EX-99.1 2 a4874959ex991.txt EXHIBIT 99.1 Exhibit 99.1 Mentor Graphics Announces First Quarter Results WILSONVILLE, Ore.--(BUSINESS WIRE)--April 27, 2005--Mentor Graphics Corporation (Nasdaq:MENT) today announced first quarter revenues of $164.3 million, approximately flat with the year ago quarter. GAAP earnings per share were a loss of $.06, while pro forma earnings per share were $.01, consistent with the company's pre-announcement of April 4, 2005. "Weakness in the business was driven primarily by softness in demand from semiconductor companies, while demand from system businesses was better. As a result, Mentor systems products like FPGA synthesis, embedded software and selected PCB products performed well," said Walden C. Rhines, CEO and chairman of Mentor Graphics. "On the other hand, Calibre product line bookings were particularly weak in the quarter. We expect strength in this product line in the second half of the year based upon the number of current customer engagements." The Scalable Verification product line was also down, driven largely by a tough compare with the year ago quarter when the company's largest ever ModelSim order occurred. "As the drive to time-based licensing continues, our business is increasingly driven into the fourth quarter," said Gregory K. Hinckley, president of Mentor Graphics. "While we are not satisfied with our first quarter performance, our second half continues to look solid." Revenue by region was 45% North America, 25% Europe, 20% Japan and 10% Pacific Rim. By product line, revenue was 30% scalable verification, 25% integrated system design, 25% design to silicon, and 20% new and emerging products. 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 over $700 million and employs approximately 3,850 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/. Mentor Graphics and Calibre are registered trademarks and Scalable Verification is a trademark of Mentor Graphics Corporation. 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. Included in pro forma earnings was a $1million gain related to the sale of a building classified in other income, net. 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) reductions in spending on EDA tools by the Company's customers due to cyclical downturns or initiatives to increase profitability, (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) effects of unanticipated shifts in product mix on gross margin and unanticipated shifts in geographic mix on the overall tax rate, (vii) the Company's ability to successfully integrate and manage its acquisitions, 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 March 31, ------------------ 2005 2004 -------- -------- Revenues: System and software $ 91,560 $ 94,521 Service and support 72,774 69,884 -------- -------- Total revenues 164,334 164,405 -------- -------- Cost of revenues: System and software 4,735 4,562 Service and support 19,908 20,095 Amortization of purchased technology 2,713 2,466 -------- -------- Total cost of revenues 27,356 27,123 -------- -------- Gross margin 136,978 137,282 -------- -------- Operating expenses: Research and development 51,310 48,383 Marketing and selling 67,575 63,706 General and administration 18,708 18,562 Amortization of intangible assets 1,122 782 Special charges 1,313 - -------- -------- Total operating expenses 140,028 131,433 -------- -------- Operating income (loss) (3,050) 5,849 Other income, net 3,615 1,230 Interest expense (5,031) (4,455) -------- -------- Income (loss) before income taxes (4,466) 2,624 Income tax expense (benefit) (80) 446 -------- -------- Net income (loss) $ (4,386)$ 2,178 ======== ======== Net income (loss) per share: Basic $ (0.06)$ 0.03 ======== ======== Diluted $ (0.06)$ 0.03 ======== ======== Weighted average number of shares outstanding: Basic 78,007 69,803 ======== ======== Diluted 78,007 72,763 ======== ======== MENTOR GRAPHICS CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except percentages and earnings per share data-Unaudited) Three Months Ended March 31, 2005 GAAP Adjustments Pro Forma -------------------------------- Revenues: System and software $ 91,560 $ - $ 91,560 Service and support 72,774 - 72,774 -------- -------- -------- Total revenues 164,334 - 164,334 -------- -------- -------- Cost of revenues: System and software 4,735 - 4,735 Service and support 19,908 - 19,908 Amortization of purchased technology 2,713 (2,713)(1) - -------- -------- -------- Total cost of revenues 27,356 (2,713) 24,643 -------- -------- -------- Gross margin 136,978 2,713 139,691 -------- -------- -------- Gross margin percentage 83.4% 85.0% -------- -------- Operating expenses: Research and development 51,310 - 51,310 Marketing and selling 67,575 - 67,575 General and administration 18,708 - 18,708 Amortization of intangible assets 1,122 (1,122)(1) - Special charges 1,313 (1,313) - -------- -------- -------- Total operating expenses 140,028 (2,435) 137,593 -------- -------- -------- Operating income (loss) (3,050) 5,148 2,098 Other income, net 3,615 - 3,615 Interest expense (5,031) - (5,031) -------- -------- -------- Income (loss) before income taxes (4,466) 5,148 682 Income tax expense (benefit) (80) 196 (2) 116 -------- -------- -------- Net