Exhibit 99.1
Mentor Graphics Announces Fourth Quarter Results
WILSONVILLE, Ore.--(BUSINESS WIRE)--Jan. 27, 2005--Mentor Graphics
Corporation (Nasdaq:MENT) today announced record revenues of $214.9
million for the fourth quarter of 2004 driven by record bookings for
the quarter. Diluted earnings per share for the quarter on a pro forma
basis were $.39, and on a GAAP basis were $.20.
"Mentor's growth in a sluggish EDA environment is being driven by
the successful proliferation of our younger product portfolio
including the Calibre(R) and Scalable Verification(TM) tools, and
newer printed circuit board design tools. Seven of the top ten deals
in the quarter were renewals with an aggregate bookings increase of
40% over the prior deals, on comparable terms, including contract
length. Customers need, and are willing to pay for, new products that
solve their problems," said Walden C. Rhines, chairman and CEO of
Mentor Graphics. "Furthermore, we saw significant momentum from our
newer, emerging products as we received significant orders in cabling,
embedded software, high speed board design, and coverage-driven
verification."
Book-to-bill reached its highest level since 1996 and backlog
reached a level not seen since year 2000. Bookings rose over 35% for
the quarter, and 20% for the year. All regions performed well with
Japan and Pacific Rim bookings up over 100%, Europe up 45%, and North
America up 15% over the year ago quarter. All three product platforms
grew during the quarter, with Scalable Verification almost doubling
and Integrated System Design up 45%. Calibre Design to Silicon was up
5% over an extremely strong fourth quarter of 2003.
Revenue by region for the quarter was 40% North America, 30%
Europe, 15% Japan, and 15% Pacific Rim. By product platform, revenue
was 35% Scalable Verification, 30% Calibre Design to Silicon, 20%
Integrated System Design and 15% New and Emerging products.
Special charges of $4.9 million were primarily acquisition and
restructuring related.
"While we see no sign of an upturn for the overall EDA industry,
we note that Mentor and other companies like us with young product
lines continue to perform well in this environment," said Gregory K.
Hinckley, president of Mentor Graphics. "With proliferation of our
young, but well-seeded products, combined with a strong product
pipeline in earlier stages of adoption, we believe we are well
positioned to perform regardless of overall EDA market conditions."
Preliminary Results of Sarbanes-Oxley Section 404 Review
During the course of the audit of Mentor Graphics' 2004 financial
statements, KPMG identified a material weakness in internal controls
over financial reporting related to the calculation of its income tax
provision. PCAOB Audit Standard No. 2 defines a material weakness to
be an instance when the design or operation of a control does not
allow management to prevent or detect material misstatements on a
timely basis.
A benefit was recorded to equity for a stock option deduction that
was not deemed to be realizable. Mentor Graphics then recorded a
valuation reserve for the deferred tax asset that was created as a
result of this benefit. The reserve was inappropriately established
with a charge to earnings. Proper accounting was determined to be a
direct charge to common stock instead of income tax expense. This
error was identified during KPMG's annual audit of financial reporting
specifically related to income tax calculations. The error overstated
income tax expense and understated net income by $5.3 million but had
no net effect on equity accounts. The material weakness was confined
to a single erroneous accounting entry in the fourth quarter of 2004,
was corrected prior to completion of the audit and as a result, did
not have any effect on reported year-end or previously reported
quarterly financial results.
Mentor Graphics will finalize its evaluation of internal controls
over financial reporting prior to issuance of its Form 10-K for the
year ended December 31, 2004. The remaining steps in evaluating our
internal controls over financial reporting primarily relate to
preparation of financial reports to be filed with the SEC on Form
10-K.
"Exclusive of this instance no other material weaknesses have been
identified by management or our auditors," said Gregory K. Hinckley,
president of Mentor Graphics. "Management takes its role in designing,
maintaining and evaluating internal controls over financial reporting
seriously and is considering several options to remediate this one
material weakness."
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 over
$700 million and employs approximately 3,850 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/.
