Mentor Graphics Lowers Fiscal 2009 Guidance and Announces Fiscal Third Quarter Conference Call

Non-GAAP net income (loss) also facilitates comparison with other companies in our industry, which use similar financial measures to supplement their GAAP results. However, non-GAAP net income (loss) has limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under GAAP. In the future we expect to continue to incur expenses similar to the non-GAAP adjustments described above and exclusion of these items in our non-GAAP presentation should not be construed as an inference that these costs are unusual, infrequent or non-recurring. Some of the limitations in relying on non-GAAP net income (loss) are:

  • Amortization of purchased intangibles, though not directly affecting our current cash position, represents the loss in value as the technology in our industry evolves, is advanced or is replaced over time. The expense associated with this loss in value is not included in the non-GAAP net income (loss) presentation and therefore does not reflect the full economic effect of the ongoing cost of maintaining our current technological position in our competitive industry, which is addressed through our research and development program.
  • We regularly engage in acquisition and assimilation activities as part of our ongoing business and therefore we will continue to experience special charges and in-process research and development charges on a regular basis. These costs also directly impact our available funds.
  • Our stock option and stock purchase plans are important components of our incentive compensation arrangements and will be reflected as expenses in our GAAP results for the foreseeable future under SFAS 123R.
  • Our income tax expense (benefit) will be ultimately based on our GAAP taxable income and actual tax rates in effect, which often differ significantly from the 17% rate assumed in our non-GAAP presentation.
  • Other companies, including other companies in our industry, may calculate non-GAAP net income (loss) differently than we do, limiting its usefulness as a comparative measure.

MENTOR GRAPHICS CORPORATION

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP

EARNINGS PER SHARE GUIDANCE

         
The following table reconciles management's estimates of the specific items excluded from GAAP in the calculation of expected non-GAAP earnings per share for the periods shown below:
 
       
Q3 FY09 Q4 FY09 FY09 Q1 FY10
Diluted GAAP net earnings per share $ (0.80 ) $ 0.60 $ (0.65 )

($0.06) - ($0.01

)

Non-GAAP Adjustments:
Amortization of purchased intangible assets (1) 0.04 0.04 0.14 0.03
Amortization of other identified intangible assets (2) 0.04 0.03 0.12 0.03
Equity plan-related compensation (3) 0.07 0.08 0.31 0.09
Special charges (4) 0.10 0.00 0.41 0.00
Income tax effects (5)   0.50     (0.20 )   0.07     (0.04 )
Non-GAAP net income $ (0.05 ) $ 0.55   $ 0.40   $ 0.05 - $0.10  
                     
 
(1)

 

Excludes special charges consisting primarily of costs incurred for in-process research and development, facility closures, and employee rebalances, which includes severance benefits, notice pay, and outplacement services. Fees associated with the unsolicited bid by Cadence Design Systems are included in special charges. The guidance for Q4 FY09 and Q1 FY10 assumes no additional special charges.

(2)

 

Excludes amortization of other identified intangible assets including trade names, employment agreements and customer relationships resulting from acquisition transactions. Other identified intangible assets are amortized over two to five years. The guidance for Q4 FY09 and Q1 FY10 assumes no additional acquisitions.

(3)

 

Excludes equity plan-related compensation expense recognized in accordance with SFAS 123R, Share-Based Payment.

(4)

 

Excludes special charges consisting primarily of costs incurred for in-process research and development, facility closures, and employee rebalances, which includes severance benefits, notice pay, and outplacement services. Fees associated with the unsolicited bid by Cadence Design Systems are included in special charges. The guidance for Q4 FY09 and Q1 FY10 assumes no additional special charges.

(5)

 

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 GAAP pre-tax income and the application of the 17% tax rate to our non-GAAP adjustments. FY 2009 GAAP forecast reflects a negative tax rate as we expect to realize a net tax expense despite a projected pre-tax net loss. This is primarily due to certain foreign operations where we remain profitable and jurisdictions where we have withholding tax expenses. Tax expense for Q3 FY09 reflects the recapture of tax benefits previously claimed in prior quarters. Tax benefit forecasted in Q4 FY09 reflects the application of the projected annual negative tax rate to forecasted pre-tax profit for the quarter.


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