CADENCE DESIGN SYSTEMS, INC.
INDEX


		Page


PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets: ~~October~~July 3, ~~2009~~2010 and January ~~3, 2009~~2, 2010		1

	Condensed Consolidated Statements of Operations: Three and ~~Nine~~Six Months Ended ~~October~~July 3, ~~2009~~2010 and ~~September 27, 2008~~July 4, 2009		2

	Condensed Consolidated Statements of Cash Flows: ~~Three and Nine~~Six Months Ended ~~October~~July 3, ~~2009~~2010 and ~~September 27, 2008~~July 4, 2009		3

	Notes to Condensed Consolidated Financial Statements		4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2628

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		47

Item 4.	Controls and Procedures		4950

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		51

Item 1A.	Risk Factors		5352

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		6769

Item 3.	Defaults Upon Senior Securities		6769

Item 4.	~~Submission of Matters to a Vote of Security Holders~~Reserved		6769

Item 5.	Other Information		6769

Item 6.	Exhibits		6770

	Signatures		6872
EX-2.01
EX-4.01
EX-10.01
EX-10.02
EX-10.03
EX-10.04
EX-10.05
EX-10.06
EX-10.07
EX-10.08
EX-10.09
EX-10.10
EX-10.11
EX-10.12
EX-10.13
EX-31.01
EX-31.02
EX-32.01
EX-32.02
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION


~~Item 1.~~ Item 1. Financial Statements	~~Financial Statements~~

CADENCE DESIGN SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)
~~(Unaudited)~~

~~ASSETS~~

October 3,
January 3,

2009 2009
As Adjusted

(Note 2)

Current Assets:
Cash and cash equivalents $ 570,617 $ 568,255
Short-term investments 4,756 3,840
Receivables, net of allowances of $15,208 and $7,524, respectively 195,468 298,665
Inventories 25,626 28,465
Prepaid expenses and other 64,694 54,765

Total current assets 861,161 953,990
Property, plant and equipment, net of accumulated depreciation of $630,155 and $625,010, respectively 313,398 354,852
Acquired intangibles, net of accumulated amortization of $122,677 and $134,688, respectively 33,438 49,082
Installment contract receivables, net of allowances of $9,724 and $0, respectively 64,859 160,742
Other assets 141,361 161,187

Total Assets $ 1,414,217 $ 1,679,853

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 159,728 $ 261,099
Current portion of deferred revenue 245,528 303,111

Total current liabilities 405,256 564,210

Long-Term Liabilities:
Long-term portion of deferred revenue 108,941 130,354
Convertible notes 431,072 416,572
Other long-term liabilities 372,756 382,004

Total long-term liabilities 912,769 928,930

Contingencies (Notes 7 and 11)
Stockholders’ Equity:
Common stock and capital in excess of par value 1,664,029 1,659,302
Treasury stock, at cost (433,505 ) (695,152 )
Accumulated deficit (1,175,535 ) (814,679 )
Accumulated other comprehensive income 41,203 37,242

Total stockholders’ equity 96,192 186,713

Total Liabilities and Stockholders’ Equity $ 1,414,217 $ 1,679,853

(Unaudited)

ASSETS


	July 3,			January 2,
	2010			2010

Current Assets:
Cash and cash equivalents	$	475,603		$	569,115
Short-term investments		2,860			2,184
Receivables, net of allowances of $11,194 and $14,020, respectively		191,291			200,628
Inventories		23,874			24,165
Prepaid expenses and other		71,448			54,655

Total current assets		765,076			850,747
Property, plant and equipment, net of accumulated depreciation of $652,965 and $637,107, respectively		295,073			311,502
Goodwill		158,227			----
Acquired intangibles, net of accumulated amortization of $90,983 and $124,507, respectively		192,422			28,841
Installment contract receivables, net of allowances of $0 and $9,724, respectively		40,296			58,448
Other assets		244,661			161,049

Total Assets	$	1,695,755		$	1,410,587


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	153,982		$	150,207
Current portion of deferred revenue		290,105			247,691

Total current liabilities		444,087			397,898

Long-Term Liabilities:
Long-term portion of deferred revenue		92,477			92,298
Convertible notes		541,767			436,012
Other long-term liabilities		454,744			376,006

Total long-term liabilities		1,088,988			904,316

Contingencies (Notes 8 and 13)
Stockholders’ Equity:
Common stock and capital in excess of par value		1,708,610			1,674,396
Treasury stock, at cost		(370,700	)		(431,310	)
Accumulated deficit		(1,215,391	)		(1,177,983	)
Accumulated other comprehensive income		40,161			43,270

Total stockholders’ equity		162,680			108,373

Total Liabilities and Stockholders’ Equity	$	1,695,755		$	1,410,587

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CADENCE DESIGN SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)
(Unaudited)

Three Months Ended Nine Months Ended
October 3,
September 27,
October 3,
September 27,

2009 2008 2009 2008
As Adjusted
As Adjusted

(Note 2) (Note 2)

Revenue:
Product $ 96,932 $ 107,572 $ 286,295 $ 422,365
Services 26,669 32,873 83,684 98,763
Maintenance 92,521 92,043 262,374 290,151

Total revenue 216,122 232,488 632,353 811,279

Costs and Expenses:
Cost of product 6,405 11,829 23,828 39,241
Cost of services 21,139 25,677 69,602 78,083
Cost of maintenance 11,105 13,910 35,423 42,889
Marketing and sales 68,282 91,075 214,603 274,016
Research and development 88,049 112,486 273,394 357,929
General and administrative 28,732 32,937 101,311 105,608
Amortization of acquired intangibles 2,726 5,626 8,694 17,206
Restructuring and other charges (credits) (175 ) 48,120 17,833 47,765
Write-off of acquired in-process technology ---- ---- ---- 600

Total costs and expenses 226,263 341,660 744,688 963,337

Loss from operations (10,141 ) (109,172 ) (112,335 ) (152,058 )
Interest expense (7,278 ) (7,042 ) (21,592 ) (20,696 )
Other income (expense), net 2,917 (7,714 ) (5,765 ) (3,701 )

Loss before provision (benefit) for income taxes (14,502 ) (123,928 ) (139,692 ) (176,455 )
Provision (benefit) for income taxes (455 ) 46,728 11,969 46,155

Net loss (loss) $ (14,047 ) $ (170,656 ) $ (151,661 ) $ (222,610 )

Basic and diluted net loss per share $ (0.05 ) $ (0.67 ) $ (0.59 ) $ (0.87 )

Weighted average common shares outstanding – basic and diluted 259,193 252,915 256,792 256,119


	Three Months Ended						Six Months Ended
	July 3,			July 4,			July 3,			July 4,
	2010			2009			2010			2009

Revenue:
Product	$	117,066		$	101,840		$	219,832		$	189,363
Services		25,258			27,808			51,178			57,015
Maintenance		84,740			80,281			177,992			169,853

Total revenue		227,064			209,929			449,002			416,231

Costs and Expenses:
Cost of product		7,123			9,752			12,415			17,423
Cost of services		21,556			24,418			43,481			48,463
Cost of maintenance		10,481			11,857			21,879			24,318
Marketing and sales		71,513			71,431		��	146,275			146,321
Research and development		91,880			90,653			181,310			185,345
General and administrative		17,058			34,240			39,892			72,579
Amortization of acquired intangibles		2,551			2,828			5,242			5,968
Restructuring and other charges (credits)		(317	)		18,528			(1,391	)		18,008

Total costs and expenses		221,845			263,707			449,103			518,425

Income (loss) from operations		5,219			(53,778	)		(101	)		(102,194	)
Interest expense		(7,972	)		(7,266	)		(15,403	)		(14,314	)
Other income (expense), net		(3,100	)		(2,533	)		2,874			(8,682	)

Loss before provision (benefit) for income taxes		(5,853	)		(63,577	)		(12,630	)		(125,190	)
Provision (benefit) for income taxes		(54,460	)		10,780			(49,452	)		12,424

Net income (loss)	$	48,607		$	(74,357	)	$	36,822		$	(137,614	)

Basic net income (loss) per share	$	0.19		$	(0.29	)	$	0.14		$	(0.54	)

Diluted net income (loss) per share	$	0.18		$	(0.29	)	$	0.14		$	(0.54	)

Weighted average common shares outstanding – basic		262,163			256,883			262,380			255,592

Weighted average common shares outstanding – diluted		266,423			256,883			266,539			255,592

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CADENCE DESIGN SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
(Unaudited)

Nine Months Ended
October 3,
September 27,

2009 2008
As Adjusted

(Note 2)

Cash and Cash Equivalents at Beginning of Period $ 568,255 $ 1,062,920

Cash Flows from Operating Activities:
Net loss (151,661 ) (222,610 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 71,334 96,037
Amortization of debt discount and fees 15,557 13,323
Stock-based compensation 43,690 57,678
Equity in loss from investments, net 369 823
Loss on investments, net 4,307 11,440
(Gain) loss on sale and leaseback of land and buildings (122 ) 350
Write-down of investment securities 5,207 10,666
Write-off of acquired in-process technology ---- 600
Tax benefit of call options ---- 2,994
Impairment of property, plant and equipment 6,603 2,004
Deferred income taxes (6,520 ) (11,094 )
Proceeds from the sale of receivables, net 5,827 48,124
Provisions for losses on trade and installment contract receivables and sales returns 18,668 462
Other non-cash items (3,962 ) (3,119 )
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables 56,444 21,489
Installment contract receivables 122,302 46,198
Inventories 2,846 5,486
Prepaid expenses and other (4,041 ) (3,421 )
Other assets 11,809 (1,849 )
Accounts payable and accrued liabilities (79,395 ) (41,582 )
Deferred revenue (83,760 ) (32,243 )
Other long-term liabilities (10,773 ) 35,972

Net cash provided by operating activities 24,729 37,728

Cash Flows from Investing Activities:
Proceeds from the sale ofavailable-for-sale investments
139 53,783
Purchases ofavailable-for-sale investments
---- (62,447 )
Proceeds from the sale of long-term investments ---- 3,250
Purchases of property, plant and equipment (30,504 ) (81,112 )
Purchases of software licenses (774 ) (1,199 )
Investment in venture capital partnerships and equity investments (2,300 ) (4,053 )
Cash paid in business combinations and asset acquisitions, net of cash acquired, and acquisition of intangibles (14,126 ) (20,621 )

Net cash used for investing activities (47,565 ) (112,399 )

Cash Flows from Financing Activities:
Proceeds from receivable sale financing ---- 17,970
Principal payments on receivable sale financing (2,467 ) ----
Payment of convertible notes due 2023 ---- (230,207 )
Tax benefit from employee stock transactions ---- 427
Proceeds from issuance of common stock 27,862 48,116
Stock received for payment of employee taxes on vesting of restricted stock (4,055 ) (3,693 )
Purchases of treasury stock ---- (273,950 )

Net cash provided by (used for) financing activities 21,340 (441,337 )

Effect of exchange rate changes on cash and cash equivalents 3,858 4,841

Increase (decrease) in cash and cash equivalents 2,362 (511,167 )

Cash and Cash Equivalents at End of Period $ 570,617 $ 551,753


	Six Months Ended
	July 3,			July 4,
	2010			2009

Cash and Cash Equivalents at Beginning of Period	$	569,115		$	568,255

Cash Flows from Operating Activities:
Net income (loss)		36,822			(137,614	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		41,333			50,023
Amortization of debt discount and fees		11,301			10,244
Loss on extinguishment of debt		5,321			----
Stock-based compensation		20,807			29,235
Loss from equity method investments		73			231
(Gain) loss on investments, net		(6,935	)		7,991
Write-down of investment securities		1,500			4,606
Impairment of property, plant and equipment		427			3,695
Deferred income taxes		(69,266	)		(5,044	)
Proceeds from the sale of receivables, net		----			5,827
Provisions (recoveries) for losses (gains) on trade and installment contract receivables		(12,978	)		18,361
Other non-cash items		3,340			(9,038	)
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables		(25,384	)		43,134
Installment contract receivables		70,479			89,957
Inventories		(10,923	)		5,847
Prepaid expenses and other		(13,778	)		(125	)
Other assets		3,750			6,769
Accounts payable and accrued liabilities		6,026			(66,247	)
Deferred revenue		31,882			(58,364	)
Other long-term liabilities		1,904			3,518

