Mentor Graphics Reports Fiscal Q4 Results


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


			Three Months Ended January 31,						Twelve Months Ended January 31,
				2017			2016			2017			2016
GAAP net income attributable to Mentor Graphics shareholders			$	123,103		$	60,271		$	154,866		$	96,277
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues				808			626			3,085			2,607
Research and development				4,607			3,994			18,205			16,207
Marketing and selling				3,662			2,309			12,274			9,623
General and administration				4,198			2,679			13,229			12,060
Acquisition - related items:
Amortization of purchased assets
Cost of revenues (2)				1,928			1,807			7,328			7,303
Amortization of intangible assets (3)				1,492			1,899			6,028			8,716
Special charges (4)				9,833			1,087			15,769			45,081
Other income, net (5)				(81	)		(39	)		-			(6	)
Interest expense (6)				1,818			1,693			7,081			6,593
Non-GAAP income tax effects (7)				(8,971	)		(2,343	)		(20,902	)		(18,399	)
Noncontrolling interest (8)				-			-			-			(638	)
Total of non-GAAP adjustments				19,294			13,712			62,097			89,147
Non-GAAP net income attributable to Mentor Graphics shareholders			$	142,397		$	73,983		$	216,963		$	185,424

GAAP weighted average shares (diluted)				119,171			118,066			114,322			119,263
Non-GAAP adjustment				-			-			-			2,046
Non-GAAP weighted average shares (diluted)				119,171			118,066			114,322			121,309

Net income per share attributable to Mentor Graphics shareholders:
GAAP (diluted)			$	1.05		$	0.51		$	1.37		$	0.81
Convertible debt adjustment (9)				-			-			-			0.01
Non-GAAP adjustments detailed above				0.16			0.12			0.55			0.73
Non-GAAP (diluted) (9)			$	1.21		$	0.63		$	1.92		$	1.55



(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 generally amortized over two to five years.
(3	)	Other identified intangible assets are generally amortized to operating expense over two to six years. Other identified intangible assets include trade names, customer relationships, and backlog resulting from acquisition transactions.
(4	)	Three months ended January 31, 2017: Special charges consist of (i) $5,553 of costs incurred related to advisory fees and legal costs associated with the potential merger with Siemens Industry, Inc., (ii) $3,907 of costs incurred for employee rebalances which include severance benefits and notice pay, (iii) $121 for EVE litigation costs, and (iv) $252 in other adjustments.
		Three months ended January 31, 2016: Special charges consist of (i) $(692) of costs incurred for employee rebalances which include severance benefits and notice pay, (ii) $477 for EVE litigation costs, and (iii) $1,302 in other adjustments.
		Twelve months ended January 31, 2017: Special charges consist of (i) $6,791 of costs incurred for employee rebalances which include severance benefits and notice pay, (ii) $5,553 of costs incurred related to advisory fees and legal costs associated with the potential merger with Siemens Industry, Inc., (iii) $1,465 for EVE litigation costs, and (iv) $1,960 in other adjustments.
		Twelve months ended January 31, 2016: Special charges consist of (i) $25,232 for severance costs incurred for the voluntary early retirement program, (ii) $13,496 of costs incurred for employee rebalances which include severance benefits and notice pay, (iii) $4,118 for EVE litigation costs, and (iv) $2,235 in other adjustments.
(5	)	Amount represents (earnings) losses for an investment accounted for under the equity method of accounting.
(6	)	Amount represents the amortization of original issuance debt discount.
(7	)	Non-GAAP income tax expense adjustment reflects the application of our assumed normalized effective 19% tax rate, instead of our GAAP tax rate, to our non-GAAP pre-tax income.
(8	)	Adjustment for the impact of amortization of intangible assets, equity plan-related compensation, and income tax expense on noncontrolling interest.
(9	)	We have increased the numerator of our diluted earnings per share calculation by $2,074 for the three and twelve months ended January 31, 2017 and the twelve months ended January 31, 2016 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 already included in the GAAP diluted weighted average number of shares outstanding. Corresponding dilutive shares of 2,046 for the twelve months ended January 31, 2016 are presented in the reconciliation above.

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