----------- ------ ----------- Revenues: System and software $ 98,091 $ - $ 98,091 Service and support 71,551 - 71,551 -------- --------- ---------- Total revenues 169,642 - 169,642 -------- --------- ---------- Cost of revenues: System and software 4,623 - 4,623 Service and support 19,079 - 19,079 Amortization of purchased technology 2,504 (2,504) (1) - -------- --------- ---------- Total cost of revenues 26,206 (2,504) 23,702 -------- --------- ---------- Gross margin 143,436 2,504 145,940 -------- --------- ---------- Gross margin percentage 84.6% 86.0% -------- ---------- Operating expenses: Research and development 48,322 - 48,322 Marketing and selling 64,045 - 64,045 General and administration 18,748 - 18,748 Amortization of intangible assets 790 (790) (1) - Special charges 4,223 (4,223) (2) - -------- --------- ---------- Total operating expenses 136,128 (5,013) 131,115 -------- --------- ---------- Operating income 7,308 7,517 14,825 Other income, net 1,990 - 1,990 Interest expense (4,571) - (4,571) -------- --------- ---------- Income before income taxes 4,727 7,517 12,244 Income tax expense (benefit) 37,523 (35,442) (3) 2,081 -------- --------- ---------- Net income(loss) $(32,796) $ 42,959 $ 10,163 ======== ========= ========== Net income (loss) per share: Basic $ (.47) $ .14 ======== ========== Diluted $ (.47) $ .14 ======== ========== Weighted average number of shares outstanding: Basic 70,090 70,090 ======== ========== Diluted 70,090 73,236 ======== ========== (1) Non-cash amortization of intangible assets. (2) Merger, acquisition, restructuring and other charges. (3) Pro forma income tax expense calculation differs from the GAAP calculation as it assumed a normalized effective tax rate of 17% for 2004. MENTOR GRAPHICS CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except earnings per share data-Unaudited) Three Months Ended June 30, 2003 GAAP Adjustments Pro Forma ----------- ----------- --- ----------- Revenues: System and software $ 87,791 $ - $ 87,791 Service and support 69,677 - 69,677 ---------- --------- ---------- Total revenues 157,468 - 157,468 ---------- --------- ---------- Cost of revenues: System and software 4,781 - 4,781 Service and support 20,758 - 20,758 Amortization of purchased technology 2,269 (2,269) (1) - ---------- --------- ---------- Total cost of revenues 27,808 (2,269) 25,539 ---------- --------- ---------- Gross margin 129,660 2,269 131,929 ---------- --------- ---------- Gross margin percentage 82.3% 83.8% ---------- ---------- Operating expenses: Research and development 43,965 - 43,965 Marketing and selling 58,708 - 58,708 General and administration 17,160 - 17,160 Amortization of intangible assets 931 (931) (1) - Special charges 1,800 (1,800) (2) - ---------- --------- ---------- Total operating expenses 122,564 (2,731) 119,833 ---------- --------- ---------- Operating income 7,096 5,000 12,096 Other income, net 1,925 - 1,925 Interest expense (3,929) - (3,929) ---------- --------- ---------- Income before income taxes 5,092 5,000 10,092 Income tax expense 1,018 1,000 (3) 2,018 ---------- --------- ---------- Net income $ 4,074 $ 4,000 $ 8,074 ========== ========= ========== Net income per share: Basic $ .06 $ .12 ========== ========== Diluted $ .06 $ .12 ========== ========== Weighted average number of shares outstanding: Basic 67,389 67,389 ========== ========== Diluted 69,522 69,522 ========== ========== (1) Non-cash amortization of intangible assets. (2) Merger, acquisition, restructuring and other charges. (3) Pro forma income tax expense calculation differs from the GAAP calculation as it assumed a normalized effective tax rate of 20% for 2003. MENTOR GRAPHICS CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except earnings per share data-Unaudited) Six Months Ended June 30, 2004 GAAP Adjustments Pro Forma --------- ----------- --- --------- Revenues: System and software $192,612 $ - $192,612 Service and support 141,435 - 141,435 -------- --------- -------- Total revenues 334,047 - 334,047 -------- --------- -------- Cost of revenues: System and software 9,185 - 9,185 Service and support 39,174 - 39,174 Amortization of purchased technology 4,970 (4,970) (1) - -------- --------- -------- Total cost of revenues 53,329 (4,970) 48,359 -------- --------- -------- Gross margin 280,718 4,970 285,688 -------- --------- -------- Gross margin percentage 84.0% 85.5% -------- -------- Operating expenses: Research and development 96,705 - 96,705 Marketing and selling 127,751 - 127,751 General and administration 37,310 - 37,310 Amortization of intangible assets 1,572 (1,572) (1) - Special charges 4,223 (4,223) (2) - -------- --------- -------- Total operating expenses 267,561 (5,795) 261,766 -------- --------- -------- Operating income 13,157 10,765 23,922 Other income, net 3,220 - 3,220 Interest expense (9,026) - (9,026) -------- --------- -------- Income before income taxes 7,351 10,765 18,116 Income tax expense (benefit) 37,969 (34,889) (3) 3,080 -------- --------- -------- Net income (loss) $(30,618) $ 45,654 $ 15,036 ======== ========= ======== Net income (loss) per share: Basic $ (.44) $ .21 ======== ======== Diluted $ (.44) $ .21 ======== ======== Weighted average number of shares outstanding: Basic 69,946 69,946 ======== ======== Diluted 69,946 73,297 ======== ======== (1) Non-cash amortization of intangible assets. (2) Merger, acquisition, restructuring and other charges. (3) Pro forma income tax expense calculation