Mentor Graphics and Calibre are registered trademarks and Scalable
Verification is a trademark 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. 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) 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 Twelve Months Ended
December 31, December 31,
---------------------------------------
2004 2003 2004 2003
--------------------------------------
Revenues:
System and software $140,127 $128,680 $422,672 $ 394,449
Service and support 74,822 73,229 288,284 281,219
-------- -------- -------- ---------
Total revenues 214,949 201,909 710,956 675,668
-------- -------- -------- ---------
Cost of revenues:
System and software 4,839 7,180 16,639 22,721
Service and support 20,800 22,749 80,294 84,554
Amortization of purchased
technology 2,982 2,625 10,624 9,422
-------- -------- -------- ---------
Total cost of
revenues 28,621 32,554 107,557 116,697
-------- -------- -------- ---------
Gross margin 186,328 169,355 603,399 558,971
-------- -------- -------- ---------
Operating expenses:
Research and development 54,594 51,434 202,289 184,797
Marketing and selling 76,126 69,492 267,181 245,170
General and administration 18,825 21,830 74,255 75,984
Amortization of intangible
assets 1,098 908 3,586 3,883
Emulation litigation
settlement - - - 20,264
Special charges 4,893 7,809 16,913 15,980
-------- -------- -------- ---------
Total operating
expenses 155,536 151,473 564,224 546,078
-------- -------- -------- ---------
Operating income 30,792 17,882 39,175 12,893
Other income, net 2,689 952 8,388 5,460
Interest expense (4,838) (4,725) (18,619) (17,224)
-------- -------- -------- ---------
Income before income taxes 28,643 14,109 28,944 1,129
Income tax expense (benefit) 12,829 1,059 49,494 (6,804)
-------- -------- -------- ---------
Net income
(loss) $ 15,814 $ 13,050 $(20,550)$ 7,933
======== ======== ======== =========
Net income (loss) per share:
Basic $ .21 $ .19 $ (.28)$ .12
======== ======== ======== =========
Diluted $ .20 $ .18 $ (.28)$ .11
======== ======== ======== =========
Weighted average number of
shares outstanding:
Basic 76,354 68,056 72,381 67,680
======== ======== ======== =========
Diluted 78,426 71,066 72,381 70,464
======== ======== ======== =========
MENTOR GRAPHICS CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data-Unaudited)
Three Months Ended
December 31, 2004
GAAP Adjustments Pro Forma
-----------------------------------
Revenues:
System and software $140,127 $ - $140,127
Service and support 74,822 - 74,822
-------------------- ---------
Total revenues 214,949 - 214,949
-------------------- ---------
Cost of revenues:
System and software 4,839 - 4,839
Service and support 20,800 - 20,800
Amortization of purchased
technology 2,982 (2,982) (1) -
-------------------- ---------
Total cost of
revenues 28,621 (2,982) 25,639
-------------------- ---------
Gross margin 186,328 2,982 189,310
-------------------- ---------
Gross margin
percentage 86.7% 88.1%
--------- ---------
Operating expenses:
Research and development 54,594 - 54,594
Marketing and selling 76,126 - 76,126
General and administration 18,825 - 18,825
Amortization of intangible assets 1,098 (1,098) (1) -
Special charges 4,893 (4,893) (2) -
-------------------- ---------
Total operating
expenses 155,536 (5,991) 149,545
-------------------- ---------
Operating income
30,792 8,973 39,765
Other income, net 2,689 - - 2,689
Interest expense (4,838) - (4,838)
-------------------- ---------
Income before income taxes 28,643 8,973 37,616
Income tax expense (benefit) 12,829 (6,434) (3) 6,395
-------------------- ---------
Net income $15,814 $15,407 $31,221
==================== =========
Net income per share:
Basic $.21 $.41
========= =========
Diluted $.20 $.39
========= =========
Weighted average number of
shares outstanding:
Basic 76,354 76,354
========= =========
Diluted 78,426 12,099 (4) 90,525
==================== =========
(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.
(4) Dilutive shares related to the company's convertible debt as
required by EITF 04-8. In calculating pro forma diluted net income per
share, $3,682, representing the after-tax interest and amortization on
the company's convertible debt, is added back to pro forma net income.
