EX-99.1 2 a4941803ex99_1.txt EXHIBIT 99.1 - FINANCIAL RESULTS PRESS RELEASE Exhibit 99.1 Mentor Graphics Announces Second Quarter Results WILSONVILLE, Ore.--(BUSINESS WIRE)--July 29, 2005--Mentor Graphics Corporation (Nasdaq:MENT) today announced second quarter revenue of $154.8 million. Loss per share, on both a GAAP and pro forma basis, was $.09, on the lower end of the company's prior guidance, based on weaker bookings. "Despite weaker bookings, there were many signs of an improved business climate in the quarter. New customer logo additions were up nearly 20% over the second quarter of 2004, up both worldwide, and in every region. Bookings from new customers doubled from the year ago quarter, as well," said Walden C. Rhines, CEO and chairman of Mentor Graphics. "During the quarter, we saw good bookings growth in most of our new and emerging products. Automotive electrical system design products more than doubled over the second quarter of 2004, and design data management, Catapult(TM) C Synthesis, embedded and FPGA tools all did well during the quarter." During the quarter, the company launched the Questa(TM) verification platform. The Questa verification platform extends Mentor's functional verification leadership by offering a single product with built-in support for testbench automation, coverage-driven verification, assertion-based verification, and transaction-level modeling. These new methodologies enhance traditional simulation technology to achieve faster and more complete verification of systems. Additionally, the company released a new version of its Catapult C Synthesis product that improved its ability to use high-level, faster verification methods. "During the quarter, currency moved in a positive direction for Mentor. A strengthening Yen and a weakening Euro are both helpful for Mentor," said Gregory K. Hinckley, president of Mentor Graphics. "While the first half was weak, we are still confident that key products like the Calibre(R) family will deliver in the second half." Revenue by region was 45% Americas, 30% Europe, 15% 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 about $700 million and employs approximately 3,900 people worldwide. Corporate headquarters are located at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777. World Wide Web site: http://www.mentor.com/. Mentor Graphics, Calibre and Catapult C are registered trademarks and Questa and Scalable Verification are trademarks 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. For the three and six months ended June 30, 2005, a $4.75 million charge to R&D related to the purchase of technology that had not reached technological feasibility was also excluded from pro forma earnings. Included in pro forma earnings for the six months ended June 30, 2005 was a $1 million gain related to the sale of a building in the first quarter 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) discounting of products and services by competitors, which could force the company to lower its prices or offer other more favorable terms to customers (iv) changes in accounting or reporting rules or interpretations, limitations on repatriation of earnings, licensing and intellectual property rights protection; (v) changes in tax laws, regulations or enforcement practices where the Company does business; (vi) effects of the increasing volatility of foreign currency fluctuations on the Company's business and operating results; (vii) effects of unanticipated shifts in product mix on gross margin and unanticipated shifts in geographic mix on the overall tax rate, (viii) effects of customer seasonal purchasing patterns and the timing of significant orders may negatively impact the Company's quarterly results of operations, (ix) 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 Six Months Ended June 30, June 30, -------------------------------------- 2005 2004 2005 2004 ---------- -------- -------- -------- Revenues: System and software $ 81,375 $ 98,091 $172,935 $192,612 Service and support 73,461 71,551 146,235 141,435 ---------- -------- -------- -------- Total revenues 154,836 169,642 319,170 334,047 ---------- -------- -------- -------- Cost of revenues: System and software 4,828 4,623 9,563 9,185 Service and support 20,339 19,079 40,247 39,174 Amortization of purchased technology 2,700 2,504 5,413 4,970 ---------- -------- -------- -------- Total cost of revenues 27,867 26,206 55,223 53,329 ---------- -------- -------- -------- Gross margin 126,969 143,436 263,947 280,718 ---------- -------- -------- -------- Operating expenses: Research and development 56,193 48,322 107,503 96,705 Marketing