Mentor Graphics Reports Fiscal First Quarter Results

MENTOR GRAPHICS CORPORATION

UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS

(In thousands, except earnings per share data)
         
 
Three Months Ended April 30,
  2014     2013  
GAAP net income (loss) attributable to Mentor Graphics shareholders $ (2,551 ) $ 205
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues 535 460
Research and development 3,241 2,610
Marketing and selling 2,178 1,882
General and administration 2,175 1,614
Acquisition - related items:
Amortization of purchased assets
Cost of revenues (2) 1,361 1,207
Frontline purchased technology and intangible assets (3) 116 737
Amortization of intangible assets (4) 1,750 1,654
Special charges a (5) 5,926 4,023
Other income (expense), net (6) 13 (51 )
Interest expense (7) 1,494 1,391
Non-GAAP income tax effects (8) (2,825 ) (2,097 )
Noncontrolling interest (9)   (200 )   (393 )
Total of non-GAAP adjustments   15,764     13,037  
Non-GAAP net income attributable to Mentor Graphics shareholders $ 13,213   $ 13,242  
 
GAAP weighted average shares (diluted) 114,935 115,751
Non-GAAP adjustment   2,479     -  
GAAP and Non-GAAP weighted average shares (diluted)   117,414     115,751  
 
Net income (loss) per share attributable to Mentor Graphics shareholders:
GAAP (diluted) $ (0.02 ) $ 0.01
Noncontrolling interest adjustment (10) (0.01 ) (0.01 )
Non-GAAP adjustments detailed above   0.14     0.11  
Non-GAAP (diluted) $ 0.11   $ 0.11  
 

a See footnote a for a discussion of the reclassification of certain litigation costs to special charges.

     

 

             
(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 technology is 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) joint venture investment. Mentor Graphics has a 50% interest in Frontline. The purchased technology was amortized over three years from the March 2010 acquisition date, 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 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 April 30, 2014: Special charges consist of (i) $ 3,958 for EVE litigation costs, (ii) $1,125 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, and (iii) $843 in other adjustments.
Three months ended April 30, 2013: Special charges consist of (i) $2,079 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $1,940 for EVE litigation costs, and (ii) $4 in other adjustments.
(6 ) Amount represents income (loss) on investment accounted for under the equity method of accounting.
(7 ) Amount represents the amortization of original issuance debt discount.
(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.
(10 ) Non-GAAP EPS excludes from the numerator of our earnings per share calculation the adjustment of the noncontrolling interest to the calculated redemption value, recorded directly to retained earnings.
 

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