Exhibit 99.1
Mentor Graphics Announces Second Quarter Results
WILSONVILLE, Ore.--(BUSINESS WIRE)--July 29, 2005--Mentor Graphics
Corporation (Nasdaq:MENT) today announced second quarter revenue of
$154.8 million. Loss per share, on both a GAAP and pro forma basis,
was $.09, on the lower end of the company's prior guidance, based on
weaker bookings.
"Despite weaker bookings, there were many signs of an improved
business climate in the quarter. New customer logo additions were up
nearly 20% over the second quarter of 2004, up both worldwide, and in
every region. Bookings from new customers doubled from the year ago
quarter, as well," said Walden C. Rhines, CEO and chairman of Mentor
Graphics. "During the quarter, we saw good bookings growth in most of
our new and emerging products. Automotive electrical system design
products more than doubled over the second quarter of 2004, and design
data management, Catapult(TM) C Synthesis, embedded and FPGA tools all
did well during the quarter."
During the quarter, the company launched the Questa(TM)
verification platform. The Questa verification platform extends
Mentor's functional verification leadership by offering a single
product with built-in support for testbench automation,
coverage-driven verification, assertion-based verification, and
transaction-level modeling. These new methodologies enhance
traditional simulation technology to achieve faster and more complete
verification of systems. Additionally, the company released a new
version of its Catapult C Synthesis product that improved its ability
to use high-level, faster verification methods.
"During the quarter, currency moved in a positive direction for
Mentor. A strengthening Yen and a weakening Euro are both helpful for
Mentor," said Gregory K. Hinckley, president of Mentor Graphics.
"While the first half was weak, we are still confident that key
products like the Calibre(R) family will deliver in the second half."
Revenue by region was 45% Americas, 30% Europe, 15% Japan and 10%
Pacific Rim. By product line, revenue was 30% scalable verification,
25% integrated system design, 25% design to silicon, and 20% new and
emerging products.
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 3,900 people worldwide.
Corporate headquarters are located at 8005 S.W. Boeckman Road,
Wilsonville, Oregon 97070-7777. World Wide Web site:
http://www.mentor.com/.
Mentor Graphics, Calibre and Catapult C are registered trademarks
and Questa and Scalable Verification are trademarks 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. For
the three and six months ended June 30, 2005, a $4.75 million charge
to R&D related to the purchase of technology that had not reached
technological feasibility was also excluded from pro forma earnings.
Included in pro forma earnings for the six months ended June 30, 2005
was a $1 million gain related to the sale of a building in the first
quarter classified in other income, net. 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) reductions in spending on EDA tools by
the Company's customers due to cyclical downturns or initiatives to
increase profitability, (iii) discounting of products and services by
competitors, which could force the company to lower its prices or
offer other more favorable terms to customers (iv) changes in
accounting or reporting rules or interpretations, limitations on
repatriation of earnings, licensing and intellectual property rights
protection; (v) changes in tax laws, regulations or enforcement
practices where the Company does business; (vi) effects of the
increasing volatility of foreign currency fluctuations on the
Company's business and operating results; (vii) effects of
unanticipated shifts in product mix on gross margin and unanticipated
shifts in geographic mix on the overall tax rate, (viii) effects of
customer seasonal purchasing patterns and the timing of significant
orders may negatively impact the Company's quarterly results of
operations, (ix) the Company's ability to successfully integrate and
manage its acquisitions, 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,
--------------------------------------
2005 2004 2005 2004
---------- -------- -------- --------
Revenues:
System and software $ 81,375 $ 98,091 $172,935 $192,612
Service and support 73,461 71,551 146,235 141,435
---------- -------- -------- --------
Total revenues 154,836 169,642 319,170 334,047
---------- -------- -------- --------
Cost of revenues:
System and software 4,828 4,623 9,563 9,185
Service and support 20,339 19,079 40,247 39,174
Amortization of purchased
technology 2,700 2,504 5,413 4,970
---------- -------- -------- --------
Total cost of
revenues 27,867 26,206 55,223 53,329
---------- -------- -------- --------
Gross margin 126,969 143,436 263,947 280,718
---------- -------- -------- --------
Operating expenses:
Research and development 56,193 48,322 107,503 96,705
Marketing and selling 65,324 64,045 132,899 127,751
General and administration 18,752 18,748 37,460 37,310
Amortization of intangible
assets 972 790 2,094 1,572
Special charges 1,264 3,863 2,577 3,863
