Mentor Graphics Reports Fiscal Q4 Results


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


	Three Months Ended January 31,						Twelve Months Ended January 31,
		2017			2016			2017			2016
Revenues:
System and software	$	355,386		$	213,790		$	794,450		$	700,621
Service and support		122,582			123,477			488,017			480,367
Total revenues		477,968			337,267			1,282,467			1,180,988
Cost of revenues: (1)
System and software		10,875			11,898			48,250			48,330
Service and support		37,740			33,750			138,650			134,025
Amortization of purchased technology		1,928			1,807			7,328			7,303
Total cost of revenues		50,543			47,455			194,228			189,658
Gross profit		427,425			289,812			1,088,239			991,330
Operating expenses:
Research and development (2)		126,748			103,203			412,309			381,440
Marketing and selling (3)		109,309			88,487			369,125			351,344
General and administration (4)		28,584			17,555			85,361			73,853
Equity in earnings of Frontline		(1,123	)		(1,873	)		(3,434	)		(5,849	)
Amortization of intangible assets (5)		1,492			1,899			6,028			8,716
Special charges (6)		9,833			1,087			15,769			45,081
Total operating expenses		274,843			210,358			885,158			854,585
Operating income:		152,582			79,454			203,081			136,745
Other income, net (7)		454			763			2,249			1,612
Interest expense (8)		(5,503	)		(5,047	)		(20,474	)		(19,428	)
Income before income tax		147,533			75,170			184,856			118,929
Income tax expense (9)		24,430			14,990			29,990			24,753
Net income		123,103			60,180			154,866			94,176
Less: Loss attributable to noncontrolling interest (10)		-			(91	)		-			(2,101	)
Net income attributable to Mentor Graphics
shareholders	$	123,103		$	60,271		$	154,866		$	96,277
Net income per share attributable to Mentor Graphics
shareholders:
Basic ^a	$	1.12		$	0.52		$	1.42		$	0.83
Diluted ^a,b	$	1.05		$	0.51		$	1.37		$	0.81
Weighted average number of shares outstanding:
Basic		109,845			116,442			108,795			116,701
Diluted		119,171			118,066			114,322			119,263

^a We have increased 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:


										$	258

^b We have increased the numerator of our diluted earnings per share calculation by $2,074 for the three months ended January 31, 2017 and the twelve months ended January 31, 2017 for the dilutive effect of our convertible debt. Corresponding dilutive shares of 5,671 for the three months ended January 31, 2017 and 2,681 for the twelve months ended January 31, 2017 are included in the diluted weighted average number of shares outstanding.


Refer to following page for a description of footnotes.

MENTOR GRAPHICS CORPORATION
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 January 31,						Twelve Months Ended January 31,
		2017			2016			2017			2016
(1) Cost of revenues:
Equity plan-related compensation	$	808		$	626		$	3,085		$	2,607
Amortization of purchased technology		1,928			1,807			7,328			7,303
	$	2,736		$	2,433		$	10,413		$	9,910

(2) Research and development:
Equity plan-related compensation	$	4,607		$	3,994		$	18,205		$	16,207

(3) Marketing and selling:
Equity plan-related compensation	$	3,662		$	2,309		$	12,274		$	9,623

(4) General and administration:
Equity plan-related compensation	$	4,198		$	2,679		$	13,229		$	12,060

(5) Amortization of intangible assets:
Amortization of other identified intangible assets	$	1,492		$	1,899		$	6,028		$	8,716

(6) Special charges:
Rebalance, restructuring, certain litigation, and other costs	$	9,833		$	1,087		$	15,769		$	45,081

(7) Other income, net:
Net income (loss) of unconsolidated entities	$	(81	)	$	(39	)	$	-		$	(6	)

(8) Interest expense:
Amortization of original issuance debt discount	$	1,818		$	1,693		$	7,081		$	6,593

(9) Income tax expense:
Non-GAAP income tax effects	$	(8,971	)	$	(2,343	)	$	(20,902	)	$	(18,399	)

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

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