Mentor Graphics Reports Fiscal Fourth Quarter Results, Announces

Mentor Graphics Reports Fiscal Fourth Quarter Results, Announces Quarterly 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,
				2015			2014			2015			2014
GAAP net income attributable to Mentor Graphics shareholders			$	114,488		$	105,536		$	147,139		$	155,258
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues				617			554			2,304			1,992
Research and development				3,824			3,164			14,027			11,182
Marketing and selling				2,411			2,126			9,103			7,777
General and administration				2,564			2,237			10,373			8,399
Acquisition - related items:
Amortization of purchased assets
Cost of revenues (2)				1,847			950			7,099			3,598
Frontline purchased technology and intangible assets (3)				-			231			116			1,430
Amortization of intangible assets (4)				2,157			1,580			8,166			6,230
Special charges (5)				4,081			4,359			23,490			16,929
Other income (expense), net (6)				38			7			184			(119	)
Interest expense (7)				1,576			1,467			6,139			5,715
Non-GAAP income tax effects (8)				(5,449	)		(14,357	)		(19,708	)		(28,944	)
Noncontrolling interest (9)				(198	)		(203	)		(820	)		(971	)
Total of non-GAAP adjustments				13,468			2,115			60,473			33,218
Non-GAAP net income attributable to Mentor Graphics shareholders			$	127,956		$	107,651		$	207,612		$	188,476

GAAP and non-GAAP weighted average shares (diluted)				117,466			117,484			117,078			116,702

Net income per share attributable to Mentor Graphics shareholders:
GAAP (diluted)			$	0.96		$	0.89		$	1.26		$	1.29
Noncontrolling interest adjustment (10)				0.01			0.01			-			0.04
Non-GAAP adjustments detailed above				0.12			0.02			0.51			0.29
Non-GAAP (diluted)			$	1.09		$	0.92		$	1.77		$	1.62


(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 technology is 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 were 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 operating expense generally 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, 2015: Special charges consist of (i) $3,215 for EVE litigation costs, (ii) $458 of costs incurred for employee rebalances which include severance benefits, notice pay, and outplacement services, and (iii) $408 in other adjustments.
		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 include severance benefits, notice pay, and outplacement services, and (iii) $430 in other adjustments.
		Twelve months ended January 31, 2015: Special charges consist of (i) $18,408 for EVE litigation costs, (ii) $3,535 of costs incurred for employee rebalances which include severance benefits, notice pay, and outplacement services, and (iii) $1,547 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 include severance benefits, notice pay, and outplacement services, and (iii) $940 in other adjustments.
(6	)	Amount represents income (loss) on investment accounted for under the equity method of accounting.
(7	)	Amount represents the 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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