Exhibit 99.1
Mentor Graphics Announces Third Quarter Results
WILSONVILLE, Ore.--(BUSINESS WIRE)--Oct. 21, 2004--Mentor Graphics
Corporation (Nasdaq:MENT) today announced third quarter pro forma
diluted earnings per share were $.05, on revenue of $162 million. On a
GAAP basis, the company reported a loss of $.08 per share, driven
lower primarily by special charges for in-process R&D associated with
the acquisition of 0-In Design Automation. Revenue grew 3% over the
year ago quarter, while bookings grew 2%.
"Although growth in the third quarter was slow, it was primarily
due to the timing of major orders," said Walden C. Rhines, chairman
and CEO of Mentor Graphics. "Year-to-date bookings have grown over 8%
and we expect an all-time record level in fourth quarter and full year
bookings growth of 10%."
On Oct. 19, the company announced design-for-manufacturing (DFM)
enhancements to its flagship Calibre(R) product line, as well as
announced plans for more DFM products to be delivered in 2005. The
company believes that DFM is a significant opportunity for the
industry as customers struggle with achieving acceptable yield on
advanced processes.
By geography, PacRim was particularly robust. Bookings in PacRim
climbed 20%, North America was up 5%, and Europe was down 10%. Japan
was flat, but continued at bookings levels nearly double the
historical rate of the late 1990s. Revenue by region was 40% Americas,
30% Europe, 20% Japan, and 10% Pacific Rim.
By product line, Scalable Verification(TM) bookings rose 40% over
the year ago quarter, driven by strength in the ModelSim(R) product
line. During the quarter, the company launched ModelSim(R) 6.0 with
enhancements to support standards and assertion-based methodologies.
Systems bookings rose 10% with particular strength in high speed
design, up over 100% and in the Expedition(TM) product line. Design to
Silicon bookings were down 20% and new and emerging products fell 25%.
During the quarter, Mentor won 4 new customers for TestKompress(R) as
well as a major order for Platform Express(TM).
Book-to-bill was below 1.0. Pro forma gross margin was 86%. Gross
margin on a GAAP basis was 84%.
"Customer interest in the 0-In acquisition is as strong as I've
ever seen interest in a newly acquired product line," said Gregory K.
Hinckley, president of Mentor Graphics. "We expect as we fully
integrate 0-In into our Scalable Verification Platform that we'll see
continued market share gains in the verification space."
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 3,800 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 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) the Company's ability to successfully
integrate and manage its 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 where the
Company does business; (v) effects of the increasing volatility of
foreign currency fluctuations on the Company's business and operating
results; (vi) economic uncertainty 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 Nine Months Ended
September 30, September 30,
------------------ -------------------
2004 2003 2004 2003
-------- -------- -------- ---------
Revenues:
System and software $ 89,933 $ 86,166 $282,545 $ 265,769
Service and support 72,027 70,785 213,462 207,990
-------- -------- -------- ---------
Total revenues 161,960 156,951 496,007 473,759
-------- -------- -------- ---------
Cost of revenues:
System and software 2,615 5,945 11,800 15,541
Service and support 20,320 20,344 59,494 61,805
Amortization of purchased
technology 2,672 2,319 7,642 6,797
-------- -------- -------- ---------
Total cost of revenues 25,607 28,608 78,936 84,143
-------- -------- -------- ---------
Gross margin 136,353 128,343 417,071 389,616
-------- -------- -------- ---------
Operating expenses:
Research and development 50,990 46,522 147,695 133,363
Marketing and selling 63,304 57,781 191,055 175,678
General and administration 18,120 18,011 55,430 54,154
Amortization of intangible
assets 916 899 2,488 2,975
Emulation litigation
settlement - 20,264 - 20,264
Special charges 7,797 5,008 12,020 8,171
-------- -------- -------- ---------
Total operating
expenses 141,127 148,485 408,688 394,605
-------- -------- -------- ---------
Operating income (loss) (4,774) (20,142) 8,383 (4,989)
Other income, net 2,479 2,096 5,699 4,508
Interest expense (4,755) (4,525) (13,781) (12,499)
-------- -------- -------- ---------