Net cash provided by operating activities		95,701			3,006

Cash Flows from Investing Activities:
Proceeds from the sale of long-term investments		10,133			----
Purchases of property, plant and equipment		(18,765	)		(22,282	)
Purchases of software licenses		(2,517	)		(394	)
Investment in venture capital partnerships and equity investments		(500	)		(1,550	)
Cash paid in business combinations and asset acquisitions, net of cash acquired		(253,951	)		(4,896	)

Net cash used for investing activities		(265,600	)		(29,122	)

Cash Flows from Financing Activities:
Principal payments on receivable sale financing		(1,719	)		(796	)
Proceeds from issuance of 2015 Notes		350,000			----
Payment of Convertible Senior Notes		(187,150	)		----
Payment of 2015 Notes issuance costs		(9,800	)		----
Purchase of 2015 Notes Hedges		(76,635	)		----
Proceeds from termination of Convertible Senior Notes Hedges		280			----
Proceeds from sale of 2015 Warrants		37,450			----
Tax benefit from employee stock transactions		59			----
Proceeds from issuance of common stock		8,119			19,601
Stock received for payment of employee taxes on vesting of restricted stock		(4,114	)		(2,439	)
Purchases of treasury stock		(39,997	)		----

Net cash provided by financing activities		76,493			16,366

Effect of exchange rate changes on cash and cash equivalents		(106	)		(1,580	)

Decrease in cash and cash equivalents		(93,512	)		(11,330	)

Cash and Cash Equivalents at End of Period	$	475,603		$	556,925

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~(Unaudited)~~

(Unaudited)


~~NOTE 1.~~ NOTE 1. BASIS OF PRESENTATION	~~BASIS OF PRESENTATION~~

The Condensed Consolidated Financial Statements included in this Quarterly Report onForm 10-Q have been prepared by Cadence Design Systems, Inc., or Cadence, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, Cadence believes that the disclosures contained in this Quarterly Report onForm 10-Q comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for a Quarterly Report onForm 10-Q and are adequate to make the information presented not misleading. These Condensed Consolidated Financial Statements are meant to be, and should be, read in conjunction with the Consolidated Financial Statements and the Notes thereto included in Cadence’s Annual Report onForm 10-K for the fiscal year ended January ~~3, 2009.~~

2, 2010.

The unaudited Condensed Consolidated Financial Statements included in this Quarterly Report onForm 10-Q reflect all adjustments (which include only normal, recurring adjustments and those items discussed in these Notes) that are, in the opinion of management, necessary to state fairly the results, financial position and cash flows for the periods and dates presented. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year.

Preparation of the Condensed Consolidated Financial Statements in conformity with ~~Generally Accepted Accounting Principles, or GAAP,~~generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

~~Recently Adopted Accounting Pronouncements~~

Cadence adopted Statement of Financial Accounting Standard, or SFAS, No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162” during the three months ended October 3, 2009. SFAS No. 168 replaces the GAAP hierarchy with two levels: authoritative and nonauthoritative. The FASB Accounting Standards Codification, or Codification, became the single source of authoritative nongovernmental GAAP, except for rules and interpretive releases of the SEC. All nongrandfathered, non-SEC accounting literature not included in the Codification is superseded and deemed nonauthoritative. Cadence has updated the Notes below to reflect the Codification and eliminated all prior references to nongrandfathered, and now nonauthoritative, accounting literature.

Cadence adopted new ~~accounting principles for its 1.375% Convertible Senior Notes Due 2011, or~~disclosure requirements related to the ~~2011 Notes, and 1.500% Convertible Senior Notes Due 2013, or the 2013 Notes, and collectively with the 2011 Notes, the Convertible Senior Notes,~~fair value of Cadence’s financial instruments on the first day of fiscal ~~2009. See Note 2 for additional information and disclosures regarding this adoption.~~

~~Cadence adopted new accounting principles for all non-financial assets and non-financial liabilities measured at fair value on a non-recurring basis on the first day of fiscal 2009.~~2010. This adoption did not have a material impact on Cadence’s consolidated financial position, results of operations or cash flows. See Note 45 for ~~additional disclosures as a result of this adoption.~~these disclosures.

~~During the three months ended July 4, 2009,~~ Cadence initially adopted new accounting principles that modified the definition of what qualifies as a subsequent event — those events or transactions that occur following the balance sheet date, but before the financial statements are issued, or are available to be issued — and requires companies to disclose the date through which it has evaluated subsequent events ~~and the basis for determining that date. Cadence evaluated subsequent events~~ through ~~October 30, 2009,~~ the date ~~on which this Quarterly Report onForm 10-Q~~ ~~was filed with~~of issuance of the ~~SEC.~~

~~Cadence initially adopted the following three related new accounting principles during the three months ended July 4, 2009:~~


	•	~~The modifications to the measurement ofother-than-temporary~~ ~~impairments for debt securities and to the presentation and frequency of related disclosures;~~
	•	~~The requirement for disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements; and~~
	•	~~Additional guidance for estimating fair value when the volume and level of activity for an asset or a liability have significantly decreased and identifying transactions that are not orderly.~~

~~The adoption of these three updates to GAAP did not have a material impact on Cadence’s~~unaudited condensed consolidated financial ~~position, results of operations or cash flows.~~statements.

NOTE 2. CONVERTIBLE NOTES

2.625% Cash Convertible Senior Notes Due 2015

In June 2010, Cadence issued $350.0 million principal amount of its 2.625% Cash Convertible Senior Notes Due 2015, or the 2015 Notes. The 2015 Notes have a stated interest rate of 2.625%, mature on June 1, 2015 and may be settled only in cash. The indenture for the 2015 Notes does not contain any financial covenants. Contractual interest payable on the 2015 Notes began accruing in June 2010 and is payable semi-annually each December 1st and June 1st. The initial purchasers’ transaction fees and expenses totaling $10.6 million were capitalized as deferred financing costs and will be amortized over the term of the 2015 Notes using the effective interest method. An aggregate of $187.2 million of the net proceeds was used to purchase $100.0 million principal amount of Cadence’s 1.375% Convertible Senior Notes Due December 15, 2011, or the 2011 Notes, and $100.0 million principal amount of its 1.500%

Convertible Senior Notes Due December 15, 2013, or the 2013 Notes, and collectively with the 2011 Notes, the Convertible Senior Notes. Cadence also used $40.0 million of the net proceeds to repurchase approximately 6.5 million shares of Cadence common stock.

Prior to March 1, 2015, holders may convert their 2015 Notes into cash upon the occurrence of one of the following events:

	•	The price of Cadence’s common stock reaches $9.81 during certain periods of time specified in the 2015 Notes;
~~NOTE 2.~~
	~~CONVERTIBLE NOTES~~•	Specified corporate transactions occur; or

	•	The trading price of the 2015 Notes falls below 98% of the product of (i) the last reported sale price of Cadence’s common stock and (ii) the conversion rate on that date.

From March 1, 2015 and until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2015 Notes into cash at any time, regardless of the foregoing circumstances. Cadence may not redeem the 2015 Notes prior to maturity.

The initial cash conversion rate for the 2015 Notes is 132.5205 shares of Cadence common stock per $1,000 principal amount of 2015 Notes, equivalent to a cash conversion price of approximately $7.55 per share of Cadence common stock, with the amount due on conversion payable in cash. Upon cash conversion, a holder will receive the sum of the daily settlement amounts, calculated on a proportionate basis for each day, during a specified observation period following the cash conversion date.

If a fundamental change occurs prior to maturity and Cadence’s stock price is greater than $6.16 per share at that time, the cash conversion rate will increase by an additional amount of up to 29.8171 shares of Cadence’s common stock per $1,000 principal amount of 2015 Notes, which amount would be paid entirely in cash to each holder that elects to convert its 2015 Notes at that time. A fundamental change is any transaction or event (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) in which more than 50% of Cadence’s common stock is exchanged for, converted into, acquired for or constitutes solely the right to receive, consideration. No fundamental change will have occurred if at least 90% of the consideration received consists of shares of common stock, or depositary receipts representing such shares, that are:

	•		Listed on, or immediately after the transaction or event will be listed on, a United States national securities exchange; or

	•		Approved, or immediately after the transaction or event will be approved, for quotation on a United States system of automated dissemination of quotations of securities prices similar to the NASDAQ National Market prior to its designation as a national securities exchange.

As of July 3, 2010, none of the conditions allowing the holders of the 2015 Notes to convert the 2015 Notes into cash had been met.

The cash conversion feature of the 2015 Notes, or the 2015 Notes Embedded Conversion Derivative, requires bifurcation from the 2015 Notes and the 2015 Notes Embedded Conversion Derivative is accounted for as a derivative liability, which is included in Other long-term liabilities in Cadence’s Condensed Consolidated Balance Sheet. The fair value of the 2015 Notes Embedded Conversion Derivative at the time of issuance of the 2015 Notes was $76.6 million, and was recorded as the original debt discount for purposes of accounting for the debt component of the 2015 Notes. This discount will be recognized as interest expense using the effective interest method over the term of the 2015 Notes. The estimated fair value of the 2015 Notes Embedded Conversion Derivative was $74.3 million as of July 3, 2010.

Concurrently with the issuance of the 2015 Notes, Cadence entered into hedge transactions, or the 2015 Notes Hedges, with various parties whereby Cadence has the option to receive the cash equivalent of approximately 46.4 million shares of Cadence’s common stock at a price of approximately $7.55 per share, subject to certain conversion rate adjustments in the 2015 Notes. These options expire on June 1, 2015 and must be settled in cash. The aggregate cost of the 2015 Notes Hedges was $76.6 million. The 2015 Notes Hedges are accounted for as derivative assets, and are included in Other assets in Cadence’s Condensed Consolidated Balance Sheet. The estimated fair value of the 2015 Notes Hedges was $74.3 million as of July 3, 2010.

The 2015 Notes Embedded Conversion Derivative and the 2015 Notes Hedges are adjusted to fair value each reporting period and unrealized gains and losses are reflected in Cadence’s Condensed Consolidated Statements of Operations. As the fair values of the 2015 Notes Embedded Conversion Derivative and the 2015 Notes Hedges are similar, there was no impact to Cadence’s Condensed Consolidated Statements of Operations relating to these adjustments to fair value during the three months ended July 3, 2010.

In separate transactions, Cadence also sold warrants, or the 2015 Warrants, to various parties for the purchase of up to approximately 46.4 million shares of Cadence’s common stock at a price of $10.78 per share in a private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended, or the Securities Act. The warrants expire on various dates from September 2015 through December 2015 and must be settled in net shares. Cadence received $37.5 million in cash proceeds from the sale of the 2015 Warrants, which has been recorded as an increase in Stockholders’ equity. Changes in the fair value of these warrants will not be recognized in Cadence’s Condensed Consolidated Financial Statements as long as the instruments remain classified as equity. The warrants are included in diluted earnings per share to the extent the impact is dilutive.

The principal amount, unamortized debt discount and net carrying amount of the liability component of the 2015 Notes as of July 3, 2010 was as follows:


	As of
	July 3,
	2010
	(In thousands)

Principal amount of 2015 Notes	$	350,000
Unamortized debt discount of 2015 Notes		(76,043	)

Net Liability of 2015 Notes	$	273,957

The effective interest rate, contractual interest expense, amortization of debt discount and capitalized interest associated with the amortization of debt discount for the 2015 Notes for the three and six months ended July 3, 2010 and July 4, 2009 were as follows:


	Three and
	Six Months Ended
	July 3,			July 4,
	2010			2009
	(In thousands, except
	percentages)

Effective interest rate		8.1%			N/A
Contractual interest expense	$	427		$	----
Amortization of debt discount	$	592		$	----
Capitalized interest associated with the amortization of debt discount	$	(6	)	$	----

As of July 3, 2010, the if-converted value of the 2015 Notes does not exceed the principal amount of the 2015 Notes and the total fair value of the 2015 Notes was $340.8 million.

