Mentor Graphics Reports Fiscal Fourth Quarter Results

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,
2009 2008 2009 2008
GAAP net income (loss) $ 31,537 $ 34,894 $ (88,802 ) $ 28,771
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues 442 322 1,544 964
Research and development 3,175 2,702 12,005 7,881
Marketing and selling 2,256 1,847 8,627 5,525
General and administration, and other 1,217 1,120 6,047 4,107
System and software cost of revenues (2) - - 103 -
Acquisition - related items:
Amortization of purchased and other identified intangible assets
Cost of revenues (3) 3,363 1,955 12,403 9,468
Amortization of intangible assets (4) 3,014 2,575 11,113 8,936
Impairment of long-lived assets (5) 4,553 - 4,553 -
In-process research and development (6) - - 22,075 4,100
Special charges (7) 1,789 4,988 16,888 10,148
Other income, net (8) 3,832 - 4,920 -
Interest expense (9) - 612 - 1,064
Income tax effects (10)   (22,804 )   15,402   7,078     9,938
Total of non-GAAP adjustments   837     31,523   107,356     62,131
Non-GAAP net income $ 32,374   $ 66,417 $ 18,554   $ 90,902
 
GAAP weighted average shares (diluted) 94,452 92,490 91,829 89,981
Non-GAAP adjustment   -     -   714     -
Non-GAAP weighted average shares (diluted)   94,452     92,490   92,543     89,981
 
GAAP net income (loss) per share (diluted) $ 0.33 $ 0.38 $ (0.97 ) $ 0.32
Non-GAAP adjustments detailed above   0.02     0.34   1.17     0.69
Non-GAAP net income per share (diluted) $ 0.35   $ 0.72 $ 0.20   $ 1.01
                   
(1) Equity plan-related compensation expense recognized in accordance with SFAS 123R.
(2) Amount represents the write-off of prepaid royalty amounts associated with the closure of our Intellectual Property division.
(3) Amount represents amortization of purchased intangible assets resulting from acquisitions. Purchased intangible assets are amortized over two to five years.
(4) Other identified intangible assets are amortized to other operating expense over two to five years. Other identified intangible assets include trade names, employment agreements, customer relationships and deferred compensation which are the result of acquisition transactions.
(5) Amount represents the write-off of fixed assets and purchased technology associated with our emulation division.
(6)

Twelve months ended January 31, 2009: $8,090 for in-process research and development related to the Ponte and Flomerics acquisitions. $13,985 related to the acquisition of technology from IBM which has not yet reached technological feasibility and provided no alternative future uses. The technology is expected to be the basis for a new offering in the Calibre product family once development is completed.

Twelve months ended January 31, 2008 : $4,100 for in-process research and development related to the Sierra acquisition.
(7) Three months ended January 31, 2009: Special charges consist of (i) $1,190 in advisory fees and (ii) $599 of costs incurred for employee rebalances which includes severance benefits, notice pay and outplacement services.
Three months ended January 31, 2008: Special charges consist of (i) $3,878 of costs incurred for employee rebalances which includes severance benefits, notice pay and outplacement services, (ii) $952 for the abandonment of an information technology project, (iii) $230 for the true-up of lease costs on a previously abandoned facility, and (iv) $(72) in other adjustments.
Twelve months ended January 31, 2009: Special charges consist of (i) $9,793 of costs incurred for employee rebalances which includes severance benefits, notice pay and outplacement services, (ii) $3,345 incurred in response to the unsolicited bid by Cadence Design Systems, Inc., (iii) $2,547 related to the abandonment of excess leased facility space, (iv) $1,190 in advisory fees, and (v) $13 in fixed asset write-offs related to the closure of our Intellectual Property division.

Twelve months ended January 31, 2008: Special charges consist of (i) $9,676 of costs incurred for employee rebalances which includes severance benefits, notice pay and outplacement services, (ii) $952 for the abandonment of an information technology project, (iii) $230 for the true-up of lease costs on a previously abandoned facility, (iv) $100 for a wind-up services agreement related to the liquidation of a subsidiary, (v) $(721) related to reoccupation of a previously abandoned facility, and (vi) $(89) in other adjustments.

(8) Three months ended January 31, 2009 : Equity losses of Calypto Design Systems was $344. We recorded an impairment of $3,488 for investments accounted for under the cost method.
Twelve months ended January 31, 2009 : Equity losses of Calypto Design Systems was $1,432. We recorded an impairment of $3,488 for investments accounted for under the cost method.
(9) Discounts, premiums, and unamortized debt costs related to the redemption of convertible debt.
(10) 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.

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