Mentor Graphics Reports Fiscal First Quarter Results

MENTOR GRAPHICS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data)


			Three Months Ended April 30,
				2014			2013
Revenues:
	System and software		$	148,229		$	123,284
	Service and support			103,922			103,231
		Total revenues		252,151			226,515
Cost of revenues: (1)
	System and software			26,971			8,899
	Service and support			29,111			30,075
	Amortization of purchased technology			1,361			1,207
		Total cost of revenues		57,443			40,181
		Gross profit		194,708			186,334
Operating expenses:
	Research and development (2)			84,451			79,717
	Marketing and selling (3)			84,634			79,107
	General and administration ^a (4)			17,682			16,337
	Equity in earnings of Frontline (5)			(1,379	)		(397	)
	Amortization of intangible assets (6)			1,750			1,654
	Special charges ^a (7)			5,926			4,023
		Total operating expenses		193,064			180,441
Operating income				1,644			5,893
	Other income (expense), net (8)			(258	)		(959	)
	Interest expense (9)			(4,585	)		(4,785	)
	Income (loss) before income tax			(3,199	)		149
	Income tax expense (benefit) (10)			(174	)		568
		Net loss		(3,025	)		(419	)
	Less: Loss attributable to noncontrolling interest (11)			(474	)		(624	)
		Net income (loss) attributable to Mentor Graphics
		shareholders	$	(2,551	)	$	205
	Net income (loss) per share attributable to Mentor Graphics
	shareholders:
		Basic ^b	$	(0.02	)	$	0.01
		Diluted ^b	$	(0.02	)	$	0.01
	Weighted average number of shares outstanding:
		Basic		114,935			112,711
		Diluted		114,935			115,751

		^a Certain litigation costs have been reclassified from general and administration to special charges within operating expenses for the three months ended April 30, 2013. These reclassifications were made to conform to the current period presentation. These reclassifications had no impact on GAAP operating expense, operating income or net income for the three months ended April 30, 2013. Additional discussion regarding the reclassification was provided in our Annual Report on Form 10-K for the year ended January 31, 2014.

		^b We have increased the numerator of our basic and diluted earnings per share calculation for the adjustment to decrease the noncontrolling interest to the calculated redemption value, recorded directly to retained earnings, as follows:

			$	667		$	468


	Refer to following page for a description of footnotes.

MENTOR GRAPHICS CORPORATION
FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)


Listed below are the items included in net income (loss) that management excludes in computing the non-GAAP financial measures referred to in the text of this press release. Items are further described under "Discussion of Non-GAAP Financial Measures."



			Three Months Ended April 30,
				2014			2013
(1) Cost of revenues:
	Equity plan-related compensation		$	535		$	460
	Amortization of purchased technology			1,361			1,207
			$	1,896		$	1,667

(2) Research and development:
	Equity plan-related compensation		$	3,241		$	2,610

(3) Marketing and selling:
	Equity plan-related compensation		$	2,178		$	1,882

(4) General and administration:
	Equity plan-related compensation		$	2,175		$	1,614

(5) Equity in earnings of Frontline:
	Amortization of purchased technology and other identified intangible assets
			$	116		$	737

(6) Amortization of intangible assets:
	Amortization of other identified intangible assets		$	1,750		$	1,654

(7) Special charges:
	Rebalance, restructuring, and other costs		$	5,926		$	4,023

(8) Other income (expense), net:
	Net income (loss) of unconsolidated entities		$	13		$	(51	)

(9) Interest expense:
	Amortization of original issuance debt discount		$	1,494		$	1,391

(10) Income tax expense (benefit):
	Non-GAAP income tax effects		$	(2,825	)	$	(2,097	)

(11) Loss attributable to noncontrolling interest:
	Amortization of intangible assets, equity-plan related compensation, and income tax effects		$	(200	)	$	(393	)

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