differs from the GAAP calculation as it assumed a normalized effective tax rate of 17% for 2004. MENTOR GRAPHICS CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except earnings per share data-Unaudited) Six Months Ended June 30, 2003 GAAP Adjustments Pro Forma --------- ----------- --- --------- Revenues: System and software $179,603 $ - $179,603 Service and support 137,205 - 137,205 -------- --------- -------- Total revenues 316,808 - 316,808 -------- --------- -------- Cost of revenues: System and software 9,596 - 9,596 Service and support 41,461 - 41,461 Amortization of purchased technology 4,478 (4,478) (1) - -------- --------- -------- Total cost of revenues 55,535 (4,478) 51,057 -------- --------- -------- Gross margin 261,273 4,478 265,751 -------- --------- -------- Gross margin percentage 82.5% 83.9% -------- -------- Operating expenses: Research and development 86,841 - 86,841 Marketing and selling 117,897 - 117,897 General and administration 36,143 - 36,143 Amortization of intangible assets 2,076 (2,076) (1) - Special charges 3,163 (3,163) (2) - -------- --------- -------- Total operating expenses 246,120 (5,239) 240,881 -------- --------- -------- Operating income 15,153 9,717 24,870 Other income, net 2,412 - 2,412 Interest expense (7,974) - (7,974) -------- --------- -------- Income before income taxes 9,591 9,717 19,308 Income tax expense 1,918 1,944 (3) 3,862 -------- --------- -------- Net income $ 7,673 $ 7,773 $ 15,446 ======== ========= ======== Net income per share: Basic $ .11 $ .23 ======== ======== Diluted $ .11 $ .22 ======== ======== Weighted average number of shares outstanding: Basic 67,362 67,362 ======== ======== Diluted 68,901 68,901 ======== ======== (1) Non-cash amortization of intangible assets. (2) Merger, acquisition, restructuring and other charges. (3) Pro forma income tax expense calculation differs from the GAAP calculation as it assumed a normalized effective tax rate of 20% for 2003. MENTOR GRAPHICS CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands - Unaudited) As of As of June 30, 2004 Dec. 31, 2003 ------------------------------------------ ------------- ------------- Assets Current assets: Cash and short-term investments $ 83,754 $ 71,324 Trade accounts receivable, net 104,642 104,043 Term receivables, short-term 120,506 119,627 Prepaid expenses and other 31,302 27,164 Deferred income taxes 18,676 18,787 ------------ ------------ Total current assets 358,880 340,945 Property, plant and equipment, net 87,418 91,350 Term receivables, long-term 106,574 98,207 Intangibles, net 325,121 326,281 Other assets 48,592 83,905 ------------ ------------ Total assets $ 926,585 $ 940,688 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings $ 11,024 $ 6,910 Accounts payable 16,429 18,105 Income taxes payable 37,404 35,122 Accrued payroll and related liabilities 59,963 80,484 Accrued liabilities 34,319 37,719 Deferred revenue 104,056 74,662 ------------ ------------ Total current liabilities 263,195 253,002 Long-term notes payable 285,799 286,768 Other long-term liabilities 21,158 23,161 ------------ ------------ Total liabilities 570,152 562,931 ------------ ------------ Minority Interest - 3,391 Stockholders' equity: Common stock 304,038 294,180 Deferred compensation (1,187) (2,601) Retained earnings 29,649 57,800 Accumulated other comprehensive income 23,933 24,987 ------------ ------------ Total stockholders' equity 356,433 374,366 ------------ ------------ Total liabilities and stockholders' equity $ 926,585 $ 940,688 ============ ============ MENTOR GRAPHICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands - Unaudited) Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2004 2003 2004 2003 --------- --------- -------- --------- Operating Cash Flows: Net income (loss) $(32,796) $ 4,074 $(30,618) $ 7,673 Depreciation and amortization 10,486 11,917 20,813 24,041 Other adjustments to reconcile operating cash 34,482 (1,314) 32,925 (2,802) Changes in working capital (4,891) (2,123) (7,326) (2,698) -------- --------- -------- --------- Net cash provided by operating activities 7,281 12,554 15,794 26,214 Net cash used in investing activities (9,327) (19,692) (23,229) (19,474) Net cash provided by financing activities 3,730 3,691 14,084 5,590 Effect of exchange rate changes on cash and cash equivalents 26 187 (53) 126 -------- --------- -------- --------- Net change in cash and cash equivalents 1,710 (3,260) 6,596 12,456 Cash and cash equivalents at beginning of period 73,219 50,685 68,333 34,969 -------- --------- -------- --------- Cash and cash equivalents at end of period $ 74,929 $ 47,425 $ 74,929 $ 47,425 ======== ========= ======== ========= MENTOR GRAPHICS CORPORATION SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION (In thousands, except for days sales outstanding -Unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------- 2004 2003 2004 2003 --------- ------- -------- -------- Geographic Revenue: Americas $ 82,892 $76,761 $147,922 $156,287 48.9% 48.8% 44.3% 49.3% Europe $ 43,299 $46,840 $ 87,120 $ 89,260 25.5% 29.7% 26.1% 28.2% Japan $ 28,358 $20,665 $ 67,153 $ 44,689 16.7% 13.1% 20.1% 14.1% Pac Rim $ 15,093 $13,202 $ 31,852 $ 26,572 8.9% 8.4% 9.5% 8.4% Other Data: Capital expenditures $ 4,126 $ 5,684 $ 8,946 $ 8,962 Days sales outstanding 119 98 121 98 CONTACT: Mentor Graphics Corporation Ryerson Schwark, 503-685-1462 ry_schwark@mentor.com or Dennis Weldon, 503-685-1462 dennis_weldon@mentor.com