WILSONVILLE, Ore. April 27, 2005 - Mentor Graphics Corporation (Nasdaq: MENT) today announced first quarter revenues of $164.3 million, approximately flat with the year ago quarter. GAAP earnings per share were a loss of $.06, while pro forma earnings per share were $.01, consistent with the company's pre-announcement of April 4, 2005.
"Weakness in the business was driven primarily by softness in demand from semiconductor companies, while demand from system businesses was better. As a result, Mentor systems products like FPGA synthesis, embedded software and selected PCB products performed well," said Walden C. Rhines, CEO and chairman of Mentor Graphics. "On the other hand, Calibre product line bookings were particularly weak in the quarter. We expect strength in this product line in the second half of the year based upon the number of current customer engagements."
The Scalable Verification product line was also down, driven largely by a tough compare with the year ago quarter when the company's largest ever ModelSim order occurred.
"As the drive to time-based licensing continues, our business is increasingly driven into the fourth quarter," said Gregory K. Hinckley, president of Mentor Graphics. "While we are not satisfied with our first quarter performance, our second half continues to look solid."
Revenue by region was 45% North America, 25% Europe, 20% 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 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. Included in pro forma earnings was a $1million gain related to the sale of a building 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) 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, (vii) 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 March 31, | |
|
| 2005 | 2004 |
| Revenues: | ||
| System and software | $ 91,560 | $ 94,521 |
| Service and support | 72,774 | 69,884 |
| Total revenues | 164,334 | 164,405 |
|
Cost of revenues: | ||
| System and software | 4,735 | 4,562 |
| Service and support | 19,908 | 20,095 |
| Amortization of purchased technology | 2,713 | 2,466 |
| Total cost of revenues | 27,356 | 27,123 |
| Gross margin | 136,978 | 137,282 |
| Operating expenses: | ||
| Research and development | 51,310 | 48,383 |
| Marketing and selling | 67,575 | 63,706 |
| General and administration | 18,708 | 18,562 |
| Amortization of intangible assets | 1,122 | 782 |
| Special charges | 1,313 | - |
| Total operating expenses | 140,028 | 131,433 |
| Operating income (loss) | (3,050) | 5,849 |
| Other income, net | 3,615 | 1,230 |
| Interest expense | (5,031) | (4,455) |
| Income (loss) before income taxes | (4,466) | 2,624 |
| Income tax expense (benefit) | (80) | 446 |
| Net income (loss) | $ (4,386) | $ 2,178 |
| Net income (loss) per share: Basic | $ (0.06) | $ 0.03 |
| Diluted | $ (0.06) | $ 0.03 |
| Weighted average number of shares outstanding: Basic | 78,007 | 69,803 |
| Diluted | 78,007 | 72,763 |
MENTOR GRAPHICS CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except percentages and earnings per share data-Unaudited)
|
| Three Months Ended March 31, 2005 | |||
|
| GAAP | Adjustments |
| Pro Forma |
| Revenues: | ||||
| System and software | $ 91,560 | $ - | $ 91,560 | |
| Service and support | 72,774 | - | 72,774 | |
| Total revenues | 164,334 | - | 164,334 | |
|
Cost of revenues: | ||||
| System and software | 4,735 | - | 4,735 | |
| Service and support | 19,908 | - | 19,908 | |
| Amortization of purchased technology | 2,713 | (2,713) | (1) | - |
| Total cost of revenues | 27,356 | (2,713) | 24,643 | |
| Gross margin | 136,978 | 2,713 | 139,691 | |
| Gross margin percentage | 83.4% | 85.0% | ||
|
Operating expenses: | ||||
| Research and development | 51,310 | - | 51,310 | |
| Marketing and selling | 67,575 | - | 67,575 | |
| General and administration | 18,708 | - | 18,708 | |
| Amortization of intangible assets | 1,122 | (1,122) | (1) | - |
| Special charges | 1,313 | (1,313) | - | |
| Total operating expenses | 140,028 | (2,435) | 137,593 | |
|
Operating income (loss) | (3,050) | 5,148 | 2,098 | |
| Other income, net | 3,615 | - | 3,615 | |
| Interest expense | (5,031) | - | (5,031) | |
| Income (loss) before income taxes | (4,466) | 5,148 | 682 | |
| Income tax expense (benefit) | (80) | 196 | (2) | 116 |
| Net income (loss) | $ (4,386) | $ 4,952 | $ 566 | |
| Net income (loss) per share: Basic | $ (0.06) | $ .01 | ||
| Diluted | $ (0.06) | $ .01 | ||
| Weighted average number of shares outstanding: Basic | 78,007 | 78,007 | ||
| Diluted | 78,007 | 80,340 | ||
(1) Non-cash amortization of intangible assets.
(2) Pro forma income tax expense calculation differs from the GAAP calculation as it assumed a normalized effective rate of 17% for 2005.
