| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
000-15867
| Delaware | 77-0148231 | |
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| 2655 Seely Avenue, Building 5, San Jose, California | 95134 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
| Large accelerated filer | x | Accelerated filer | ||||
| Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ||||
Item 2. Item 3. Item 2. Item 3. Current Assets: Cash and cash equivalents Short-term investments Receivables Inventories 2015 Notes Hedges Prepaid expenses and other Total current assets Property, plant and equipment, net of accumulated depreciation of $662,068 and $658,990, respectively Goodwill Acquired intangibles, net of accumulated amortization of $82,530 and $91,542, respectively Long-term receivables Other assets Total Assets Current Liabilities: Convertible notes 2015 Notes Embedded Conversion Derivative Accounts payable and accrued liabilities Current portion of deferred revenue Total current liabilities Long-Term Liabilities: Long-term portion of deferred revenue Convertible notes Other long-term liabilities Total long-term liabilities Commitments and Contingencies (Note 12) Stockholders’ Equity: Common stock and capital in excess of par value Treasury stock, at cost Accumulated deficit Accumulated other comprehensive income Total stockholders’ equity Total Liabilities and Stockholders’ Equity Revenue: Product Services Maintenance Total revenue Costs and Expenses: Cost of product Cost of services Cost of maintenance Marketing and sales Research and development General and administrative Amortization of acquired intangibles Restructuring and other charges (credits) Total costs and expenses Income from operations Interest expense Other income, net Income before provision for income taxes Provision for income taxes Net income Net income per share – basic Net income per share – diluted Weighted average common shares outstanding – basic Weighted average common shares outstanding – diluted Net income Other comprehensive loss, net of tax effects: Foreign currency translation loss Changes in unrealized holding gains or losses on available-for-sale securities, net of reclassification adjustment for realized gains and losses Changes in defined benefit plan liabilities Total other comprehensive loss, net of tax effects Comprehensive income Cash and Cash Equivalents at Beginning of Period Cash Flows from Operating Activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of debt discount and fees Stock-based compensation Gain on investments, net Non-cash restructuring and other charges Deferred income taxes Provisions (recoveries) for losses (gains) on trade and installment contract receivables, net Other non-cash items Changes in operating assets and liabilities, net of effect of acquired businesses: Current and long-term receivables Inventories Prepaid expenses and other Other assets Accounts payable and accrued liabilities Deferred revenue Other long-term liabilities Net cash provided by operating activities Cash Flows from Investing Activities: Proceeds from the sale of available-for-sale securities Proceeds from the sale of long-term investments Purchases of property, plant and equipment Investment in venture capital partnerships and equity investments Cash paid in business combinations and asset acquisitions, net of cash acquired, and acquisitions of intangibles Net cash used for investing activities Cash Flows from Financing Activities: Principal payments on receivable sale financing Tax effect related to employee stock transactions allocated to equity Payment of acquisition-related contingent consideration Proceeds from issuance of common stock Stock received for payment of employee taxes on vesting of restricted stock Net cash provided by financing activities Effect of exchange rate changes on cash and cash equivalents Increase in cash and cash equivalents Cash and Cash Equivalents at End of Period March 30, 2013 and December 29, 2012 was as follows: " 2015 Notes ; transactions; or Fundamental change put right Make-whole premium Financial covenants 2015 Notes. The 2015 Notes Embedded Conversion Derivative is carried on the 29, 2012 met for a particular quarter. Principal amount Unamortized debt discount Liability component the common stock exceeds the strike price stipulated within the particular warrant agreement. Effective interest rate Contractual interest expense Amortization of debt discount As of Principal maturity value – at issuance Outstanding principal maturity value – at March 31, 2012 Contractual interest rate Contractual maturity date ; transactions; or as of 29, 2012 particular warrant agreement. Equity component – included in common stock Principal amount Unamortized debt discount Liability component The effective interest rate and components of interest expense of the 2013 Notes for the three months ended March Effective interest rate Contractual interest expense Amortization of debt discount purchase date. The changes in the carrying amount of goodwill during the three months ended March Balance as of December 31, 2011 Effect of foreign currency translation Balance as of March 31, 2012 Existing technology Agreements and relationships Distribution rights Tradenames, trademarks and patents Total acquired intangibles 29, 2012 Existing technology Agreements and relationships Distribution rights Tradenames, trademarks and patents Total acquired intangibles Cost of product Amortization of acquired intangibles Total amortization of acquired intangibles 2012 – remaining period 2013 2014 2015 2016 Thereafter Total estimated amortization expense Balance, December 31, 2011 Restructuring and other charges (credits), net Cash payments Effect of foreign currency translation Balance, March 31, 2012 Accounts receivable Installment contract receivables, short-term Long-term receivables Total receivables receivables. 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 the hierarchy based on the fair values of the respective financial instruments at the end of the reporting period in which the transfer occurred. There were no transfers between levels of the fair value hierarchy during the three months ended March Assets Cash equivalents – money market funds Available-for-sale securities Trading securities held in Non-Qualified Deferred Compensation Plan, or NQDC 2015 Notes Hedges Foreign currency exchange contracts Total Assets Liabilities Acquisition-related contingent consideration 2015 Notes Embedded Conversion Derivative Total Liabilities Assets Cash equivalents – money market funds Available-for-sale securities Trading securities held in NQDC 2015 Notes Hedges Foreign currency exchange contracts Total Assets Liabilities Acquisition-related contingent consideration 2015 Notes Embedded Conversion Derivative Total Liabilities condensed consolidated income statements. Balance as of December 31, 2011 Payments Adjustments Balance as of March 31, 2012 30, 2013 March 30, 2013 and December 29, 2012 were as follows: Cash and interest bearing deposits Cash equivalents – money market funds Total cash and cash equivalents Available-for-sale securities as of March 31, 2012 Available-for-sale securities as of December 31, 2011 Gains on sale of available-for-sale securities right to call or prepay obligations without penalties. Cost method Equity method Total non-marketable investments Gains on sale of non-marketable investments Net income Weighted average common shares used to calculate basic net income per share 2023 Notes 2015 Warrants Stock-based compensation Weighted average common shares used to calculate diluted net income per share Basic net income per share Diluted net income per share 2015 Warrants (various expiration dates through 2015) 2011 Warrants and 2013 Warrants (various expiration dates through 2014) Options to purchase shares of common stock (various expiration dates through 2021) Unvested shares of restricted stock Total potential common shares excluded Balance as of December 31, 2011 Net income Reissuance of treasury stock Balance as of March 31, 2012 Unrealized holding gains Reclassification of unrealized holding gains to other income, net Changes in unrealized holding gains or losses comprehensive income. Foreign currency translation gain Changes in defined benefit plan liabilities Unrealized holding gains on available-for-sale securities Total accumulated other comprehensive income Cash Paid During the Period for: Income taxes, including foreign withholding tax Non-cash Investing and Financing Activities: Available-for-sale securities received from customer Receivables related to sales of available-for-sale securities Interest income Gains on sale of non-marketable investments (Note 8) Gains on securities in Cadence’s non-qualified deferred compensation trust Gains (losses) on foreign exchange Equity income (losses) from investments Gains on sale of available-for-sale securities (Note 8) Other income Total other income, net Americas: United States Other Americas Total Americas Europe, Middle East and Africa: Germany Other Europe, Middle East and Africa Total Europe, Middle East and Africa Japan Asia: China Other Asia Total Asia Total Americas: United States Other Americas Total Americas Europe, Middle East and Africa: Germany Other Europe, Middle East and Africa Total Europe, Middle East and Africa Japan Asia: China Other Asia Total Asia Total See "Product Arrangements" below