1.375% Convertible Senior Notes Due December 15, 2011 and 1.500% Convertible Senior Notes Due December 15, 2013

In December 2006, Cadence issued $250.0 million principal amount of ~~the~~its 2011 Notes and $250.0 million principal amount of ~~the~~its 2013 Notes. The indentures for the Convertible Senior Notes do not contain any financial covenants. ~~Cadence received net proceeds of approximately $487.2 million after issuance costs of approximately $12.8 million, including $12.0 million of underwriting discounts.~~ Contractual interest payable on the Convertible Senior Notes began accruing in December 2006 and is payable semi-annually each December 15th and June 15th.

In June 2010, Cadence repurchased $100.0 million principal amount of its 2011 Notes and $100.0 million principal amount of its 2013 Notes, resulting in a remaining principal balance of $150.0 million for the 2011 Notes and $150.0 million for the 2013 Notes.

Holders may convert their Convertible Senior Notes prior to maturity upon the occurrence of one of the following events:


	•		The price of Cadence’s common stock reaches $27.50 during certain periods of time specified in the Convertible Senior Notes;

	•		Specified corporate transactions occur; or

	•		The trading price of the Convertible Senior Notes falls below 98% of the product of (i) the last reported sale price of Cadence’s common stock and (ii) the conversion rate on that date.

From November 2, 2011, in the case of the 2011 Notes, and November 1, 2013, in the case of the 2013 Notes, and until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their Convertible Senior Notes at any time, regardless of the foregoing circumstances. Cadence may not redeem the Convertible Senior Notes prior to maturity.

The initial conversion rate for the Convertible Senior Notes is 47.2813 shares of Cadence common stock per $1,000 principal amount of Convertible Senior Notes, equivalent to a conversion price of approximately $21.15 per share of Cadence common stock. Upon conversion, a holder will receive the sum of the daily settlement amounts, calculated on a proportionate basis for each day, during a specified observation period following the conversion date. The daily settlement amount during each date of the observation period consists of:


	•		Cash up to the principal amount of the note; and

	•		Cadence’s common stock to the extent that the conversion value exceeds the amount of cash paid upon conversion of the Convertible Senior Notes.

~~In addition, if~~If a fundamental change occurs prior to maturity and ~~provided that~~ Cadence’s stock price is greater than $18.00 per share at that time, the conversion rate will increase by an additional amount of up to $8.27 per share, ~~for a~~which amount would be paid entirely in cash to each holder that elects to convert its Convertible Senior Notes ~~in connection with such fundamental change, which amount will be paid entirely in cash.~~at that time. A fundamental change is any transaction or event (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) in which more than 50% of Cadence’s common stock is exchanged for, converted into, acquired for or constitutes

solely the right to receive, consideration. No fundamental change will have occurred if at least 90% of the consideration received consists of shares of common stock, or depositary receipts representing such shares, that are:


	•		Listed on, or immediately after the transaction or event will be listed on, a United States national securities exchange; or

	•		Approved, or immediately after the transaction or event will be approved, for quotation on a United States system of automated dissemination of quotations of securities prices similar to the NASDAQ National Market prior to its designation as a national securities exchange.

As of ~~October~~July 3, ~~2009,~~2010, none of the conditions allowing the holders of the Convertible Senior Notes to convert had been met.

In connection with the issuance of the 2015 Notes, an aggregate of $187.2 million of the net proceeds were used to purchase in the open market $100.0 million principal amount of the 2011 Notes and $100.0 million principal amount of the 2013 Notes. At settlement, the fair value of the liability component immediately prior to its extinguishment is measured first and the difference between the fair value of the aggregate consideration remitted to its holders and the fair value of the liability component immediately prior to its extinguishment is attributed to the reacquisition of the equity component. The components of the repurchase and related loss on early extinguishment of debt are as follows:


	2011 Notes			2013 Notes			Total
	(In thousands)

Principal amount repurchased	$	100,000		$	100,000		$	200,000

Amount allocated to:
Extinguishment of liability component	$	95,865		$	85,751		$	181,616
Extinguishment of equity component		2,285			3,249			5,534

Total cash paid for repurchase	$	98,150		$	89,000		$	187,150

Principal amount repurchased	$	100,000		$	100,000		$	200,000
Unamortized debt discount		(6,958	)		(15,036	)		(21,994	)
Extinguishment of liability component		(95,865	)		(85,751	)		(181,616	)
Related debt issuance costs		(676	)		(1,035	)		(1,711	)

Loss on early extinguishment of debt	$	(3,499	)	$	(1,822	)	$	(5,321	)

Concurrently with the issuance of the Convertible Senior Notes, Cadence entered into hedge transactions, or the Convertible Senior Notes Hedges, with various parties whereby Cadence ~~has~~had the option to purchase up to 23.6 million shares of Cadence’s common stock at a price of $21.15 per share, subject to adjustment. The aggregate cost of the Convertible Senior Notes Hedges was $119.8 million and has been recorded as a reduction to Stockholders’ equity. In connection with the purchase of a portion of the Convertible Senior Notes in June 2010, Cadence also sold a portion of the Convertible Senior Notes Hedges representing options to purchase approximately 9.5 million shares of Cadence’s common stock and received proceeds of $0.4 million. The estimated fair value of the remaining Convertible Senior Notes Hedges was $1.1 million as of July 3, 2010. These options expire on December 15, 2011, in the case of the 2011 Notes,

and December 15, 2013, in the case of the 2013 Notes, and must be settled in net shares. The aggregate cost of these hedge transactions was $119.8 million and has been recorded as a reduction to Stockholders’ equity. The estimated fair value of the hedges acquired in connection with the issuance of the Convertible Senior Notes was $9.3 million as of October 3, 2009. Subsequent changes in the fair value of ~~these hedges~~the Convertible Senior Notes Hedges will not be recognized in Cadence’s Condensed Consolidated Financial Statements as long as the instruments remain classified as equity.

In separate transactions, Cadence also sold warrants, or the Convertible Senior Note Warrants, to various parties for the purchase of up to 23.6 million shares of Cadence’s common stock at a price of $31.50 per share in a private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended, or the Securities Act. Cadence received $39.4 million in cash proceeds from the sale of the Convertible Senior Note Warrants, which has been recorded as an increase in Stockholders’ equity. In connection with the purchase of a portion of the Convertible Senior Notes in June 2010, Cadence also purchased a portion of the Convertible Senior Note Warrants, reducing the number of shares of Cadence common stock available for purchase by 9.5 million shares at a cost of $0.1 million. The ~~warrants~~Convertible Senior Note Warrants expire on various dates from February 2012 through April 2012 in the case of the 2011 Notes, and February 2014 through April 2014 in the case of the 2013 Notes, and must be settled in net shares. Cadence received $39.4 million in cash proceeds from the sale of these warrants, which has been recorded as an increase in Stockholders’ equity. The estimated fair value of the warrants sold in connection with the issuance of the Convertible Senior Notes was $4.9 million as of October 3, 2009. Subsequent changesChanges in the fair value of ~~these warrants~~the Convertible Senior Note Warrants will not be recognized in Cadence’s Condensed Consolidated Financial Statements as long as the instruments remain classified as equity. The remaining warrants ~~will be~~are included in diluted earnings per share to the extent the impact is ~~considered~~ dilutive.

~~Zero Coupon Zero Yield Senior Convertible Notes Due 2023~~

In August 2003, Cadence issued $420.0 million principal amount of Zero Coupon Zero Yield Senior Convertible Notes Due 2023, or the 2023 Notes. Cadence received net proceeds of $406.4 million after issuance costs of $13.6 million that were recorded in Other long-term assets and were amortized as interest expense using the straight-line method over five years. In connection with the issuance of the Convertible Senior Notes in December 2006, Cadence repurchased $189.6 million principal amount of the 2023 Notes, and in August 2008, Cadence repurchased $230.2 million principal amount of the 2023 Notes upon the election of the holders of the 2023 Notes and pursuant to the terms of the 2023 Notes, for a total consideration of $230.8 million, reducing the balance of the outstanding 2023 Notes to $0.2 million. As of October 3, 2009, the total fair value of the outstanding 2023 Notes was $0.1 million.

~~Adoption of New Accounting Principles~~

Cadence adopted new accounting principles for its Convertible Senior Notes on the first day of fiscal 2009. These new accounting principles require issuers of certain types of convertible notes to separately account for the liability and equity components of such convertible notes in a manner that reflects the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. These new accounting principles apply to the Convertible Senior Notes, but they do not apply to the 2023 Notes. Prior to this adoption, the liability of the Convertible Senior Notes was carried at its principal value and only the contractual interest expense was recognized in Cadence’s Condensed Consolidated Statements of Operations. Because these new accounting principles require retrospective adoption, Cadence was required to adjust all periods for which the Convertible Senior Notes were outstanding before the date of adoption.

Upon adoption of these new accounting principles and effective as of the issuance date of the Convertible Senior Notes, Cadence recorded $120.1 million of the principal amount to equity, representing a debt discount for the difference between Cadence’s estimated nonconvertible debt borrowing rate of 6.3% at the time of issuance and the coupon rate of the Convertible Senior Notes. This debt discount is amortized as interest expense over the contractual terms of the 2011 Notes and the 2013 Notes, respectively, using the effective interest method. In addition, Cadence allocated $3.1 million of the issuance costs to the equity component of the Convertible Senior Notes and the remaining $9.7 million of the issuance costs to the debt component of the Convertible Senior Notes. The issuance costs were allocated pro rata based on their initial carrying amounts. The $9.7 million of debt issuance costs allocated to the debt component is amortized as interest expense over the respective contractual terms of the Convertible Senior Notes using the effective interest method.

The carrying amount of the equity component of the Convertible Senior Notes and the principal amount, unamortized debt discount and net carrying amount of the liability component of the Convertible Senior Notes as of ~~October~~July 3, ~~2009~~2010 and January ~~3, 2009~~2, 2010 were as follows:

As of
October 3,
January 3,

2009 2009
As Adjusted
(In thousands)

Equity component of Convertible Senior Notes $ 116,993 $ 116,993

Principal amount of Convertible Senior Notes $ 500,000 $ 500,000
Unamortized discount of Convertible Senior Notes (69,106 ) (83,606 )

Liability component of Convertible Senior Notes $ 430,894 $ 416,394


	As of
	July 3,			January 2,
	2010			2010
	(In thousands)

Equity component of Convertible Senior Notes	$	111,459		$	116,993

Principal amount of Convertible Senior Notes	$	300,000		$	500,000
Unamortized debt discount of Convertible Senior Notes		(32,371	)		(64,166	)

Liability component of Convertible Senior Notes	$	267,629		$	435,834

The effective interest rate, contractual interest expense, amortization of debt discount and capitalized interest associated with the amortization of debt discount for the Convertible Senior Notes for the three and ~~nine~~six months ended ~~October~~July 3, ~~2009~~2010 and ~~June 28, 2008~~July 4, 2009 were as follows:

Three Months Ended Nine Months Ended
October 3,
September 27,
October 3,
September 27,

2009 2008 2009 2008
As Adjusted As Adjusted
(In thousands, except percentages)

Effective interest rate 6.3% 6.3% 6.3% 6.3%
Contractual interest expense $ 1,791 $ 1,791 $ 5,373 $ 5,373
Amortization of debt discount $ 4,902 $ 4,605 $ 14,503 $ 13,553
Capitalized interest associated with the amortization of debt discount $ (65 ) $ (581 ) $ (269 ) $ (1,369 )


	Three Months Ended						Six Months Ended
	July 3,			July 4,			July 3,			July 4,
	2010			2009			2010			2009
	(In thousands, except percentages)

Effective interest rate		6.3%			6.3%			6.3%			6.3%
Contractual interest expense	$	1,649		$	1,791		$	3,440		$	3,582
Amortization of debt discount	$	4,706		$	4,814		$	9,801		$	9,601
Capitalized interest associated with the amortization of debt discount	$	(47	)	$	(50	)	$	(97	)	$	(210	)

As of ~~October~~July 3, ~~2009,~~2010, the if-converted value of the Convertible Senior Notes does not exceed the principal amount of the Convertible Senior Notes and the total fair value of the Convertible Senior Notes, including the equity component, was ~~$425.7~~$281.5 million.

