Mentor Graphics Reports Fiscal Second Quarter Results


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

	Three Months Ended July 31,						Six Months Ended July 31,
	2016			2015			2016			2015
GAAP net income (loss) attributable to Mentor Graphics shareholders	$	3,437		$	31,212		$	(9,999	)	$	21,327
Non-GAAP adjustments:
Equity plan-related compensation: (1)
Cost of revenues		781			608			1,492			1,316
Research and development		4,567			3,800			8,890			8,118
Marketing and selling		2,846			2,366			5,701			4,846
General and administration		3,732			3,812			6,344			6,584
Acquisition - related items:
Amortization of purchased assets
Cost of revenues (2)		1,787			1,794			3,572			3,652
Amortization of intangible assets (3)		1,520			2,234			3,074			4,453
Special charges (4)		1,445			2,186			4,436			39,163
Other income, net (5)		43			(14	)		45			(39	)
Interest expense (6)		1,754			1,633			3,477			3,237
Non-GAAP income tax effects (7)		(5,977	)		(6,018	)		(8,471	)		(15,300	)
Noncontrolling interest (8)		-			(200	)		-			(400	)
Total of non-GAAP adjustments		12,498			12,201			28,560			55,630
Non-GAAP net income attributable to Mentor Graphics shareholders	$	15,935		$	43,413		$	18,561		$	76,957

GAAP weighted average shares (diluted)		109,874			119,368			108,215			118,986
Non-GAAP adjustment		-			-			2,172			-
Non-GAAP weighted average shares (diluted)		109,874			119,368			110,387			118,986

Net income (loss) per share attributable to Mentor Graphics shareholders:
GAAP (diluted)	$	0.03		$	0.26		$	(0.09	)	$	0.18
Non-GAAP adjustments detailed above		0.12			0.10			0.26			0.47
Non-GAAP (diluted)	$	0.15		$	0.36		$	0.17		$	0.65

(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 five years. Other identified intangible assets include trade names, customer relationships, and backlog resulting from acquisition transactions.
(4)	Three months ended July 31, 2016: Special charges consist of (i) $556 for EVE litigation costs, (ii) $442 of costs incurred for employee rebalances which include severance benefits and notice pay, and (iii) $447 in other adjustments.
	Three months ended July 31, 2015: Special charges consist of (i) $944 for EVE litigation costs, (ii) $840 of costs incurred for employee rebalances which include severance benefits and notice pay, and (iii) $402 in other adjustments.
	Six months ended July 31, 2016: Special charges consist of (i) $2,530 of costs incurred for employee rebalances which include severance benefits and notice pay, (ii) $1,363 for EVE litigation costs, and (iii) $543 in other adjustments.
	Six months ended July 31, 2015: Special charges consist of (i) $25,435 for severance costs incurred for the voluntary early retirement program, (ii) $10,703 of costs incurred for employee rebalances which include severance benefits and notice pay, (iii) $2,519 for EVE litigation costs, and (iv) $506 in other adjustments.
(5)	Amount represents (income) loss 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.

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