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MENTOR GRAPHICS CORPORATION |
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UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS |
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| (In thousands, except earnings per share data) | ||||||||||||||||||
| Three Months Ended October 31, | Nine Months Ended October 31, | |||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||||
| GAAP net income attributable to Mentor Graphics shareholders | $ | 21,030 | $ | 25,535 | $ | 32,651 | $ | 49,722 | ||||||||||
| Non-GAAP adjustments: | ||||||||||||||||||
| Equity plan-related compensation: (1) | ||||||||||||||||||
| Cost of revenues | 608 | 520 | 1,687 | 1,438 | ||||||||||||||
| Research and development | 3,651 | 2,865 | 10,203 | 8,018 | ||||||||||||||
| Marketing and selling | 2,371 | 1,998 | 6,692 | 5,651 | ||||||||||||||
| General and administration | 2,472 | 2,043 | 7,809 | 6,162 | ||||||||||||||
| Acquisition - related items: | ||||||||||||||||||
| Amortization of purchased assets | ||||||||||||||||||
| Cost of revenues (2) | 2,050 | 729 | 5,252 | 2,648 | ||||||||||||||
| Frontline purchased technology and intangible assets (3) | - | 231 | 116 | 1,199 | ||||||||||||||
| Amortization of intangible assets (4) | 2,233 | 1,440 | 6,009 | 4,650 | ||||||||||||||
| Special charges (5) | 8,375 | 4,688 | 19,409 | 12,570 | ||||||||||||||
| Other income (expense), net (6) | 78 | (33 | ) | 146 | (126 | ) | ||||||||||||
| Interest expense (7) | 1,548 | 1,441 | 4,563 | 4,248 | ||||||||||||||
| Non-GAAP income tax effects (8) | (4,276 | ) | (3,961 | ) | (14,259 | ) | (14,587 | ) | ||||||||||
| Noncontrolling interest (9) | (218 | ) | (206 | ) | (622 | ) | (768 | ) | ||||||||||
| Total of non-GAAP adjustments | 18,892 | 11,755 | 47,005 | 31,103 | ||||||||||||||
| Non-GAAP net income attributable to Mentor Graphics shareholders | $ | 39,922 | $ | 37,290 | $ | 79,656 | $ | 80,825 | ||||||||||
| GAAP and non-GAAP weighted average shares (diluted) | 116,715 | 117,078 | 116,928 | 116,395 | ||||||||||||||
| Net income per share attributable to Mentor Graphics shareholders: | ||||||||||||||||||
| GAAP (diluted) | $ | 0.18 | $ | 0.20 | $ | 0.29 | $ | 0.39 | ||||||||||
| Noncontrolling interest adjustment (10) | - | 0.02 | (0.01 | ) | 0.03 | |||||||||||||
| Non-GAAP adjustments detailed above | 0.16 | 0.10 | 0.40 | 0.27 | ||||||||||||||
| Non-GAAP (diluted) | $ | 0.34 | $ | 0.32 | $ | 0.68 | $ | 0.69 | ||||||||||
| (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 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 October 31, 2014: Special charges consist of (i) $7,004 for EVE litigation costs, (ii) $1,377 of costs incurred for employee rebalances which include severance benefits, notice pay, and outplacement services, and (iii) $(6) in other adjustments. | |
| Three months ended October 31, 2013: Special charges consist of (i) $3,046 for EVE litigation costs, (ii) $1,133 of costs incurred for employee rebalances which include severance benefits, notice pay, and outplacement services, and (iii) $509 in other adjustments. | ||
| Nine months ended October 31, 2014: Special charges consist of (i) $15,193 for EVE litigation costs, (ii) $3,077 of costs incurred for employee rebalances which include severance benefits, notice pay, and outplacement services, and (iii) $1,139 in other adjustments. | ||
| Nine months ended October 31, 2013: Special charges consist of (i) $8,217 for EVE litigation costs, (ii) $3,843 of costs incurred for employee rebalances which include severance benefits, notice pay, and outplacement services, and (iii) $510 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. | |