Cadence’s retrospective adoption of the new accounting principles for its Convertible Senior Notes resulted in the following adjustments to Cadence’s Condensed Consolidated Balance Sheet as of January 3, 2009:

As of January 3, 2009
As Previously
As

Reported Adjustments Adjusted
(In thousands)

Current assets $ 954,548 $ (558 )(A) $ 953,990
Property, plant and equipment, net 351,961 2,891 (B) 354,852
Acquired intangibles, net 49,082 ---- 49,082
Installment contract receivables 160,742 ---- 160,742
Other assets 162,381 (1,194 )(C) 161,187

Total Assets $ 1,678,714 $ 1,139 $ 1,679,853

Current liabilities $ 564,210 $ ---- $ 564,210
Long-Term Liabilities:
Long-term portion of deferred revenue 130,354 ---- 130,354
Convertible notes 500,178 (83,606 )(D) 416,572
Other long-term liabilities 382,004 ---- 382,004

Total long-term liabilities 1,012,536 (83,606 ) 928,930

Stockholders’ Equity:
Common stock and capital in excess of par value 1,562,079 97,223 (E) 1,659,302
Treasury stock, at cost (695,152 ) ---- (695,152 )
Accumulated deficit (802,201 ) (12,478 )(F) (814,679 )
Accumulated other comprehensive income 37,242 ---- 37,242

Total stockholders’ equity 101,968 84,745 186,713

Total Liabilities and Stockholders’ Equity $ 1,678,714 $ 1,139 $ 1,679,853

Three Months Ended September 27, 2008
As Previously
As

Reported Adjustments Adjusted
(In thousands, except per share amounts)

Revenue $ 232,488 $ ---- $ 232,488
Costs and expenses 341,660 ---- 341,660

Loss from operations (109,172 ) ---- (109,172 )

Interest expense (3,180 ) (3,862 )(G) (7,042 )
Other income (expense), net (7,714 ) ---- (7,714 )

Loss before provision for income taxes (120,066 ) (3,862 ) (123,928 )
Provision for income taxes 49,000 (2,272 )(H) 46,728

Net loss $ (169,066 ) $ (1,590 ) $ (170,656 )

Basic net loss per share $ (0.67 ) $ (0.67 )

Diluted net loss per share $ (0.67 ) $ (0.67 )

Nine Months Ended September 27, 2008
As Previously
As

Reported Adjustments Adjusted
(In thousands, except per share amounts)

Revenue $ 811,279 $ ---- $ 811,279
Costs and expenses 963,337 ---- 963,337

Loss from operations (152,058 ) ---- (152,058 )

Interest expense (9,055 ) (11,641 )(G) (20,696 )
Other income (expense), net (3,701 ) ---- (3,701 )

Loss before provision (benefit) for income taxes (164,814 ) (11,641 ) (176,455 )
Provision for income taxes 50,269 (4,114 )(H) 46,155

Net loss $ (215,083 ) $ (7,527 ) $ (222,610 )

Basic net loss per share $ (0.84 ) $ (0.87 )

Diluted net loss per share $ (0.84 ) $ (0.87 )


~~(A)~~		~~This amount represents the cumulative adjustments to the current portion of debt issuance costs associated with the Convertible Senior Notes.~~

~~(B)~~		~~This amount represents the cumulative capitalized interest related to the amortization of debt discount.~~

~~(C)~~		This amount represents the cumulative adjustments to the long-term portion of debt issuance costs associated with the Convertible Senior Notes and the cumulative impact on the net deferred tax assets related to the amortization of debt discount.

~~(D)~~		~~This amount represents the remaining unamortized debt discount on the Convertible Senior Notes as of January 3, 2009.~~

~~(E)~~		~~This amount represents the equity component of the Convertible Senior Notes, net of tax adjustments to the tax benefit of call options, due to the amortization of debt discount.~~

~~(F)~~		~~This amount represents the cumulative Net loss impact of the amortization of debt discount and the associated tax adjustments since inception of the Convertible Senior Notes.~~

~~(G)~~		~~This amount represents the amortization of debt discount, net of the decrease in interest expense associated with the debt issuance costs.~~

~~(H)~~		~~This amount represents the tax adjustments associated with the increased expense during the period.~~

Cadence’s retrospective adoption does not affect the balance of Cash and cash equivalents and as a result did not change its Net cash flows from operating, investing or financing activities in its Condensed Consolidated Statement of Cash Flows for the nine months ended September 27, 2008.

~~Cadence’s retrospective adoption~~NOTE 3. ACQUISITIONS

For each of the ~~new accounting principles for~~acquisitions described below, the results of operations and the estimated fair value of the assets acquired and liabilities assumed have been included in Cadence’s Condensed Consolidated Financial Statements from the date of the acquisition.

Denali Software, Inc.

In June 2010, Cadence acquired Denali Software, Inc., or Denali. Denali was a privately-held provider of electronic design automation software and intellectual property used in system-on-chip design and verification. Cadence acquired Denali to expand its ~~Convertible Senior Notes resulted~~solution portfolio to provide system component modeling and IP integration. The aggregate initial purchase price was $296.8 million, which was paid in cash. An additional $12.6 million of payments have been deferred and will be paid in cash if certain Denali shareholders remain employees of Cadence during the periods specified in the ~~following adjustments to~~respective agreements. These amounts will be expensed in Cadence’s Condensed Consolidated Statements of ~~Stockholders’ Equity:~~Operations over the stated retention periods. The $152.2 million of goodwill recorded in connection with this acquisition is not expected to be deductible for income tax purposes. This acquisition does not include any contingent consideration that is subject to performance metrics, milestone achievement or other similar criteria.

Common

Stock and
Retained

Capital in
Earnings

Excess of
(Accumulated

Par Value Deficit)
(In thousands)

Balance, December 30, 2006, as reported $ 1,398,899 $ 832,763
Equity component of Convertible Senior Notes 120,073 ----
Equity component of debt issuance costs (3,080 ) ----
Amortization of debt discount, net of capitalized interest ---- (527 )
Amortization of debt issuance costs, net of reversal of previously recorded amortization of debt issuance costs ---- (44 )
Tax adjustments (7,634 ) 234

Balance, December 30, 2006, as adjusted $ 1,508,258 $ 832,426
Fiscal 2007 equity activity as previously reported 117,594 329,678
Amortization of debt discount, net of capitalized interest ---- (16,589 )
Amortization of debt issuance costs, net of reversal of previously recorded amortization of debt issuance costs ---- 703
Tax adjustments (5,976 ) 6,422

Balance, December 29, 2007, as adjusted $ 1,619,876 $ 1,152,640
Fiscal 2008 equity activity as previously reported 45,586 (1,964,642 )
Amortization of debt discount, net of capitalized interest ---- (16,460 )
Amortization of debt issuance costs, net of reversal of previously recorded amortization of debt issuance costs ---- 672
Tax adjustments (6,160 ) 13,111

Balance, January 3, 2009, as adjusted $ 1,659,302 $ (814,679 )

The following table summarizes the allocation of the purchase price for Denali and the estimated amortization period for the acquired intangibles:


	(In thousands)

Current assets	$	59,398
Property, plant and equipment		347
Other assets		283
Acquired intangibles:
Existing technology (six to nine-year weighted-average useful lives)		65,700
Agreements and relationships (three to twelve-year weighted-average useful lives)		98,800
Tradenames / trademarks / patents (ten-year weighted-average useful life)		4,300
Goodwill		152,172

Total assets acquired		381,000

Current liabilities		(17,042	)
Long-term deferred tax liabilities (Note 8)		(67,153	)

Net assets acquired	$	296,805

~~Upon adoption~~Denali’s current assets, property, plant and equipment and other assets were reviewed and adjusted to their fair value on the date of ~~these new accounting principles~~acquisition, as necessary. Among the current assets acquired, $46.7 million was cash and ~~effective~~cash equivalents and $11.1 million was trade receivables.

The fair values of Denali’s intangible assets were determined using the income approach with significant inputs that are not observable in the market. Key assumptions include the expected future cash flows, the timing of the expected future cash flows and the discount rates consistent with the level of risk.

Denali’s current liabilities were reviewed and adjusted to their fair value on the date of acquisition, as necessary. Included in net current liabilities is deferred revenue, which represents advance payments from customers. Cadence estimated its obligation related to the deferred revenue using the cost build-up approach. The cost build-up approach determines fair value by estimating the costs relating to supporting the obligation plus an assumed profit. The sum of the costs and assumed profit approximates the amount that Cadence would be required to pay a third party to assume the obligation. The estimated costs to fulfill the obligation were based on the projected cost structure to provide the contractual deliverables. As a result, Cadence recorded deferred revenue of $11.3 million, representing Cadence’s estimate of the fair value of the contractual obligations assumed.

The financial information in the table below summarizes the combined results of operations of Cadence and Denali, on a pro forma basis, as though the companies had been combined as of the ~~issuance date~~beginning of the ~~Convertible Senior Notes,~~fiscal years of the periods presented. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 3, 2010 or January 4, 2009 or of results that may occur in the future.


	Three Months Ended					Six Months Ended
	July 3,		July 4,			July 3,		July 4,
	2010		2009			2010		2009
	(In thousands)

Total revenue	$	231,792	$	216,271		$	460,897	$	427,134

Net income (loss)	$	36,756	$	(84,495	)	$	11,508	$	(159,784	)

Because the increase in deferred tax liabilities from the intangible assets acquired with Denali provided a source of taxable income, Cadence ~~recorded,~~released a corresponding amount of its deferred tax asset valuation allowance. The $66.7 million release of the valuation allowance was recognized as ~~adjustments to Common stock and capital in excess of par value, deferred~~a Benefit for income taxes for the ~~differences in the financial statement~~three and six months ended July 3, 2010. The pro forma net income (loss) presented above does not include this non-recurring Benefit for income taxes. The pro forma tax effects were calculated considering Cadence’s valuation allowance position on its United States losses and tax basis that resulted from allocating $120.1 million of the principal amount of the Convertible Senior Notes to equity and from allocating $3.1 million of the associated issuance costs to equity. In subsequent periods, Cadence reduced the deferred taxes to reflect the tax effect of the amortization of debt discount, net of capitalized interest, and of the debt issuance costs. Cadence also recorded tax adjustments to reverse previously recorded tax benefits from the Convertible Senior Notes to Common stock and capital in excess of par value and to Retained earnings (Accumulated deficit).


~~NOTE 3.~~	~~STOCK-BASED COMPENSATION~~

~~Cadence has equity incentive plans that provide~~credits. See Note 8 for the grant to employees of stock options and restricted stock. Restricted stock includes restricted stock awards and restricted stock units. In addition, the 1995 Directors Stock Option Plan, or the 1995 Directors Plan, provides for the automatic grant of stock options to non-employee membersadditional details of Cadence’s ~~Board of Directors. Cadence also has an employee stock purchase plan, or ESPP, which enables employees to purchase shares of Cadence common stock.~~income taxes.

~~Stock-based compensation expense~~Other Acquisition

During the six months ended July 3, 2010, Cadence acquired another company and ~~the related income tax benefit recognized~~recorded $3.9 million of Goodwill and $2.2 million of intangible assets. The $3.9 million of goodwill recorded in connection with ~~stock options, restricted stock~~this acquisition is not expected to be deductible for income tax purposes. Of the $2.2 million of intangible assets, $0.5 million was allocated to in-process research and development and is classified as an indefinite-lived intangible asset until the ~~ESPP~~project is completed or abandoned. The remaining $1.7 million of intangible assets has a weighted average life of 5 years. The fair value of the intangible assets was determined using the income approach with significant inputs that are not observable in the market. Key assumptions include the expected future cash flows, the timing of the expected future cash flows and discount rates consistent with the level of risk.

