Mentor Graphics Announces First Quarter Results

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

(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 2004.

MENTOR GRAPHICS CORPORATION CONSOLIDATED BALANCE SHEETS
(In thousands - Unaudited)

	As of March 31, 2005	As of December 31, 2004
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 March 31,
	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

Mentor Graphics Announces First Quarter Results

Three Months Ended March 31, 2005

Three Months Ended March 31, 2004

Three Months Ended March 31,

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