Mentor Graphics Reports Fiscal Fourth Quarter Results and Announces Board Has Increased Share Buyback Authorization

 

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,
  2012     2011     2012     2011  
GAAP net income attributable to Mentor Graphics shareholders $ 57,820 $ 50,599 $ 83,872 $ 28,584
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues 312 217 1,065 888
Research and development 2,084 1,778 8,203 7,785
Marketing and selling 1,481 1,310 5,874 6,112
General and administration 1,158 615 6,516 5,726
Acquisition - related items:
Amortization of purchased assets
Cost of revenues (2) 1,924 3,343 9,796 13,771
Frontline purchased technology and intangible assets (3) 1,242 1,242 4,968 4,347
Amortization of intangible assets (4) 1,544 1,605 5,905 7,347
Special charges (5) 5,786 2,205 13,174 10,257
Other income (expense), net (6) 40 667 (1,392 ) 938
Interest expense (7) 1,272 755 16,429 3,326
Non-GAAP income tax effects (8) (9,817 ) (10,110 ) (27,050 ) (12,298 )
Noncontrolling interest (9)   (151 )   -     (151 )   -  
Total of non-GAAP adjustments   6,875     3,627     43,337     48,199  
Non-GAAP net income attributable to Mentor Graphics shareholders $ 64,695   $ 54,226   $ 127,209   $ 76,783  
 
GAAP weighted average shares (diluted) 112,122 113,082 112,915 109,861
Non-GAAP adjustment   -     -     -     -  
Non-GAAP weighted average shares (diluted)   112,122     113,082     112,915     109,861  
 
Net income per share attributable to Mentor Graphics shareholders:
GAAP (diluted) $ 0.52 $ 0.45 $ 0.74 $ 0.26
Non-GAAP adjustments detailed above   0.06     0.03     0.39     0.44  
Non-GAAP (diluted) $ 0.58   $ 0.48   $ 1.13   $ 0.70  
                                   
(1) Equity plan-related compensation expense.
(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 results. 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 January 31, 2012: Special charges consist of (i) $4,856 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $490 in acquisition costs, (iii) $234 related to the abandonment of excess lease space, (iv) $99 in consulting fees associated with our proxy contest, and (v) $107 in other adjustments.
Three months ended January 31, 2011: Special charges consist of (i) $1,474 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $412 in lease restoration costs, (iii) $360 related to an asset abandonment, (iv) $96 related to the abandonment of excess lease space, (v) $(138) in acquisition costs, and (vi) $1 in other adjustments.
Twelve months ended January 31, 2012: Special charges consist of (i) $8,437 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $4,066 in consulting fees associated with our proxy contest, (iii) $515 related to the abandonment of excess lease space, (iv) $(55) in acquisition costs, and (v) $211 in other adjustments.
Twelve months ended January 31, 2011: Special charges consist of (i) $6,114 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $2,083 in advisory fees, (iii) $1,432 in lease restoration costs, (iv) $900 related to the abandonment of excess leased facility space, (v) $(566) related to a casualty loss, (vi) $360 related to an asset abandonment, (vii) $(231) in acquisition costs, and (viii) $165 in other adjustments.
(6) Three months ended January 31, 2012 : Loss of $40 on investment accounted for under the equity method of accounting.
Three months ended January 31, 2011: Loss of $667 on investment accounted for under the equity method of accounting.
Twelve months ended January 31, 2012 : Gain of $(1,519) resulting from a change from an equity method investment to a controlling interest and loss of $127 on investments accounted for under the equity method of accounting.
Twelve months ended January 31, 2011 : Loss of $938 on investment accounted for under the equity method of accounting.
(7) Three months ended January 31, 2012 : $1,272 in amortization of original issuance debt discount.
Three months ended January 31, 2011 : $755 in amortization of original issuance debt discount and bond premiums, net.
Twelve months ended January 31, 2012 : $4,925 in amortization of original issuance debt discount and bond premiums, net and $11,504 for the premium and other costs related to the retirement of the 6.25% convertible debentures and the term loan.
Twelve months ended January 31, 2011 : $2,981 in amortization of original issuance debt discount and bond premiums, net and $345 in premium on partial redemption of the $110M convertible debt.
(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 and income tax expense on noncontrolling interest.
 

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