MENTOR GRAPHICS CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except percentages and earnings per share data-Unaudited)
Three Months Ended March 31, 2004 | ||||
| GAAP | Adjustments | Pro Forma | ||
| Revenues: | ||||
| System and software | $ 94,521 | $ - | $ 94,521 | |
| Service and support | 69,884 | - | 69,884 | |
| Total revenues | 164,405 | - | 164,405 | |
| Cost of revenues: | ||||
| System and software | 4,562 | - | 4,562 | |
| Service and support | 20,095 | - | 20,095 | |
| Amortization of purchased technology | 2,466 | (2,466) | (1) | - |
| Total cost of revenues | 27,123 | (2,466) | 24,657 | |
| Gross margin | 137,282 | 2,466 | 139,748 | |
| Gross margin percentage | 83.5% | 85.0% | ||
| Operating expenses: | | |||
| Research and development | 48,383 | - | 48,383 | |
| Marketing and selling | 63,706 | - | 63,706 | |
| General and administration | 18,562 | - | 18,562 | |
| Amortization of intangible assets | 782 | (782) | (1) | - |
| Total operating expenses | 131,433 | (782) | 130,651 | |
| Operating income | 5,849 | 3,248 | 9,097 | |
| Other income, net | 1,230 | - | 1,230 | |
| Interest expense | (4,455) | - | (4,455) | |
| Income before income taxes | 2,624 | 3,248 | 5,872 | |
| Income tax expense | 446 | 552 | (2) | 998 |
| Net income | $ 2,178 | $ 2,696 | $ 4,874 | |
| Net income per share: Basic | $ .03 | $ .07 | ||
| Diluted | $ .03 | $ .07 | ||
| Weighted average number of shares outstanding: Basic | 69,803 | 69,803 | ||
| Diluted | 72,763 | 72,763 | ||
MENTOR GRAPHICS CORPORATION CONSOLIDATED BALANCE SHEETS
(In thousands - Unaudited)
| As of | As of | |
| Assets | ||
| Current assets: | ||
| Cash and short-term investments | $ 108,676 | $ 94,287 |
| Trade accounts receivable, net | 94,983 | 116,858 |
| Term receivables, short-term | 133,828 | 125,832 |
| Prepaid expenses and other | 33,003 | 28,457 |
| Deferred income taxes | 10,125 | 10,298 |
| Total current assets | 380,615 | 375,732 |
| Property, plant and equipment, net | 82,723 | 91,224 |
| Term receivables, long-term | 126,393 | 139,146 |
| Intangibles, net | 370,208 | 374,144 |
| Other assets | 40,145 | 41,661 |
| Total assets | $ 1,000,084 | $ 1,021,907 |
| Liabilities and Stockholders' Equity | ||
| Current liabilities: | ||
| Short-term borrowings | $ 7,889 | $ 9,632 |
| Accounts payable | 17,583 | 18,037 |
| Income taxes payable | 31,676 | 35,299 |
| Accrued payroll and related liabilities | 51,847 | 81,709 |
| Accrued liabilities | 36,863 | 37,098 |
| Deferred revenue | 118,482 | 103,336 |
| Total current liabilities | 264,340 | 285,111 |
| Long-term notes payable | 283,475 | 283,983 |
| Other long-term liabilities | 18,115 | 19,098 |
| Total liabilities | 565,930 | 588,192 |
| Stockholders' equity: | ||
| Common stock | 372,445 | 363,455 |
| Deferred compensation | (203) | (508) |
| Retained earnings | 35,331 | 39,717 |
| Accumulated other comprehensive income | 26,581 | 31,051 |
| Total stockholders' equity | 434,154 | 433,715 |
| Total liabilities and stockholders' equity | $ 1,000,084 | $ 1,021,907 |
MENTOR GRAPHICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
Three Months Ended March 31, | ||
| 2005 | 2004 | |
| Operating Cash Flows: | ||
| Net income (loss) | $ (4,386) | $ 2,178 |
| Depreciation and amortization | 11,320 | 10,327 |
| Other adjustments to reconcile operating cash | (1,730) | (1,557) |
| Changes in working capital | 2,397 | (2,435) |
| Net cash provided by operating activities | 7,601 | 8,513 |
| Net cash used in investing activities | (8,362) | (13,902) |
| Net cash provided by financing activities | 7,001 | 10,354 |
| Effect of exchange rate changes on cash and cash equivalents | (793) | (79) |
| Net change in cash and cash equivalents | 5,447 | 4,886 |
| Cash and cash equivalents at beginning of period | 67,916 | 68,333 |
| Cash and cash equivalents at end of period | $ 73,363 | $ 73,219 |
MENTOR GRAPHICS CORPORATION SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION
(In thousands, except for percentages and days sales outstanding -Unaudited)
| Three Months Ended | ||
| 2005 | 2004 | |
| Geographic Revenue: | ||
| Americas | $ 71,087 | $ 65,030 |
| 43.3% | 39.5% | |
| Europe | $ 43,788 | $ 43,821 |
| 26.6% | 26.7% | |
| Japan | $ 32,422 | $ 38,795 |
| 19.7% | 23.6% | |
| Pac Rim | $ 17,037 | $ 16,759 |
| Other Data: | 10.4% | 10.2% |
| Capital expenditures | $7,264 | $4,820 |
| Days sales outstanding | 125 | 115 |
|
| ||