and selling 65,324 64,045 132,899 127,751 General and administration 18,752 18,748 37,460 37,310 Amortization of intangible assets 972 790 2,094 1,572 Special charges 1,264 3,863 2,577 3,863 Merger and acquisition related charges 750 360 750 360 ---------- -------- -------- -------- Total operating expenses 143,255 136,128 283,283 267,561 ---------- -------- -------- -------- Operating income (loss) (16,286) 7,308 (19,336) 13,157 Other income, net 2,842 1,990 6,457 3,220 Interest expense (5,638) (4,571) (10,669) (9,026) ---------- -------- -------- -------- Income (loss) before income taxes (19,082) 4,727 (23,548) 7,351 Income tax expense (benefit) (12,239) 37,523 (12,319) 37,969 ---------- -------- -------- -------- Net loss $ (6,843)$(32,796)$(11,229)$(30,618) ========== ======== ======== ======== Net loss per share: Basic $ (.09)$ (.47)$ (.14)$ (.44) ========== ======== ======== ======== Diluted $ (.09)$ (.47)$ (.14)$ (.44) ========== ======== ======== ======== Weighted average number of shares outstanding: Basic 78,165 70,090 78,086 69,946 ========== ======== ======== ======== Diluted 78,165 70,090 78,086 69,946 ========== ======== ======== ======== MENTOR GRAPHICS CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except earnings per share data-Unaudited) Three Months Ended June 30, 2005 GAAP Adjustments Pro Forma ------------------------------------- Revenues: System and software $ 81,375 $ - $ 81,375 Service and support 73,461 - 73,461 ---------- --------- -------- Total revenues 154,836 - 154,836 ---------- --------- -------- Cost of revenues: System and software 4,828 - 4,828 Service and support 20,339 - 20,339 Amortization of purchased technology 2,700 (2,700) (1) - ---------- --------- -------- Total cost of revenues 27,867 (2,700) 25,167 ---------- --------- -------- Gross margin 126,969 2,700 129,669 ---------- --------- -------- Gross margin percentage 82.0% 83.7% ---------- -------- Operating expenses: Research and development 56,193 (4,750) (2) 51,443 Marketing and selling 65,324 - 65,324 General and administration 18,752 - 18,752 Amortization of intangible assets 972 (972) (1) - Special charges 1,264 (1,264) (3) - Merger and acquisition related charges 750 (750) (3) - ---------- --------- -------- Total operating expenses 143,255 (7,736) 135,519 ---------- --------- -------- Operating income (loss) (16,286) 10,436 (5,850) Other income, net 2,842 - 2,842 Interest expense (5,638) - (5,638) ---------- --------- -------- Income (loss) before income taxes (19,082) 10,436 9,591 (8,646) Income tax expense (benefit) (12,239) 10,769 (4) (1,470) ---------- --------- -------- Net loss $ (6,843) $ (333) $ (7,176) ========== ========= ======== Net loss per share: Basic $ (.09) $ (.09) ========== ======== Diluted $ (.09) $ (.09) ========== ======== Weighted average number of shares outstanding: Basic 78,165 78,165 ========== ======== Diluted 78,165 78,165 ========== ======== (1) Non-cash amortization of intangible assets. (2) Unusual charge related to the purchase of technology that had not reached technological feasibility. (3) Merger, acquisition, restructuring and other charges. (4) Pro forma income tax expense calculation differs from the GAAP calculation as it assumed a normalized effective rate of 17%. 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 3,863 (3,863) (2) - Merger and acquisition related charges 360 (360) (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 9,591 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 rate of 17%. MENTOR GRAPHICS CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except earnings per share data-Unaudited) Six Months Ended June 30, 2005 GAAP Adjustments Pro Forma --------------------------------- Revenues: System and software $172,935 $ - $ 172,935 Service and support 146,235 - 146,235 -------- --------- --------- Total revenues 319,170 - 319,170 -------- --------- --------- Cost of revenues: System and software 9,563 - 9,563 Service and support 40,247 - 40,247 Amortization of purchased technology 5,413 (5,413)(1) - -------- --------- --------- Total cost of revenues 55,223 (5,413) 49,810 -------- --------- --------- Gross margin 263,947 5,413 269,360 -------- --------- --------- Gross margin percentage 82.7% 84.4% -------- --------- Operating expenses: Research and development 107,503 (4,750)(2) 102,753 Marketing and selling 132,899 - 132,899 General and administration 37,460 - 37,460 Amortization of intangible assets 2,094 (2,094)(1) - Special charges 2,577 (2,577)(3) - Merger and acquisition related charges 750 (750)(3) - -------- --------- --------- Total operating expenses 283,283 (10,171) 