for a discussion of our license types. Design for Manufacturing, or The major Cadence® design platforms are branded as Incisive® functional verification, During the first quarter of fiscal 2013, we announced that we had signed definitive agreements to purchase Tensilica and Cosmic to add to our IP offerings. The addition of these technologies will enable us to offer broader IP solutions to customers. " estimates, and make changes 29, 2012 An increase in our product and maintenance revenue, primarily because An increase in employee-related costs, The timing of our product revenue is significantly affected by the mix of Revenue by Period Product Services Maintenance Total revenue Services revenue decreased during the three months ended March 30, 2013, as compared to the three months ended March 31, 2012, because of the redeployment of certain of our design services engineers to internal research and development projects. We expect services revenue to decrease during the remainder of fiscal 2013, as compared to the same periods in fiscal 2012, as we expect these design services engineers to continue to work on internal research and development projects, primarily related to our Design IP activities. Functional Verification and Design IP Digital IC Design Custom IC Design System Interconnect Design for Manufacturing Services and other Total United States Other Americas Europe, Middle East and Africa Japan Asia Total revenue United States Other Americas Europe, Middle East and Africa Japan Asia Total Product Services Maintenance Product Services Maintenance and Maintenance Product-related costs Amortization of acquired intangibles Total cost of product pre-sales activities. expenses when the United States dollar weakens against other currencies. For an additional description of how changes in foreign exchange rates affect our condensed consolidated financial statements, see the discussion under the heading “Item 3. Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Risk.” Operating expenses Percentage of total revenue Marketing and sales Percentage of total revenue Salary, variable compensation, benefits and other employee-related costs Other individually insignificant items Research and development Percentage of total revenue Salary, variable compensation, benefits and other employee-related costs Stock-based compensation Other individually insignificant items acquisitions of Tensilica and Cosmic and higher salary, benefits and other employee-related costs from an expected increase in hiring. General and administrative Percentage of total revenue Net recoveries of allowance for doubtful accounts Legal and other professional services costs Other individually insignificant items Amortization of acquired intangibles to increase during the remainder of fiscal 2013, as compared to the same period in fiscal 2012, due to the amortization of intangible assets that we expect to be recorded in connection with the acquisitions of Tensilica and Cosmic. Contractual cash interest expense: 2011 Notes 2013 Notes 2015 Notes Amortization of debt discount: 2011 Notes 2013 Notes 2015 Notes Amortization of deferred financing costs: 2011 Notes 2013 Notes 2015 Notes Other interest expense Total interest expense Interest income Gains on sale of non-marketable investments Gains on securities in the non-qualified deferred compensation trust Gains (losses) on foreign exchange Gains on sale of available-for-sale securities Other income Total other income, net 2013. The following table presents the provision for income taxes and the effective tax rate for the three months ended March 30, 2013 and March 31, 2012 Provision for income taxes Effective tax rate : 29, 2012 Cash, cash equivalents and short-term investments Net working capital Cash provided by operating activities Cash used for investing activities Cash provided by financing activities 29, 2012 Approximately Increase cash and cash equivalents Decrease in current portion of deferred revenue Decrease in accounts payable and accrued liabilities Increase in prepaid expenses and other Increase in convertible notes Decrease in inventories Decrease in receivables, net Other individually insignificant items Net income, net of non-cash related gains and losses Changes in operating assets and liabilities, net of effect of acquired businesses Purchases of property, plant and equipment Proceeds from the sale of long-term investments Proceeds from the sale of available-for-sale securities Cash paid in business combinations and asset acquisitions, net of cash acquired Other individually insignificant items Proceeds from the issuance of common stock Principal payment on previous receivable sale financing Tax effect related to employee stock transactions allocated to equity Stock received for payment of employee taxes on vesting of restricted stock Other individually insignificant items exercise of stock options. conversion. Japan because we receive some cash payments and make expense payments in Japanese yen. Forward Contracts: Indian rupee European Union euro Chinese renminbi Japanese yen Canadian dollar Israeli shekel New Taiwan dollar Other Total Estimated fair value States Treasury and United States government agencies. Interest-Bearing Instruments: Cash equivalents – variable rate Cash – variable rate Cash – fixed rate Total interest-bearing instruments 30, 2013 We have a portfolio of equity investments that includes marketable equity securities and non-marketable investments. Our equity investments are made primarily in connection with our strategic investment program. Under our strategic investment program, from time to time, we make cash investments in companies with technologies that are potentially strategically important to us. See Note 30, 2013 internal control must reflect the fact that there are resource constraints, and the benefits of the control must be considered relative to their costs. While our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of their effectiveness, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Cadence, have been detected. compared to prior years. Although the semiconductor industry experienced growth in 2010, semiconductor industry revenues for 2011 remained at levels similar to a decrease in spending on EDA products and services. The challenges of The ability to design SoCs increases the complexity of managing a design that, at the lowest level, is represented by billions of shapes on fabrication masks. In addition, SoCs typically incorporate microprocessors and digital signal processors that are programmed with software, requiring simultaneous design of the IC and the related software embedded on the IC. With the availability of seemingly endless gate capacity, there is an increase in design reuse, or the combining of off-the-shelf Increased technological capability of the Field-Programmable Gate Array, or FPGA, which is a programmable logic chip, creates an alternative to IC implementation for some electronics companies. This could reduce demand for our IC implementation products and services. A growing number of low-cost engineering services businesses could reduce the need for some IC companies to invest in EDA products. liquidity, financial position and results of operations. Announcements of our quarterly operating results and revenue and earnings forecasts that fail to meet or are inconsistent with earlier projections or the expectations of our securities analysts or investors; Changes in our forecasted bookings, revenue or earnings estimates; Market conditions in the IC, electronics systems and semiconductor industries; Changes in management; A gain or loss of a significant customer or market segment share; Material litigation; Announcements of new products or acquisitions of new technologies by us, our competitors or our In addition, equity markets in general, and the equities of technology companies in particular, have experienced extreme price and volume fluctuations. Such price and volume fluctuations may adversely affect the market price of our common stock for reasons unrelated to our business or operating results. The development by others of competitive EDA products or platforms and engineering services, possibly resulting in a shift of customer preferences away from our products and services and significantly decreased revenue; Decisions by electronics manufacturers to perform engineering services internally, rather than purchase these services from outside vendors due to budget constraints or excess engineering capacity; The challenges of developing (or acquiring externally developed) technology solutions, including hardware offerings, that are adequate and competitive in meeting the rapidly evolving requirements of next-generation design challenges; The significant number of current and potential competitors in the EDA industry and the low cost of entry; Intense competition to attract acquisition targets, possibly making it more difficult for us to acquire companies or technologies at an acceptable price, or at all; The combination of two or more of our EDA competitors or collaboration among many EDA companies to deliver more comprehensive offerings than they could individually; and Aggressive pricing competition by some of our competitors may cause us to lose our competitive position, which could result in lower revenues or profitability and could adversely impact our