EX-99.1 2 a4747759ex991.txt EXHIBIT 99.1 Exhibit 99.1 Mentor Graphics Announces Third Quarter Results WILSONVILLE, Ore.--(BUSINESS WIRE)--Oct. 21, 2004--Mentor Graphics Corporation (Nasdaq:MENT) today announced third quarter pro forma diluted earnings per share were $.05, on revenue of $162 million. On a GAAP basis, the company reported a loss of $.08 per share, driven lower primarily by special charges for in-process R&D associated with the acquisition of 0-In Design Automation. Revenue grew 3% over the year ago quarter, while bookings grew 2%. "Although growth in the third quarter was slow, it was primarily due to the timing of major orders," said Walden C. Rhines, chairman and CEO of Mentor Graphics. "Year-to-date bookings have grown over 8% and we expect an all-time record level in fourth quarter and full year bookings growth of 10%." On Oct. 19, the company announced design-for-manufacturing (DFM) enhancements to its flagship Calibre(R) product line, as well as announced plans for more DFM products to be delivered in 2005. The company believes that DFM is a significant opportunity for the industry as customers struggle with achieving acceptable yield on advanced processes. By geography, PacRim was particularly robust. Bookings in PacRim climbed 20%, North America was up 5%, and Europe was down 10%. Japan was flat, but continued at bookings levels nearly double the historical rate of the late 1990s. Revenue by region was 40% Americas, 30% Europe, 20% Japan, and 10% Pacific Rim. By product line, Scalable Verification(TM) bookings rose 40% over the year ago quarter, driven by strength in the ModelSim(R) product line. During the quarter, the company launched ModelSim(R) 6.0 with enhancements to support standards and assertion-based methodologies. Systems bookings rose 10% with particular strength in high speed design, up over 100% and in the Expedition(TM) product line. Design to Silicon bookings were down 20% and new and emerging products fell 25%. During the quarter, Mentor won 4 new customers for TestKompress(R) as well as a major order for Platform Express(TM). Book-to-bill was below 1.0. Pro forma gross margin was 86%. Gross margin on a GAAP basis was 84%. "Customer interest in the 0-In acquisition is as strong as I've ever seen interest in a newly acquired product line," said Gregory K. Hinckley, president of Mentor Graphics. "We expect as we fully integrate 0-In into our Scalable Verification Platform that we'll see continued market share gains in the verification space." 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 $700 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 based on current expectations 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 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 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 where the Company does business; (v) effects of the increasing volatility of foreign currency fluctuations on the Company's business and operating results; (vi) economic uncertainty 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 Nine Months Ended September 30, September 30, ------------------ ------------------- 2004 2003 2004 2003 -------- -------- -------- --------- Revenues: System and software $ 89,933 $ 86,166 $282,545 $ 265,769 Service and support 72,027 70,785 213,462 207,990 -------- -------- -------- --------- Total revenues 161,960 156,951 496,007 473,759 -------- -------- -------- --------- Cost of revenues: System and software 2,615 5,945 11,800 15,541 Service and support 20,320 20,344 59,494 61,805 Amortization of purchased technology 2,672 2,319 7,642 6,797 -------- -------- -------- --------- Total cost of revenues 25,607 28,608 78,936 84,143 -------- -------- -------- --------- Gross margin 136,353 128,343 417,071 389,616 -------- -------- -------- --------- Operating expenses: Research and development 50,990 46,522 147,695 133,363 Marketing and selling 63,304 57,781 191,055 175,678 General and administration 18,120 18,011 55,430 54,154 Amortization