Exhibit 99.1
Mentor Graphics Announces Second Quarter Results
WILSONVILLE, Ore.--(BUSINESS WIRE)--July 22, 2004--Mentor Graphics
Corporation (Nasdaq:MENT) today announced second quarter pro forma
diluted earnings per share of $.14, up 17% year on year, on revenue of
$169.6 million. Earnings on a GAAP basis were a loss of $.47 per
share, a result principally of income tax charges on a one-time
dividend from a foreign subsidiary. Revenue grew 8% over the year ago
quarter, while bookings grew 6%.
"While the overall electronic design automation business climate
remains challenging, Mentor's strength in products for new design
methodologies continues to fuel growth," said Walden C. Rhines,
chairman and CEO, Mentor Graphics. "Examples include Calibre(R)
resolution enhancement technology, automotive cabling,
analog/mixed-signal design and new printed circuit board (PCB) design
tools. We also had seven product families that set bookings records
for the second quarter."
During the quarter, Mentor launched its Catapult(TM) C Synthesis
product at the Design Automation Conference (DAC). Called the "most
important announcement of DAC" by Gartner Dataquest's EDA analyst Gary
Smith, Catapult C Synthesis opens the way for new C-based design
methodologies which offer significant performance over existing design
methods. Mentor also recently introduced the I/O Designer(TM) tool, a
new product that facilitates concurrent chip-to-board design of
field-programmable gate arrays (FPGAs) and the PCB, as the number of
pins on the FPGA grows.
By geography, Japan was particularly robust. Bookings in Japan
climbed 25%, North America was up 5%, while Europe was flat and
Pacific Rim was down 5%. Revenue by region was 50% Americas, 25%
Europe, 15% Japan, and 10% Pacific Rim.
Pro forma gross margin was an all-time record 86%. Gross margin on
a GAAP basis was 85%.
GAAP taxes for the quarter were $38 million, $36.6 million of
which was a charge arising from a one-time dividend declared by the
company's Irish subsidiary to the US parent company in the amount of
$120 million. Approximately $2.5 million of these taxes will be paid
in cash; the balance will be settled through utilization of a portion
of our net tax return operating loss and credit carryforwards. The
declaration of the dividend improves the company's operating
flexibility in using current and future cash resources. In addition,
special charges of $4.2 million were principally related to abandoned
facilities and workforce reductions.
"By region, Japan clearly is leading Mentor's overall growth, with
new strength there in PCB design tools," said Gregory K. Hinckley,
president, Mentor Graphics. "Despite weakness in our new and emerging
product category, we saw important areas of strength. Our cabling
business, for instance, won two contracts directly with automobile
manufacturers this quarter, a critical milestone for the business and
an indication of its growing momentum."
The company continues to see mixed signals of strength in the
electronic design automation market:
-- Maintenance contract reinstatements remained at record levels,
while maintenance contract terminations continued to drop.
-- Book-to-bill was near 1.
-- Mentor won orders from 132 new customers in the quarter,
compared to orders from 143 new customers in the year ago
quarter. While overall new customer activity was weaker, the
company did see increased dollar value of business from
startup companies.
"Mentor's focus on new design methodologies is sustaining the
company's growth, even in the mixed business environment we continue
to experience," said Rhines.
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
$675 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 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 and dynamic 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
recent and future 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 in the
jurisdictions where the Company does business; (v) effects of the
increasing volatility of foreign currency fluctuations on the
Company's business and operating results; (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 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 Six Months Ended
June 30, June 30,
--------------------- -------------------
2004 2003 2004 2003
--------- ---------- -------- --------
Revenues:
System and software $ 98,091 $ 87,791 $192,612 $179,603
Service and support 71,551 69,677 141,435 137,205
-------- ---------- -------- --------
Total revenues 169,642 157,468 334,047 316,808
-------- ---------- -------- --------
Cost of revenues:
System and software 4,623 4,781 9,185 9,596
Service and support 19,079 20,758 39,174 41,461
Amortization of
purchased technology 2,504 2,269 4,970 4,478
-------- ---------- -------- --------
Total cost of
revenues 26,206 27,808 53,329 55,535
-------- ---------- -------- --------
Gross margin 143,436 129,660 280,718 261,273
-------- ---------- -------- --------
Operating expenses:
Research and development 48,322 43,965 96,705 86,841
Marketing and selling 64,045 58,708 127,751 117,897
General and administration 18,748 17,160 37,310 36,143
Amortization of intangible
assets 790 931 1,572 2,076
Special charges 4,223 1,800 4,223 3,163
-------- ---------- -------- --------
Total operating
expenses 136,128 122,564 267,561 246,120
-------- ---------- -------- --------
Operating income 7,308 7,096 13,157 15,153
Other income, net 1,990 1,925 3,220 2,412
Interest expense (4,571) (3,929) (9,026) (7,974)
-------- ---------- -------- --------
Income before income taxes 4,727 5,092 7,351 9,591
Income tax expense 37,523 1,018 37,969 1,918
-------- ---------- -------- --------
Net income (loss) $(32,796) $ 4,074 $(30,618) $ 7,673
======== ========== ======== ========
Net income (loss) per
share:
Basic $ (.47) $ .06 $ (.44) $ .11
======== ========== ======== ========
Diluted $ (.47) $ .06 $ (.44) $ .11
======== ========== ======== ========
Weighted average number
of shares outstanding:
Basic 70,090 67,389 69,946 67,362
======== ========== ======== ========
Diluted 70,090 69,522 69,946 68,901
======== ========== ======== ========
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 4,223 (4,223) (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 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 tax 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 June 30, 2003
GAAP Adjustments Pro Forma
----------- ----------- --- -----------
Revenues:
System and software $ 87,791 $ - $ 87,791
Service and support 69,677 - 69,677
---------- --------- ----------
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, acquisition, restructuring and other charges.