ability to realize the revenue and profitability forecasts for our software or hardware systems products. During fiscal 2012, Synopsys acquired Magma Design Automation, Inc., EVE SA and Springsoft, Inc. We expect that Synopsys’ integration of these companies into its product offerings will result in increased competitive pressures that could harm our business, results of operations or cash flows. The adoption or expansion of government trade restrictions, including tariffs and other trade barriers; Limitations on repatriation of earnings; Limitations on the conversion of foreign currencies; Reduced protection of intellectual property rights in some countries; Longer collection periods for receivables and greater difficulty in collecting accounts receivable; Difficulties in managing foreign operations; Political and economic instability; Unexpected changes in regulatory requirements; Inability to continue to offer competitive compensation in certain growing regions; and United proxy to vote on equity compensation plans unless the beneficial owner of the shares has given voting instructions. These rules and regulations could make it more difficult for us to grant equity compensation to employees in the future. To the extent that these regulations make it more difficult or expensive to grant equity compensation to employees, we may incur increased compensation costs or find it difficult to attract, retain and motivate employees, which could materially and adversely affect our business. We rely on our proprietary technology, as well as software and other intellectual property rights licensed to us by third parties, and we cannot assure you that the precautions taken to protect our rights will be adequate or that we will continue to be able to adequately secure such intellectual property rights from third parties. broadly used by consumers, may be higher than the risk associated with our software products. In settling these claims, we may be required to enter into royalty or licensing agreements with the third parties claiming infringement. These royalty or licensing agreements, if available, may not have terms favorable to us. Being compelled to enter into a license agreement with unfavorable terms could seriously harm our business, operating results or financial condition. Any potential intellectual property litigation could compel us to do one or more of the following: Pay damages (including the potential for treble damages), license fees or royalties (including royalties for past periods) to the party claiming infringement; Stop licensing products or providing services that use the challenged intellectual property; Obtain a license from the owner of the infringed intellectual property to sell or use the relevant technology, which license may not be available on reasonable terms, or at all; or Redesign the challenged technology, which could be time consuming and costly, or not be accomplished. The timing of customers’ competitive evaluation processes; or Customers’ budgetary constraints and budget cycles. principles, and we may incur significant costs to adjust our accounting systems and processes to comply with significant changes. Changes in tax laws or the interpretation of such tax laws, including potential United States and international tax reforms; Earnings being lower than anticipated in countries where we are taxed at lower rates as compared to the United States federal and state statutory tax rates; An increase in expenses not deductible for tax purposes, including certain stock-based compensation and impairment of goodwill; Changes in the valuation allowance against our deferred tax assets; Changes in judgment from the evaluation of new information that results in a recognition, derecognition or change in measurement of a tax position taken in a prior period; Increases to interest or penalty expenses classified in the financial statements as income taxes; New accounting standards or interpretations of such standards; A change in our decision to indefinitely reinvest foreign earnings outside the United States; or Results of tax examinations by the Internal Revenue Service, or IRS, and state and foreign tax authorities. Loss of customers; Loss of market share; Failure to attract new customers or achieve market acceptance; Diversion of development resources to resolve the problem; Loss of or delay in revenue; Increased service costs; and Liability for damages. Our certificate of incorporation allows our Board of Directors to issue, at any time and without stockholder approval, preferred stock with such terms as it may determine. No shares of preferred stock are currently outstanding. However, the rights of holders of any of our preferred stock that may be issued in the future may be superior to the rights of holders of our common stock. Section 203 of the Delaware General Corporation Law generally prohibits a Delaware corporation from engaging in any business combination with a person owning 15% or more of its voting stock, or who is affiliated with the corporation and owned 15% or more of its voting stock at any time within three years prior to the proposed business combination, for a period of three years from the date the person became a 15% owner, unless specified conditions are met. Make it difficult for us to satisfy our payment obligations on our debt as described above; Make us more vulnerable in the event of a downturn in our business; Reduce funds available for use in our operations or for developments or acquisitions of new technologies; Make it difficult for us to incur additional debt or obtain any necessary financing in the future for working capital, capital expenditures, debt service, acquisitions or general corporate purposes; Impose additional operating or financial covenants on us; Limit our flexibility in planning for or reacting to changes in our business; or Place us at a possible competitive disadvantage relative to less leveraged competitors and competitors that have greater access to capital resources. Additionally, in the event of a default, certain assets that secure the borrowings could be seized by our lenders, which could adversely impact our ability to operate. Period January 1, 2012 – February 4, 2012 February 5, 2012 – March 3, 2012 March 4, 2012 – March 31, 2012 Total /s/ Lip-Bu Tan /s/ Geoffrey G. Ribar Page PART I. PageFINANCIAL INFORMATION PART I. Item 1. Item 1. 1 2 3 4 5 25 39Item 4. PART II. OTHER INFORMATION Item 4. 42Item 1. Item 1A. PART II.OTHER INFORMATIONItem 1. 43Item 1A.43 60 60Item 4. Item 5. Item 4. 60Item 6. Item 5.60Item 6.6162 March 31,
2012 December 31,
2011 ASSETS $ 659,687 $ 601,602 3,287 3,037 79,997 136,772 41,720 43,243 257,775 215,113 69,178 64,216 1,111,644 1,063,983 257,743 262,517 192,445 192,125 166,528 173,234 7,555 11,371 58,917 58,039 $ 1,794,832 $ 1,761,269 LIABILITIES AND STOCKHOLDERS’ EQUITY $ 297,653 $ 294,061 257,775 215,113 143,760 165,791 312,238 340,401 1,011,426 1,015,366 62,634 73,959 133,459 131,920 126,561 128,894 322,654 334,773 1,735,689 1,733,884 (269,646 ) (290,462 ) (1,053,745 ) (1,083,245 ) 48,454 50,953 460,752 411,130 $ 1,794,832 $ 1,761,269 March 30,
2013 December 29,
2012ASSETS Current assets: Cash and cash equivalents $ 810,152 $ 726,357 Short-term investments 100,992 100,704 Receivables, net of allowances of $0 and $85, respectively 75,253 97,821 Inventories 37,016 36,163 2015 notes hedges 315,895 303,154 Prepaid expenses and other 122,604 127,036 Total current assets 1,461,912 1,391,235 Property, plant and equipment, net of accumulated depreciation of $626,732 and $635,450, respectively 237,455 244,439 Goodwill 232,608 233,266 Acquired intangibles, net of accumulated amortization of $104,822 and $104,351, respectively 177,891 184,938 Long-term receivables 3,734 7,559 Other assets 209,663 225,566 Total assets $ 2,323,263 $ 2,287,003 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Convertible notes $ 452,571 $ 447,011 2015 notes embedded conversion derivative 315,895 303,154 Accounts payable and accrued liabilities 156,606 171,318 Current portion of deferred revenue 285,553 295,787 Total current liabilities 1,210,625 1,217,270 Long-term liabilities: Long-term portion of deferred revenue 41,432 50,529 Other long-term liabilities 51,533 104,033 Total long-term liabilities 92,965 154,562 Commitments and contingencies (Note 10) Stockholders’ equity: Common stock and capital in excess of par value 1,727,901 1,721,556 Treasury stock, at cost (175,110 ) (200,786 ) Accumulated deficit (570,940 ) (649,549 ) Accumulated other comprehensive income 37,822 43,950 Total stockholders’ equity 1,019,673 915,171 Total liabilities and stockholders’ equity $ 2,323,263 $ 2,287,003 Three Months Ended March 31,
2012 April 2,
2011 $ 190,024 $ 141,819 29,542 27,805 96,264 96,478 315,830 266,102 15,401 14,194 19,374 20,075 11,811 10,898 83,795 78,372 108,594 101,299 27,770 19,302 3,786 4,459 (51 ) (41 ) 270,480 248,558 45,350 17,544 (8,537 ) (10,986 ) 2,434 4,469 39,247 11,027 8,143 4,704 $ 31,104 $ 6,323 $ 0.12 $ 0.02 $ 0.11 $ 0.02 267,940 261,533 277,733 268,578 Three Months Ended March 30,
2013 March 31,
