Exhibit 99.1
Mentor Graphics Reports Earnings On Record Second Quarter Revenues of
$157.5 Million
WILSONVILLE, Ore.--(BUSINESS WIRE)--July 23, 2003--Mentor Graphics
Corporation (Nasdaq:MENT) today reported second quarter
earnings-per-share of $.12, before amortization of acquired
intangibles and special charges, on record second quarter revenues of
$157.5 million. First Call(R) analyst consensus estimate for the
quarter was $.09. GAAP earnings-per-share were $.06. Bookings were up
25 percent over the year ago quarter, while revenues climbed 16
percent.
"Mentor continues to execute well in a slowly improving
environment and saw strength in almost all product lines. Our system
design products performed very well with bookings climbing nearly 30
percent year on year. Our Calibre(R) design-to-silicon platform
bookings were up over 25 percent on broad strength including the
Calibre DRC(TM)/LVS, Calibre Interactive(TM), Calibre xRC(TM), Calibre
MDP(TM), and Calibre RET(TM). We continue to gain momentum for
resolution enhancement technology (RET) as we strengthened our
customer engagements on the 90nm and 65nm process nodes," said Walden
C. Rhines, chairman and CEO of Mentor Graphics. "Additionally, based
on Electronic Design Automation Consortium data, we gained four points
of market share in the first quarter over the prior first quarter.
This marks the third consecutive quarter of year-over-year gains, and
we believe, with our continued growth in the second quarter, we have
extended those gains."
Mentor's analog/mixed-signal and custom IC design flows continued
to show strong growth with bookings up nearly 70 percent in the
quarter, year on year. Embedded software bookings more than doubled
with many new design wins. With the general availability of
Precision(TM) Synthesis this quarter, Mentor took its sales direct,
lapsing a major OEM contract. With the discontinuation of the OEM
contract, FPGA bookings were flat, but Mentor now owns the installed
base of over 20,000 companies that it will encourage to upgrade to
Precision Synthesis.
"Europe led bookings growth with a nearly 30 percent increase,
while North America and the Pacific Rim were up about 25 percent.
While we are expecting a strong second half of 2003 for Japan, second
quarter there was essentially flat," said Gregory K. Hinckley,
president of Mentor Graphics. "The tone of the business continued to
improve as we began to see the arrival of significant unforecasted
orders that closed during the quarter, something we have not seen
since late 2000. Book-to-bill was greater than 1.0. Also, we have
renewed our $100 million credit facility through second quarter of
2006."
Mentor continues to invest significantly in technology leadership,
launching a full FPGA design flow, as well as new versions of its
Calibre, FastScan(TM) ATPG, PADS(R), HyperLynx(R) signal integrity,
Capital Harness(TM), analog/mixed-signal IC flow, Inventra(TM) IP,
Nucleus(TM), Seamless(R) HW/SW co-verification, and Modelsim(R)
products. Additionally, Mentor support launched its web-based
KnowledgeBaseSM support product. Mentor Graphics support, with a total
average customer response time of five minutes, continues to win
industry awards including the Association of Support Professionals Top
Ten Best Web Support Site award, as well as its fourth Support Center
Practices (SCP) certification.
During the quarter, Mentor acquired its Italian distributor, the
Alcatel Ethernet IP business, and DDE-EDA, a leading provider of PCB
design software for advanced packaging. All acquired products will
continue to be supported and will be integrated into Mentor's product
offerings.
Revenue by region was 50 percent North America, 30 percent Europe,
10 percent Japan, 10 percent Pacific Rim. During the quarter, Mentor
acquired 161 new customers. Gross margin excluding amortization of
intangibles was 84 percent.
Special charges were acquisition related.
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
$650 million and employs approximately 3,500 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: www.mentor.com.
In the calculation of earnings, gross margin and operating
expenses before amortization of acquired intangibles and special
charges, 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. 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.
Mentor Graphics, Calibre, PADS, HyperLynx, Seamless and ModelSim
are registered trademarks of Mentor Graphics Corporation. Calibre xRC,
Calibre DRC, Calibre Interactive, Calibre MDP, Calibre RET FastScan,
Capital Harness, Inventra, Precision and Nucleus are trademarks of
Mentor Graphics Corporation. KnowledgeBase is a service mark of Mentor
Graphics Corporation. All other company or product names are the
registered trademarks or trademarks of their respective owners.