(3) Pro forma income tax expense calculation differs from the GAAP
calculation as it assumed a normalized effective tax rate of 20%
for 2003.
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 4,223 (4,223) (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 tax rate of 17%
for 2004.
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) Pro forma income tax expense calculation differs from the GAAP
calculation as it assumed a normalized effective tax rate of 20%
for 2003.
MENTOR GRAPHICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands - Unaudited)
As of As of
June 30, 2004 Dec. 31, 2003
- ------------------------------------------ ------------- -------------
Assets
Current assets:
Cash and short-term investments $ 83,754 $ 71,324
Trade accounts receivable, net 104,642 104,043
Term receivables, short-term 120,506 119,627
Prepaid expenses and other 31,302 27,164
Deferred income taxes 18,676 18,787
------------ ------------
Total current assets 358,880 340,945
Property, plant and equipment, net 87,418 91,350
Term receivables, long-term 106,574 98,207
Intangibles, net 325,121 326,281
Other assets 48,592 83,905
------------ ------------
Total assets $ 926,585 $ 940,688
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 11,024 $ 6,910
Accounts payable 16,429 18,105
Income taxes payable 37,404 35,122
Accrued payroll and related liabilities 59,963 80,484
Accrued liabilities 34,319 37,719
Deferred revenue 104,056 74,662
------------ ------------
Total current liabilities 263,195 253,002
Long-term notes payable 285,799 286,768
Other long-term liabilities 21,158 23,161
------------ ------------
Total liabilities 570,152 562,931
------------ ------------
Minority Interest - 3,391
Stockholders' equity:
Common stock 304,038 294,180
Deferred compensation (1,187) (2,601)
Retained earnings 29,649 57,800
Accumulated other comprehensive income 23,933 24,987
------------ ------------
Total stockholders' equity 356,433 374,366
------------ ------------
Total liabilities and stockholders'
equity $ 926,585 $ 940,688
============ ============
MENTOR GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2004 2003 2004 2003
--------- --------- -------- ---------
Operating Cash Flows:
Net income (loss) $(32,796) $ 4,074 $(30,618) $ 7,673
Depreciation and
amortization 10,486 11,917 20,813 24,041
Other adjustments to
reconcile operating cash 34,482 (1,314) 32,925 (2,802)
Changes in working capital (4,891) (2,123) (7,326) (2,698)
-------- --------- -------- ---------
Net cash provided by
operating activities 7,281 12,554 15,794 26,214
Net cash used in investing
activities (9,327) (19,692) (23,229) (19,474)
Net cash provided by
financing activities 3,730 3,691 14,084 5,590
Effect of exchange rate
changes on cash and
cash equivalents 26 187 (53) 126
-------- --------- -------- ---------
Net change in cash and cash
equivalents 1,710 (3,260) 6,596 12,456
Cash and cash equivalents at
beginning of period 73,219 50,685 68,333 34,969
-------- --------- -------- ---------
Cash and cash equivalents at
end of period $ 74,929 $ 47,425 $ 74,929 $ 47,425
======== ========= ======== =========
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,
------------------ -------------------
2004 2003 2004 2003
--------- ------- -------- --------
Geographic Revenue:
Americas $ 82,892 $76,761 $147,922 $156,287
48.9% 48.8% 44.3% 49.3%
Europe $ 43,299 $46,840 $ 87,120 $ 89,260
25.5% 29.7% 26.1% 28.2%
Japan $ 28,358 $20,665 $ 67,153 $ 44,689
16.7% 13.1% 20.1% 14.1%
Pac Rim $ 15,093 $13,202 $ 31,852 $ 26,572
8.9% 8.4% 9.5% 8.4%
Other Data:
Capital expenditures $ 4,126 $ 5,684 $ 8,946 $ 8,962
Days sales outstanding 119 98 121 98
CONTACT: Mentor Graphics Corporation
Ryerson Schwark, 503-685-1462
ry_schwark@mentor.com
or
Dennis Weldon, 503-685-1462
dennis_weldon@mentor.com