This acquisition includes contingent consideration payments based on future financial measures of the acquired technology. Cadence makes estimates regarding the fair value of contingent consideration liabilities on the acquisition date and at the end of each reporting period until the contingency is resolved. Cadence estimates the fair value of these liabilities based on Cadence’s expectations as to the projected levels of business and Cadence’s assessment of the probability of achievement. Cadence believes that its estimates and assumptions are reasonable, but there is significant judgment involved. Changes in the fair value of contingent consideration liabilities subsequent to the acquisition are recorded in General and administrative expense in Cadence’s Condensed Consolidated Statements of Operations.

The contingent consideration arrangement requires payments of up to $4.0 million if certain financial measures are met during the three-year period subsequent to the consummation of the acquisition. This contingent consideration arrangement does not require continuing employment of the selling shareholders. The initial fair value of the contingent consideration arrangement of $0.8 million was determined using the income approach with significant inputs that are not observable in the market. Key assumptions include discount rates consistent with the level of risk of achievement and probability-adjusted revenue amounts. The expected outcomes were recorded at net present value. The fair value of this contingent consideration was $0.9 million as of July 3, 2010.

Acquisition-Related Contingent Consideration

Cadence accounts for business combinations with acquisition dates on or before January 3, 2009 under the ~~three~~purchase method in accordance with Statement of Financial Accounting Standard, or SFAS, No. 141, “Business Combinations,” and ~~nine~~contingent consideration is added to Goodwill as it is paid. During the six months ended ~~October~~July 3, ~~2009 and September 27, 2008 were as follows:~~

Three Months Ended Nine Months Ended
October 3,
September 27,
October 3,
September 27,

2009 2008 2009 2008
(In thousands)

Stock options $ 2,508 $ 5,809 $ 8,359 $ 20,036
Restricted stock and stock bonuses 8,654 4,955 27,296 27,007
ESPP 3,293 3,870 8,035 10,635

Total stock-based compensation expense $ 14,455 $ 14,634 $ 43,690 $ 57,678

Income tax benefit $ 400 $ 3,533 $ 1,271 $ 15,036

~~Stock Options~~

~~The exercise price~~2010, Cadence recorded $2.1 million of each stock option granted under Cadence’s employee equity incentive plans is equal to or greater than the closing price of Cadence’s common stock on the date of grant. Generally, option grants vest over four years, expire no later than ten years from the grant date and are subject to the employee’s continuing service to Cadence. The options granted under the 1995 Directors Plan vest one year from the date of grant. Options assumedGoodwill in connection with acquisitions ~~generally have exercise prices that differ from~~accounted for under SFAS No. 141. Cadence accounts for business combinations with acquisition dates after January 3, 2009 under the acquisition method in accordance with the Accounting Standards Codification and contingent consideration is recorded at fair value ~~of Cadence’s common stock~~ on the acquisition date as noted above.

In connection with Cadence’s acquisitions completed before July 3, 2010, Cadence may be obligated to pay up to an aggregate of ~~acquisition and such options generally continue~~$19.2 million in cash (including the up to ~~vest under their original vesting schedules and expire on~~$4.0 million in cash referred to in “Other Acquisition” above) during the ~~original dates stated~~next 33 months if certain defined performance goals are achieved in ~~the acquired company’s option agreements. The fair value~~full, of ~~each option grant is estimated on the date~~which $11.0 million would be expensed in its Condensed Consolidated Statements of grant using the Black-Scholes option pricing model. The weighted average grant date fair value of options granted and the weighted average assumptions used in the Black-Scholes option pricing model for the three and nine months ended October 3, 2009 and September 27, 2008 were as follows:

Three Months Ended Nine Months Ended
October 3,
September 27,
October 3,
September 27,

2009 2008 2009 2008

Dividend yield None N/A None None
Expected volatility 54.1 % N/A 65.9 % 42.9 %
Risk-free interest rate 2.22 % N/A 1.90 % 2.76 %
Expected life (in years) 4.5 N/A 4.5 4.5
Weighted average fair value of options granted $ 3.10 N/A $ 2.32 $ 4.22

The computation of the expected volatility assumption used in the Black-Scholes option pricing model for new grants is based on implied volatility when the remaining maturities of the underlying traded options are at least one year and, when the remaining maturities of the underlying traded options are less than one year, it is based on an equal weighting of historical and implied volatilities. When establishing the expected life assumption, Cadence reviews annual historical employee exercise behavior with respect to option grants having similar vesting periods. The risk-free interest rate for the period within the expected term of the option is based on the yield of United States Treasury notes in effect at the time of grant. Cadence has not historically paid dividends, so the expected dividend yield used in the calculation is zero.

~~Restricted Stock and Stock Bonuses~~

The cost of restricted stock is determined using the fair value of Cadence’s common stock on the date of the grant, and compensation expense is recognized over the vesting period. The weighted average grant date fair valuesOperations.

NOTE 4. GOODWILL AND ACQUIRED INTANGIBLES

Goodwill

The changes in the carrying amount of ~~restricted stock granted~~goodwill during the ~~three and nine~~six months ended ~~October~~July 3, ~~2009 and September 27, 2008~~2010 were as follows:

Three Months Ended Nine Months Ended
October 3,
September 27,
October 3,
September 27,

2009 2008 2009 2008

Weighted average fair value of restricted stock granted $ 6.22 $ 8.02 $ 4.76 $ 11.02


	Gross Carrying
	Amount
	(In thousands)

Balance as of January 2, 2010	$	----
Goodwill resulting from acquisitions during the period (Note 3)		156,103
Additions due to contingent consideration (Note 3)		2,124

Balance as of July 3, 2010	$	158,227

Acquired Intangibles, net

~~Generally, restricted stock vests over three to four years and is subject to the employee’s continuing service to Cadence. Cadence issues some~~Acquired intangibles with finite lives as of its restricted stock with performance-based vesting. The terms of these performance-based restricted stock grants are consistent with grants of restricted stock described above, with the exception that the vesting of the shares depends not only upon the completion of the required period of service, but also on the satisfaction of certain predetermined performance goals. Each quarterly period, Cadence estimates the probability of the achievement of these performance goals and recognizes any related stock-based compensation expense. The amount of stock-based compensation expense recognized in any one period can vary based on the attainment or estimated attainment of the various performance goals. If such performance goals are not met, no compensation expense is recognized and any previously recognized compensation expense is reversed.

~~Stock-based compensation expense related to performance-based restricted stock grants for the three and nine months ended October~~July 3, ~~2009 and September 27, 2008 was as follows:~~

Three Months Ended Nine Months Ended
October 3,
September 27,
October 3,
September 27,

2009 2008 2009 2008
(In thousands)

Stock-based compensation expense (credits) related to performance-based grants $ 259 $ (5,402 ) $ 907 $ (1,471 )

~~Liability-based Awards~~

Cadence maintains a performance-based bonus plan under which payments may be made in Cadence common stock or cash. Each quarterly period, Cadence estimates the most likely outcome of predetermined performance goals and recognizes any related stock-based compensation expense. The amount of stock-based compensation expense recognized in any one period can vary based on the attainment or estimated attainment of the various performance goals. If such performance goals are not met, no compensation expense is recognized and any previously recognized compensation expense is reversed. The dollar amount earned under this performance-based bonus plan is based on the achievement of the performance goals, and the number of shares to be issued under the performance-based bonus plan is based on the dollar amount earned and the average stock price for three days preceding the grant date. Stock issued under the performance-based bonus plan vests immediately. During both of the three and nine month periods ended October 3, 2009 and September 27, 2008, Cadence elected to make the payments in cash under this performance-based bonus plan. Stock-based compensation expense and the cash paid related to this performance-based bonus plan for the three and nine months ended October 3, 2009 and September 27, 20082010 were as ~~follows:~~follows, excluding intangibles that were fully amortized as of January 2, 2010:

Three Months Ended Nine Months Ended
October 3,
September 27,
October 3,
September 27,

2009 2008 2009 2008
(In thousands)

Stock-based compensation expense related to performance-based bonus plan $ 936 $ 1,742 $ 3,827 $ 4,569
Cash paid for performance-based bonus plan 2,866 2,948 6,097 5,626


	Gross Carrying		Accumulated			Acquired
	Amount		Amortization			Intangibles, net
	(In thousands)

Existing technology and backlog	$	91,800	$	(22,958	)	$	68,842
Agreements and relationships		134,822		(30,582	)		104,240
Distribution rights		30,100		(21,070	)		9,030
Tradenames, trademarks and patents		26,183		(16,373	)		9,810

Total acquired intangibles	$	282,905	$	(90,983	)	$	191,922

As of July 3, 2010, Cadence also had $0.5 million of in-process research and development intangibles that are expected to have an indefinite useful life until they are placed into service or the associated research and development efforts are abandoned.
Acquired intangibles with finite lives as of January 2, 2010 were as follows, excluding intangibles that were fully amortized as of January 3, 2009:

	Gross Carrying		Accumulated			Acquired
	Amount		Amortization			Intangibles, net
	(In thousands)

Existing technology and backlog	$	64,900	$	(61,332	)	$	3,568
Agreements and relationships		35,364		(27,905	)		7,459
Distribution rights		30,100		(19,565	)		10,535
Tradenames, trademarks and patents		22,984		(15,705	)		7,279

Total acquired intangibles	$	153,348	$	(124,507	)	$	28,841

~~Employee Stock Purchase Plan~~

~~Through the January 31, 2009 purchase date, a majority~~Amortization of Cadence’s employees could purchase Cadence’s common stock under the ESPP at a price equal to 85% of the lower of the fair market value at the beginning of the applicable offering period or at the end of the applicable offering period, in an amount up to 12% of their gross annual earnings, subject to a limit in any calendar year of $25,000 worth of common stock. Currently, the offering periods of the ESPP are six months long commencing on February 1^st ~~and August 1~~^st ~~of each year and ending on July 31~~^st ~~and January 31~~^st ~~of each year, respectively.~~

On January 30, 2009, because Cadence did not have a sufficient number of authorized common stock available under the ESPP to permit all ESPP participants to purchase Cadence’s common stock in the full amount that had been set aside for them through their contributions, Cadence allocated the purchase on a pro rata basis and refunded the excess contributions to the ESPP participants. At the annual meeting of Cadence’s stockholders on May 13, 2009, an additional 12.5 million shares of Cadence’s common stock were authorized under the ESPP.

Cadence’s Board of Directors administers the ESPP and has the final authority to construe and interpret both the ESPP and the rights granted under it. Cadence’s Board of Directors also has the authority, subject to the provisions of the ESPP, to determine when and how the rights to purchase Cadence common stock will be granted and the provisions of each offering of these rights, including designating any limits on the percentage and dollar amount that may be withheld from the ESPP participants’ annual gross earnings for a particular offering period, and Cadence’s Board of Directors may modify such limits from time to time. Under the rules currently in effect under the ESPP: (i) for the offering period that commenced February 1, 2009, each eligible ESPP participant was entitled to purchase Cadence common stock in an amount not to exceed the lower of (A) $7,058.82 or (B) the difference between (x) $25,000 and (y) the aggregate amount of Cadence’s common stock such participant purchased on January 30, 2009 under the ESPP; and (ii) for the offering period that commenced August 1, 2009 and thereafter, each eligible ESPP participant would be entitled to purchase Cadence common stock in an amount not to exceed $7,058.82 in any calendar year, subject to a contribution limit of 5% of such participant’s gross annual earnings.

~~Shares of Cadence’s common stock issued under the ESPP~~acquired intangibles for the three and ~~nine~~six months ended ~~October~~July 3, 2010 and July 4, 2009 ~~and September 27, 2008 were~~was as follows:

Three Months Ended Nine Months Ended
October 3,
September 27,
October 3,
September 27,

2009 2008 2009 2008
(In thousands, except per share amounts)

Cadence shares issued under the ESPP 2,610 3,358 8,661 6,076
Cash received from the exercise of purchase rights under the ESPP 8,076 21,093 27,517 44,547
Weighted average purchase price per share $ 3.09 $ 6.28 $ 3.18 $ 7.33


	Three Months Ended				Six Months Ended
	July 3,		July 4,		July 3,		July 4,
	2010		2009		2010		2009
	(In thousands)

Cost of product	$	591	$	947	$	1,211	$	3,101
Cost of maintenance		----		1,045		1,045		2,090
Amortization of acquired intangibles		2,551		2,828		5,242		5,968

Total amortization of acquired intangibles	$	3,142	$	4,820	$	7,498	$	11,159

Amortization of costs from existing technology is included in Cost of product. Amortization of costs from acquired maintenance contracts is included in Cost of maintenance.