273,112 -------- --------- --------- Operating income (loss) (19,336) 15,584 (3,752) Other income, net 6,457 - 6,457 Interest expense (10,669) - (10,669) -------- --------- --------- Income (loss) before income taxes (23,548) 15,584 (7,964) Income tax expense (benefit) (12,319) 10,965 (4) (1,354) -------- --------- --------- Net income (loss) $(11,229) $ 4,619 $ (6,610) ======== ========= ========= Net income (loss) per share: Basic $ (.14) $ (.08) ======== ========= Diluted $ (.14) $ (.08) ======== ========= Weighted average number of shares outstanding: Basic 78,086 78,086 ======== ========= Diluted 78,086 78,086 ======== ========= (1) Non-cash amortization of intangible assets. (2) Unusual charge related to the purchase of technology that had not reached technological feasibility. (3) Merger, acquisition, restructuring and other charges. (4) Pro forma income tax expense calculation differs from the GAAP calculation as it assumed a normalized effective rate of 17%. 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 3,863 (3,863)(2) - Merger and acquisition related charges 360 (360)(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 rate of 17%. MENTOR GRAPHICS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands - Unaudited) As of As of June 30, December 31, 2005 2004 ------------------------------------------------------- -------------- Assets Current assets: Cash, cash equivalents and short-term investments $ 87,219 $ 94,287 Trade accounts receivable, net 98,308 116,858 Term receivables, short-term 126,501 125,832 Prepaid expenses and other 30,331 28,457 Deferred income taxes 9,480 10,298 --------- ------------- Total current assets 351,839 375,732 Property, plant and equipment, net 81,262 91,224 Term receivables, long-term 117,429 139,146 Intangibles, net 386,645 374,144 Other assets 39,330 41,661 --------- ------------- Total assets $ 976,505 $ 1,021,907 ========= ============= Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings $ 7,460 $ 9,632 Accounts payable 14,669 18,037 Income taxes payable 18,956 35,299 Accrued payroll and related liabilities 58,878 81,709 Accrued liabilities 33,052 37,098 Deferred revenue 119,667 103,336 --------- ------------- Total current liabilities 252,682 285,111 Long-term notes payable 283,012 283,983 Other long-term liabilities 17,150 19,098 --------- ------------- Total liabilities 552,844 588,192 --------- ------------- Stockholders' equity: Common stock 373,153 363,455 Deferred compensation - (508) Retained earnings 28,488 39,717 Accumulated other comprehensive income 22,020 31,051 --------- ------------- Total stockholders' equity 423,661 433,715 --------- ------------- Total liabilities and stockholders' equity $ 976,505 $ 1,021,907 ========= ============= MENTOR GRAPHICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands - Unaudited) Three Months Ended Six Months Ended June 30, June 30, ---------------------------------------- 2005 2004 2005 2004 ---------- --------- -------- -------- Operating Cash Flows: Net loss $ (6,843)$ (32,796) $(11,229)$(30,618) Depreciation and amortization 10,765 10,486 22,085 20,813 Other adjustments to reconcile operating cash 263 34,482 (1,467) 32,925 Changes in working capital 2,634 (4,891) 5,031 (7,326) ---------- --------- -------- -------- Net cash provided by operating activities 6,819 7,281 14,420 15,794 Net cash used in investing activities (11,653) (9,327) (20,015) (23,229) Net cash provided by (used in) financing activities (827) 3,730 6,174 14,084 Effect of exchange rate changes on cash and cash equivalents (1,898) 26 (2,691) (53) ---------- --------- -------- -------- Net change in cash and cash equivalents (7,559) 1,710 (2,112) 6,596 Cash and cash equivalents at beginning of period 73,363 73,219 67,916 68,333 ---------- --------- -------- -------- Cash and cash equivalents at end of period, excluding short-term investments $ 65,804 $ 74,929 $ 65,804 $ 74,929 ========== ========= ======== ======== 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, -------------------------------------- 2005 2004 2005 2004 ------------ ------- -------- -------- Geographic Revenue: Americas $71,112 $82,892 $142,199 $147,922 45.9% 48.9% 44.6% 44.3% Europe $42,245 $43,299 $ 86,033 $ 87,120 27.3% 25.5% 26.9% 26.1% Japan $23,663 $28,358 $ 56,085 $ 67,153 15.3% 16.7% 17.6% 20.1% Pac Rim $17,816 $15,093 $ 34,853 $ 31,852 Other Data: 11.5% 8.9% 10.9% 9.5% Capital expenditures $ 5,313 $ 4,126 $ 12,577 $ 8,946 Days sales outstanding 131 119 - - CONTACT: Mentor Graphics Corporation Ryerson Schwark, 503-685-1462 ry_schwark@mentor.com or Dennis Weldon, 503-685-1462 dennis_weldon@mentor.com