Mentor Graphics Reports Fiscal First Quarter Results

MENTOR GRAPHICS CORPORATION
UNAUDITED RECONCILIATION OF NON-GAAP ADJUSTMENTS
(In thousands, except earnings per share data)


	Three Months Ended April 30,
	2012			2011
GAAP net income (loss) attributable to Mentor Graphics shareholders	$	28,182		$	(2,353	)
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues		319			267
Research and development		2,117			2,139
Marketing and selling		1,549			1,615
General and administration		1,162			1,659
Acquisition - related items:
Amortization of purchased assets
Cost of revenues (2)		2,179			3,357
Frontline purchased technology and intangible assets (3)		1,242			1,242
Amortization of intangible assets (4)		1,706			1,610
Special charges (5)		1,147			4,547
Other income (expense), net (6)		(13	)		-
Interest expense (7)		1,295			12,679
Non-GAAP income tax effects (8)		(6,191	)		(4,042	)
Noncontrolling interest (9)		(269	)		-
Total of non-GAAP adjustments		6,243			25,073
Non-GAAP net income attributable to Mentor Graphics shareholders	$	34,425		$	22,720

GAAP weighted average shares (diluted)		113,243			111,769
Non-GAAP adjustment		-			3,649
Non-GAAP weighted average shares (diluted)		113,243			115,418

Net income (loss) per share attributable to Mentor Graphics shareholders:
GAAP (diluted)	$	0.25		$	(0.02	)
Non-GAAP adjustments detailed above		0.05			0.22
Non-GAAP (diluted)	$	0.30		$	0.20

(1) Equity plan-related compensation expense.
(2) Amount represents amortization of purchased technology resulting from acquisitions. Purchased intangible assets are amortized over three 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) investment. Mentor Graphics acquired a 50% joint venture in Frontline as a result of the Valor Computerized Systems, Ltd. acquisition in the first quarter of fiscal 2011. The purchased technology will be amortized over three years, other identified intangible assets will be amortized over three to four years, and are reflected in the income statement in the equity in earnings of Frontline results. 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 other operating expense over one to five years. Other identified intangible assets include trade names, customer relationships, and backlog resulting from acquisition transactions.
(5) Three months ended April 30, 2012: Special charges consist of (i) $988 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services and (ii) $159 in other adjustments.
Three months ended April 30, 2011: Special charges consist of (i) $3,102 of costs related to consulting fees associated with our proxy contest, (ii) $1,147 of costs incurred for employee rebalances which includes severance benefits, notice pay, and outplacement services, and (iii) $298 in other adjustments.
(6) Three months ended April 30, 2012 : Income of $13 on an investment accounted for under the equity method of accounting.
(7) Three months ended April 30, 2012 : $1,295 in amortization of original issuance debt discount.
Three months ended April 30, 2011 : $1,175 in amortization of original issuance debt discount and bond premium, and $11,504 for the premium and other costs related to the retirement of the 6.25% convertible debentures and the term loan.
(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 expense and income tax expense on noncontrolling interest.

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