~~Stock-based compensation~~Estimated amortization expense ~~is calculated using the fair value of the employees’ purchase rights under the Black-Scholes option pricing model. The weighted average grant date fair value of purchase rights granted~~

~~under the ESPP and the weighted average assumptions used in the model~~ for the ~~three~~following fiscal years and ~~nine months ended October 3, 2009 and September 27, 2008 were~~thereafter is as follows:


	(In thousands)

2010 — remaining period	$	13,462
2011		25,424
2012		23,391
2013		19,949
2014		17,206
Thereafter		92,490

Total estimated amortization expense	$	191,922

Three Months Ended Nine Months Ended
October 3,
September 27,
October 3,
September 27,

2009 2008 2009 2008

Dividend yield None None None None
Expected volatility 48.0% 50.3% 51.3% 48.0%
Risk-free interest rate 0.28% 1.88% 0.21% 1.95%
Expected life (in years) 0.50 0.50 0.32 0.48
Weighted average fair value of purchase rights granted $ 1.70 $ 2.09 $ 1.96 $ 2.40

The computation of the expected volatility assumption used in the Black-Scholes option pricing model for new grants is based on implied volatility when the remaining maturities of the underlying traded options are at least one year and, when the remaining maturities of the underlying traded options are less than one year, it is based on an equal weighting of historical and implied volatilities. The expected life assumption is based on the average exercise date for the purchase periods in each offering period. The risk-free interest rate for the period within the expected life of the purchase right is based on the yield of United States Treasury notes in effect at the time of grant. Cadence has not historically paid dividends, so the expected dividend yield used in the calculation is zero.


~~NOTE 4.~~ NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS	~~FAIR VALUE OF FINANCIAL INSTRUMENTS~~

Inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Cadence’s market assumptions. These two types of inputs have created the following fair-value hierarchy:


	•		Level 1 — Quoted prices for identical instruments in active markets;

	•		Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

	•		Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires Cadence to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. Cadence recognizes transfers between levels of this hierarchy based on the fair values of the respective financial instruments at the end of the reporting period in which the transfer occurred.

On a quarterly basis, Cadence measures at fair value certain financial assets ~~including cash equivalents,available-for-sale~~ ~~securities, time deposits, trading securities held in Cadence’s Nonqualified Deferred Compensation Plans, or NQDCs,~~ and ~~foreign exchange contracts.~~liabilities. The fair value of financial assets and liabilities was determined using the following levels of inputs as of ~~October~~July 3, ~~2009:~~2010:


	Fair Value Measurements as of July 3, 2010:
	Total		Level 1		Level 2		Level 3
	(In thousands)

Assets
Cash equivalents — Money market funds	$	363,740	$	363,740	$	----	$	----
Available-for-sale securities		2,655		2,655		----		----
Trading securities held in Non-Qualified Deferred Compensation Plan (NQDC)		27,751		27,751		----		----
2015 Notes Hedges		74,282		----		74,282		----
Foreign currency exchange contracts		132		----		132		----
Time deposits		204		204		----		----

Total Assets	$	468,764	$	394,350	$	74,414	$	----

Fair Value Measurements as of October 3,2009:
Total Level 1 Level 2 Level 3
(In thousands)

Assets

Cash equivalents — Money market mutual funds $ 402,992 $ 402,992 $ ---- $ ----
Available-for-sale securities
4,519 4,519 ---- ----
Time deposits 237 237 ---- ----
Trading securities held in NQDCs 27,576 27,576 ---- ----
Foreign currency exchange contracts 650 ---- 650 ----

Total $ 435,974 $ 435,324 $ 650 $ ----


	Total		Level 1		Level 2		Level 3
	(In thousands)

Liabilities
Acquisition-related contingent consideration	$	897	$	----	$	----	$	897
2015 Notes Embedded Conversion Derivative		74,282		----		74,282		----

Total Liabilities	$	75,179	$	----	$	74,282	$	897

The 2015 Notes Hedges, foreign currency forward exchange contracts and the 2015 Notes Embedded Conversion Derivative are classified as Level 2 because these assets and liabilities are not actively traded and are valued using standard pricing methodologies that use observable market data for all inputs.

The fair value of these financial assets and liabilities was determined using the following levels of inputs as of January 2, 2010:


	Fair Value Measurements as of January 2, 2010:
	Total		Level 1		Level 2		Level 3
	(In thousands)

Assets
Cash equivalents — Money market funds	$	446,335	$	446,335	$	----	$	----
Available-for-sale securities		1,951		1,951		----		----
Time deposits		233		233		----		----
Trading securities held in NQDC		31,403		31,403		----		----

Total Assets	$	479,922	$	479,922	$	----	$	----


	Total		Level 1		Level 2		Level 3
	(In thousands)

Liabilities
Foreign currency exchange contracts	$	478	$	----	$	478	$	----

Total Liabilities	$	478	$	----	$	478	$	----

Cadence acquired intangible assets of $171.0 million in connection with business combinations during the six months ended July 3, 2010. The fair value of these intangible assets was estimated using Level 3 inputs. See Note 3 for additional details of these business combinations and the key inputs used in the valuations.

Cadence recorded the initial fair value of contingent consideration liabilities in connection with a business combination during the six months ended July 3, 2010. This liability will be measured at fair value at the end of each reporting period. See Note 3 for additional details of this business combination and the key inputs used in the valuation.

Payments to former shareholders of acquired businesses, net of cash acquired, including Denali;

•		Repurchases of a portion of our Convertible Senior Notes;

•		Payments ~~relating~~made to ~~salaries, benefits, other employee-related costs and other operating expenses, including our restructuring plans;~~purchase the 2015 Notes Hedges;

•		Purchases of treasury stock; and

•		Purchases of property, plant and ~~equipment; and~~
•	~~Payments to former shareholders of acquired businesses.~~equipment.

Our existing Cash and cash equivalents and Short-term investment balances may decline during fiscal 2009, in the event of a further deterioration in the economy or the capital markets, a reduction in our cash receipts or changes in our cash outlays. However, weWe expect that current cash and short-term investment balances and cash flows that are generated from operations will be sufficient to meet our working capital, ~~and~~ other capital and liquidity requirements for at least the next 12 months.

Net Working Capital

Net working capital ~~increased~~decreased by ~~$66.1~~$131.8 million as of ~~October~~July 3, ~~2009,~~2010, as compared to January ~~3, 2009,~~2, 2010, due to the following:

Change
(In millions)

Decrease in Accounts payable and accrued liabilities $ 101.4
Decrease in Current portion of deferred revenue 57.6
Increase in Prepaid expense and other 9.9
Decrease in Receivables, net (103.2 )
Other individually insignificant items 0.4

$ 66.1


	Change
	(In millions)

Decrease in Cash and cash equivalents	$	(93.5	)
Increase in Current portion of deferred revenue		(42.4	)
Decrease in Receivables, net		(9.3	)
Increase in Prepaid expenses and other		16.8
Other individually insignificant items		(3.4	)

	$	(131.8	)

Cash Flows from Operating Activities

Net cash from operating activities ~~was $24.7~~increased by $92.7 million during the ~~nine~~six months ended ~~October~~July 3, ~~2009, which was a decrease of $13.0 million,~~2010, as compared to the ~~nine~~six months ended ~~September 27, 2008. The components of this decrease are summarized as follows:~~July 4, 2009, due to the following:

Change
(In millions)

Net loss, net of non-cash related gains and losses $ 43.9
Proceeds from the sale of receivables, net (42.3 )
Changes in operating assets and liabilities, net of effect of acquired businesses (14.6 )

$ (13.0 )


	Change
	(In millions)

Net income (loss), net of non-cash related items	$	59.0
Changes in operating assets and liabilities, net of effect of acquired businesses		39.5
Proceeds from the sale of receivables, net		(5.8	)

	$	92.7

Cash flows from operating activities include ~~net loss,~~Net income (loss), adjusted for certain non-cash charges, as well as changes in the balances of certain assets and liabilities. Our cash flows from operating activities are significantly influenced by business levels and the payment terms set forth in our license ~~agreements and by sales of our receivables.~~agreements. As a result of the challenging economic environment, our customers, who are primarily concentrated in the semiconductor sector, have experienced and may continue to experience adverse changes in their business and as a result, may delay purchasing our products and services or delay or default on their payment obligations. ~~Approximately~~As of July 3, 2010, approximately one-third of our total Receivables, net and Installment contract receivables, net were attributable to the ten customers with the largest balances of Receivables, net and Installment contract receivables, net. As of January 2, 2010, approximately half of our total Receivables, net and Installment ~~contracts~~contract receivables, net aswere attributable to the ten customers with the largest balances of ~~October 3, 2009 relate to ten of our customers.~~Receivables, net and Installment contract receivables, net. If our customers are not successful in generating sufficient cash or are precluded from securing financing, they may not be able to pay, or may delay payment of, accounts receivable that are owed to us, although these obligations are generally not cancelable. Our customers’ inability to fulfill payment obligations may adversely affect our cash flow. Additionally, our customers may seek to renegotiate pre-existing contractual commitments. Though we have not yet experienced a material

level of defaults, any material payment default by our customers or significant reductions in existing contractual commitments would have a material adverse effect on our financial condition and operating results.

We have entered into agreements whereby we may transfer accounts receivable to certain financial institutions on a non-recourse or limited-recourse basis. These transfers are recorded as sales and losses on the sale of receivables are included in General and administrative expense in the Condensed Consolidated Statements of Operations. During the nine months ended October 3, 2009, we transferred accounts receivable, net of the losses on the sale of the receivables, totaling $5.8 million, which approximated fair value, to financial institutions on a non-recourse basis, as compared to $48.1 million during the nine months ended September 27, 2008. The change in our license mix will result in an increased number of subscription licenses and, therefore, a decrease in the sale of receivables to financial institutions, so we expect a reduced level of Proceeds from the sale of receivables throughout fiscal 2009, as compared to fiscal 2008.

~~We currently expect our fiscal 2009 cash flows from operating activities to be positive, but expect it to be less than our fiscal 2008 cash flows from operating activities.~~

~~During both the second half of 2008 and the first half of fiscal 2009, we initiated a restructuring plan to decrease costs by reducing our workforce and by consolidating facilities.~~ As of ~~October~~July 3, ~~2009,~~2010, we had made payments in connection with ~~these two restructuring plans~~the 2009 Restructuring Plan in the amount of ~~$58.2~~$30.1 million and we expect to pay an additional amount of ~~$8.3 million.~~$2.9 million, of which $2.5 million is for termination benefits. We expect ~~to complete payments for~~ substantially all ~~of the anticipated~~termination benefits related to ~~these two restructuring plans~~the 2009 Restructuring Plan to be paid by ~~July 2, 2010. We expect ongoing annual savings of approximately $180.0 million related to these two restructuring plans and other expense reductions.~~

January 1, 2011.

Cash Flows from Investing Activities

Our primary investing activities consisted of:

•		Cash paid in business combinations and asset acquisitions, net of cash acquired;

•		Purchases of property, plant and equipment; and

•	~~Payments to former shareholders of acquired businesses; and~~
•	~~Investments in and proceeds~~Proceeds from the sale of long-term ~~investments andavailable-for-sale~~ ~~securities.~~investments.