2012Revenue: Product and maintenance $ 328,271 $ 286,288 Service 25,995 29,542 Total revenue 354,266 315,830 Costs and expenses: Cost of product and maintenance 29,847 27,212 Cost of service 18,344 19,374 Marketing and sales 90,402 83,795 Research and development 124,084 108,594 General and administrative 29,810 27,770 Amortization of acquired intangibles 3,791 3,786 Restructuring and other charges (credits) (148 ) (51 ) Total costs and expenses 296,130 270,480 Income from operations 58,136 45,350 Interest expense (9,262 ) (8,537 ) Other income, net 2,175 2,434 Income before provision (benefit) for income taxes 51,049 39,247 Provision (benefit) for income taxes (27,560 ) 8,143 Net income $ 78,609 $ 31,104 Net income per share – basic $ 0.29 $ 0.12 Net income per share – diluted $ 0.27 $ 0.11 Weighted average common shares outstanding – basic 274,936 267,940 Weighted average common shares outstanding – diluted 292,151 277,733 Three Months Ended March 31,
2012 April 2,
2011 $ 31,104 $ 6,323 (2,466 ) (120 ) (4 ) (368 ) (29 ) (33 ) (2,499 ) (521 ) $ 28,605 $ 5,802 Three Months Ended March 30,
2013 March 31,
2012Net income $ 78,609 $ 31,104 Other comprehensive loss, net of tax effects: Foreign currency translation loss (6,162 ) (2,466 ) Changes in unrealized holding gains or losses on available-for-sale securities, net of reclassification adjustment for realized gains and losses (284 ) (4 ) Changes in defined benefit plan liabilities 318 (29 ) Total other comprehensive loss, net of tax effects (6,128 ) (2,499 ) Comprehensive income $ 72,481 $ 28,605 Three Months Ended March 31,
2012 April 2,
2011 $ 601,602 $ 557,409 31,104 6,323 21,939 22,907 5,734 7,263 11,525 9,357 (1,949 ) (4,447 ) 63 65 223 65 — (5,197 ) 683 488 60,172 37,642 (154 ) (4,016 ) (5,545 ) (5,456 ) (577 ) 1,662 (19,582 ) (20,681 ) (39,315 ) 15,607 (3,612 ) (5,217 ) 60,709 56,365 — 1,497 44 2,677 (8,201 ) (5,181 ) (250 ) (608 ) (1,041 ) (2,538 ) (9,448 ) (4,153 ) — (2,829 ) 2,842 160 (39 ) — 12,761 8,897 (6,173 ) (2,854 ) 9,391 3,374 (2,567 ) (787 ) 58,085 54,799 $ 659,687 $ 612,208 Three Months Ended March 30,
2013 March 31,
2012Cash and cash equivalents at beginning of period $ 726,357 $ 601,602 Cash flows from operating activities: Net income 78,609 31,104 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 21,682 21,939 Amortization of debt discount and fees 6,281 5,734 Stock-based compensation 13,810 11,525 Gain on investments, net (1,006 ) (1,949 ) Deferred income taxes 8,695 223 Provisions (recoveries) for losses (gains) on receivables, net (85 ) — Other non-cash items (922 ) 746 Changes in operating assets and liabilities, net of effect of acquired businesses: Receivables 23,652 60,172 Inventories (979 ) (154 ) Prepaid expenses and other (1,099 ) (5,545 ) Other assets 4,148 (577 ) Accounts payable and accrued liabilities (11,003 ) (19,582 ) Deferred revenue (16,648 ) (39,315 ) Other long-term liabilities (49,799 ) (3,612 ) Net cash provided by operating activities 75,336 60,709 Cash flows from investing activities: Purchases of available-for-sale securities (24,282 ) — Proceeds from the sale of available-for-sale securities 14,985 — Proceeds from the maturity of available-for-sale securities 8,700 — Proceeds from the sale of long-term investments 6,102 44 Purchases of property, plant and equipment (6,569 ) (8,201 ) Investment in venture capital partnerships and equity investments — (250 ) Cash paid in business combinations and asset acquisitions, net of cash acquired (757 ) (1,041 ) Net cash used for investing activities (1,821 ) (9,448 ) Cash flows from financing activities: Principal payments on receivable financing (2,526 ) — Payment of acquisition-related contingent consideration (582 ) (39 ) Tax effect related to employee stock transactions allocated to equity 5,276 2,842 Proceeds from issuance of common stock 21,801 12,761 Stock received for payment of employee taxes on vesting of restricted stock (8,775 ) (6,173 ) Net cash provided by financing activities 15,194 9,391 Effect of exchange rate changes on cash and cash equivalents (4,914 ) (2,567 ) Increase in cash and cash equivalents 83,795 58,085 Cash and cash equivalents at end of period $ 810,152 $ 659,687 Supplemental cash flow information: Interest paid $ 183 $ — Income taxes paid (refunded), including foreign withholding tax $ (21 ) $ 4,699 Non-cash investing and financing activities: Available-for-sale securities received from customer $ 209 $ 15 Receivables related to sales of available-for-sale securities $ — $ 122 Condensed Consolidated Financial Statementscondensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared by Cadence Design Systems, Inc., or Cadence, without audit, pursuant to the rules and regulations of the United States 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 on Form 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 on Form 10-Q and are adequate to make the information presented not misleading. These Condensed Consolidated Financial Statementscondensed consolidated financial statements are meant to be, and should be, read in conjunction with the Consolidated Financial Statementsconsolidated financial statements and the Notes thereto included in Cadence’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.29, 2012. In the condensed consolidated income statements for the three months ended March 30, 2013, Cadence combined product and maintenance revenue because product and maintenance revenue is generally recognized from agreements that require customers to purchase both the product and associated maintenance in a bundled offering. Cadence reclassified prior period product and maintenance revenue balances to conform to the current period presentation. Certain other prior period balances have also been reclassified to conform to current period presentation.Condensed Consolidated Financial Statementscondensed consolidated financial statements included in this Quarterly Report on Form 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 of operations, cash flows and financial position 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.Condensed Consolidated Financial Statementscondensed consolidated financial statements in conformity with United States 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 Statementscondensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.CONVERTIBLE NOTESDEBT March 30, 2013 December 29, 2012 (In thousands) Principal Unamortized Discount Carrying Value Principal Unamortized Discount Carrying Value 2015 Notes $ 350,000 $ (37,271 ) $ 312,729 $ 350,000 $ (41,181 ) $ 308,819 2013 Notes 144,461 (4,797 ) 139,664 144,461 (6,447 ) 138,014 2023 Notes 178 — 178 178 — 178 Revolving line of credit — — — — — — Total outstanding debt $ 494,639 $ (42,068 ) $ 452,571 $ 494,639 $ (47,628 ) $ 447,011 $350.0$350.0 million principal amount of 2.625% Cash Convertible Senior Notes Due 2015, or the 2015 Notes. At maturity, the holders of the 2015 Notes will be entitled to receive the principal amount of the 2015 Notes plus accrued interest. The 2015 Notes are convertible into cash prior to maturity upon the occurrence of certain conditions described in the table below. IfTo the extent that the 2015 Notes are convertible prior to maturity and a holder of the 2015 Notes elects to convert its notes prior to maturity, thethat note holder of the notes will be entitled to receive cash equal to the principal amount of the notes plus any additional conversion value as described in the table below under the heading “Conversion"Conversion feature.”$350.0$350.0 million principal balance of the notes. In June 2010, Cadence also sold warrants in separate transactions, or the 2015 Warrants. As a result of the 2015 Warrants, Cadence will experience dilution to its diluted earnings per share if its average closing stock price exceeds $10.78$10.78 for any fiscal quarter. To the extent that Cadence’s stock price exceeds $10.78$10.78 at expiration of the 2015 Warrants, Cadence will issue shares to net settle the 2015 Warrants. (In thousands, except percentages)percentages and per share amounts)Outstanding principal maturity value – at March 31, 201230, 2013 $350,000 Contractual interest rate 2.625% Contractual maturity date June 1, 2015 Initial conversion rate 132.5205 shares of common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $7.55 per share of Cadence common stock. Conversion feature (in addition to principal amount payable in cash) Cash to the extent Cadence’s stock price exceeds approximately $7.55 per share, calculated based on the applicable conversion rate multiplied by the volume weighted average price of ourCadence common stock over a specified period.Early conversion conditions (or the Early Conversion Conditions) AverageClosing stock closing price greater than $9.81 for at least 20 of the last 30 trading days in a fiscal quarter (convertible only for subsequent quarter).transactions.Conversion immediately preceding maturity From March 1, 2015 until the second trading day immediately preceding the maturity date, holders may convert their 2015 Notes at any time into cash as described above under “Conversion feature.” Redemption at Cadence’s option prior to maturity None. Upon certain fundamental corporate changes prior to maturity, the 2015 Note holders could require Cadence to repurchase their notes for cash equal to the principal amount of the notes plus accrued interest. Upon certain fundamental changes prior to maturity, if Cadence’s stock price were between $6.16 and $40.00 per share at that time, the 2015 Note holders of the notes would be entitled to an increase to the conversion rate. This is referred to as a “make-whole premium.” None. As of