CIMdata PLM Industry Summary Online Archive
22 July 2004
Financial News
Mentor Graphics Announces Second Quarter Results
Mentor Graphics Corporation announced second quarter pro forma diluted earnings per share of $.14, up 17% year on year, on revenue of $169.6 million. Earnings on a GAAP basis were a loss of $.47 per share, a result principally of income tax charges on a one-time dividend from a foreign subsidiary. Revenue grew 8% over the year ago quarter, while bookings grew 6%.
"While the overall electronic design automation business climate remains challenging, Mentor's strength in products for new design methodologies continues to fuel growth," said Walden C. Rhines, chairman and CEO, Mentor Graphics. "Examples include Calibre® resolution enhancement technology, automotive cabling, analog/mixed-signal design and new printed circuit board (PCB) design tools. We also had seven product families that set bookings records for the second quarter."
During the quarter, Mentor launched its CatapultT C Synthesis product at the Design Automation Conference (DAC). Catapult C Synthesis opens the way for new C-based design methodologies that offer significant performance over existing design methods. Mentor also recently introduced the I/O DesignerT tool, a new product that facilitates concurrent chip-to-board design of field-programmable gate arrays (FPGAs) and the PCB, as the number of pins on the FPGA grows.
Bookings in Japan climbed 25%, North America was up 5%, while Europe was flat and Pacific Rim was down 5%. Revenue by region was 50% Americas, 25% Europe, 15% Japan, and 10% Pacific Rim.
Pro forma gross margin was an all-time record 86%. Gross margin on a GAAP basis was 85%.
GAAP taxes for the quarter were $38 million, $36.6 million of which was a charge arising from a one-time dividend declared by the company's Irish subsidiary to the US parent company in the amount of $120 million. Approximately $2.5 million of these taxes will be paid in cash; the balance will be settled through utilization of a portion of our net tax return operating loss and credit carryforwards. The declaration of the dividend improves the company's operating flexibility in using current and future cash resources. In addition, special charges of $4.2 million were principally related to abandoned facilities and workforce reductions.
"By region, Japan clearly is leading Mentor's overall growth, with new strength there in PCB design tools," said Gregory K. Hinckley, president, Mentor Graphics. "Despite weakness in our new and emerging product category, we saw important areas of strength. Our cabling business, for instance, won two contracts directly with automobile manufacturers this quarter, a critical milestone for the business and an indication of its growing momentum."
The company continues to see mixed signals of strength in the electronic design automation market:
• Maintenance contract reinstatements remained at record levels, while maintenance contract terminations continued to drop.
• Book-to-bill was near 1.
• Mentor won orders from 132 new customers in the quarter, compared to orders from 143 new customers in the year ago quarter. While overall new customer activity was weaker, the company did see increased dollar value of business from startup companies.
"Mentor's focus on new design methodologies is sustaining the company's growth, even in the mixed business environment we continue to experience," said Rhines.
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. 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 within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. More detail is available 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.
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