Mentor Graphics Reports Fiscal Fourth Quarter Results and Announces 11% Dividend Increase

       

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,
  2014       2013     2014       2013  
GAAP net income attributable to Mentor Graphics shareholders $ 105,536 $ 61,746 $ 155,258 $ 138,736
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues 554 449 1,992 1,529
Research and development 3,164 2,602 11,182 9,206
Marketing and selling 2,126 1,836 7,777 6,654
General and administration 2,237 1,648 8,399 6,308
Acquisition - related items:
Amortization of purchased assets
Cost of revenues (2) 950 1,709 3,598 7,801
Frontline purchased technology and intangible assets (3) 231 1,242 1,430 4,968
Amortization of intangible assets (4) 1,580 1,368 6,230 5,915
Special charges a (5) 4,359 3,540 16,929 9,946
Other income (expense), net (6) 7 (18 ) (119 ) (128 )
Interest expense (7) 1,467 1,367 5,715 5,322
Non-GAAP income tax effects (8) (14,357 ) (10,194 ) (28,944 ) (31,105 )
Noncontrolling interest (9)   (203 )   (193 )   (971 )   (699 )
Total of non-GAAP adjustments   2,115     5,356     33,218     25,717  
Non-GAAP net income attributable to Mentor Graphics shareholders $ 107,651   $ 67,102   $ 188,476   $ 164,453  
 
GAAP and Non-GAAP weighted average shares (diluted)   117,484     115,167     116,702     114,017  
 
Net income per share attributable to Mentor Graphics shareholders:
GAAP (diluted) $ 0.89 $ 0.49 $ 1.29 $ 1.17
Noncontrolling interest adjustment (10) 0.01 0.05 0.04 0.05
Non-GAAP adjustments detailed above   0.02     0.04     0.29     0.22  
Non-GAAP (diluted) $ 0.92   $ 0.58   $ 1.62   $ 1.44  
 

a See footnote a for a discussion of the reclassification of certain litigation costs to special charges.

                     
(1 ) Equity plan-related compensation expense is the fair value of all share-based payments to employees for stock options and restricted stock units, and purchases made as a result of the employee stock purchase plans.
(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) joint venture investment. Mentor Graphics has a 50% interest in Frontline. The purchased technology was amortized over three years from the March 2010 acquisition date, 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. 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, 2014: Special charges consist of (i) $3,380 for EVE litigation costs, (ii) $549 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, and (iii) $430 in other adjustments.
Three months ended January 31, 2013: Special charges consist of (i) $1,026 for EVE litigation costs, (ii) $1,387 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, and (iii) $1,127 in other adjustments.
Twelve months ended January 31, 2014: Special charges consist of (i) $11,597 for EVE litigation costs, (ii) $4,392 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, and (iii) $940 in other adjustments.
Twelve months ended January 31, 2013: Special charges consist of (i) $3,632 for EVE litigation costs, (ii) $4,016 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, and (iii) $2,298 in other adjustments.
(6 ) Income from investment accounted for under the equity method of accounting.
(7 ) Amortization of original issuance debt discount.
(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, equity plan-related compensation, and income tax expense on noncontrolling interest.
(10 ) Non-GAAP EPS excludes from the numerator of our earnings per share calculation the adjustment of the noncontrolling interest to the calculated redemption value, recorded directly to retained earnings.
 

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