Mentor Graphics Reports Fiscal Second Quarter Results

MENTOR GRAPHICS CORPORATION

UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS

(In thousands, except earnings per share data)
         
 
Three Months Ended Six Months Ended
July 31, July 31, July 31, July 31,
2008 2007 2008 2007
GAAP net income (loss) $ (17,192 ) $ 2,181 $ (42,095 ) $ 2,673
Non-GAAP adjustments:
Equity plan-related compensation: (1)

 

Cost of revenues

375 200 751 361

 

Research and development (R&D)

2,919 1,690 5,851 2,939

 

Marketing and selling

2,116 1,154 4,221 2,121

 

General and administration, and other

2,174 1,407 3,312 2,095
System and software cost of revenues (2) - - 103 -
Acquisition - related items:

 

Amortization of purchased intangible assets

 

Cost of revenues (3)

1,992 2,332 5,230 5,374

 

Amortization of intangible assets (4)

2,537 2,279 4,970 3,657

 

In-process R&D (5)

15,285 4,100 15,285 4,100
Special charges (6) 3,235 (8 ) 12,885 4,045
Other income, net (7) 475 - 643 -
Interest expense (8) - - - 164
Income tax effects (9)   (15,461 )   (1,640 )   (21,258 )   (2,973 )
Total of non-GAAP adjustments   15,647     11,514     31,993     21,883  
Non-GAAP net income (loss) $ (1,545 ) $ 13,695   $ (10,102 ) $ 24,556  
 
GAAP weighted average shares (diluted) 91,352 89,351 91,054 88,704
Non-GAAP adjustment   -     -     -     -  
Non-GAAP weighted average shares (diluted)   91,352     89,351     91,054     88,704  
 
GAAP net income (loss) per share (diluted) $ (0.19 ) $ 0.02 $ (0.46 ) $ 0.03
Non-GAAP adjustments detailed above   0.17     0.13     0.35     0.25  
Non-GAAP net income (loss) per share (diluted) $ (0.02 ) $ 0.15   $ (0.11 ) $ 0.28  
                     
(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 capitalized purchased intangible assets resulting from acquisitions. Purchased intangible assets are amortized over two to five years.
(4) Purchased intangible assets are amortized to other operating expense over two to five years. Purchased intangible assets include tradenames, employment agreements, customer relationships and deferred compensation which are the result of acquisition transactions.
(5) Three and six months ended July 31, 2008 : A write off of $1,300 for in-process research and development related to the Ponte acquisition and $13,985 related to the acquisition of technology which had 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.
Three and six months ended July 31, 2007 : A write off of $4,100 for in-process research and development related to the Sierra acquisition.
(6) Three months ended July 31, 2008: Special charges consist of (i) $730 of costs incurred for employee rebalances consisting of severance benefits, notice pay and outplacement services, (ii) $1,513 related to the abandonment of excess leased facility space, (iii) $1,073 in fees incurred in response to the unsolicited bid by Cadence Design Systems, and (iv) ($81) in other costs and adjustments, net.
Three months ended July 31, 2007: Special charges consist of (i) $714 of costs incurred for employee rebalances consisting of severance benefits, notice pay and outplacement services, (ii) $(721) related to reoccupation of a previously abandoned facility, and (iii) ($1) in other costs and adjustments, net.
Six months ended July 31, 2008: Special charges consist of (i) $8,844 of costs incurred for employee rebalances consisting of severance benefits, notice pay and outplacement services, (ii) $2,956 related to the abandonment of excess leased facility space, (iii) $1,073 in fees incurred in response to the unsolicited bid by Cadence Design Systems, (iv) $93 in fixed asset write-offs related to the closure of our Intellectual Property division, and (v) ($81) in other costs and adjustments, net.
Six months ended July 31, 2007: Special charges consist of (i) $4,683 of costs incurred for employee rebalances consisting of severance benefits, notice pay and outplacement services, (ii) $100 for a wind-up services agreement related to the liquidation of a subsidiary, (iii) $(721) related to reoccupation of a previously abandoned facility, and (iv) ($17) resulting from the true-up of previously accrued items.
(7) Amount represents our equity in the loss of an investment accounted for under the equity method.
(8) Premium and unamortized debt costs related to the redemption of convertible debt.
(9) 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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