Net cash from investing activities ~~increased~~decreased by ~~$64.8~~$236.5 million during the ~~nine~~six months ended ~~October~~July 3, ~~2009,~~2010, as compared to the ~~nine~~six months ended ~~September 27, 2008. The components of this increase are summarized as follows:~~

Change
(In millions)

Purchases ofavailable-for-sale securities
$ 62.4
Purchases of property, plant and equipment 50.6
Cash paid in business combinations and asset acquisitions, net of cash acquired, and acquisition of intangibles 6.5
Proceeds from the sale of long-term investments (3.3 )
Proceeds from the sale ofavailable-for-sale securities
(53.6 )
Other individually insignificant items 2.2

$ 64.8

~~The decrease of Purchases of property, plant and equipment is primarily~~July 4, 2009, due to the ~~completion of construction on a new building in San Jose, California during the nine months ended October 3, 2009 and an effort to reduce capital spending.~~following:


	Change
	(In millions)

Cash paid in business combinations and asset acquisitions, net of cash acquired	$	(249.1	)
Proceeds from the sale of long-term investments		10.1
Purchases of property, plant and equipment		3.5
Other individually insignificant items		(1.0	)

	$	(236.5	)

In connection with our acquisitions completed before ~~October~~July 3, ~~2009,~~2010, we may be obligated to pay up to an aggregate of ~~$15.9~~$19.2 million in cash during the next 3533 months if certain defined performance goals are achieved in full, of which ~~$8.1~~$11.0 million would be expensed ~~as compensation expense~~ in our Condensed Consolidated Statements of Operations.

~~We expect to continue our investing activities, including purchasing property, plant and equipment, purchasing intangible assets, purchasing software licenses and making long-term equity investments.~~

Cash Flows from Financing Activities

~~Financing cash flows during~~In June 2010, we issued $350.0 million principal amount of the ~~nine months ended October 3, 2009 consisted primarily of~~2015 Notes. Concurrently with the issuance of the 2015 Notes, we entered into the 2015 Notes Hedges with various parties to reduce the potential cash outlay from the conversion of the 2015 Notes and intended to mitigate the negative effect such conversion may have on the price of our common stock. In separate transactions, we sold warrants, or the 2015 Warrants, to purchase our common stock ~~under certain~~at a price of $10.78 per share to various parties. We used an aggregate of $187.2 million of the net proceeds from the issuance of the 2015 Notes to purchase in the open market $100.0 million principal amount of our ~~equity plans.~~ 2011 Notes and $100.0 million principal amount of our 2013 Notes, and we repurchased 6.5 million shares of our common stock at a cost of $40.0 million.

Net cash from financing activities increased by ~~$462.6~~$60.1 million

during the ~~nine~~six months ended ~~October~~July 3, ~~2009,~~2010, as compared to the ~~nine~~six months ended ~~September 27, 2008.~~ July 4, 2009, due to the following:


	Change
	(In millions)

Proceeds from issuance of 2015 Notes, net of initial purchasers’ fees	$	340.2
Proceeds from sale of 2015 Warrants		37.5
Proceeds from the issuance of common stock		(11.5	)
Purchases of treasury stock		(40.0	)
Purchase of 2015 Notes Hedges		(76.6	)
Repurchase of Convertible Senior Notes		(187.2	)
Other individually insignificant items		(2.3	)

	$	60.1

The ~~components~~decrease in Proceeds from the issuance of ~~this increase~~common stock during the six months ended July 3, 2010 as compared to the six months ended July 4, 2009 is primarily due to decreased purchase limits under our ESPP, which became effective during fiscal 2009.

When treasury stock is re-issued at a price higher than its cost, the difference is recorded as a component of Capital in excess of par in the Condensed Consolidated Balance Sheets. When treasury stock is re-issued at a price lower than its cost, the difference is recorded as a component of Capital in excess of par to the extent that there are ~~summarized as follows:~~

Change
(In millions)

Purchases of treasury stock $ 274.0
Payment of convertible notes due 2023 230.2
Proceeds from the issuance of common stock (20.3 )
Proceeds from receivable sale financing (18.0 )
Other individually insignificant items (3.3 )

$ 462.6

~~We record a gain or loss on~~gains to offset the losses. If there are no treasury stock gains in Capital in excess of par, the losses upon re-issuance of treasury stock ~~based on the total proceeds received~~are recorded as a component of Accumulated deficit in the ~~transaction. During the nine months ended October 3, 2009, we~~Condensed Consolidated Balance Sheets. We recorded losses on the re-issuance of treasury stock of ~~$209.2~~$74.2 million during the six months ended July 3, 2010, as ~~a component of Accumulated deficit.~~

compared to $164.6 million during the six months ended July 4, 2009.

As of ~~October~~July 3, ~~2009,~~2010, we have ~~$854.4~~$814.4 million remaining under the stock repurchase programs authorized by our Board of Directors.

Other Factors Affecting Liquidity and Capital Resources

Income Taxes

We provide for United States income taxes on earnings of our foreign subsidiaries unless the earnings are considered indefinitely invested outside the United States. ~~During fiscal 2008,~~As of January 2, 2010, we ~~provided income taxes~~had recognized a deferred tax liability of ~~$101.1~~$34.7 million onrelated to $67.9 million of earnings from certain of ~~$317.2 million from~~ our foreign subsidiaries that ~~had previously been~~are not considered ~~to be~~ indefinitely ~~re-invested~~reinvested outside of the United ~~States.~~States and for which we have previously made a provision for income tax. We repatriated ~~$250.0~~$62.9 million of the ~~$317.2~~$67.9 million toduring the United States during fiscal 2008, and expect to repatriate an additional $50.0 million of foreign earnings to the United States during fiscal 2009. We do not expect the fiscal 2009 repatriation to resultsix months ended July 3, 2010, which resulted in ~~significant~~ cash tax payments ~~during the current fiscal year.~~ of approximately $1.9 million.

We ~~currently~~ intend to indefinitely ~~re-invest outside~~reinvest approximately $79.0 million of ~~the United States the~~undistributed earnings of our foreign subsidiaries ~~in excess~~as of January 2, 2010, to meet the working capital and long-term capital needs of our foreign subsidiaries. The unrecognized deferred tax liability for these indefinitely reinvested foreign earnings was approximately $35.3 million as of January 2, 2010.

During the three and six months ended July 3, 2010, we released $66.7 million of valuation allowance against our deferred tax assets due to the acquisition accounting for the Denali acquired intangibles. This release of the ~~remaining $17.2 million that was previously designated for~~valuation allowance does not impact Cadence’s current or future ~~repatriation, and, accordingly, no additional United States deferred taxes have been provided.~~cash position.

The IRS and other tax authorities regularly examine our income tax returns and we have received RARs ~~which~~indicating that the IRS has proposed to assess certain tax deficiencies. For further discussion regarding our Income taxes and the status of the IRS examinations, see Note 8 to our Condensed Consolidated Financial Statements.

2.625% Cash Convertible Senior Notes Due 2015

In June 2010, we issued $350.0 million principal amount of the 2015 Notes. Concurrently with the issuance of the 2015 Notes, we entered into the 2015 Notes Hedges with various parties to reduce the potential cash outlay from the cash conversion of the 2015 Notes and intended to mitigate the negative effect such cash conversion may have on the price of our common stock. In separate transactions, we sold the 2015 Warrants to various parties. The 2015 Notes mature on June 1, 2015, and will be paid in cash at maturity. As of July 3, 2010, none of the conditions allowing the holders of the 2015 Notes to convert the 2015 Notes into cash had been met. For additional description of the 2015 Notes, including the hedge and warrants transactions, see Note 2 to our ~~IRS Examinations, see the discussion under the heading “Results of Operations — Income Taxes,” above.~~

Condensed Consolidated Financial Statements.

1.375% Convertible Senior Notes Due December 15, 2011 and 1.500% Convertible Senior Notes Due December 15, 2013

In December 2006, we issued $250.0 million principal amount of ~~1.375% Convertible Senior Notes Due 2011, or~~ the 2011 Notes and $250.0 million principal amount of ~~1.500% Convertible Senior Notes Due 2013, or~~ the 2013 ~~Notes, and collectively~~Notes. Concurrently with the ~~2011 Notes, the Convertible Senior Notes. The indentures for~~issuance of the Convertible Senior Notes, do not contain any financial covenants. We received net proceeds of approximately $487.2 million after issuance costs of approximately $12.8 million, including $12.0 million of underwriting discounts.

~~Holders may convert their Convertible Senior Notes prior to maturity upon the occurrence of one of the following events:~~


	•	~~The price of our common stock reaches $27.50 during certain periods of time specified in the Convertible Senior Notes;~~
	•	~~Specified corporate~~we entered into hedge transactions, ~~occur;~~ or
	•	~~The trading price of the Convertible Senior Notes falls below 98% of the product of (i) the last reported sale price of our common stock and (ii) the conversion rate on that date.~~


Delaware		77-0148231
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		~~77-0148231~~ ~~(I.R.S. Employer~~ Identification No.)

2655 Seely Avenue, Building 5, San Jose, California		95134
(Address of Principal Executive Offices)		~~95134~~ (Zip Code)


Large accelerated filer [ X ]	Accelerated filer [ ]	Non-accelerated filer [ ]	Smaller reporting company [ ]


	Severance
	and
	Benefits
	(In thousands)

Balance, July 4, 2009	$	17,649
Restructuring and other charges, net		1,632
Cash payments		(13,588	)
Effect of foreign currency translation		61

Balance, October 3, 2009	$	5,754


	Severance
	and
	Benefits
	(In thousands)

Balance, January 3, 2009	$	----
Restructuring and other charges, net		21,361
Cash payments		(15,684	)
Effect of foreign currency translation		77

Balance, October 3, 2009	$	5,754


	Severance
	and			Excess
	Benefits			Facilities			Other			Total
	(In thousands)

Balance, January 2, 2010	$	18,638		$	----		$	----		$	18,638
Restructuring and other charges (credits), net		(1,853	)		455			82			(1,316	)
Non-cash charges (credits)		----			4			(82	)		(78	)
Cash payments		(13,758	)		(65	)		----			(13,823	)
Effect of foreign currency translation		(519	)		----			----			(519	)

Balance, July 3, 2010	$	2,508		$	394		$	----		$	2,902


~~(Mark One)~~
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	October 3,			January 3,
	2009			2009
				As Adjusted
				(Note 2)

Current Assets:
Cash and cash equivalents	$	570,617		$	568,255
Short-term investments		4,756			3,840
Receivables, net of allowances of $15,208 and $7,524, respectively		195,468			298,665
Inventories		25,626			28,465
Prepaid expenses and other		64,694			54,765

Total current assets		861,161			953,990
Property, plant and equipment, net of accumulated depreciation of $630,155 and $625,010, respectively		313,398			354,852
Acquired intangibles, net of accumulated amortization of $122,677 and $134,688, respectively		33,438			49,082
Installment contract receivables, net of allowances of $9,724 and $0, respectively		64,859			160,742
Other assets		141,361			161,187

Total Assets	$	1,414,217		$	1,679,853


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	159,728		$	261,099
Current portion of deferred revenue		245,528			303,111

Total current liabilities		405,256			564,210

Long-Term Liabilities:
Long-term portion of deferred revenue		108,941			130,354
Convertible notes		431,072			416,572
Other long-term liabilities		372,756			382,004

Total long-term liabilities		912,769			928,930

Contingencies (Notes 7 and 11)
Stockholders’ Equity:
Common stock and capital in excess of par value		1,664,029			1,659,302
Treasury stock, at cost		(433,505	)		(695,152	)
Accumulated deficit		(1,175,535	)		(814,679	)
Accumulated other comprehensive income		41,203			37,242

Total stockholders’ equity		96,192			186,713

Total Liabilities and Stockholders’ Equity	$	1,414,217		$	1,679,853


	Three Months Ended						Nine Months Ended
	October 3,			September 27,			October 3,			September 27,
	2009			2008			2009			2008
				As Adjusted						As Adjusted
				(Note 2)						(Note 2)

Revenue:
Product	$	96,932		$	107,572		$	286,295		$	422,365
Services		26,669			32,873			83,684			98,763
Maintenance		92,521			92,043			262,374			290,151

Total revenue		216,122			232,488			632,353			811,279

Costs and Expenses:
Cost of product		6,405			11,829			23,828			39,241
Cost of services		21,139			25,677			69,602			78,083
Cost of maintenance		11,105			13,910			35,423			42,889
Marketing and sales		68,282			91,075			214,603			274,016
Research and development		88,049			112,486			273,394			357,929
General and administrative		28,732			32,937			101,311			105,608
Amortization of acquired intangibles		2,726			5,626			8,694			17,206
Restructuring and other charges (credits)		(175	)		48,120			17,833			47,765
Write-off of acquired in-process technology		----			----			----			600

