Mentor Graphics Reports Fiscal Third Quarter Results


MENTOR GRAPHICS CORPORATION
UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS
(In thousands, except earnings per share data)


		Three Months Ended October 31,						Nine Months Ended October 31,
		2012			2011			2012			2011
GAAP net income attributable to Mentor Graphics shareholders		$	30,641		$	24,071		$	76,990		$	26,052
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues			393			249			1,080			753
Research and development			2,272			2,005			6,604			6,119
Marketing and selling			1,644			1,365			4,818			4,393
General and administration			1,400			1,495			4,660			5,358
Acquisition - related items:
Amortization of purchased assets
Cost of revenues (2)			1,759			1,761			6,092			7,872
Frontline purchased technology and intangible assets (3)			1,242			1,242			3,726			3,726
Amortization of intangible assets (4)			1,242			1,296			4,547			4,361
Special charges (5)			1,146			1,164			3,800			7,388
Other income (expense), net (6)			(38	)		(1,484	)		(110	)		(1,432	)
Interest expense (7)			1,342			1,250			3,955			15,157
Non-GAAP income tax effects (8)			(6,607	)		(7,050	)		(20,468	)		(17,233	)
Noncontrolling interest (9)			96			-			(506	)		-
Total of non-GAAP adjustments			5,891			3,293			18,198			36,462
Non-GAAP net income attributable to Mentor Graphics shareholders		$	36,532		$	27,364		$	95,188		$	62,514

GAAP and Non-GAAP weighted average shares (diluted)			114,721			111,563			113,584			113,181

Net income per share attributable to Mentor Graphics shareholders:
GAAP (diluted)		$	0.27		$	0.22		$	0.68		$	0.23
Non-GAAP adjustments detailed above			0.05			0.03			0.16			0.32
Non-GAAP (diluted)		$	0.32		$	0.25		$	0.84		$	0.55

(1)	Equity plan-related compensation expense is the fair value of all share-based payments to employees for stock options and restricted stock units, and purchases made as a result of the employee stock purchase plans.
(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. This expense is the same type as being adjusted for in note (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, 2012: Special charges consist of (i) $612 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services and (ii) $534 in other adjustments.
	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) $129 of costs related to consulting fees associated with our proxy contest, and (iii) $(192) in other adjustments.
	Nine months ended October 31, 2012: Special charges consist of (i) $2,629 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services and (ii) $1,171 in other adjustments.
	Nine months ended October 31, 2011: Special charges consist of (i) $3,967 of costs related to 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, and (iii) $(160) in other adjustments.
(6)	Three months ended October 31, 2012 : Income of $38 on investment accounted for under the equity method of accounting.
	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, 2012 : Income of $110 on investment 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.
(7)	Three months ended October 31, 2012 : $1,342 in amortization of original issuance debt discount.
	Three months ended October 31, 2011 : $1,250 in amortization of original issuance debt discount.
	Nine months ended October 31, 2012 : $3,955 in amortization of original issuance debt discount.
	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.
(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.
(9)	Adjustment for the impact of amortization of intangible assets, equity plan-related compensation, and income tax expense on noncontrolling interest.

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