MENTOR GRAPHICS CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data-Unaudited)
Three Months Ended
December 31, 2003
GAAP Adjustments Pro Forma
--------------------------------
Revenues:
System and software $128,680 $ - $128,680
Service and support 73,229 - 73,229
-------- --------- --------
Total revenues 201,909 - 201,909
-------- --------- --------
Cost of revenues:
System and software 7,180 - 7,180
Service and support 22,749 - 22,749
Amortization of purchased technology 2,625 (2,625)(1) -
-------- --------- --------
Total cost of revenues 32,554 (2,625) 29,929
-------- --------- --------
Gross margin 169,355 2,625 171,980
-------- --------- --------
Gross margin percentage 83.9% 85.2%
-------- --------
Operating expenses:
Research and development 51,434 - 51,434
Marketing and selling 69,492 - 69,492
General and administration 21,830 - 21,830
Amortization of intangible assets 908 (908)(1) -
Special charges 7,809 (7,809)(2) -
-------- --------- --------
Total operating
expenses 151,473 (8,717) 142,756
-------- --------- --------
Operating income
17,882 11,342 29,224
Other income, net 952 - 952
Interest expense (4,725) - (4,725)
-------- --------- --------
Income before income taxes 14,109 11,342 25,451
Income tax expense 1,059 3,268 (3) 4,327
-------- --------- --------
Net income $ 13,050 $ 8,074 $ 21,124
======== ========= ========
Net income per share:
Basic $ .19 $ .31
======== ========
Diluted $ .18 $ .29
======== ========
Weighted average number of
shares outstanding:
Basic 68,056 68,056
======== ========
Diluted 71,066 4,700 (4) 75,766
======== ========= ========
(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 2003.
(4) Dilutive shares related to the company's convertible debt as
required by EITF 04-8. In calculating pro forma diluted net income per
share, $866, representing the after-tax interest and amortization on
the company's convertible debt, is added back to pro forma net income.
MENTOR GRAPHICS CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data-Unaudited)
Twelve Months Ended
December 31, 2004
GAAP Adjustments Pro Forma
---------------------------------
Revenues:
System and software $422,672 $ - $ 422,672
Service and support 288,284 - 288,284
-------- --------- ---------
Total revenues 710,956 - 710,956
-------- --------- ---------
Cost of revenues:
System and software 16,639 - 16,639
Service and support 80,294 - 80,294
Amortization of purchased
technology 10,624 (10,624)(1) -
-------- --------- ---------
Total cost of revenues 107,557 (10,624) 96,933
-------- --------- ---------
Gross margin 603,399 10,624 614,023
-------- --------- ---------
Gross margin
percentage 84.9% 86.4%
-------- ---------
Operating expenses:
Research and development 202,289 - 202,289
Marketing and selling 267,181 - 267,181
General and administration 74,255 - 74,255
Amortization of intangible assets 3,586 (3,586)(1) -
Special charges 16,913 (16,913)(2) -
-------- --------- ---------
Total operating
expenses 564,224 (20,499) 543,725
-------- --------- ---------
Operating income
39,175 31,123 70,298
Other income, net 8,388 - 8,388
Interest expense (18,619) - (18,619)
-------- --------- ---------
Income before income taxes 28,944 31,123 60,067
Income tax expense (benefit) 49,494 (39,283)(3) 10,211
-------- --------- ---------
Net income (loss) $(20,550) $ 70,406 $ 49,856
======== ========= =========
Net income (loss) per share:
Basic $ (.28) $ .69
======== =========
Diluted $ (.28) $ .66
======== =========
Weighted average number of
shares outstanding:
Basic 72,381 72,381
======== =========
Diluted 72,381 75,397
======== =========
(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)
Twelve Months Ended
December 31, 2003
GAAP Adjustments Pro Forma
----------------------------------
Revenues:
System and software $ 394,449 $ - $ 394,449
Service and support 281,219 - 281,219
--------- --------- ---------
Total revenues 675,668 - 675,668
--------- --------- ---------
Cost of revenues:
System and software 22,721 - 22,721
Service and support 84,554 - 84,554
Amortization of purchased
technology 9,422 (9,422)(1) -
--------- --------- ---------
Total cost of
revenues 116,697 (9,422) 107,275
--------- --------- ---------
Gross margin 558,971 9,422 568,393
--------- --------- ---------
Gross margin
percentage 82.7% 84.1%
--------- ---------
Operating expenses:
Research and development 184,797 - 184,797
Marketing and selling 245,170 - 245,170
General and administration 75,984 - 75,984
Amortization of intangible
assets 3,883 (3,883)(1) -
Emulation litigation settlement 20,264 (20,264) -
Special charges 15,980 (15,980)(2) -
--------- --------- ---------
Total operating
expenses 546,078 (40,127) 505,951
--------- --------- ---------
Operating income
12,893 49,549 62,442
Other income, net 5,460 - 5,460
Interest expense (17,224) - (17,224)
--------- --------- ---------
Income before income taxes 1,129 49,549 50,678
Income tax expense (benefit) (6,804) 15,419 (3) 8,615
--------- --------- ---------
Net income $ 7,933 $ 34,130 $ 42,063
========= ========= =========
Net income per share:
Basic $ .12 $ .62
========= =========
Diluted $ .11 $ .60
========= =========
Weighted average number of
shares outstanding:
Basic 67,680 67,680
========= =========
Diluted 70,464 70,464
========= =========
(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 2003.
