Mentor Graphics Reports Fiscal Third Quarter Results


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

			Three Months Ended October 31,						Nine Months Ended October 31,
				2015			2014			2015			2014
Revenues:
	System and software		$	168,699		$	178,115		$	486,831		$	475,824
	Service and support			121,817			114,568			356,890			329,243
		Total revenues		290,516			292,683			843,721			805,067
Cost of revenues: (1)
	System and software			9,759			11,821			36,432			54,977
	Service and support			35,286			33,670			100,275			93,684
	Amortization of purchased technology			1,844			2,050			5,496			5,252
		Total cost of revenues		46,889			47,541			142,203			153,913
		Gross profit		243,627			245,142			701,518			651,154
Operating expenses:
	Research and development (2)			99,669			96,269			278,237			268,262
	Marketing and selling (3)			93,165			89,875			262,857			256,814
	General and administration (4)			19,665			19,851			56,298			57,006
	Equity in earnings of Frontline (5)			(1,755	)		(1,184	)		(3,976	)		(4,625	)
	Amortization of intangible assets (6)			2,364			2,233			6,817			6,009
	Special charges (7)			4,831			8,375			43,994			19,409
		Total operating expenses		217,939			215,419			644,227			602,875
Operating income:				25,688			29,723			57,291			48,279
	Other income (expense), net (8)			320			(381	)		849			(743	)
	Interest expense (9)			(4,915	)		(4,934	)		(14,381	)		(14,326	)
	Income before income tax			21,093			24,408			43,759			33,210
	Income tax expense (10)			7,204			3,849			9,763			1,907
		Net income		13,889			20,559			33,996			31,303
		Less: Loss attributable to noncontrolling interest (11)		(790	)		(471	)		(2,010	)		(1,348	)
		Net income attributable to Mentor Graphics
		shareholders	$	14,679		$	21,030		$	36,006		$	32,651
	Net income per share attributable to Mentor Graphics
	shareholders:
		Basic ^a	$	0.13		$	0.18		$	0.31		$	0.30
		Diluted ^{a, b}	$	0.12		$	0.18		$	0.30		$	0.29
	Weighted average number of shares outstanding:
		Basic		117,759			114,405			116,787			114,399
		Diluted		120,141			116,715			121,963			116,928

		^a We have increased (decreased) the numerator of our basic and diluted earnings per share calculation for the adjustment of the noncontrolling interest with redemption feature to its calculated redemption value, recorded directly to retained earnings, as follows:

			$	133		$	(267	)	$	258		$	1,295

		^b We have increased the numerator of our diluted earnings per share calculation by $519 for the nine months ended October 31, 2015 for the dilutive effect of our convertible debt. Corresponding dilutive shares of 2,565 are included in the diluted weighted average number of shares outstanding for the same period.

Refer to following page for a description of footnotes.


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

Listed below are the items included in net income 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 October 31,						Nine Months Ended October 31,
				2015			2014			2015			2014
(1) Cost of revenues:
	Equity plan-related compensation		$	665		$	608		$	1,981		$	1,687
	Amortization of purchased technology			1,844			2,050			5,496			5,252
			$	2,509		$	2,658		$	7,477		$	6,939

(2) Research and development:
	Equity plan-related compensation		$	4,095		$	3,651		$	12,213		$	10,203

(3) Marketing and selling:
	Equity plan-related compensation		$	2,468		$	2,371		$	7,314		$	6,692

(4) General and administration:
	Equity plan-related compensation		$	2,797		$	2,472		$	9,381		$	7,809

(5) Equity in earnings of Frontline:
	Amortization of other identified intangible assets		$	-		$	-		$	-		$	116

(6) Amortization of intangible assets:
	Amortization of other identified intangible assets		$	2,364		$	2,233		$	6,817		$	6,009

(7) Special charges:
	Rebalance, restructuring, certain litigation, and other costs		$	4,831		$	8,375		$	43,994		$	19,409

(8) Other income (expense), net:
	Net loss of unconsolidated entities		$	72		$	78		$	33		$	146

(9) Interest expense:
	Amortization of original issuance debt discount		$	1,663		$	1,548		$	4,900		$	4,563

(10) Income tax expense:
	Non-GAAP income tax effects		$	(756	)	$	(4,276	)	$	(16,056	)	$	(14,259	)

(11) Loss attributable to noncontrolling interest:
	Amortization of intangible assets, equity-plan related compensation, and income tax effects		$	(238	)	$	(218	)	$	(638	)	$	(622	)

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