Mentor Graphics Reports Fiscal Fourth Quarter Results, Announces Quarterly Dividend Increase

MENTOR GRAPHICS CORPORATION

UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS

(In thousands, except earnings per share data)
           
 
Three Months Ended January 31, Twelve Months Ended January 31,
  2015     2014     2015     2014  
GAAP net income attributable to Mentor Graphics shareholders $ 114,488 $ 105,536 $ 147,139 $ 155,258
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues 617 554 2,304 1,992
Research and development 3,824 3,164 14,027 11,182
Marketing and selling 2,411 2,126 9,103 7,777
General and administration 2,564 2,237 10,373 8,399
Acquisition - related items:
Amortization of purchased assets
Cost of revenues (2) 1,847 950 7,099 3,598
Frontline purchased technology and intangible assets (3) - 231 116 1,430
Amortization of intangible assets (4) 2,157 1,580 8,166 6,230
Special charges (5) 4,081 4,359 23,490 16,929
Other income (expense), net (6) 38 7 184 (119 )
Interest expense (7) 1,576 1,467 6,139 5,715
Non-GAAP income tax effects (8) (5,449 ) (14,357 ) (19,708 ) (28,944 )
Noncontrolling interest (9)   (198 )   (203 )   (820 )   (971 )
Total of non-GAAP adjustments   13,468     2,115     60,473     33,218  
Non-GAAP net income attributable to Mentor Graphics shareholders $ 127,956   $ 107,651   $ 207,612   $ 188,476  
 
GAAP and non-GAAP weighted average shares (diluted)   117,466     117,484     117,078     116,702  
 
Net income per share attributable to Mentor Graphics shareholders:
GAAP (diluted) $ 0.96 $ 0.89 $ 1.26 $ 1.29
Noncontrolling interest adjustment (10) 0.01 0.01 - 0.04
Non-GAAP adjustments detailed above   0.12     0.02     0.51     0.29  
Non-GAAP (diluted) $ 1.09   $ 0.92   $ 1.77   $ 1.62  
 
                       
(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 were 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 generally 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 January 31, 2015: Special charges consist of (i) $3,215 for EVE litigation costs, (ii) $458 of costs incurred for employee rebalances which include severance benefits, notice pay, and outplacement services, and (iii) $408 in other adjustments.
Three months ended January 31, 2014: Special charges consist of (i) $3,380 for EVE litigation costs, (ii) $549 of costs incurred for employee rebalances which include severance benefits, notice pay, and outplacement services, and (iii) $430 in other adjustments.
Twelve months ended January 31, 2015: Special charges consist of (i) $18,408 for EVE litigation costs, (ii) $3,535 of costs incurred for employee rebalances which include severance benefits, notice pay, and outplacement services, and (iii) $1,547 in other adjustments.
Twelve months ended January 31, 2014: Special charges consist of (i) $11,597 for EVE litigation costs, (ii) $4,392 of costs incurred for employee rebalances which include severance benefits, notice pay, and outplacement services, and (iii) $940 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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