Mentor Graphics Reports Annual and 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,

  2011     2010     2011     2010  
GAAP net income (loss) $ 49,155 $ 39,367 $ 27,140 $ (21,889 )
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues 217 300 888 1,618
Research and development 1,932 2,052 7,939 10,931
Marketing and selling 1,310 1,622 6,112 8,406
General and administration 1,905 1,209 7,016 5,204
Acquisition - related items:
Amortization of purchased assets
Cost of revenues (2) 3,343 3,047 13,771 12,012
Amortization of intangible assets (3) 1,605 2,630 7,347 11,184
Frontline purchased technology and intangible assets (4) 1,242 - 4,347 -
Special charges (5) 2,205 5,444 10,257 21,334
Other income (expense), net (6) 667 257 938 1,108
Interest expense (7) 755 713 3,326 2,410
Non-GAAP income tax effects (8)   (10,110 )   (25,877 )   (12,298 )   (7,028 )
Total of non-GAAP adjustments   5,071     (8,603 )   49,643     67,179  
Non-GAAP net income $ 54,226   $ 30,764   $ 76,783   $ 45,290  
 
GAAP weighted average shares (diluted) a 113,082 101,750 109,861 96,474
Non-GAAP adjustment   -     -     -     1,901  
Non-GAAP weighted average shares (diluted) b   113,082     101,750     109,861     98,375  
 
GAAP net income (loss) per share (diluted) a $ 0.43 $ 0.39 $ 0.25 $ (0.23 )
Non-GAAP adjustments detailed above   0.05     (0.09 )   0.45     0.70  
Non-GAAP net income per share (diluted) b $ 0.48   $ 0.30   $ 0.70   $ 0.47  
 
a Diluted GAAP and non-GAAP net income per share for the three months ended January 31, 2010 includes $125 of convertible debt interest, net of tax, added back to GAAP and non-GAAP net income and 1,379 of corresponding dilutive shares added to the diluted weighted average number of shares outstanding.
 
b Diluted non-GAAP net income per share for the twelve months ended January 31, 2010 includes $633 of convertible debt interest, net of tax, added back to non-GAAP net income and 1,415 of corresponding dilutive shares added to the diluted weighted average number of shares outstanding.
                   
(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 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.
Three months ended January 31, 2010: Special charges consist of (i) $1,717 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $1,547 related to the abandonment of excess leased facility space, (iii) $1,175 in advisory fees, (iv) $405 related to an asset abandonment, (v) $302 in lease restoration costs, and (vi) $298 in acquisition costs.
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 costs.
Twelve months ended January 31, 2010: Special charges consist of (i) $10,713 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, (ii) $4,700 in advisory fees, (iii) $2,530 related to the abandonment of excess leased facility space, (iv) $2,067 in acquisition costs, (v) $566 related to a casualty loss, (vi) $405 related to an asset abandonment, (vii) $302 in lease restoration costs, and (viii) $51 in other costs.
(6) Three months ended January 31, 2011 : Loss of $667 on investment accounted for under the equity method of accounting.
Three months ended January 31, 2010 : Loss of $257 on investment 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.
Twelve months ended January 31, 2010 : Other income (expense), net consists of: (i) loss of $995 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.
(7) Three months ended January 31, 2011 : $755 in amortization of original issuance debt discount and premium.
Three months ended January 31, 2010 : $713 in amortization of original issuance debt discount.
Twelve months ended January 31, 2011 : $2,981 in amortization of original issuance debt discount and premiums and $345 in premium on partial redemption of the $110.0M convertible debt.
Twelve months ended January 31, 2010 : $2,764 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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