Merger and acquisition related
charges 750 360 750 360
---------- -------- -------- --------
Total operating
expenses 143,255 136,128 283,283 267,561
---------- -------- -------- --------
Operating income (loss)
(16,286) 7,308 (19,336) 13,157
Other income, net 2,842 1,990 6,457 3,220
Interest expense (5,638) (4,571) (10,669) (9,026)
---------- -------- -------- --------
Income (loss) before income
taxes (19,082) 4,727 (23,548) 7,351
Income tax expense (benefit) (12,239) 37,523 (12,319) 37,969
---------- -------- -------- --------
Net loss $ (6,843)$(32,796)$(11,229)$(30,618)
========== ======== ======== ========
Net loss per share:
Basic $ (.09)$ (.47)$ (.14)$ (.44)
========== ======== ======== ========
Diluted $ (.09)$ (.47)$ (.14)$ (.44)
========== ======== ======== ========
Weighted average number
of shares outstanding:
Basic 78,165 70,090 78,086 69,946
========== ======== ======== ========
Diluted 78,165 70,090 78,086 69,946
========== ======== ======== ========
MENTOR GRAPHICS CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data-Unaudited)
Three Months Ended June 30, 2005
GAAP Adjustments Pro Forma
-------------------------------------
Revenues:
System and software $ 81,375 $ - $ 81,375
Service and support 73,461 - 73,461
---------- --------- --------
Total revenues 154,836 - 154,836
---------- --------- --------
Cost of revenues:
System and software 4,828 - 4,828
Service and support 20,339 - 20,339
Amortization of purchased
technology 2,700 (2,700) (1) -
---------- --------- --------
Total cost of
revenues 27,867 (2,700) 25,167
---------- --------- --------
Gross margin 126,969 2,700 129,669
---------- --------- --------
Gross margin
percentage 82.0% 83.7%
---------- --------
Operating expenses:
Research and development 56,193 (4,750) (2) 51,443
Marketing and selling 65,324 - 65,324
General and administration 18,752 - 18,752
Amortization of intangible
assets 972 (972) (1) -
Special charges 1,264 (1,264) (3) -
Merger and acquisition related
charges 750 (750) (3) -
---------- --------- --------
Total operating
expenses 143,255 (7,736) 135,519
---------- --------- --------
Operating income (loss)
(16,286) 10,436 (5,850)
Other income, net 2,842 - 2,842
Interest expense (5,638) - (5,638)
---------- --------- --------
Income (loss) before income
taxes (19,082) 10,436 9,591 (8,646)
Income tax expense (benefit) (12,239) 10,769 (4) (1,470)
---------- --------- --------
Net loss $ (6,843) $ (333) $ (7,176)
========== ========= ========
Net loss per share:
Basic $ (.09) $ (.09)
========== ========
Diluted $ (.09) $ (.09)
========== ========
Weighted average number of
shares outstanding:
Basic 78,165 78,165
========== ========
Diluted 78,165 78,165
========== ========
(1) Non-cash amortization of intangible assets.
(2) Unusual charge related to the purchase of technology that had
not reached technological feasibility.
(3) Merger, acquisition, restructuring and other charges.
(4) Pro forma income tax expense calculation differs from the GAAP
calculation as it assumed a normalized effective rate of 17%.
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 3,863 (3,863) (2) -
Merger and acquisition related
charges 360 (360) (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 9,591 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 rate of 17%.
MENTOR GRAPHICS CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data-Unaudited)
Six Months Ended
June 30, 2005
GAAP Adjustments Pro Forma
---------------------------------
Revenues:
System and software $172,935 $ - $ 172,935
Service and support 146,235 - 146,235
-------- --------- ---------
Total revenues 319,170 - 319,170
-------- --------- ---------
Cost of revenues:
System and software 9,563 - 9,563
Service and support 40,247 - 40,247
Amortization of purchased
technology 5,413 (5,413)(1) -
-------- --------- ---------
Total cost of revenues 55,223 (5,413) 49,810
-------- --------- ---------
Gross margin 263,947 5,413 269,360
-------- --------- ---------
Gross margin
percentage 82.7% 84.4%
-------- ---------
Operating expenses:
Research and development 107,503 (4,750)(2) 102,753
Marketing and selling 132,899 - 132,899
General and administration 37,460 - 37,460
Amortization of intangible assets 2,094 (2,094)(1) -
Special charges 2,577 (2,577)(3) -
Merger and acquisition related
charges 750 (750)(3) -
-------- --------- ---------
Total operating
expenses 283,283 (10,171) 273,112
-------- --------- ---------
Operating income (loss)
(19,336) 15,584 (3,752)
Other income, net 6,457 - 6,457
Interest expense (10,669) - (10,669)
-------- --------- ---------
Income (loss) before income
taxes (23,548) 15,584 (7,964)
Income tax expense (benefit) (12,319) 10,965 (4) (1,354)
-------- --------- ---------
Net income (loss) $(11,229) $ 4,619 $ (6,610)
======== ========= =========
Net income (loss) per share:
Basic $ (.14) $ (.08)
======== =========
Diluted $ (.14) $ (.08)
======== =========
Weighted average number of
shares outstanding:
Basic 78,086 78,086
======== =========
Diluted 78,086 78,086
======== =========
(1) Non-cash amortization of intangible assets.
