Exhibit 99.1
Mentor Graphics Reports Third Quarter Results
WILSONVILLE, Ore.--(BUSINESS WIRE)--Oct. 22, 2003--Mentor Graphics
Corporation (Nasdaq:MENT) today announced earnings before goodwill and
special charges of $.07 per share on record third quarter revenues of
$157 million, ahead of First Call(R) consensus estimates of $.05 per
share. Earnings on a GAAP basis were a loss of $.19 per share.
"Mentor's performance continues to be driven by new products.
Customer spending, while improving, is still constrained, with the
bulk of their dollars going to must-have new products," said Walden C.
Rhines, chairman and CEO of Mentor Graphics. "This environment
benefits Mentor Graphics because of our significant new product
technology in areas like printed circuit board (PCB) design,
design-for-test (DFT), wire harness, and Calibre(R) resolution
enhancement technology (RET). These product areas helped drive us to
our fourth consecutive quarter of year-over-year growth in total
market share according to the Electronic Design Automation Consortium
market statistics service."
TestKompress(R), Mentor's patented breakthrough DFT product, began
to hit stride as its bookings exceeded those of Mentor's more
traditional DFT products in the quarter. Additionally, TestKompress
received endorsements from customers including AMD, Infineon, Ricoh
and Renesas. At the International Test Conference, Infineon reported
that based on the success of TestKompress in three system-on-chip
production designs that it has made TestKompress a standard component
of Infineon's manufacturing test suite. Mentor also saw growth in its
Calibre RET product line as 90nm goes to production and 65nm
development is underway. Cabling bookings grew 50 percent, fueled by
significant orders from the automotive sector.
In system design, Mentor continued to expand its investment in key
technologies to support cutting-edge PCB design. In the quarter,
Mentor announced an upgraded high-speed analysis tool set,
Hyperlynx(R) 7.0, an integration between its FPGA and board design
environments called Boardlink(TM) and TeamPCB(TM), a unique
collaboration technology that allows multiple designers to easily work
simultaneously on the same board design. Additionally, Mentor launched
the PADS(R) suite, a complete solution for the ready-to-use PCB design
market.
During the quarter, the company acquired 157 new customers, which
does not include customers of the PADS ready-to-use PCB product.
"While North America was weak, we set a third quarter bookings
record for Japan and had a strong quarter in Europe," said Gregory K.
Hinckley, president of Mentor Graphics. "Bookings were up over 10
percent in Europe, and nearly 75 percent in Japan. The transportation
segment was relatively strong in all regions, and we booked
significant deals for our Calibre RET, PCB and wire harness product
lines. We remain optimistic about our business and confident that our
investments to enter new markets and solve new problems will enable
the company to continue its growth trend."
Special charges were primarily related to the settlement of
protracted litigation over emulation and hardware acceleration
patents. This settlement frees the company to market its products
globally and will end on-going expenses associated with the
litigation.
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 3,600 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 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. Earnings before goodwill (EBG) income tax expense
calculation differs from a GAAP calculation as it assumes a normalized
effective tax rate based on multiple years of historical and forecast
future earnings. 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 and TestKompress are
registered trademarks and Boardlink and TeamPCB are trademarks 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 and semiconductor 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
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; (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
(vii) effects of the increasing volatility of foreign currency
fluctuations on the Company's business and operating results, and
(viii) 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,
---------------------------------------------
2003 2002 2003 2002
---------------------------------------------
Revenues:
System and software $86,166 $80,587 $265,769 $215,889
Service and support 70,785 72,063 207,990 200,174
----------- ---------- ---------- -----------
Total revenues 156,951 152,650 473,759 416,063
----------- ---------- ---------- -----------
Cost of revenues:
System and software 5,945 6,013 15,541 21,895
Service and support 20,344 20,714 61,805 61,173
Amortization of
purchased technology 2,319 2,217 6,797 4,473
----------- ---------- ---------- -----------
Total cost of
revenues 28,608 28,944 84,143 87,541
----------- ---------- ---------- -----------
Gross margin 128,343 123,706 389,616 328,522
----------- ---------- ---------- -----------
Operating expenses:
Research and
development 46,522 43,127 133,363 119,040
Marketing and selling 57,781 56,378 175,678 158,458
General and
administration 18,011 17,337 54,154 52,598
Amortization of
intangible assets 899 859 2,975 1,396
Emulation litigation
settlement 20,264 - 20,264 -
Special charges 5,008 1,534 8,171 26,640
----------- ---------- ---------- -----------
Total operating
expenses 148,485 119,235 394,605 358,132
----------- ---------- ---------- -----------
Operating income (loss) (20,142) 4,471 (4,989) (29,610)
Other income, net 2,096 1,318 4,508 5,916
Interest expense (4,525) (3,930) (12,499) (7,708)
----------- ---------- ---------- -----------
Income (loss) before
income taxes (22,571) 1,859 (12,980) (31,402)
Income tax expense
(benefit) (9,781) - (7,863) 1,572
----------- ---------- ---------- -----------
Net income (loss) $(12,790) $1,859 $(5,117) $(32,974)
=========== ========== ========== ===========
Net income (loss)
per share:
Basic $(.19) $.03 $(.08) $(.50)
=========== ========== ========== ===========
Diluted $(.19) $.03 $(.08) $(.50)
=========== ========== ========== ===========
Weighted average
number of shares
outstanding:
Basic 67,886 65,911 67,554 65,535
=========== ========== ========== ===========
Diluted 67,886 66,187 67,554 65,535
=========== ========== ========== ===========
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 (4) $(.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) EBG income tax expense calculation differs from a GAAP
calculation as it assumes a normalized effective tax rate based on
multiple years of historical and forecast future earnings.