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 continue selling products and services during the
continuing slowdown in the electronics industry, particularly in the
telecommunications, semiconductor and personal computer segments; (ii)
the Company's ability to manage expenses during the current slowdown
in the electronics industry; (iii) changes in accounting or reporting
rules or interpretations, changes in the tax environment worldwide,
limitations on repatriation of earnings, licensing and intellectual
property rights protection; (iv) the Company's ability to successfully
integrate and manage its recent and future acquisitions; (v) the
completion of customer contracts and the terms of delivery of
software, hardware and other services; (vi) 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; (vii) 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 (viii)
effects of the increasing volatility of foreign currency fluctuations
on the Company's business and operating results, and (ix) 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,
-----------------------------------------
2003 2002 2003 2002
-----------------------------------------
Revenues:
System and software $ 87,791 $ 67,401 $179,603 $135,302
Service and support 69,677 68,008 137,205 128,111
----------- --------- --------- ---------
Total revenues 157,468 135,409 316,808 263,413
----------- --------- --------- ---------
Cost of revenues:
System and software 4,781 11,295 9,596 15,882
Service and support 20,758 20,647 41,461 40,459
Amortization of purchased
technology 2,269 1,784 4,478 2,256
----------- --------- --------- ---------
Total cost of revenues 27,808 33,726 55,535 58,597
----------- --------- --------- ---------
Gross margin 129,660 101,683 261,273 204,816
----------- --------- --------- ---------
Operating expenses:
Research and development 43,965 40,305 86,841 75,913
Marketing and selling 58,708 54,409 117,897 102,080
General and administration 17,160 18,682 36,143 35,261
Amortization of intangibles 931 537 2,076 537
Special charges 1,800 20,317 3,163 25,106
----------- --------- --------- ---------
Total operating expenses 122,564 134,250 246,120 238,897
----------- --------- --------- ---------
Operating income (loss) 7,096 (32,567) 15,153 (34,081)
Other income, net 1,925 596 2,412 4,598
Interest expense (3,929) (3,487) (7,974) (3,778)
----------- --------- --------- ---------
Income (loss) before income
taxes 5,092 (35,458) 9,591 (33,261)
Income tax expense 1,018 1,133 1,918 1,572
----------- --------- --------- ---------
Net income (loss) $ 4,074 $(36,591) $ 7,673 $(34,833)
=========== ========= ========= =========
Net income (loss) per
share:
Basic $ .06 $ (.56) $ .11 $ (.53)
=========== ========= ========= =========
Diluted $ .06 $ (.56) $ .11 $ (.53)
=========== ========= ========= =========
Weighted average number of
shares outstanding:
Basic 67,389 65,501 67,362 65,364
=========== ========= ========= =========
Diluted 69,522 65,501 68,901 65,364
=========== ========= ========= =========
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 69,977 - 69,977
----------- ---------- -----------
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 and acquisition charges.
(3) Income tax expense calculation assumes an effective tax rate
of 20%.
MENTOR GRAPHICS CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data-Unaudited)
Three Months Ended June 30, 2002
GAAP Adjustments Pro Forma
----------------------------------
Revenues:
System and software $ 67,401 $ - $ 67,401
Service and support 68,008 - 68,008
--------- ----------- ---------
Total revenues 135,409 - 135,409
--------- ----------- ---------
Cost of revenues:
System and software 11,295 - 11,295
Service and support 20,647 - 20,647
Amortization of purchased
technology 1,784 (1,784)(1) -
--------- ----------- ---------
Total cost of revenues 33,726 (1,784) 31,942
--------- ----------- ---------
Gross margin 101,683 1,784 103,467
--------- ----------- ---------
Gross margin percentage 75.1% 76.4%
--------- ---------
Operating expenses:
Research and development 40,305 - 40,305
Marketing and selling 54,409 - 54,409
General and administration 18,682 - 18,682
Amortization of intangible assets 537 (537)(1) -
Special charges 20,317 (20,317)(2) -
--------- ----------- ---------
Total operating expenses 134,250 (20,854) 113,396
--------- ----------- ---------
Operating income (loss) (32,567) 22,638 (9,929)
Other income, net 596 - 596
Interest expense (3,487) - (3,487)
--------- ----------- ---------
Income (loss) before income taxes (35,458) 22,638 (12,820)
Income tax expense (benefit) 1,133 (3,697)(3) (2,564)
--------- ----------- ---------
Net income (loss) $(36,591) $ 26,335 $(10,256)
========= =========== =========
Net income (loss) per share:
Basic $ (.56) $ (.16)
========= =========
Diluted $ (.56) (4) $ (.16)
========= =========
Weighted average number of
shares outstanding:
Basic 65,501 65,501
========= =========
Diluted 65,501 65,501
========= 1=========
(1) Non-cash amortization of intangible assets.
(2) Merger, acquisition, restructuring and other charges.
(3) Income tax expense calculation assumes an effective tax rate
of 20%.
(4) Common stock equivalents related to stock options and warrants
are anti-dilutive in a net loss period and therefore are not
included in diluted net loss per share for the three months
ended June 30, 2002.
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) Income tax expense calculation assumes an effective tax rate
of 20%.