March 31, 2012, theApril 1, 2012March 31, 2013 through June 30, 2012,29, 2013 because Cadence’s closing stock price exceeded $9.81$9.81 for at least 20 days in the 30-day30-day period prior to March 31, 2012.30, 2013. Accordingly, Cadence classified the net balance of the 2015 Notes of $297.7$312.7 million is classified as a current liability on the Condensed Consolidated Balance SheetCadence’s condensed consolidated balance sheet as of March 31, 2012.30, 2013. The classification of the 2015 Notes as current or long-term on the Condensed Consolidated Balance Sheetcondensed consolidated balance sheet is evaluated at each balance sheet date and may change from time to time depending on whether Cadence’s closing stock price has exceeded $9.81$9.81 during the periods specified in the table above under “Early conversion conditions.”wouldwill classify its net liability under the 2015 Notes as a current liability on the Condensed Consolidated Balance Sheetcondensed consolidated balance sheet as of the end of that fiscal quarter. If none of the 2015 Notes Early Conversion Conditions have been met in a future fiscal quarter prior to the one-year period immediately preceding the maturity date, Cadence wouldwill classify its net liability under the 2015 Notes as a long-term liability on the Condensed Consolidated Balance Sheetcondensed consolidated balance sheet as of the end of that fiscal quarter. If the note holders elect to convert their 2015 Notes prior to maturity, any unamortized discount and transaction fees will be expensed at the time of conversion. If the entire outstanding principal amount had been converted on March 31, 2012,30, 2013 Cadence would have recorded an expense of $59.5$42.4 million associated with the conversion, comprised of $52.3$37.3 million of unamortized debt discount and $7.2$5.1 million of unamortized transaction fees.31, 2012,30, 2013, the if-converted value of the 2015 Notes to the note holders of approximately $549.2$646.1 million exceeded the principal amount of $350.0 million.$350.0 million. The fair value of the 2015 Notes was $580.8$657.8 million as of March 31, 201230, 2013 and was $527.8$640.1 million as of December 31, 2011.29, 2012. The 2015 Notes currently trade at a premium to the if-converted value of the notes. As of March 31, 2012,30, 2013, none of the note holders had elected to convert their 2015 Notes.$76.6$76.6 million and was recorded as original debt discount for purposes of accounting for the debt component of the 2015 Notes. This discount is amortized as interest expense using the effective interest method over the term of theCondensed Consolidated Balance Sheetcondensed consolidated balance sheet at its estimated fair value. The fair value was $257.831, 201230, 2013 and $215.1$303.2 million as of December 31, 2011.$76.6 million.$76.6 million. The 2015 Notes Hedges are accounted for as derivative assets and are carried on the Condensed Consolidated Balance Sheetcondensed consolidated balance sheet at their estimated fair value. The 2015 Note Hedges fair value was $257.8$315.9 million as of March 31, 201230, 2013 and $215.1$303.2 million as of December 31, 2011.29, 2012. The 2015 Notes Embedded Conversion Derivative liability and the 2015 Notes Hedges asset are adjusted to fair value each reporting period and unrealized gains and losses are reflected in the Condensed Consolidated Income Statements.condensed consolidated income statements. The 2015 Notes Embedded Conversion Derivative and the 2015 Notes Hedges are designed to have similar fair values. Accordingly, the changes in the fair values of these instruments offset during the three months ended March 30, 2013 and March 31, 2012 and the three months ended April 2, 2011 and did not have a net impact on the Condensed Consolidated Income Statementscondensed consolidated income statements for the respective periods.Condensed Consolidated Balance Sheetcondensed consolidated balance sheet corresponds with the classification of the 2015 Notes, is evaluated at each balance sheet date and may change from time to time depending on whether the closing stock price early conversion conditionEarly Conversion Condition is met.$10.78$10.78 per share, for total proceeds of $37.5$37.5 million, which was recorded as an increase in stockholders’ equity. The 2015 Warrants expire on various dates from September 2015 through December 2015 and must be settled in net shares of Cadence’s common stock. Changes in the fair valueTherefore, upon expiration of the 2015 Warrants, Cadence will not be recognized inissue shares of common stock to the Condensed Consolidated Financial Statements as long as the instruments remain classified as equity.Components of 2015 NotesThe componentspurchasers of the 2015 Notes asWarrants that represent the value by which the price of March 31, 2012 and December 31, 2011 were as follows: As of March 31,
2012 December 31,
2011 (In thousands) $ 350,000 $ 350,000 (52,347 ) (55,939 ) $ 297,653 $ 294,061 and April 2, 2011 were as follows: Three months ended March 31,
2012 April 2,
2011 (In thousands, except
percentages) 8.1 % 8.1 % $ 2,289 $ 2,289 $ 3,592 $ 3,337 Three Months Ended March 30,
2013 March 31,
2012 (In thousands, except percentages) Effective interest rate 8.1 % 8.1 % Contractual interest expense $ 2,289 $ 2,289 Amortization of debt discount $ 3,910 $ 3,592 $250.0$250.0 million principal amount of 1.500% Convertible Senior Notes Due December 15, 2013, or the 2013 Notes. At the same time, Cadence issued $250.0$250.0 million principal amount of 1.375% Convertible Senior Notes Due December 15, 2011, or the 2011 Notes. During 2010, Cadence repurchased a portion of the 2011 Notes and the 2013 Notes. The 2011 Notes matured on December 15, 2011, at which time Cadence paid the remaining balance on the 2011 Notes in full.IfTo the extent that the 2013 Notes are convertible prior to maturity and a holder of the 2013 Notes elects to convert its notes prior to maturity, thethat note holder of the notes will be entitled to receive cash for the principal amount of the notes plus shares for any additional conversion value as described in the table below under the heading “Conversion feature.” As of March 31, 2012,30, 2013, the 2013 Notes were not convertible.$31.50$31.50 for any fiscal quarter. If Cadence’s stock price is above $31.50$31.50 at the expiration of the 2013 Warrants, Cadence will issue shares to settle the 2013 Warrants. 2013 Notes (In thousands, except
percentages) $ 250,000 $ 144,461 1.500 % December 15, 2013 2013 Notes (In thousands, except percentages and per share amounts) Principal maturity value – at issuance $250,000 Outstanding principal maturity value – at March 30, 2013 $144,461 Contractual interest rate 1.500% Contractual maturity date December 15, 2013 Equity component - included in common stock - at March 30, 2013 and December 29, 2012 $63,027 Initial conversion rate 47.2813 shares of common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $21.15 per share of Cadence common stock. Conversion feature (in addition to principal amount payable in cash) Shares to the extent Cadence’s stock price exceeds $21.15 per share, calculated based on the applicable conversion rate multiplied by the volume weighted average price of ourCadence common stock over a specified period.Early conversion conditions (or the Early Conversion Conditions) AverageClosing stock closing price greater than $27.50 for at least 20 of the last 30 trading days in a calendar quarter (convertible only for subsequent quarter).transactions.Conversion immediately preceding maturity From November 1, 2013, and until the trading day immediately preceding the maturity date, holders may convert their 2013 Notes at any time into cash and Cadence shares as described above under “Conversion feature.” Redemption at Cadence’s option prior to maturity None. Fundamental change put right Upon a fundamental change prior to maturity, the 2013 Note holders could require Cadence to repurchase their notes for cash equal to the principal amount of the notes plus accrued interest. Make-whole premium Upon certain fundamental changes, prior to maturity, if Cadence’s stock price were between $18.00 and $60.00 per share at that time, the 2013 Note holders of the notes would be entitled to an increase to the conversion rate. This is referred to as a “make-whole premium.”Financial covenants None. 31, 2012,30, 2013, none of the 2013 Notes Early Conversion Conditions had been metmet. The 2013 Notes mature on December 15, 2013 and the 2013 Notes are classified as a long-term liability on the Condensed Consolidated Balance Sheet. The classificationcomponent of the 2013 Notes is classified as a current or long-term liability on the Condensed Consolidated Balance Sheet is evaluated at each balance sheet date and may change from time to time, depending on whether the closing stock price early conversion condition is met for that particular quarter.31, 2012,30, 2013, the if-converted value of the 2013 Notes to the note holders did not exceed the principal amount of the 2013 Notes. The total fair value of the 2013 Notes, including the equity component, was $143.7$145.0 million as of March 31, 201230, 2013 and was $142.3$144.1 million as of December 31, 2011.$119.8$119.8 million andin June 2010, and the purchase of a portion of the 2013 Notes in Novemberduring fiscal 2010, Cadence also sold a portion of the 2013 Notes Hedges and the 2011 Notes Hedges representing options to purchase approximately 9.7 million shares of Cadence’s common stock for proceeds of $0.4 million.