(2) Unusual charge related to the purchase of technology that had
not reached technological feasibility.
(3) Merger, acquisition, restructuring and other charges.
(4) Pro forma income tax expense calculation differs from the GAAP
calculation as it assumed a normalized effective rate of 17%.
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 3,863 (3,863)(2) -
Merger and acquisition related
charges 360 (360)(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 rate of 17%.
MENTOR GRAPHICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands - Unaudited)
As of As of
June 30, December 31,
2005 2004
- ------------------------------------------------------- --------------
Assets
Current assets:
Cash, cash equivalents and short-term
investments $ 87,219 $ 94,287
Trade accounts receivable, net 98,308 116,858
Term receivables, short-term 126,501 125,832
Prepaid expenses and other 30,331 28,457
Deferred income taxes 9,480 10,298
--------- -------------
Total current assets 351,839 375,732
Property, plant and equipment, net 81,262 91,224
Term receivables, long-term 117,429 139,146
Intangibles, net 386,645 374,144
Other assets 39,330 41,661
--------- -------------
Total assets $ 976,505 $ 1,021,907
========= =============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 7,460 $ 9,632
Accounts payable 14,669 18,037
Income taxes payable 18,956 35,299
Accrued payroll and related liabilities 58,878 81,709
Accrued liabilities 33,052 37,098
Deferred revenue 119,667 103,336
--------- -------------
Total current liabilities 252,682 285,111
Long-term notes payable 283,012 283,983
Other long-term liabilities 17,150 19,098
--------- -------------
Total liabilities 552,844 588,192
--------- -------------
Stockholders' equity:
Common stock 373,153 363,455
Deferred compensation - (508)
Retained earnings 28,488 39,717
Accumulated other comprehensive income 22,020 31,051
--------- -------------
Total stockholders' equity 423,661 433,715
--------- -------------
Total liabilities and stockholders'
equity $ 976,505 $ 1,021,907
========= =============
MENTOR GRAPHICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------
2005 2004 2005 2004
---------- --------- -------- --------
Operating Cash Flows:
Net loss $ (6,843)$ (32,796) $(11,229)$(30,618)
Depreciation and
amortization 10,765 10,486 22,085 20,813
Other adjustments to
reconcile operating
cash 263 34,482 (1,467) 32,925
Changes in working
capital 2,634 (4,891) 5,031 (7,326)
---------- --------- -------- --------
Net cash provided by operating
activities 6,819 7,281 14,420 15,794
Net cash used in investing
activities (11,653) (9,327) (20,015) (23,229)
Net cash provided by (used in)
financing
activities (827) 3,730 6,174 14,084
Effect of exchange rate
changes on cash
and cash equivalents (1,898) 26 (2,691) (53)
---------- --------- -------- --------
Net change in cash and cash
equivalents (7,559) 1,710 (2,112) 6,596
Cash and cash equivalents at
beginning of period 73,363 73,219 67,916 68,333
---------- --------- -------- --------
Cash and cash equivalents at
end of period, excluding
short-term investments $ 65,804 $ 74,929 $ 65,804 $ 74,929
========== ========= ======== ========
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,
--------------------------------------
2005 2004 2005 2004
------------ ------- -------- --------
Geographic Revenue:
Americas $71,112 $82,892 $142,199 $147,922
45.9% 48.9% 44.6% 44.3%
Europe $42,245 $43,299 $ 86,033 $ 87,120
27.3% 25.5% 26.9% 26.1%
Japan $23,663 $28,358 $ 56,085 $ 67,153
15.3% 16.7% 17.6% 20.1%
Pac Rim $17,816 $15,093 $ 34,853 $ 31,852
Other Data: 11.5% 8.9% 10.9% 9.5%
Capital expenditures $ 5,313 $ 4,126 $ 12,577 $ 8,946
Days sales outstanding 131 119 - -
CONTACT: Mentor Graphics Corporation
Ryerson Schwark, 503-685-1462
ry_schwark@mentor.com
or
Dennis Weldon, 503-685-1462
dennis_weldon@mentor.com