MENTOR GRAPHICS CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data-Unaudited)
Six months Ended June 30, 2002
GAAP Adjustments Pro Forma
----------------------------------
Revenues:
System and software $135,302 $ - $135,302
Service and support 128,111 - 128,111
--------- ---------- ---------
Total revenues 263,413 - 263,413
--------- ---------- ---------
Cost of revenues:
System and software 15,882 - 15,882
Service and support 40,459 - 40,459
Amortization of purchased
technology 2,256 (2,256)(1) -
--------- ---------- ---------
Total cost of revenues 58,597 (2,256) 56,341
--------- ---------- ---------
Gross margin 204,816 2,256 207,072
--------- ---------- ---------
Gross margin percentage 77.8% 78.6%
--------- ---------
Operating expenses:
Research and development 75,913 - 75,913
Marketing and selling 102,080 - 102,080
General and administration 35,261 - 35,261
Amortization of intangible assets 537 (537)(1) -
Special charges 25,106 (25,106)(2) -
--------- ---------- ---------
Total operating expenses 238,897 (25,643) 213,254
--------- ---------- ---------
Operating income (loss) (34,081) 27,899 (6,182)
Other income, net 4,598 - 4,598
Interest expense (3,778) - (3,778)
--------- ---------- ---------
Income (loss) before income taxes (33,261) 27,899 (5,362)
Income tax expense (benefit) 1,572 (2,645)(3) (1,073)
--------- ---------- ---------
Net income (loss) $(34,833) $ 30,544 $ (4,289)
========= =========== =========
Net income (loss) per share:
Basic $ (.53) $ (.07)
========= =========
Diluted $ (.53) (4) $ (.07)
========= =========
Weighted average number of
shares outstanding:
Basic 65,364 65,364
========= =========
Diluted 65,364 65,364
========= =========
(1) Non-cash amortization of intangible assets.
(2) Merger, acquisition, restructuring and other charges.
(3) Income tax expense calculation assumes an effective tax rate
of 20%.
(4) Common stock equivalents related to stock options and warrants
are anti-dilutive in a net loss period and therefore are not
included in diluted net loss per share for the six months
ended June 30, 2002.
MENTOR GRAPHICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands - Unaudited)
As of As of
June 30, December 31,
2003 2002
- ----------------------------------------------------------------------
Assets
Current assets:
Cash and short-term investments $ 47,425 $ 38,826
Trade accounts receivable, net 74,257 77,960
Term receivables, short-term 97,812 81,697
Prepaid expenses and other 28,524 24,884
Deferred income taxes 17,151 16,827
-------------- --------------
Total current assets 265,169 240,194
Property, plant and equipment, net 87,783 90,259
Term receivables, long-term 74,993 78,431
Intangibles, net 347,202 342,171
Other assets 47,302 53,793
-------------- --------------
Total assets $ 822,449 $ 804,848
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 20,137 $ 17,670
Accounts payable 16,190 17,110
Income taxes payable 33,954 40,784
Accrued payroll and related liabilities 54,117 51,250
Accrued liabilities 33,886 45,233
Deferred revenue 90,392 72,902
-------------- --------------
Total current liabilities 248,676 244,949
Long-term notes payable 177,071 177,685
Other long-term liabilities 17,707 19,275
-------------- --------------
Total liabilities 443,454 441,909
-------------- --------------
Minority interest 3,269 3,219
Stockholders' equity:
Common stock 301,987 297,995
Deferred compensation (3,738) (4,761)
Retained earnings 57,540 49,867
Accumulated other comprehensive income 19,937 16,619
-------------- --------------
Total stockholders' equity 375,726 359,720
-------------- --------------
Total liabilities and stockholders'
equity $ 822,449 $ 804,848
============== ==============
MENTOR GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------
2003 2002 2003 2002
-------------------------------------------------
Operating Cash Flows:
Net income (loss) $ 4,074 $ (36,591) $ 7,673 $ (34,833)
Depreciation and
amortization 11,917 7,802 24,041 12,896
Other adjustments
to reconcile
operating cash (1,314) 16,866 (2,802) 18,732
Changes in working
capital (2,123) 6,588 (2,698) 1,571
----------- ------------ ----------- ------------
Net cash provided by
(used in) operating
activities 12,554 (5,335) 26,214 (1,634)
Net cash provided by
(used in) investing
activities (19,692) (175,885) (19,474) (262,051)
Net cash provided by
financing activities 3,691 149,310 5,590 177,423
Effect of exchange
rate changes on cash
and cash equivalents 187 649 126 499
----------- ------------ ----------- ------------
Net change in cash
and cash equivalents (3,260) (31,261) 12,456 (85,763)
Cash and cash
equivalents at
beginning of period 50,685 69,527 34,969 124,029
----------- ------------ ----------- ------------
Cash and cash
equivalents at end
of period $ 47,425 $ 38,266 $ 47,425 $ 38,266
=========== ============ =========== ============
CONTACT: Mentor Graphics Corporation
Ryerson Schwark, 503-685-1462
ryschwark@mentor.com
or
Dennis Weldon, 503-685-1462
dennisweldon@mentor.com