$0.4 million. The estimated fair value of the remaining 2013 Notes Hedges was $1.4$0.3 million as of March 31, 201230, 2013 and $1.4$0.7 million as of December 31, 2011.29, 2012. Subsequent changes in the fair value of the 2013 Notes Hedges will not be recognized in the Condensed Consolidated Financial Statementscondensed consolidated financial statements as long as the instruments remain classified as equity.$31.50$31.50 per share for proceeds of $39.4$39.4 million, which was recorded as an increase in stockholders’ equity. In connection with the purchase of a portionsome of the 2013 Notes and the 2011 Notes in June 2010 and Novemberduring fiscal 2010, Cadence also purchased a portionsome of the 2013 Warrants and the 2011 Warrants, reducing the number of shares of Cadence common stock available forsubject to purchase rights by 9.7 million shares at a cost of $0.1 million.$0.1 million. The 2011 Warrants expireexpired on various dates from February 2012 through April 2012 and, reducing the number of shares of Cadence common stock subject to purchase rights by 7.1 million shares. The 2013 Warrants will expire on various dates from February 2014 through April 2014 and both the 2011 Warrants and the. The 2013 Warrants must be settled in net shares of Cadence’s common stock. DuringTherefore, upon expiration, Cadence will issue shares of common stock to the three months ended March 31, 2012, a portionpurchasers of the 2011 Warrants expired, reducingwarrants that represent the numbervalue, if any, by which the price of shares of Cadencethe common stock available for purchase by 6.1 million shares. Changes inexceeds the fair value ofstrike price stipulated within the 2013 Warrants and the 2011 Warrants will not be recognized in the Condensed Consolidated Financial Statements as long as the instruments remain classified as equity.Components of the 2013 NotesThe components of the 2013 Notes as of March 31, 2012 and December 31, 2011 were as follows: As of March 31,
2012 December 31,
2011 (In thousands) $ 63,027 $ 63,027 $ 144,461 $ 144,461 (11,180 ) (12,719 ) $ 133,281 $ 131,742 31, 201230, 2013, and of the 2013 Notes and 2011 Notes for the three months ended April 2, 2011March 31, 2012, were as follows: Three months ended March 31,
2012 April 2,
2011 (In thousands, except
percentages) 6.4 % 6.3 % $ 540 $ 1,054 $ 1,539 $ 3,197 Three Months Ended March 30,
2013 March 31,
2012 (In thousands, except percentages) Effective interest rate 6.4 % 6.4 % Contractual interest expense $ 540 $ 540 Amortization of debt discount $ 1,651 $ 1,539 $420.0$420.0 million principal amount of its Zero Coupon Zero Yield Senior Convertible Notes Due 2023, or the 2023 Notes. As of March 31,30, 2013 and December 29, 2012 and December 31, 2011,, the remaining balance and the total fair value of the 2023 Notes was $0.2 million.$0.2 million.For business combinations$61.2 million in cash. Lip-Bu Tan, Cadence’s president, chief executive officer and director, is also a member of the board of directors of Cosmic. In addition, a trust for the benefit of the children of Mr. Tan owns approximately 8.5% of Cosmic, and Mr. Tan and his wife serve as co-trustees of the trust. Prior to and during the negotiations of the transaction, Mr. Tan recused himself from the discussions and negotiations between and at Cadence and Cosmic, including any discussions and negotiations related to the consideration provided to Cosmic. A financial advisor provided a fairness opinion to Cadence in connection with the transaction, and the Board of Directors of Cadence reviewed the transaction and concluded that it was in the best interests of Cadence to proceed with such transaction. The completion of the transaction is subject to certain conditions, including regulatory approval.January 3, 2009, contingent considerationtaking into account adjustments for certain costs and an estimated $25.0 million of cash held by Tensilica at closing, was approximately $326.4 million. In addition, Cadence assumed certain unvested Tensilica options. Of the net $326.4 million, $5.8 million is recorded atconditioned upon certain Tensilica shareholders remaining employees of Cadence over designated retention periods. Cadence will also make payments to certain employees that will be conditioned upon continued employment and certain performance metrics over a three-year period. Cadence is in the process of determining the fair value onof the acquisition datenet assets acquired and adjusted to fair value atwill include Tensilica’s results of operations in its financial statements with effect from the end of each reporting period.$5.0$5.0 million if certain financialthese measures are met during the three-yearthree-year period subsequent to October 1, 2011.2011. The fair value of the contingent consideration arrangement recorded on the date of the acquisition was $3.5 million.$3.5 million. The fair value of the contingent consideration as of March 31, 201230, 2013 was $3.8$3.5 million and included $0.3 million of accretion recorded after the date of acquisition.. based on, or subject to the satisfaction of certain performance metrics.financial measures. If performance is such that these payments are fully achieved, Cadence may be obligated to pay up to an aggregate of $31.4$14.4 million over the next 4937 months. Of the $31.4$14.4 million, up to $20.7$9.0 million would be recorded as operating expenses in the Condensed Consolidated Income Statements and up to $5.6 million would be recorded as additional goodwill.condensed consolidated income statements.Goodwill31, 201230, 2013 were as follows: Gross Carrying
Amount (In thousands) $ 192,125 320 $ 192,445 (In thousands) Balance as of December 29, 2012 $ 233,266 Effect of foreign currency translation (658 ) Balance as of March 30, 2013 $ 232,608 finitedefinite lives as of March 31, 201230, 2013 were as follows, excluding intangibles that were fully amortized as of December 31, 2011: Gross Carrying
Amount Accumulated
Amortization Acquired
Intangibles, net (In thousands) $ 90,667 $ (20,037 ) $ 70,630 117,108 (29,050 ) 88,058 30,100 (26,338 ) 3,762 11,183 (7,105 ) 4,078 $ 249,058 $ (82,530 ) $ 166,528 (In thousands) Existing technology $ 112,697 $ (33,595 ) $ 79,102 Agreements and relationships 133,397 (39,965 ) 93,432 Distribution rights 30,100 (29,348 ) 752 Tradenames, trademarks and patents 6,519 (1,914 ) 4,605 Total acquired intangibles $ 282,713 $ (104,822 ) $ 177,891 finitedefinite lives as of December 31, 201129, 2012 were as follows, excluding intangibles that were fully amortized as of January 1, 2011: Gross Carrying
Amount Accumulated
Amortization Acquired
Intangibles, net (In thousands) $ 90,433 $ (17,119 ) $ 73,314 118,060 (27,123 ) 90,937 30,100 (25,585 ) 4,515 26,183 (21,715 ) 4,468 $ 264,776 $ (91,542 ) $ 173,234 (In thousands) Existing technology $ 112,940 $ (30,171 ) $ 82,769 Agreements and relationships 133,764 (37,769 ) 95,995 Distribution rights 30,100 (28,595 ) 1,505 Tradenames, trademarks and patents 12,485 (7,816 ) 4,669 Total acquired intangibles $ 289,289 $ (104,351 ) $ 184,938 and April 2, 2011 was as follows: Three Months Ended March 31,
2012 April 2,
2011 (In thousands) $ 2,899 $ 2,196 3,786 4,459 $ 6,685 $ 6,655 Amortization of costs from existing technology is included in cost of product. Three Months Ended March 30,
2013 March 31,
2012 (In thousands) Cost of product and maintenance $ 3,807 $ 2,899 Amortization of acquired intangibles 3,791 3,786 Total amortization of acquired intangibles $ 7,598 $ 6,685 (In thousands) $ 19,810 23,096 20,338 20,025 19,585 63,674 $ 166,528 (In thousands) 2013 – remaining period $ 20,395 2014 25,404 2015 25,057 2016 24,348 2017 23,260 Thereafter 59,427 Total estimated amortization expense $ 177,891 RESTRUCTURING AND OTHER CHARGESCadence has initiated various restructuring plans in the past in an effort to operate more efficiently. These restructuring plans were primarily comprised of severance and termination costs related to headcount reductions and facility-related lease loss charges. As of March 31, 2012, all severance and termination benefits have been paid.The following table presents activity for Cadence’s restructuring plans for the three months ended March 31, 2012: Severance
and
Benefits Excess
Facilities Other Total (In thousands) $ 46 $ 4,976 $ 5 $ 5,027 (29 ) (22 ) — (51 ) (17 ) (305 ) — (322 ) — 143 — 143 $ — $ 4,792 $ 5 $ 4,797 NOTE 6. ACCOUNTS RECEIVABLERECEIVABLES AND ALLOWANCES FOR DOUBTFUL ACCOUNTSaccounts receivablereceivables balances as of March 31,30, 2013 and December 29, 2012 and December 31, 2011 were as follows: As of March 31,
2012 December 31,
2011 (In thousands) $ 46,851 $ 99,686 33,146 37,086 7,555 11,371 $ 87,552 $ 148,143 As of March 30,
2013 December 29,