Income (loss) before income
taxes (7,050) (22,571) 301 (12,980)
Income tax expense (benefit) (1,304) (9,781) 36,665 (7,863)
-------- -------- -------- ---------
Net loss $ (5,746)$(12,790) $(36,364)$ (5,117)
======== ======== ======== =========
Net loss per share:
Basic $ (.08)$ (.19) $ (.51)$ (.08)
======== ======== ======== =========
Diluted $ (.08)$ (.19) $ (.51)$ (.08)
======== ======== ======== =========
Weighted average number of
shares outstanding:
Basic 73,213 67,886 71,045 67,554
======== ======== ======== =========
Diluted 73,213 67,886 71,045 67,554
======== ======== ======== =========
MENTOR GRAPHICS CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data-Unaudited)
Three Months Ended September 30, 2004
GAAP Adjustments Pro Forma
-----------------------------------
Revenues:
System and software $ 89,933 $ - $ 89,933
Service and support 72,027 - 72,027
-------- --------- --------
Total revenues 161,960 - 161,960
-------- --------- --------
Cost of revenues:
System and software 2,615 - 2,615
Service and support 20,320 - 20,320
Amortization of purchased
technology 2,672 (2,672)(1) -
-------- --------- --------
Total cost of revenues 25,607 (2,672) 22,935
-------- --------- --------
Gross margin 136,353 2,672 139,025
-------- --------- --------
Gross margin percentage 84.2% 85.8%
-------- --------
Operating expenses:
Research and development 50,990 - 50,990
Marketing and selling 63,304 - 63,304
General and administration 18,120 - 18,120
Amortization of intangible assets 916 (916)(1) -
Special charges 7,797 (7,797)(2) -
-------- --------- --------
Total operating expenses 141,127 (8,713) 132,414
-------- --------- --------
Operating income (loss) (4,774) 11,385 6,611
Other income, net 2,479 - 2,479
Interest expense (4,755) - (4,755)
-------- --------- --------
Income (loss) before income taxes (7,050) 11,385 4,335
Income tax expense (benefit) (1,304) 2,041(3) 737
-------- --------- --------
Net income (loss) $ (5,746) $ 9,344 $ 3,598
======== ========= ========
Net income (loss) per share:
Basic $ (.08) $ .05
======== ========
Diluted $ (.08) $ .05
======== ========
Weighted average number of
shares outstanding:
Basic 73,213 73,213
======== ========
Diluted 73,213 75,048
======== ========
- ----------------------------------------------------------------------
(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% for
2004.
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 $ (.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) Pro forma income tax expense calculation differs from the GAAP
calculation as it assumed a normalized effective rate of 20% for
2003.
MENTOR GRAPHICS CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data - Unaudited)
Nine Months Ended September 30, 2004
GAAP Adjustments Pro Forma
---------------------------------
Revenues:
System and software $282,545 $ - $ 282,545
Service and support 213,462 - 213,462
-------- --------- ---------
Total revenues 496,007 - 496,007
-------- --------- ---------
Cost of revenues:
System and software 11,800 - 11,800
Service and support 59,494 - 59,494
Amortization of purchased
technology 7,642 (7,642)(1) -
-------- --------- ---------
Total cost of revenues 78,936 (7,642) 71,294
-------- --------- ---------
Gross margin 417,071 7,642 424,713
-------- --------- ---------
Gross margin percentage 84.1% 85.6%
-------- ---------
Operating expenses:
Research and development 147,695 - 147,695
Marketing and selling 191,055 - 191,055
General and administration 55,430 - 55,430
Amortization of intangible assets 2,488 (2,488)(1) -
Special charges 12,020 (12,020)(2) -
-------- --------- ---------
Total operating expenses 408,688 (14,508) 394,180
-------- --------- ---------
Operating income 8,383 22,150 30,533
Other income, net 5,699 - 5,699
Interest expense (13,781) - (13,781)
-------- --------- ---------
Income before income taxes 301 22,150 22,451
Income tax expense (benefit) 36,665 (32,848)(3) 3,817
-------- --------- ---------
Net income (loss) $(36,364) $ 54,998 $ 18,634
======== ========= =========
Net income (loss) per share:
Basic $ (.51) $ .26
======== =========
Diluted $ (.51) $ .25
======== =========
Weighted average number of
shares outstanding:
Basic 71,045 71,045
======== =========
Diluted 71,045 74,181
======== =========
- ----------------------------------------------------------------------
(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% for
2004.