(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 September 30,
2003.
MENTOR GRAPHICS CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data-Unaudited)
Three Months Ended September 30, 2002
GAAP Adjustments Pro Forma
------------------------------------
Revenues:
System and software $80,587 $ - $80,587
Service and support 72,063 - 72,063
---------- ----------- ----------
Total revenues 152,650 - 152,650
---------- ----------- ----------
Cost of revenues:
System and software 6,013 - 6,013
Service and support 20,714 - 20,714
Amortization of purchased
technology 2,217 (2,217)(1) -
---------- ----------- ----------
Total cost of revenues 28,944 (2,217) 26,727
---------- ----------- ----------
Gross margin 123,706 2,217 125,923
---------- ----------- ----------
Gross margin percentage 81.0% 82.5%
---------- ----------
Operating expenses:
Research and development 43,127 - 43,127
Marketing and selling 56,378 - 56,378
General and administration 17,337 - 17,337
Amortization of intangible
assets 859 (859)(1) -
Special charges 1,534 (1,534)(2) -
---------- ----------- ----------
Total operating expenses 119,235 (2,393) 116,842
---------- ----------- ----------
Operating income (loss) 4,471 4,610 9,081
Other income, net 1,318 - 1,318
Interest expense (3,930) - (3,930)
---------- ----------- ----------
Income before income taxes 1,859 4,610 6,469
Income tax expense - 1,293 (3) 1,293
---------- ----------- ----------
Net income $1,859 $3,317 $5,176
========== =========== ==========
Net income per share:
Basic $.03 $.08
========== ==========
Diluted $.03 $.08
========== ==========
Weighted average number of
shares outstanding:
Basic 65,911 65,911
========== ==========
Diluted 66,187 66,187
========== ==========
(1) Non-cash amortization of intangible assets.
(2) Merger, acquisition, restructuring and other charges.
(3) EBG income tax expense calculation differs from a GAAP
calculation as it assumes a normalized effective tax rate based on
multiple years of historical and forecast future earnings.
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 (4) $(.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) EBG income tax expense calculation differs from a GAAP
calculation as it assumes a normalized effective tax rate based on
multiple years of historical and forecast future earnings.
(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 nine months ended September 30,
2003.
MENTOR GRAPHICS CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data-Unaudited)
Nine Months Ended September 30, 2002
GAAP Adjustments Pro Forma
-------------------------------------
Revenues:
System and software $215,889 $ - $215,889
Service and support 200,174 - 200,174
----------- ----------- ----------
Total revenues 416,063 - 416,063
----------- ----------- ----------
Cost of revenues:
System and software 21,895 - 21,895
Service and support 61,173 - 61,173
Amortization of purchased
technology 4,473 (4,473)(1) -
----------- ----------- ----------
Total cost of revenues 87,541 (4,473) 83,068
----------- ----------- ----------
Gross margin 328,522 4,473 332,995
----------- ----------- ----------
Gross margin percentage 79.0% 80.0%
----------- ----------
Operating expenses:
Research and development 119,040 - 119,040
Marketing and selling 158,458 - 158,458
General and administration 52,598 - 52,598
Amortization of intangible
assets 1,396 (1,396)(1) -
Special charges 26,640 (26,640)(2) -
----------- ----------- ----------
Total operating expenses 358,132 (28,036) 330,096
----------- ----------- ----------
Operating income (loss) (29,610) 32,509 2,899
Other income, net 5,916 - 5,916
Interest expense (7,708) - (7,708)
----------- ----------- ----------
Income (loss) before income
taxes (31,402) 32,509 1,107
Income tax expense (benefit) 1,572 (1,351)(3) 221
----------- ----------- ----------
Net income (loss) $(32,974) $33,860 $886
=========== =========== ==========
Net income (loss) per share:
Basic $(.50) $.01
=========== ==========
Diluted (4) $(.50) $.01
=========== ==========
Weighted average number of
shares outstanding:
Basic 65,535 65,535
=========== ==========
Diluted 65,535 67,486
=========== ==========
(1) Non-cash amortization of intangible assets.
