Mentor Exceeds First Call Estimates with Revenues of $157 Million

10/24/2003 - Mentor Graphics Corporation announced earnings before goodwill and special charges of $.07 per share on record third quarter revenues of $157 million, ahead of First Call® consensus estimates of $.05 per share. Earnings on a GAAP basis were a loss of $.19 per share.

"Mentor's performance continues to be driven by new products. Customer spending, while improving, is still constrained, with the bulk of their dollars going to must-have new products," said Walden C. Rhines, chairman and CEO of Mentor Graphics. "This environment benefits Mentor Graphics because of our significant new product technology in areas like printed circuit board (PCB) design, design-for-test (DFT), wire harness, and Calibre® resolution enhancement technology (RET). These product areas helped drive us to our fourth consecutive quarter of year-over-year growth in total market share according to the Electronic Design Automation Consortium market statistics service."

TestKompress®, Mentor's patented breakthrough DFT product, began to hit stride as its bookings exceeded those of Mentor's more traditional DFT products in the quarter. Additionally, TestKompress received endorsements from customers including AMD, Infineon, Ricoh and Renesas. At the International Test Conference, Infineon reported that based on the success of TestKompress in three system-on-chip production designs that it has made TestKompress a standard component of Infineon's manufacturing test suite. Mentor also saw growth in its Calibre RET product line as 90nm goes to production and 65nm development is underway. Cabling bookings grew 50 percent, fueled by significant orders from the automotive sector.

In system design, Mentor continued to expand its investment in key technologies to support cutting-edge PCB design. In the quarter, Mentor announced an upgraded high-speed analysis tool set, Hyperlynx® 7.0, an integration between its FPGA and board design environments called BoardlinkTM and TeamPCBTM, a unique collaboration technology that allows multiple designers to easily work simultaneously on the same board design. Additionally, Mentor launched the PADS® suite, a complete solution for the ready-to-use PCB design market.

During the quarter, the company acquired 157 new customers, which does not include customers of the PADS ready-to-use PCB product.

"While North America was weak, we set a third quarter bookings record for Japan and had a strong quarter in Europe," said Gregory K. Hinckley, president of Mentor Graphics. "Bookings were up over 10 percent in Europe, and nearly 75 percent in Japan. The transportation segment was relatively strong in all regions, and we booked significant deals for our Calibre RET, PCB and wire harness product lines. We remain optimistic about our business and confident that our investments to enter new markets and solve new problems will enable the company to continue its growth trend."

Special charges were primarily related to the settlement of protracted litigation over emulation and hardware acceleration patents. This settlement frees the company to market its products globally and will end on-going expenses associated with the litigation.

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 $650 million and employs approximately 3,600 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:

In the calculation of earnings, gross margin and operating expenses before amortization of acquired intangibles and special charges, 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. These excluded items are generally infrequent, less predictable and are often non-cash in nature. Earnings before goodwill (EBG) income tax expense calculation differs from a GAAP calculation as it assumes a normalized effective tax rate based on multiple years of historical and forecast future earnings. 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.

Mentor Graphics, Calibre, PADS, HyperLynx and TestKompress are registered trademarks and Boardlink and TeamPCB are trademarks of Mentor Graphics Corporation.

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 continue selling products and services during the continuing slowdown in the electronics industry, particularly in the telecommunications and semiconductor segments; (ii) the Company's ability to manage expenses during the current slowdown in the electronics industry; (iii) changes in accounting or reporting rules or interpretations, changes in the tax environment worldwide, limitations on repatriation of earnings, licensing and intellectual property rights protection; (iv) the Company's ability to successfully integrate and manage its recent and future acquisitions; (v) 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; (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 (vii) effects of the increasing volatility of foreign currency fluctuations on the Company's business and operating results, and (viii) 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.

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