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 $ (.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) Pro forma income tax expense calculation differs from the GAAP
calculation as it assumed a normalized effective rate of 20% for
2003.
MENTOR GRAPHICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands - Unaudited)
As of As of
September 30, December 31,
2004 2003
- ----------------------------------------------------------------------
Assets
Current assets:
Cash and short-term investments $ 100,990 $ 71,324
Trade accounts receivable, net 88,407 104,043
Term receivables, short-term 122,797 119,627
Prepaid expenses and other 31,947 27,164
Deferred income taxes 17,566 18,787
---------- ----------
Total current assets 361,707 340,945
Property, plant and equipment, net 88,596 91,350
Term receivables, long-term 106,874 98,207
Goodwill and intangibles, net 375,706 326,281
Other assets 47,745 83,905
---------- ----------
Total assets $ 980,628 $ 940,688
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 9,257 $ 6,910
Accounts payable 16,734 18,105
Income taxes payable 38,803 35,122
Accrued payroll and related liabilities 59,863 80,484
Accrued liabilities 38,899 37,719
Deferred revenue 102,930 74,662
---------- ----------
Total current liabilities 266,486 253,002
Long-term notes payable 285,217 286,768
Other long-term liabilities 19,561 23,161
---------- ----------
Total liabilities 571,264 562,931
---------- ----------
Minority Interest - 3,391
Stockholders' equity:
Common stock 361,754 294,180
Deferred compensation (812) (2,601)
Retained earnings 23,903 57,800
Accumulated other comprehensive income 24,519 24,987
---------- ----------
Total stockholders' equity 409,364 374,366
---------- ----------
Total liabilities and stockholders'
equity $ 980,628 $ 940,688
========== ==========
MENTOR GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------
2004 2003 2004 2003
---------- -------- -------- ----------
Operating Cash Flows:
Net loss $ (5,746)$(12,790)$(36,364)$ (5,117)
Depreciation and
amortization 11,465 12,057 32,278 36,098
Other adjustments to
reconcile operating
cash 1,930 219 34,855 (2,583)
Changes in working capital 14,463 (32,094) 7,137 (34,792)
---------- -------- -------- ----------
Net cash provided (used) by
operating activities 22,112 (32,608) 37,906 (6,394)
Net cash used in investing
activities (27,805) (5,715) (51,034) (25,189)
Net cash provided by financing
activities 5,931 76,408 20,015 81,998
Effect of exchange rate
changes on cash and cash
equivalents 4 601 (49) 727
---------- -------- -------- ----------
Net change in cash and cash
equivalents 242 38,686 6,838 51,142
Cash and cash equivalents at
beginning of period 74,929 47,425 68,333 34,969
---------- -------- -------- ----------
Cash and cash equivalents at
end of period $ 75,171 $ 86,111 $ 75,171 $ 86,111
========== ======== ======== ==========
Supplemental disclosure of
cash flow information:
Common stock issued in
connection with an
acquisition 49,576 - 49,576 -
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,
--------------------- ---------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Geographic Revenue:
Americas $ 68,653 $ 70,740 $ 216,575 $ 227,027
42.4% 45.1% 43.7% 47.9%
Europe $ 47,637 $ 44,120 $ 134,757 $ 133,380
29.4% 28.0% 27.2% 28.2%
Japan $ 31,337 $ 29,902 $ 98,490 $ 74,591
19.3% 19.1% 19.8% 15.7%
PacRim $ 14,333 $ 12,189 $ 46,185 $ 38,761
Other Data: 8.9% 7.8% 9.3% 8.2%
Capital expenditures $ 7,887 $ 5,381 $ 16,833 $ 14,343
Days sales outstanding 117 104 - -
CONTACT: Mentor Graphics
Ryerson Schwark, 503-685-1462
ry_schwark@mentor.com
or
Dennis Weldon, 503-685-1462
dennis_weldon@mentor.com