2012 (In thousands) Accounts receivable $ 41,269 $ 67,259 Installment contract receivables, short-term 33,984 30,647 Long-term receivables 3,734 7,559 Total receivables $ 78,987 $ 105,465 Less allowance for doubtful accounts — (85 ) Total receivables, net $ 78,987 $ 105,380 and electronics systems industry.and consumer electronics industries. As of March 31,30, 2013, one customer accounted for approximately 11% of Cadence’s total receivables. As of December 29, 2012 and December 31, 2011, , no single customer accounted for more than 10% of Cadence’s total receivables. As of March 30, 2013, approximately 53% of Cadence’s total receivables net. As of March 31, 2012, approximately 41% of Cadence’s total receivables, net, were attributable to the ten customers with the largest balances of total receivables, net.receivables. As of December 31, 2011,29, 2012, approximately 45%47% of Cadence’s total receivables net, were attributable to the ten customers with the largest balances of total receivables, net.7.6. FAIR VALUEfair-valuefair 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.31, 2012.The carrying value30, 2013.31,30, 2013 and December 29, 2012 and December 31, 2011: Fair Value Measurements as of March 31, 2012: Total Level 1 Level 2 Level 3 (In thousands) $ 529,194 $ 529,194 $ — $ — 3,287 3,287 — — 21,986 21,986 — — 257,775 — 257,775 — 170 — 170 — $ 812,412 $ 554,467 $ 257,945 $ — Total Level 1 Level 2 Level 3 (In thousands) $ 3,987 $ — $ — $ 3,987 257,775 — 257,775 — $ 261,762 $ — $ 257,775 $ 3,987 Fair Value Measurements as of December 31, 2011: Total Level 1 Level 2 Level 3 (In thousands) $ 484,102 $ 484,102 $ — $ — 3,037 3,037 — — 24,058 24,058 — — 215,113 — 215,113 — 200 — 200 — $ 726,510 $ 511,197 $ 215,313 $ — Total Level 1 Level 2 Level 3 (In thousands) $ 3,911 $ — $ — $ 3,911 215,113 — 215,113 — $ 219,024 $ — $ 215,113 $ 3,911 Fair Value Measurements as of March 30, 2013: Total Level 1 Level 2 Level 3 (In thousands) Assets Cash equivalents: Money market funds $ 659,218 $ 659,218 $ — $ — Short-term investments: Corporate debt securities 34,453 — 34,453 — Bank certificates of deposit 24,827 — 24,827 — United States Treasury securities 21,225 21,225 — — United States government agency securities 14,246 14,246 — — Commercial paper 4,290 — 4,290 — Marketable equity securities 1,951 1,951 — — Trading securities held in Non-Qualified Deferred Compensation Plan, or NQDC 19,302 19,302 — — 2015 Notes Hedges 315,895 — 315,895 — Total Assets $ 1,095,407 $ 715,942 $ 379,465 $ — Total Level 1 Level 2 Level 3 (In thousands) Liabilities Acquisition-related contingent consideration $ 3,579 $ — $ — $ 3,579 2015 Notes Embedded Conversion Derivative 315,895 — 315,895 — Foreign currency exchange contracts $ 477 $ — $ 477 $ — Total Liabilities $ 319,951 $ — $ 316,372 $ 3,579 Fair Value Measurements as of December 29, 2012: Total Level 1 Level 2 Level 3 (In thousands) Assets Cash equivalents: Money market funds $ 566,334 $ 566,334 $ — $ — Short-term investments: Corporate debt securities 31,359 — 31,359 — Bank certificates of deposit 27,826 — 27,826 — United States Treasury securities 23,239 23,239 — — United States government agency securities 10,258 10,258 — — Commercial paper 5,783 — 5,783 — Marketable equity securities 2,239 2,239 — — Trading securities held in Non-Qualified Deferred Compensation Plan, or NQDC 24,329 24,329 — — 2015 Notes Hedges 303,154 — 303,154 — Foreign currency exchange contracts 1,737 — 1,737 — Total Assets $ 996,258 $ 626,399 $ 369,859 $ — Total Level 1 Level 2 Level 3 (In thousands) Liabilities Acquisition-related contingent consideration $ 4,218 $ — $ — $ 4,218 2015 Notes Embedded Conversion Derivative 303,154 — 303,154 — Total Liabilities $ 307,372 $ — $ 303,154 $ 4,218 Cadence’s available-for-sale United States Treasury securities, United States government agency securities, marketable equity securities and the trading securities held in Cadence’s NQDC trust are measured at fair value using level 1 inputs.31,30, 2013 and December 29, 2012 and December 31, 2011.. Cadence believes that its estimates and assumptions are reasonable, but significant judgment is involved.Condensed Consolidated Income Statements. For an additional description of the related business combinations, see Note 3.31, 2012: (In thousands) $ 3,911 (39 ) 115 $ 3,987 (In thousands) Balance as of December 29, 2012 $ 4,218 Payments (740 ) Adjustments 101 Balance as of March 30, 2013 $ 3,579 8.7. CASH, CASH EQUIVALENTS AND INVESTMENTS As of March 30,
2013 December 29,
2012 (In thousands) Cash and cash equivalents $ 810,152 $ 726,357 Short-term investments 100,992 100,704 Cash, cash equivalents and short-term investments $ 911,144 $ 827,061 31,30, 2013 and December 29, 2012 and December 31, 2011: As of March 31,
2012 December 31,
2011 (In thousands) $ 130,493 $ 117,500 529,194 484,102 $ 659,687 $ 601,602 Marketable Securities: As of March 30,
2013 December 29,
2012 (In thousands) Cash and interest bearing deposits $ 150,934 $ 160,023 Money market funds 659,218 566,334 Total cash and cash equivalents $ 810,152 $ 726,357 marketable securitiesshort-term investments as of March 31,30, 2013 and December 29, 2012: As of March 30, 2013 (In thousands) Corporate debt securities $ 34,409 $ 51 $ (7 ) $ 34,453 Bank certificates of deposit 24,800 27 — 24,827 United States Treasury securities 21,198 27 — 21,225 United States government agency securities 14,231 15 — 14,246 Commercial paper 4,283 7 — 4,290 Marketable debt securities 98,921 127 (7 ) 99,041 Marketable equity securities 1,817 134 — 1,951 Total short-term investments $ 100,738 $ 261 $ (7 ) $ 100,992 As of December 29, 2012 (In thousands) Corporate debt securities $ 31,313 $ 57 $ (11 ) $ 31,359 Bank certificates of deposit 27,805 21 — 27,826 United States Treasury securities 23,213 26 — 23,239 United States government agency securities 10,245 13 — 10,258 Commercial paper 5,777 6 — 5,783 Marketable debt securities 98,353 123 (11 ) 98,465 Marketable equity securities 1,817 422 — 2,239 Total short-term investments $ 100,170 $ 545 $ (11 ) $ 100,704 December 31, 2011 wereestimated fair value of marketable debt securities included in short-term investments as follows: Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value (In thousands) $ 1,846 $ 1,441 $ — $ 3,287 $ 1,830 $ 1,207 $ — $ 3,037 Realized gainsof sale of available-for-sale securities during three months ended March 31, 2012 and April 2, 2011 were as follows: Three Months Ended March 31,
2012 April 2,
2011 (In thousands) $ 117 $ 65 (In thousands) Due in less than one year $ 34,718 $ 34,777 Due in one to three years 64,203 64,264 Total marketable debt securities included in short-term investments $ 98,921 $ 99,041 privately-held companies.privately held companies and are included in other assets on Cadence’s condensed consolidated balance sheets. If Cadence determines that it has the ability to exercise significant influence over the issuer, which may include considering whether the investments Cadence holds are in-substance common stock, the investment is accounted for using the equity method.31,30, 2013 and December 29, 2012 and December 31, 2011 were as follows: As of March 31,
2012 December 31,
2011 (In thousands) $ 6,157 $ 6,157 4,343 4,303 $ 10,500 $ 10,460 As of March 30,
2013 December 29,
2012 (In thousands) Cost method $ 3,038 $ 3,038 Equity method 3,932 4,249 Total non-marketable investments $ 6,970 $ 7,287 and April 2, 2011 were as follows: Three Months Ended March 31,
2012 April 2,
2011 (In thousands) $ — $ 2,621 Three Months Ended March 30,
2013 March 31,
2012 (In thousands) Gains on sale of non-marketable investments $ 1,190 $ — 9.8. NET INCOME PER SHAREweighted-averageweighted average number of shares of common stock outstanding during that period, less unvested restricted stock awards. None of Cadence’s outstanding grants of restricted stock contain nonforfeitable dividend rights. Diluted net income per share is impacted by equity instruments considered to be potential common shares, if dilutive, computed using the treasury stock method of accounting. and April 2, 2011, are as follows: Three Months Ended March 31,
2012 April 2,
2011 (In thousands, except per
share amounts) $ 31,104 $ 6,323 267,940 261,533 11 11 2,523 — 7,259 7,034 277,733 268,578 $ 0.12 $ 0.02 $ 0.11 $ 0.02 Three Months Ended March 30,
2013 March 31,
2012 (In thousands, except per share amounts) Net income $ 78,609 $ 31,104 Weighted average common shares used to calculate basic net income per share 274,936 267,940 2023 Notes 11 11 2015 Warrants 10,668 2,523 Share-based awards 6,536 7,259 Weighted average common shares used to calculate diluted net income per share 292,151 277,733 Net income per share - basic $ 0.29 $ 0.12 Net income per share - diluted $ 0.27 $ 0.11 and April 2, 2011, that were excluded from the computation of diluted net income per share because the effect of including these shares in the computation of diluted net income per share would have been anti-dilutive: Three Months Ended March 31,
2012 April 2,
2011 (In thousands) — 46,382 7,815 13,922 14,070 18,524 33 369 21,918 79,197 NOTE 10. ACCUMULATED DEFICITThe changes in accumulated deficit for the three months ended March 31, 2012 were as follows: Three Months
Ended (In thousands) $ (1,083,245 ) 31,104 (1,604 ) $ (1,053,745 ) Three Months Ended March 30,
2013 March 31,
2012 (In thousands) 2011 Warrants and 2013 Warrants 6,830 7,815 Options to purchase shares of common stock 6,754 14,070 Non-vested shares of restricted stock — 33 Total potential common shares excluded 13,584 21,918 11.9. OTHER COMPREHENSIVE INCOMEand changes in defined benefit plan liabilities as presented in Cadence’s Condensed Consolidated Statementscondensed consolidated statements of Comprehensive Income.Changes in unrealized holding gains or losses on available-for-sale securities include the following for the three months ended March 31, 2012 and April 2, 2011: Three Months Ended March 31,