(2) Merger, acquisition, restructuring and other charges.
(3) EBG income tax expense calculation differs from a GAAP
calculation as it assumes a normalized effective tax rate based on
multiple years of historical and forecast future earnings.
(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 nine months ended September 30,
2002.
MENTOR GRAPHICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands - Unaudited)
As of As of
September 30, December 31,
2003 2002
- ----------------------------------------------------------------------
Assets
Current assets:
Cash and short-term investments $86,111 $38,826
Trade accounts receivable, net 81,874 77,960
Term receivables, short-term 98,897 81,697
Prepaid expenses and other 29,172 24,884
Deferred income taxes 17,492 16,827
------------- ------------
Total current assets 313,546 240,194
Property, plant and equipment, net 87,524 90,259
Term receivables, long-term 77,709 78,431
Intangibles, net 344,785 342,171
Other assets 49,782 53,793
------------- ------------
Total assets $873,346 $804,848
============= ============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $10,009 $17,670
Accounts payable 15,059 17,110
Income taxes payable 21,529 40,784
Accrued payroll and related liabilities 55,794 51,250
Accrued liabilities 39,310 45,233
Deferred revenue 74,900 72,902
------------- ------------
Total current liabilities 216,601 244,949
Long-term notes payable 286,945 177,685
Other long-term liabilities 20,115 19,275
------------- ------------
Total liabilities 523,661 441,909
------------- ------------
Minority Interest 3,343 3,219
Stockholders' equity:
Common stock 283,763 297,995
Deferred compensation (3,226) (4,761)
Retained earnings 44,750 49,867
Accumulated other comprehensive income 21,055 16,619
------------- ------------
Total stockholders' equity 346,342 359,720
------------- ------------
Total liabilities and stockholders'
equity $873,346 $804,848
============= ============
MENTOR GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------
2003 2002 2003 2002
----------------------------------------
Operating Cash Flows:
Net income (loss) $(12,790) $1,859 $(5,117) $(32,974)
Depreciation and
amortization 12,057 9,017 36,098 21,913
Other adjustments to
reconcile operating cash 219 (436) (2,583) 18,296
Changes in working capital (32,094) (5,325) (34,792) (3,754)
--------- --------- --------- ----------
Net cash provided by (used
in) operating activities (32,608) 5,115 (6,394) 3,481
Net cash (used in) investing
activities (5,715) (10,870) (25,189) (272,921)
Net cash provided by
financing activities 76,408 17,789 81,998 195,212
Effect of exchange rate
changes on cash
And cash equivalents 601 (99) 727 400
--------- --------- --------- ----------
Net change in cash and cash
equivalents 38,686 11,935 51,142 (73,828)
Cash and cash equivalents at
beginning of period 47,425 38,266 34,969 124,029
--------- --------- --------- ----------
Cash and cash equivalents at
end of period $86,111 $50,201 $86,111 $50,201
========= ========= ========= ==========
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,
--------------------------------------
2003 2002 2003 2002
--------------------------------------
Geographic Revenue:
Americas $70,740 $80,691 $227,027 $209,671
45.1% 52.9% 47.9% 50.4%
Europe $44,120 $37,311 $133,380 $107,876
28.0% 24.4% 28.2% 25.9%
Japan $29,902 $20,296 $74,591 $61,555
19.1% 13.3% 15.7% 14.8%
Pac Rim $12,189 $14,352 $38,761 $36,961
7.8% 9.4% 8.2% 8.9%
Other Data:
Capital expenditures $5,381 $4,308 $14,343 $14,013
Days sales outstanding 104 89 104 89
CONTACT: Mentor Graphics
Ryerson Schwark, 503-685-1462
ry_schwark@mentor.com
or
Dennis Weldon, 503-685-1462
dennis_weldon@mentor.com