Mentor Graphics Reports 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,
2016 2015 2016 2015
GAAP net income attributable to Mentor Graphics shareholders $ 60,271 $ 114,488 $ 96,277 $ 147,139
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues 626 617 2,607 2,304
Research and development 3,994 3,824 16,207 14,027
Marketing and selling 2,309 2,411 9,623 9,103
General and administration 2,679 2,564 12,060 10,373
Acquisition - related items:
Amortization of purchased assets
Cost of revenues (2) 1,807 1,847 7,303 7,099
Amortization of intangible assets (3) 1,899 2,157 8,716 8,282
Special charges (4) 1,087 4,081 45,081 23,490
Other income (expense), net (5) (39 ) 38 (6 ) 184
Interest expense (6) 1,693 1,576 6,593 6,139
Non-GAAP income tax effects (7) (2,343 ) (5,449 ) (18,399 ) (19,708 )
Noncontrolling interest (8)   -     (198 )   (638 )   (820 )
Total of non-GAAP adjustments   13,712     13,468     89,147     60,473  
Non-GAAP net income attributable to Mentor Graphics shareholders $ 73,983   $ 127,956   $ 185,424   $ 207,612  
 
GAAP weighted average shares (diluted) 118,066 117,466 119,263 117,078
Non-GAAP adjustment   -     -     2,046     -  
Non-GAAP weighted average shares (diluted)   118,066     117,466     121,309     117,078  
 

Net income per share attributable to Mentor Graphics shareholders:

GAAP (diluted) $ 0.51 $ 0.96 $ 0.81 $ 1.26
Noncontrolling interest adjustment (9) - 0.01 - -
Convertible debt adjustment (10) - - 0.01 -
Non-GAAP adjustments detailed above   0.12     0.12     0.73     0.51  
Non-GAAP (diluted) $ 0.63   $ 1.09   $ 1.55   $ 1.77  
 
 
 
(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 generally amortized over two to five years.
(3) Other identified intangible assets are generally amortized to operating expense over two to five years. Other identified intangible assets include trade names, customer relationships, and backlog resulting from acquisition transactions. The amount presented for the twelve months ended January 31, 2015 also includes $116 of amortization of other identified intangible assets for Frontline, which were fully amortized in the first quarter of fiscal 2015.
(4) Three months ended January 31, 2016: Special charges consist of (i) $(692) of costs incurred for employee rebalances which include severance benefits and notice pay, (ii) $477 for EVE litigation costs, and (iii) $1,302 in other adjustments.
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 and notice pay, and (iii) $408 in other adjustments.
Twelve months ended January 31, 2016: Special charges consist of (i) $25,232 for severance costs incurred for the voluntary early retirement program, (ii) $13,496 of costs incurred for employee rebalances which include severance benefits and notice pay, (iii) $4,118 for EVE litigation costs, and (iv) $2,235 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 and notice pay, and (iii) $1,547 in other adjustments.
(5) Amount represents (income) loss on an investment accounted for under the equity method of accounting.
(6) Amount represents the amortization of original issuance debt discount.
(7) Non-GAAP income tax expense adjustment reflects the application of our assumed normalized effective 19% tax rate, instead of our GAAP tax rate, to our non-GAAP pre-tax income for the three and twelve months ended January 31, 2016 and a 17% tax rate for the three and twelve months ended January 31, 2015.
(8) Adjustment for the impact of amortization of intangible assets, equity plan-related compensation, and income tax expense on noncontrolling interest.
(9) 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.
(10) We have increased the numerator of our diluted earnings per share calculation by $2,074 for the twelve months ended January 31, 2016 for the dilutive effect of our convertible debt. Corresponding dilutive shares of 2,046 for the twelve months ended January 31, 2016 are presented in the reconciliation above.

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