income (loss) $ (4,386) $ 4,952 $ 566 ======== ======== ======== Net income (loss) per share: Basic $ (0.06) $ .01 ======== ======== Diluted $ (0.06) $ .01 ======== ======== Weighted average number of shares outstanding: Basic 78,007 78,007 ======== ======== Diluted 78,007 80,340 ======== ======== (1) Non-cash amortization of intangible assets. (2) Pro forma income tax expense calculation differs from the GAAP calculation as it assumed a normalized effective rate of 17% for 2005. MENTOR GRAPHICS CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except percentages and earnings per share data-Unaudited) Three Months Ended March 31, 2004 GAAP Adjustments Pro Forma -------------------------------- Revenues: System and software $ 94,521 $ - $ 94,521 Service and support 69,884 - 69,884 -------- -------- -------- Total revenues 164,405 - 164,405 -------- -------- -------- Cost of revenues: System and software 4,562 - 4,562 Service and support 20,095 - 20,095 Amortization of purchased technology 2,466 (2,466)(1) - -------- -------- -------- Total cost of revenues 27,123 (2,466) 24,657 -------- -------- -------- Gross margin 137,282 2,466 139,748 -------- -------- -------- Gross margin percentage 83.5% 85.0% -------- -------- Operating expenses: Research and development 48,383 - 48,383 Marketing and selling 63,706 - 63,706 General and administration 18,562 - 18,562 Amortization of intangible assets 782 (782)(1) - -------- -------- -------- Total operating expenses 131,433 (782) 130,651 -------- -------- -------- Operating income 5,849 3,248 9,097 Other income, net 1,230 - 1,230 Interest expense (4,455) - (4,455) -------- -------- -------- Income before income taxes 2,624 3,248 5,872 Income tax expense 446 552 (2) 998 -------- -------- -------- Net income $ 2,178 $ 2,696 $ 4,874 ======== ======== ======== Net income per share: Basic $ .03 $ .07 ======== ======== Diluted $ .03 $ .07 ======== ======== Weighted average number of shares outstanding: Basic 69,803 69,803 ======== ======== Diluted 72,763 72,763 ======== ======== (1) Non-cash amortization of intangible assets. (2) 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 CONSOLIDATED BALANCE SHEETS (In thousands - Unaudited) As of As of March 31, December 31, 2005 2004 ---------------------------------------------------------------------- Assets Current assets: Cash and short-term investments $ 108,676 $ 94,287 Trade accounts receivable, net 94,983 116,858 Term receivables, short-term 133,828 125,832 Prepaid expenses and other 33,003 28,457 Deferred income taxes 10,125 10,298 ---------- ---------- Total current assets 380,615 375,732 Property, plant and equipment, net 82,723 91,224 Term receivables, long-term 126,393 139,146 Intangibles, net 370,208 374,144 Other assets 40,145 41,661 ---------- ---------- Total assets $1,000,084 $1,021,907 ========== ========== Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings $ 7,889 $ 9,632 Accounts payable 17,583 18,037 Income taxes payable 31,676 35,299 Accrued payroll and related liabilities 51,847 81,709 Accrued liabilities 36,863 37,098 Deferred revenue 118,482 103,336 ---------- ---------- Total current liabilities 264,340 285,111 Long-term notes payable 283,475 283,983 Other long-term liabilities 18,115 19,098 ---------- ---------- Total liabilities 565,930 588,192 ---------- ---------- Stockholders' equity: Common stock 372,445 363,455 Deferred compensation (203) (508) Retained earnings 35,331 39,717 Accumulated other comprehensive income 26,581 31,051 ---------- ---------- Total stockholders' equity 434,154 433,715 ---------- ---------- Total liabilities and stockholders' equity $1,000,084 $1,021,907 ========== ========== MENTOR GRAPHICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands - Unaudited) Three Months Ended March 31, --------------------------- 2005 2004 ------------ ----------- Operating Cash Flows: Net income (loss) $ (4,386) $ 2,178 Depreciation and amortization 11,320 10,327 Other adjustments to reconcile operating cash (1,730) (1,557) Changes in working capital 2,397 (2,435) ------------ ----------- Net cash provided by operating activities 7,601 8,513 Net cash used in investing activities (8,362) (13,902) Net cash provided by financing activities 7,001 10,354 Effect of exchange rate changes on cash and cash equivalents (793) (79) ------------ ----------- Net change in cash and cash equivalents 5,447 4,886 Cash and cash equivalents at beginning of period 67,916 68,333 ------------ ----------- Cash and cash equivalents at end of period $ 73,363 $ 73,219 ============ =========== MENTOR GRAPHICS CORPORATION SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION (In thousands, except for percentages and days sales outstanding -Unaudited) Three Months Ended March 31, ---------------------------- 2005 2004 ------------ ------------ Geographic Revenue: Americas $ 71,087 $ 65,030 43.3% 39.5% Europe $ 43,788 $ 43,821 26.6% 26.7% Japan $ 32,422 $ 38,795 19.7% 23.6% Pac Rim $ 17,037 $ 16,759 Other Data: 10.4% 10.2% Capital expenditures $ 7,264 $ 4,820 Days sales outstanding 125 115 CONTACT: Mentor Graphics Corporation Ryerson Schwark, 503-685-1462 ryschwark@mentor.com or Dennis Weldon, 503-685-1462 dennisweldon@mentor.com