Mentor Graphics Announces Second Quarter Results

WILSONVILLE, Ore. 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™ C Synthesis, embedded and FPGA tools all did well during the quarter."

During the quarter, the company launched the Questa™ 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® 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 June 30,				Six Months Ended 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)

(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)

(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)

(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)

(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)

MENTOR GRAPHICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)

MENTOR GRAPHICS CORPORATION SUPPLEMENTAL FINANCIAL AND OTHER INFORMATION
(In thousands, except for days sales outstanding - Unaudited)

	Three Months Ended June 30,		Six Months Ended 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	-	-

For more information, please contact:

Ryerson Schwark
Public and Investor Relations
503.685.1462
ry_schwark@mentor.com

Dennis Weldon
Treasurer
503.685.1462
dennis_weldon@mentor.com