MENTOR GRAPHICS CORPORATION |
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UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS |
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(In thousands, except earnings per share data) | ||||||||||||||||
Three Months Ended October 31, |
Nine Months Ended October 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
GAAP net income (loss) | $ | 24,071 | $ | 15,257 | $ | 26,052 | $ | (22,015 | ) | |||||||
Non-GAAP adjustments: | ||||||||||||||||
Equity plan-related compensation: (1) | ||||||||||||||||
Cost of revenues | 249 | 221 | 753 | 671 | ||||||||||||
Research and development | 2,005 | 1,798 | 6,119 | 6,007 | ||||||||||||
Marketing and selling | 1,365 | 1,299 | 4,393 | 4,802 | ||||||||||||
General and administration | 1,495 | 1,589 | 5,358 | 5,111 | ||||||||||||
Acquisition - related items: | ||||||||||||||||
Amortization of purchased assets | ||||||||||||||||
Cost of revenues (2) | 1,761 | 3,299 | 7,872 | 10,428 | ||||||||||||
Frontline purchased technology and intangible assets (3) | 1,242 | 1,242 | 3,726 | 3,105 | ||||||||||||
Amortization of intangible assets (4) | 1,296 | 1,445 | 4,361 | 5,742 | ||||||||||||
Special charges (5) | 1,164 | 1,578 | 7,388 | 8,052 | ||||||||||||
Other income (expense), net (6) | (1,484 | ) | - | (1,432 | ) | 271 | ||||||||||
Interest expense (7) | 1,250 | 753 | 15,157 | 2,571 | ||||||||||||
Non-GAAP income tax effects (8) | (7,050 | ) | (4,133 | ) | (17,233 | ) | (2,188 | ) | ||||||||
Total of non-GAAP adjustments | 3,293 | 9,091 | 36,462 | 44,572 | ||||||||||||
Non-GAAP net income | $ | 27,364 | $ | 24,348 | $ | 62,514 | $ | 22,557 | ||||||||
GAAP weighted average shares (diluted) | 111,563 | 112,139 | 113,181 | 106,942 | ||||||||||||
Non-GAAP adjustment | - | - | - | 2,239 | ||||||||||||
Non-GAAP weighted average shares (diluted) | 111,563 | 112,139 | 113,181 | 109,181 | ||||||||||||
GAAP net income (loss) per share (diluted) | $ | 0.22 | $ | 0.14 | $ | 0.23 | $ | (0.21 | ) | |||||||
Non-GAAP adjustments detailed above | 0.03 | 0.08 | 0.32 | 0.42 | ||||||||||||
Non-GAAP net income per share (diluted) | $ | 0.25 | $ | 0.22 | $ | 0.55 | $ | 0.21 | ||||||||
(1) Equity plan-related compensation expense. | ||||||||||||||||
(2) Amount represents amortization of purchased technology resulting from acquisitions. Purchased intangible assets are amortized over two to five years. | ||||||||||||||||
(3) Amount represents amortization of purchased technology and other identified intangible assets identified as part of the fair value of the Frontline P.C.B. Solutions Limited Partnership (Frontline) investment. Mentor Graphics acquired a 50% joint venture in Frontline as a result of the Valor Computerized Systems, Ltd. acquisition in the first quarter of fiscal 2011. The purchased technology will be amortized over three years, other identified intangible assets will be amortized over three to four years, and are reflected in the income statement in the equity in earnings of Frontline results. This expense is the same type as being adjusted for in notes (2) above and (4) below. | ||||||||||||||||
(4) Other identified intangible assets are amortized to other operating expense over two to five years. Other identified intangible assets include trade names, customer relationships, and backlog which are the result of acquisition transactions. | ||||||||||||||||
(5) Three months ended October 31, 2011: Special charges consist of (i) $1,227 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $(19) in acquisition costs, (iii) $(173) related to the abandonment of excess lease space, and (iv) $129 in consulting fees associated with our proxy contest. | ||||||||||||||||
Three months ended October 31, 2010: Special charges consist of (i) $1,191 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $432 in lease restoration costs, (iii) $302 related to the abandonment of excess lease space, (iv) $(513) in acquisition costs, (v) $83 in advisory fees, and (vi) $83 in other adjustments. | ||||||||||||||||
Nine months ended October 31, 2011: Special charges consist of (i) $3,967 in consulting fees associated with our proxy contest, (ii) $3,581 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (iii) $281 related to the abandonment of excess lease space, (iv) $(545) in acquisition costs, and (v) $104 in other adjustments. | ||||||||||||||||
Nine months ended October 31, 2010: Special charges consist of (i) $4,640 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $2,083 in advisory fees, (iii) $1,020 in lease restoration costs, (iv) $804 related to the abandonment of excess leased facility space, (v) $(566) related to a casualty loss, (vi) $(93) in acquisition costs, and (vii) $164 in other adjustments. | ||||||||||||||||
(6) Three months ended October 31, 2011 : Gain of $1,519 resulting from a change from an equity method investment to a controlling interest and loss of $(35) on investments accounted for under the equity method of accounting. | ||||||||||||||||
Nine months ended October 31, 2011 : Gain of $1,519 resulting from a change from an equity method investment to a controlling interest and loss of $(87) on investments accounted for under the equity method of accounting. | ||||||||||||||||
Nine months ended October 31, 2010 : Loss of $271 on investment accounted for under the equity method of accounting. | ||||||||||||||||
(7) Three months ended October 31, 2011 : $1,250 in amortization of original issuance debt discount. | ||||||||||||||||
Three months ended October 31, 2010 : $753 in amortization of original issuance debt discount and bond premiums, net. | ||||||||||||||||
Nine months ended October 31, 2011 : $3,653 in amortization of original issuance debt discount and bond premium, and $11,504 for the premium and other costs related to the retirement of the 6.25% convertible debentures and the term loan. | ||||||||||||||||
Nine months ended October 31, 2010 : $2,226 in amortization of original issuance debt discount and bond premiums, net and $345 in premium on partial redemption of the $110M convertible debt. | ||||||||||||||||
(8) Non-GAAP income tax expense adjustment reflects the application of our assumed normalized effective 17% tax rate, instead of our GAAP tax rate, to our non-GAAP pre-tax income. | ||||||||||||||||