Total costs and expenses		226,263			341,660			744,688			963,337

Loss from operations		(10,141	)		(109,172	)		(112,335	)		(152,058	)
Interest expense		(7,278	)		(7,042	)		(21,592	)		(20,696	)
Other income (expense), net		2,917			(7,714	)		(5,765	)		(3,701	)

Loss before provision (benefit) for income taxes		(14,502	)		(123,928	)		(139,692	)		(176,455	)
Provision (benefit) for income taxes		(455	)		46,728			11,969			46,155

Net loss (loss)	$	(14,047	)	$	(170,656	)	$	(151,661	)	$	(222,610	)

Basic and diluted net loss per share	$	(0.05	)	$	(0.67	)	$	(0.59	)	$	(0.87	)

Weighted average common shares outstanding – basic and diluted		259,193			252,915			256,792			256,119


	As of January 3, 2009
	As Previously						As
	Reported			Adjustments			Adjusted
	(In thousands)

Current assets	$	954,548		$	(558	)(A)	$	953,990
Property, plant and equipment, net		351,961			2,891	(B)		354,852
Acquired intangibles, net		49,082			----			49,082
Installment contract receivables		160,742			----			160,742
Other assets		162,381			(1,194	)(C)		161,187

Total Assets	$	1,678,714		$	1,139		$	1,679,853

Current liabilities	$	564,210		$	----		$	564,210
Long-Term Liabilities:
Long-term portion of deferred revenue		130,354			----			130,354
Convertible notes		500,178			(83,606	)(D)		416,572
Other long-term liabilities		382,004			----			382,004

Total long-term liabilities		1,012,536			(83,606	)		928,930

Stockholders’ Equity:
Common stock and capital in excess of par value		1,562,079			97,223	(E)		1,659,302
Treasury stock, at cost		(695,152	)		----			(695,152	)
Accumulated deficit		(802,201	)		(12,478	)(F)		(814,679	)
Accumulated other comprehensive income		37,242			----			37,242

Total stockholders’ equity		101,968			84,745			186,713

Total Liabilities and Stockholders’ Equity	$	1,678,714		$	1,139		$	1,679,853


	Three Months Ended September 27, 2008
	As Previously						As
	Reported			Adjustments			Adjusted
	(In thousands, except per share amounts)

Revenue	$	232,488		$	----		$	232,488
Costs and expenses		341,660			----			341,660

Loss from operations		(109,172	)		----			(109,172	)

Interest expense		(3,180	)		(3,862	)(G)		(7,042	)
Other income (expense), net		(7,714	)		----			(7,714	)

Loss before provision for income taxes		(120,066	)		(3,862	)		(123,928	)
Provision for income taxes		49,000			(2,272	)(H)		46,728

Net loss	$	(169,066	)	$	(1,590	)	$	(170,656	)

Basic net loss per share	$	(0.67	)				$	(0.67	)

Diluted net loss per share	$	(0.67	)				$	(0.67	)


	Nine Months Ended September 27, 2008
	As Previously						As
	Reported			Adjustments			Adjusted
	(In thousands, except per share amounts)

Revenue	$	811,279		$	----		$	811,279
Costs and expenses		963,337			----			963,337

Loss from operations		(152,058	)		----			(152,058	)

Interest expense		(9,055	)		(11,641	)(G)		(20,696	)
Other income (expense), net		(3,701	)		----			(3,701	)

Loss before provision (benefit) for income taxes		(164,814	)		(11,641	)		(176,455	)
Provision for income taxes		50,269			(4,114	)(H)		46,155

Net loss	$	(215,083	)	$	(7,527	)	$	(222,610	)

Basic net loss per share	$	(0.84	)				$	(0.87	)

Diluted net loss per share	$	(0.84	)				$	(0.87	)


	Common
	Stock and			Retained
	Capital in			Earnings
	Excess of			(Accumulated
	Par Value			Deficit)
	(In thousands)

Balance, December 30, 2006, as reported	$	1,398,899		$	832,763
Equity component of Convertible Senior Notes		120,073			----
Equity component of debt issuance costs		(3,080	)		----
Amortization of debt discount, net of capitalized interest		----			(527	)
Amortization of debt issuance costs, net of reversal of previously recorded amortization of debt issuance costs		----			(44	)
Tax adjustments		(7,634	)		234

Balance, December 30, 2006, as adjusted	$	1,508,258		$	832,426
Fiscal 2007 equity activity as previously reported		117,594			329,678
Amortization of debt discount, net of capitalized interest		----			(16,589	)
Amortization of debt issuance costs, net of reversal of previously recorded amortization of debt issuance costs		----			703
Tax adjustments		(5,976	)		6,422

Balance, December 29, 2007, as adjusted	$	1,619,876		$	1,152,640
Fiscal 2008 equity activity as previously reported		45,586			(1,964,642	)
Amortization of debt discount, net of capitalized interest		----			(16,460	)
Amortization of debt issuance costs, net of reversal of previously recorded amortization of debt issuance costs		----			672
Tax adjustments		(6,160	)		13,111

Balance, January 3, 2009, as adjusted	$	1,659,302		$	(814,679	)


~~NOTE 5.~~ NOTE 6. RESTRUCTURING AND OTHER CHARGES	~~RESTRUCTURING AND OTHER CHARGES~~


	2005						2002			2001
	Restructuring			2003 Restructuring			Restructuring			Restructuring			Total
	(In thousands)

Balance, July 4, 2009	$	303		$	2,733		$	52		$	1,978		$	5,066
Adjustments to Restructuring and other charges (credits), net		----			----			(50	)		----			(50	)
Non-cash charges		15			48			(2	)		----			61
Cash payments		(36	)		(250	)		----			(1	)		(287	)
Effect of foreign currency translation		(5	)		(54	)		----			83			24

Balance, October 3, 2009	$	277		$	2,477		$	----		$	2,060		$	4,814


~~NOTE 6.~~ NOTE 7. ALLOWANCE FOR DOUBTFUL ACCOUNTS	~~ALLOWANCE FOR DOUBTFUL ACCOUNTS~~


	Increase (decrease) in Net income
	(loss)
	(In thousands)

Period:
2004	$	(4,908	)
2005		(2,416	)
2006		(2,089	)
2007		(258	)
2008		2,409

	$	(7,262	)


~~NOTE 8.~~ NOTE 9. NET INCOME (LOSS) PER SHARE	~~NET LOSS PER SHARE~~


~~NOTE 9.~~ NOTE 10. ACCUMULATED DEFICIT	~~ACCUMULATED DEFICIT~~


	Three Months
	Ended
	(In thousands)

Balance as of July 4, 2009	$	(1,116,869	)
Net loss		(14,047	)
Losses on re-issuance of treasury stock allocated to accumulated deficit		(44,619	)

Balance as of October 3, 2009	$	(1,175,535	)


	Nine Months
	Ended
	(In thousands)

Balance as of January 3, 2009, as adjusted (Note 2)	$	(814,679	)
Net loss		(151,661	)
Losses on re-issuance of treasury stock allocated to accumulated deficit		(209,195	)

Balance as of October 3, 2009	$	(1,175,535	)


~~NOTE 12.~~ NOTE 14. STATEMENT OF CASH FLOWS	~~STATEMENT OF CASH FLOWS~~


~~NOTE 14.~~ NOTE 16. SEGMENT REPORTING	~~SEGMENT REPORTING~~


~~Item 2.~~ Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

	•		Identifying a triggering event that arises from a change in circumstances;

	•		Forecasting future operating results; and

	•		Estimating the proceeds from the disposition of long-lived or intangible assets.

	•		Control premium assigned to our market capitalization;

	•		Our operating forecasts;

	•		Revenue growth rates;

	•		Risk-commensurate discount rates and costs of capital; and

	•		Market multiples of revenue and earnings.


•	Continuing pressures on the research and development budgets in our customer base due to the deceleration of growth in the IC, electronics systems and semiconductor industries and the challenging macroeconomic environment;
•	~~Lower~~Increased revenue recognized because of higher business levels due to the ~~challenging macroeconomic environment and the~~ timing of ~~our~~ contract renewals with existing ~~customers;~~
•	~~Lower business levels~~customers and ~~up-front revenue recognized~~from contracts executed in prior quarters due to our continued transition to a ratable license mix, which began in the third quarter of fiscal 2008;

•		A decrease in our bad debt expense due to the prior year period increase in our allowance for doubtful accounts as a result of our assessment of the increased risk of customer delays or defaults on payment obligations and the current year release of a portion of the reserve as a result of collections on certain receivables that were previously included in our allowance for doubtful accounts;

•		Decreased costs throughout the company as a result of our restructuring plans and other expense reductions;

•	An	The acquisition of Denali Software, Inc., or Denali, including an increase in ~~our allowance for doubtful accounts~~deferred tax liabilities from the intangible assets acquired with Denali and the ~~proportion of arrangements~~resulting benefit for ~~which revenue is deferred until payments become due and payable or cash is received from customers, as a result of our assessment~~income taxes because of the ~~increased risk~~release of ~~customer delays or defaults on payment obligations;~~valuation allowance against our deferred tax assets; and

•	~~Our retrospective adoption~~	The issuance of ~~new accounting principles, as required by~~$350.0 million principal amount of our 2.625% Cash Convertible Senior Notes Due 2015, or the ~~“Debt~~2015 Notes, and the repurchase of $100.0 million principal amount of our 1.375% Convertible Senior Notes Due December 15, 2011, or the 2011 Notes, and $100.0 million principal amount of our 1.500% Convertible Senior Notes Due December 15, 2013, or the 2013 Notes, and collectively with ~~Conversion and Other Options” subtopic of~~ the ~~FASB Accounting Standards Codification, or Codification, which increased interest expense for all periods presented.~~2011 Notes, the Convertible Senior Notes.


	•		The right to access new technology;

	•		The duration of the license; and

	•		Payment timing.


	•		Competitiveness of our new technology;

	•		Timing of contract renewals with existing customers;

	•		Length of our sales cycle; and

	•		Size, duration, terms and type of:


	•		Contract renewals with existing customers;

	•		Additional sales to existing customers; and

	•		Sales to new customers.


	Three Months Ended
	July 3,		April 3,		January 2,		October 3,		July 4,
	2010		2010		2010		2009		2009

Functional Verification		26%		22%		22%		21%		23%
Digital IC Design		21%		21%		22%		19%		24%
Custom IC Design		26%		27%		28%		28%		25%
System Interconnect		10%		9%		11%		11%		10%
Design for Manufacturing		6%		9%		7%		9%		5%
Services and other		11%		12%		10%		12%		13%

Total		100%		100%		100%		100%		100%

	•		The decrease in the maximum purchase limits under our Employee Stock Purchase Plan, or ESPP, and a lower grant date fair value of purchase rights granted;

	•		A decrease in the number of equity awards, including restricted stock awards and restricted stock units, collectively referred to as restricted stock, and stock options;

	•		A decrease in stock bonuses; and

	•		A decrease in expense for restricted stock and stock options primarily due to lower grant date fair values because of a lower grant date stock price.


	Change
	Three Months			Six Months
	Ended			Ended
	(In millions)

Professional services	$	(1.3	)	$	(1.4	)
Salary, benefits and other employee-related costs		(0.5	)		(1.7	)
Other individually insignificant items		(1.0	)		(1.9	)

	$	(2.8	)	$	(5.0	)


	Severance			Excess
	and Benefits			Facilities			Total
	(In millions)

2009 Restructuring Plan	$	1.6		$	----		$	1.6
2008 Restructuring Plan		(0.3	)		(1.4	)		(1.7	)
Other Restructuring Plans		----			(0.1	)		(0.1	)

Total	$	1.3		$	(1.5	)	$	(0.2	)


	Increase
	(decrease) in
	Net income
	(loss)
	(In millions)

Period:
2004	$	(4.9	)
2005		(2.4	)
2006		(2.1	)
2007		(0.3	)
2008		2.4

	$	(7.3	)