MENTOR GRAPHICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands - Unaudited)
As of As of
December 31, 2004 December 31, 2003
- ----------------------------------------------------------------------
Assets
Current assets:
Cash and short-term investments $ 94,287 $ 71,324
Trade accounts receivable, net 116,858 104,043
Term receivables, short-term 125,832 119,627
Prepaid expenses and other 28,457 27,164
Deferred income taxes 12,319 18,787
---------- ----------
Total current assets 377,753 340,945
Property, plant and equipment, net 91,224 91,350
Term receivables, long-term 139,146 98,207
Goodwill and intangibles, net 374,144 326,281
Other assets 39,640 83,905
---------- ----------
Total assets $1,021,907 $ 940,688
========== ==========
Liabilities and Stockholders'
Equity
Current liabilities:
Short-term borrowings $ 9,632 $ 6,910
Accounts payable 18,037 18,105
Income taxes payable 35,299 35,122
Accrued payroll and related
liabilities 81,709 80,484
Accrued liabilities 37,098 37,719
Deferred revenue 103,336 74,662
---------- ----------
Total current liabilities 285,111 253,002
Long-term notes payable 283,983 286,768
Other long-term liabilities 19,098 23,161
---------- ----------
Total liabilities 588,192 562,931
---------- ----------
Minority Interest - 3,391
Stockholders' equity:
Common stock 363,455 294,180
Deferred compensation (508) (2,601)
Retained earnings 39,717 57,800
Accumulated other
comprehensive income 31,051 24,987
---------- ----------
Total stockholders' equity 433,715 374,366
---------- ----------
Total liabilities and
stockholders' equity $1,021,907 $ 940,688
========== ==========
MENTOR GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------------------------------
2004 2003 2004 2003
------------------------------------------
Operating Cash Flows:
Net income (loss) $ 15,814 $ 13,050 $ (20,550)$ 7,933
Depreciation and
amortization 11,442 5,752 43,720 41,850
Other adjustments to
reconcile operating
cash 13,147 (4,008) 48,002 (6,591)
Changes in working capital (37,790) (23,031) (30,653) (57,823)
--------- ---------- -------- ----------
Net cash provided (used) by
operating
activities 2,613 (8,237) 40,519 (14,631)
Net cash used in investing
activities (9,801) (12,386) (60,835) (37,575)
Net cash provided (used) by
financing activities (668) 2,643 19,347 84,641
Effect of exchange rate
changes on cash
and cash equivalents 601 202 552 929
--------- ---------- -------- ----------
Net change in cash and cash
equivalents (7,255) (17,778) (417) 33,364
Cash and cash equivalents at
beginning of period 75,171 86,111 68,333 34,969
--------- ---------- -------- ----------
Cash and cash equivalents at
end of period $ 67,916 $ 68,333 $ 67,916 $ 68,333
========= ========== ======== ==========
Supplemental disclosure of
cash flow information:
Common stock issued in
connection with an acquisition - - $ 49,576 -
========
MENTOR GRAPHICS CORPORATION
SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION
(In thousands, except for days sales outstanding -Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
---------------------------------------
2004 2003 2004 2003
---------------------------------------
Geographic Revenue:
Americas $ 90,336 $104,280 $306,911 $331,307
42.0% 51.7% 43.2% 49.0%
Europe $ 64,660 $ 55,277 $199,417 $188,657
30.1% 27.4% 28.1% 27.9%
Japan $ 32,617 $ 26,146 $131,107 $100,737
15.2% 12.9% 18.4% 14.9%
Pac Rim $ 27,336 $ 16,206 $ 73,521 $ 54,967
Other Data: 12.7% 8.0% 10.3% 8.2%
Capital expenditures $ 7,590 $ 9,189 $ 24,423 $ 23,532
Days sales outstanding 102 100 - -
CONTACT: Mentor Graphics Corporation
Ryerson Schwark, 503-685-1462
ry_schwark@mentor.com
or
Dennis Weldon, 503-685-1462
dennis_weldon@mentor.com