of intangible assets 916 899 2,488 2,975 Emulation litigation settlement - 20,264 - 20,264 Special charges 7,797 5,008 12,020 8,171 -------- -------- -------- --------- Total operating expenses 141,127 148,485 408,688 394,605 -------- -------- -------- --------- Operating income (loss) (4,774) (20,142) 8,383 (4,989) Other income, net 2,479 2,096 5,699 4,508 Interest expense (4,755) (4,525) (13,781) (12,499) -------- -------- -------- --------- Income (loss) before income taxes (7,050) (22,571) 301 (12,980) Income tax expense (benefit) (1,304) (9,781) 36,665 (7,863) -------- -------- -------- --------- Net loss $ (5,746)$(12,790) $(36,364)$ (5,117) ======== ======== ======== ========= Net loss per share: Basic $ (.08)$ (.19) $ (.51)$ (.08) ======== ======== ======== ========= Diluted $ (.08)$ (.19) $ (.51)$ (.08) ======== ======== ======== ========= Weighted average number of shares outstanding: Basic 73,213 67,886 71,045 67,554 ======== ======== ======== ========= Diluted 73,213 67,886 71,045 67,554 ======== ======== ======== ========= MENTOR GRAPHICS CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except earnings per share data-Unaudited) Three Months Ended September 30, 2004 GAAP Adjustments Pro Forma ----------------------------------- Revenues: System and software $ 89,933 $ - $ 89,933 Service and support 72,027 - 72,027 -------- --------- -------- Total revenues 161,960 - 161,960 -------- --------- -------- Cost of revenues: System and software 2,615 - 2,615 Service and support 20,320 - 20,320 Amortization of purchased technology 2,672 (2,672)(1) - -------- --------- -------- Total cost of revenues 25,607 (2,672) 22,935 -------- --------- -------- Gross margin 136,353 2,672 139,025 -------- --------- -------- Gross margin percentage 84.2% 85.8% -------- -------- Operating expenses: Research and development 50,990 - 50,990 Marketing and selling 63,304 - 63,304 General and administration 18,120 - 18,120 Amortization of intangible assets 916 (916)(1) - Special charges 7,797 (7,797)(2) - -------- --------- -------- Total operating expenses 141,127 (8,713) 132,414 -------- --------- -------- Operating income (loss) (4,774) 11,385 6,611 Other income, net 2,479 - 2,479 Interest expense (4,755) - (4,755) -------- --------- -------- Income (loss) before income taxes (7,050) 11,385 4,335 Income tax expense (benefit) (1,304) 2,041(3) 737 -------- --------- -------- Net income (loss) $ (5,746) $ 9,344 $ 3,598 ======== ========= ======== Net income (loss) per share: Basic $ (.08) $ .05 ======== ======== Diluted $ (.08) $ .05 ======== ======== Weighted average number of shares outstanding: Basic 73,213 73,213 ======== ======== Diluted 73,213 75,048 ======== ======== ---------------------------------------------------------------------- (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 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 September 30, 2003 GAAP Adjustments Pro Forma -------------------------------- Revenues: System and software $ 86,166 $ - $ 86,166 Service and support 70,785 - 70,785 -------- --------- -------- Total revenues 156,951 - 156,951 -------- --------- -------- Cost of revenues: System and software 5,945 - 5,945 Service and support 20,344 - 20,344 Amortization of purchased technology 2,319 (2,319)(1) - -------- --------- -------- Total cost of revenues 28,608 (2,319) 26,289 -------- --------- -------- Gross margin 128,343 2,319 130,662 -------- --------- -------- Gross margin percentage 81.8% 83.3% -------- -------- Operating expenses: Research and development 46,522 - 46,522 Marketing and selling 57,781 - 57,781 General and administration 18,011 - 18,011 Amortization of intangible assets 899 (899)(1) - Emulation litigation settlement 20,264 (20,264) - Special charges 5,008 (5,008)(2) - -------- --------- -------- Total operating expenses 148,485 (26,171) 122,314 -------- --------- -------- Operating income (loss) (20,142) 28,490 8,348 Other income, net 2,096 - 2,096 Interest expense (4,525) - (4,525) -------- --------- -------- Income (loss) before income taxes (22,571) 28,490 5,919 Income tax expense (benefit) (9,781) 10,965(3) 1,184 -------- --------- -------- Net income (loss) $(12,790) $ 17,525 $ 4,735 ======== ========= ======== Net income (loss) per share: Basic $ (.19) $ .07 ======== ======== Diluted $ (.19) $ .07 ======== ======== Weighted average number of shares outstanding: Basic 67,886 67,886 ======== ======== Diluted 67,886 71,380 ======== ======== ---------------------------------------------------------------------- (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 rate of 20% for 2003. MENTOR GRAPHICS CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except earnings per share data - Unaudited) Nine Months Ended September 30, 2004 GAAP Adjustments Pro Forma --------------------------------- Revenues: System and software $282,545 $ - $ 282,545 Service and support 213,462 - 213,462 -------- --------- --------- Total revenues 496,007 - 496,007 -------- --------- --------- Cost of revenues: System and software 11,800 - 11,800 Service and support 59,494 - 59,494 Amortization of purchased technology 7,642 (7,642)(1) - -------- --------- --------- Total cost of revenues 78,936 (7,642) 71,294 -------- --------- --------- Gross margin 417,071 7,642 424,713 -------- --------- --------- Gross margin percentage 84.1% 85.6% -------- --------- Operating expenses: Research and development 147,695 - 147,695 Marketing and selling 191,055 - 191,055 General and administration 55,430 - 55,430 Amortization of intangible assets 2,488 (2,488)(1) - Special charges 12,020 (12,020)(2) - -------- --------- --------- Total operating expenses 408,688 (14,508) 394,180 -------- --------- --------- Operating income 8,383 22,150 30,533 Other income, net 5,699 - 5,699 Interest expense (13,781) - (13,781) -------- --------- --------- Income before income taxes 301 22,150 22,451 Income tax expense (benefit) 36,665 (32,848)(3) 3,817 -------- --------- --------- Net income (loss) $(36,364) $ 54,998 $ 18,634 ======== ========= ========= Net income (loss) per share: Basic $ (.51) $ .26 ======== ========= Diluted $ (.51) $ .25 ======== ========= Weighted average number of shares outstanding: Basic 71,045 71,045 ======== ========= Diluted 71,045 74,181 ======== ========= ---------------------------------------------------------------------- (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 rate of 17% for 2004. MENTOR GRAPHICS CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except earnings per share data - Unaudited) Nine Months Ended September 30, 2003 GAAP Adjustments Pro Forma ---------------------------------- Revenues: System and software $ 265,769 $ - $ 265,769 Service and support 207,990 - 207,990 --------- --------- --------- Total revenues 473,759 - 473,759 --------- --------- --------- Cost of revenues: System and software 15,541 - 15,541 Service and support 61,805 - 61,805 Amortization of purchased technology 6,797 (6,797)(1) - --------- --------- --------- Total cost of revenues 84,143 (6,797) 77,346 --------- --------- --------- Gross margin 389,616 6,797 396,413 --------- --------- --------- Gross margin percentage 82.2% 83.7% --------- --------- Operating expenses: Research and development 133,363 - 133,363 Marketing and selling 175,678 - 175,678 General and administration 54,154 - 54,154 Amortization of intangible assets 2,975 (2,975)(1) - Emulation litigation settlement 20,264 (20,264) - Special charges 8,171 (8,171)(2) - --------- --------- --------- Total operating expenses 394,605 (31,410) 363,195 --------- --------- --------- Operating income (loss) (4,989) 38,207 33,218 Other income, net 4,508 - 4,508 Interest expense (12,499) - (12,499) --------- --------- --------- Income (loss) before income taxes (12,980) 38,207 25,227 Income tax expense (benefit) (7,863) 12,908(3) 5,045 --------- --------- --------- Net income (loss) $ (5,117) $ 25,299 $ 20,182 ========= ========= ========= Net income (loss) per share: Basic $ (.08) $ .30 ========= ========= Diluted $ (.08) $ .29 ========= ========= Weighted average number of shares outstanding: Basic 67,554 67,554 ========= ========= Diluted 67,554 70,032 ========= ========= ---------------------------------------------------------------------- (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 rate of 20% for 2003. MENTOR GRAPHICS CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands - Unaudited) As of As of September 30, December 31, 2004 2003 ---------------------------------------------------------------------- Assets Current assets: Cash and short-term investments $ 100,990 $ 71,324 Trade accounts receivable, net 88,407 104,043 Term receivables, short-term 122,797 119,627 Prepaid expenses and other 31,947 27,164 Deferred income taxes 17,566 18,787 ---------- ---------- Total current assets 361,707 340,945 Property, plant and equipment, net 88,596 91,350 Term receivables, long-term 106,874 98,207 Goodwill and intangibles, net 375,706 326,281 Other assets 47,745 83,905 ---------- ---------- Total assets $ 980,628 $ 940,688 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings $ 9,257 $ 6,910 Accounts payable 16,734 18,105 Income taxes payable 38,803 35,122 Accrued payroll and related liabilities 59,863 80,484 Accrued liabilities 38,899 37,719 Deferred revenue 102,930 74,662 ---------- ---------- Total current liabilities 266,486 253,002 Long-term notes payable 285,217 286,768 Other long-term liabilities 19,561 23,161 ---------- ---------- Total liabilities 571,264 562,931 ---------- ---------- Minority Interest - 3,391 Stockholders' equity: Common stock 361,754 294,180 Deferred compensation (812) (2,601) Retained earnings 23,903 57,800 Accumulated other comprehensive income 24,519 24,987 ---------- ---------- Total stockholders' equity 409,364 374,366 ---------- ---------- Total liabilities and stockholders' equity $ 980,628 $ 940,688 ========== ========== MENTOR GRAPHICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands - Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ---------------------------------------- 2004 2003 2004 2003 ---------- -------- -------- ---------- Operating Cash Flows: Net loss $ (5,746)$(12,790)$(36,364)$ (5,117) Depreciation and amortization 11,465 12,057 32,278 36,098 Other adjustments to reconcile operating cash 1,930 219 34,855 (2,583) Changes in working capital 14,463 (32,094) 7,137 (34,792) ---------- -------- -------- ---------- Net cash provided (used) by operating activities 22,112 (32,608) 37,906 (6,394) Net cash used in investing activities (27,805) (5,715) (51,034) (25,189) Net cash provided by financing activities 5,931 76,408 20,015 81,998 Effect of exchange rate changes on cash and cash equivalents 4 601 (49) 727 ---------- -------- -------- ---------- Net change in cash and cash equivalents 242 38,686 6,838 51,142 Cash and cash equivalents at beginning of period 74,929 47,425 68,333 34,969 ---------- -------- -------- ---------- Cash and cash equivalents at end of period $ 75,171 $ 86,111 $ 75,171 $ 86,111 ========== ======== ======== ========== Supplemental disclosure of cash flow information: Common stock issued in connection with an acquisition 49,576 - 49,576 - MENTOR GRAPHICS CORPORATION SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION (In thousands, except for days sales outstanding - Unaudited) Three Months Ended Nine Months Ended September 30, September 30, --------------------- --------------------- 2004 2003 2004 2003 --------- --------- --------- --------- Geographic Revenue: Americas $ 68,653 $ 70,740 $ 216,575 $ 227,027 42.4% 45.1% 43.7% 47.9% Europe $ 47,637 $ 44,120 $ 134,757 $ 133,380 29.4% 28.0% 27.2% 28.2% Japan $ 31,337 $ 29,902 $ 98,490 $ 74,591 19.3% 19.1% 19.8% 15.7% PacRim $ 14,333 $ 12,189 $ 46,185 $ 38,761 Other Data: 8.9% 7.8% 9.3% 8.2% Capital expenditures $ 7,887 $ 5,381 $ 16,833 $ 14,343 Days sales outstanding 117 104 - - CONTACT: Mentor Graphics Ryerson Schwark, 503-685-1462 ry_schwark@mentor.com or Dennis Weldon, 503-685-1462 dennis_weldon@mentor.com