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 July 31, Six Months Ended July 31,
2010 2009 2010 2009
GAAP net loss $ (14,247 ) $ (21,266 ) $ (37,272 ) $ (34,222 )
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues 238 470 450 969
Research and development 1,771 3,058 4,209 6,505
Marketing and selling 1,313 2,391 3,503 4,928
General and administration 1,781 1,578 3,522 2,865
Acquisition - related items:
Amortization of purchased assets
Cost of revenues (2) 3,560 2,928 7,129 5,876
Amortization of intangible assets (3) 1,936 2,888 4,297 5,758
Frontline purchased technology and intangible assets (4) 1,242 - 1,863 -
Special charges (5) 3,206 4,202 6,474 9,897
Other income (expense), net (6) 1 244 271 681
Interest expense (7) 1,089 578 1,818 999
Non-GAAP income tax effects (8)   (1,139 )   4,391     1,945     5,458  
Total of non-GAAP adjustments   14,998     22,728     35,481     43,936  
Non-GAAP net income (loss) $ 751   $ 1,462   $ (1,791 ) $ 9,714  
 
GAAP weighted average shares (diluted) 107,629 94,853 105,717 94,514
Non-GAAP adjustment   2,040     387     -     13  
Non-GAAP weighted average shares (diluted)   109,669     95,240     105,717     94,527  
 
GAAP net loss per share (diluted) $ (0.13 ) $ (0.22 ) $ (0.35 ) $ (0.36 )
Non-GAAP adjustments detailed above   0.14     0.24     0.33     0.46  
Non-GAAP net income (loss) per share (diluted) $ 0.01   $ 0.02   $ (0.02 ) $ 0.10  
                   
(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) 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.
(4) 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 notes (2) and (3) above.
(5) Three months ended July 31, 2010: Special charges consist of (i) $1,860 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $825 in advisory fees, (iii) $247 related to the abandonment of excess leased facility space, (iv) $220 in acquisition costs, and (v) $54 in other adjustments.
Three months ended July 31, 2009: Special charges consist of (i) $1,599 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $1,175 in advisory fees, (iii) $865 related to the abandonment of excess leased facility space, (iv) $270 in acquisition costs, (v) $242 related to a casualty loss, and (vi) $51 in other adjustments.
Six months ended July 31, 2010: Special charges consist of (i) $3,449 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $2,000 in advisory fees, (iii) $1,090 related to the abandonment of excess leased facility space, (iv) $420 in acquisition costs, (v) $(566) related to a casualty loss, and (vi) $81 in other adjustments.
Six months ended July 31, 2009: Special charges consist of (i) $5,627 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $2,350 in advisory fees, (iii) $824 related to the abandonment of excess leased facility space, (iv) $538 in acquisition costs, (v) $507 related to a casualty loss, and (vi) $51 in other adjustments.
(6) Three months ended July 31, 2010 : Loss of $1 on investment accounted for under the equity method of accounting.
Three months ended July 31, 2009 : Loss of $244 on investment accounted for under the equity method of accounting.
Six months ended July 31, 2010 : Loss of $271 on investment accounted for under the equity method of accounting.
Six months ended July 31, 2009 : Other income (expense), net consists of: (i) equity losses of $568 on investment accounted for under the equity method of accounting and (ii) an impairment of $113 for an investment accounted for under the cost method of accounting.
(7) Three months ended July 31, 2010 : $744 in amortization of original issuance debt discount and $345 in premium on partial redemption of the $110.0M convertible debt.
Three months ended July 31, 2009 : $684 in amortization of original issuance debt discount and $(106) in discounts and unamortized debt costs related to a partial redemption of the $110.0M convertible debt.
Six months ended July 31, 2010 : $1,473 in amortization of original issuance debt discount and $345 in premium on partial redemption of the $110.0M convertible debt.
Six months ended July 31, 2009 : $1,353 in amortization of original issuance debt discount and $(354) in discounts and unamortized debt costs related to a partial redemption of the $110.0M 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.

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