Mentor Graphics Reports Fiscal First Quarter Results

MENTOR GRAPHICS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except earnings per share data)
         
 
Three Months Ended April 30,
  2014     2013  
Revenues:
System and software $ 148,229 $ 123,284
Service and support   103,922     103,231  
Total revenues   252,151     226,515  
Cost of revenues: (1)
System and software 26,971 8,899
Service and support 29,111 30,075
Amortization of purchased technology   1,361     1,207  
Total cost of revenues   57,443     40,181  
Gross profit   194,708     186,334  
Operating expenses:
Research and development (2) 84,451 79,717
Marketing and selling (3) 84,634 79,107
General and administration a (4) 17,682 16,337
Equity in earnings of Frontline (5) (1,379 ) (397 )
Amortization of intangible assets (6) 1,750 1,654

Special charges a (7)

  5,926     4,023  
Total operating expenses   193,064     180,441  
Operating income 1,644 5,893
Other income (expense), net (8) (258 ) (959 )
Interest expense (9)   (4,585 )   (4,785 )
Income (loss) before income tax (3,199 ) 149
Income tax expense (benefit) (10)   (174 )   568  
Net loss (3,025 ) (419 )
Less: Loss attributable to noncontrolling interest (11)   (474 )   (624 )
Net income (loss) attributable to Mentor Graphics
shareholders $ (2,551 ) $ 205  
Net income (loss) per share attributable to Mentor Graphics
shareholders:

Basic b

$ (0.02 ) $ 0.01  

Diluted b

$ (0.02 ) $ 0.01  
Weighted average number of shares outstanding:
Basic   114,935     112,711  
Diluted   114,935     115,751  
 
a Certain litigation costs have been reclassified from general and administration to special charges within operating expenses for the three months ended April 30, 2013. These reclassifications were made to conform to the current period presentation. These reclassifications had no impact on GAAP operating expense, operating income or net income for the three months ended April 30, 2013. Additional discussion regarding the reclassification was provided in our Annual Report on Form 10-K for the year ended January 31, 2014.
 
b We have increased the numerator of our basic and diluted earnings per share calculation for the adjustment to decrease the noncontrolling interest to the calculated redemption value, recorded directly to retained earnings, as follows:
 
$ 667   $ 468  
 
 
Refer to following page for a description of footnotes.
 

MENTOR GRAPHICS CORPORATION

FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)
 
 
Listed below are the items included in net income (loss) 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 April 30,
  2014     2013  
(1) Cost of revenues:
Equity plan-related compensation $ 535 $ 460
Amortization of purchased technology   1,361     1,207  
$ 1,896   $ 1,667  
 
(2) Research and development:
Equity plan-related compensation $ 3,241   $ 2,610  
 
(3) Marketing and selling:
Equity plan-related compensation $ 2,178   $ 1,882  
 
(4) General and administration:
Equity plan-related compensation $ 2,175   $ 1,614  
 
(5) Equity in earnings of Frontline:
Amortization of purchased technology and other identified intangible assets
$ 116   $ 737  
 
(6) Amortization of intangible assets:
Amortization of other identified intangible assets $ 1,750   $ 1,654  
 
(7) Special charges:
Rebalance, restructuring, and other costs $ 5,926   $ 4,023  
 
(8) Other income (expense), net:
Net income (loss) of unconsolidated entities $ 13   $ (51 )
 
(9) Interest expense:
Amortization of original issuance debt discount $ 1,494   $ 1,391  
 
(10) Income tax expense (benefit):
Non-GAAP income tax effects $ (2,825 ) $ (2,097 )
 
(11) Loss attributable to noncontrolling interest:
Amortization of intangible assets, equity-plan related compensation, and income tax effects $ (200 ) $ (393 )
 

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