2012 April 2,
2011 (In thousands) $ (4 ) $ (314 ) — (54 ) $ (4 ) $ (368 ) As of March 30,
2013 December 29,
2012 (In thousands) Foreign currency translation gain $ 42,491 $ 48,653 Changes in defined benefit plan liabilities (4,911 ) (5,229 ) Unrealized holding gains on available-for-sale securities 242 526 Total accumulated other comprehensive income $ 37,822 $ 43,950 and December 31, 2011: March 31,
2012 December 31,
2011 (In thousands) $ 51,524 $ 53,990 (4,497 ) (4,468 ) 1,427 1,431 $ 48,454 $ 50,953 12.10. CONTINGENCIESDuring fiscal 2008, three complaints were filed in the United States District Court for the Northern District of California, or District Court, all alleging violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder, on behalf of a purported class of purchasers of Cadence’s common stock. The first such complaint was filed on October 29, 2008, captioned Hu v. Cadence Design Systems, Inc., Michael J. Fister, William Porter and Kevin S. Palatnik; the second such complaint was filed on November 4, 2008, captioned Vyas v. Cadence Design Systems, Inc., Michael J. Fister and Kevin S. Palatnik; and the third such complaint was filed on November 21, 2008, captioned Collins v. Cadence Design Systems, Inc., Michael J. Fister, John B. Shoven, Kevin S. Palatnik and William Porter. On March 4, 2009, the District Court entered an order consolidating these three complaints and captioning the consolidated case “In re Cadence Design Systems, Inc. Securities Litigation.” The District Court also named a lead plaintiff and lead counsel for the consolidated litigation. The lead plaintiff filed its consolidated amended complaint on April 24, 2009, naming Cadence, Michael J. Fister, Kevin S. Palatnik, William Porter and Kevin Bushby as defendants, and alleging violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder, on behalf of a purported class of purchasers of Cadence’s common stock who traded Cadence’s common stock between April 23, 2008 and December 10, 2008, or the Alleged Class Period. The amended complaint alleged that Cadence and the individual defendants made statements during the Alleged Class Period regarding Cadence’s financial results that were false and misleading because Cadence had recognized revenue that should have been recognized in subsequent periods. The amended complaint requested certification of the action as a class action, unspecified damages, interest and costs, and unspecified equitable relief. On June 8, 2009, Cadence and the other defendants filed a motion to dismiss the amended complaint. On September 11, 2009, the District Court held that the plaintiffs had failed to allege a valid claim under the relevant legal standards and granted the defendants’ motion to dismiss the amended complaint. The District Court gave the plaintiffs leave to file another amended complaint, and the plaintiffs did so on October 13, 2009. The amended complaint filed on October 13, 2009 names the same defendants, asserts the same causes of action, and seeks the same relief as the earlier amended complaint. Cadence moved to dismiss the October 13, 2009 amended complaint. The District Court denied the motion to dismiss on March 2, 2010. On July 7, 2010, the parties agreed, and the District Court ordered, that the litigation be stayed in order to facilitate mediation.On February 11, 2011, the parties to the securities litigation agreed to settle the securities litigation for consideration of $38.0 million, of which approximately $22.2 million will be paid by Cadence’s insurance carriers, with the balance to be paid by Cadence. Cadence agreed to this settlement without admitting any wrongdoing on the part of the company or any of its current or former directors or executive officers. The District Court preliminarily approved the settlement on November 15, 2011. Notice of the settlement was given to class members pursuant to the District Court’s preliminary approval order. On April 23, 2012, the District Court entered an order granting final approval of the securities litigation settlement, and entered its final judgment and order of dismissal with prejudice.During fiscal 2011, Cadence paid $16.4 million into a securities litigation settlement fund, which amount included Cadence’s portion of the settlement consideration of $15.8 million and $0.6 million of accrued interest. As of March 31, 2012, $22.2 million had been paid into the securities litigation settlement fund by Cadence’s insurance carriers.During fiscal 2008, two derivative complaints were filed in Santa Clara County Superior Court, or Superior Court. The first was filed on November 20, 2008, captioned Ury Priel, derivatively on behalf of nominal defendant Cadence Design Systems, Inc. v. John B. Shoven, Lip-Bu Tan, Alberto Sangiovanni-Vincentelli, Donald L. Lucas, Sr., Roger Siboni, George Scalise, Michael J. Fister and Doe Defendants 1-15.The second was filed on December 1, 2008, and captioned Mark Levine, derivatively on behalf of nominal defendant Cadence Design Systems, Inc. v. John B. Shoven, Lip-Bu Tan, Alberto Sangiovanni-Vincentelli, Donald L. Lucas, Sr., Roger Siboni, George Scalise, Michael J. Fister, John Swainson and Doe Defendants 1-10. These complaints purport to bring suit derivatively, on behalf of Cadence, against certain of Cadence’s current and former directors for alleged breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment. Many of the allegations underlying these claims are similar or identical to the allegations in the consolidated securities class action lawsuits described above, and the claims also include allegations that the individual defendants approved compensation based on inflated financial results. The plaintiffs request unspecified damages, restitution, equitable relief and their reasonable attorneys’ fees, experts’ fees, costs and expenses on behalf of Cadence against the individual defendants. A motion to consolidate these complaints was granted on January 20, 2009, and the cases were captioned “In re Cadence Design Systems, Inc. Derivative Litigation.” The consolidated cases were then stayed by agreement of the parties. The plaintiffs filed a consolidated amended derivative complaint on June 1, 2010. The consolidated amended derivative complaint names as defendants Cadence (as a nominal defendant), James S. Miller, R.L. Smith McKeithen, John B. Shoven, Lip-Bu Tan, Alberto Sangiovanni-Vincentelli, Donald L. Lucas, Sr., Roger S. Siboni, George Scalise, Michael J. Fister, John A.C. Swainson, Kevin S. Palatnik, William Porter and Kevin Bushby. The consolidated amended derivative complaint alleges purported causes of action for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment (which is asserted against certain defendants). Many of the factual allegations of the consolidated amended derivative complaint are similar to those alleged in the First Amended Complaint in the securities class action case described above. In addition, the claims include allegations that the director defendants made inappropriate personnel decisions with respect to the former officers and that the former officers were unjustly enriched. The consolidated derivative complaint seeks unspecified monetary damages and equitable relief, disgorgement of profits and compensation, and costs and attorneys’ fees.On April 28, 2010, a derivative complaint was filed in the District Court, captioned Walter Hamilton, derivatively on behalf of nominal defendant Cadence Design Systems, Inc. v. Michael J. Fister, William Porter, James S. Miller, Jr., Kevin Bushby, R.L. Smith McKeithen, Lip-Bu Tan, Alberto Sangiovanni-Vincentelli, John B. Shoven, Donald L. Lucas, George M. Scalise, Roger S. Siboni, John A.C. Swainson and KPMG LLP. This complaint purports to bring suit derivatively, on behalf of Cadence, against certain of Cadence’s current and former officers and directors for breach of fiduciary duty, abuse of control, gross mismanagement, and waste of corporate assets, against the former executive defendants for unjust enrichment, and against Cadence’s independent auditors for professional negligence and breach of contract. Many of the allegations underlying these claims are similar or identical to the allegations in the consolidated securities class action lawsuits described above. In addition, the claims include allegations that the director defendants made inappropriate personnel decisions with respect to the former officers and that the former officers were unjustly enriched, as well as allegations that Cadence’s independent auditors performed allegedly inadequate audits. The complaint seeks unspecified monetary relief, injunctive relief relating to certain corporate governance matters, and attorneys’ costs and fees. On June 28, 2010, the plaintiff dismissed Cadence’s independent auditors from the case, without prejudice.On August 17, 2010, two complaints were filed in the District Court: one captioned George Powers, derivatively on behalf of Cadence Design Systems, Inc. v. Michael J. Fister, Kevin Bushby, R.L. Smith McKeithen, James S. Miller, Jr., William Porter, James J. Cowie, Kevin S. Palatnik, John B. Shoven, PhD, Donald L. Lucas and Roger S. Siboni; the other captioned Arash Samani, derivatively on behalf of Cadence Design Systems, Inc. v. Michael J. Fister, Kevin Bushby, R.L. Smith McKeithen, James S. Miller, Jr., William Porter, James J. Cowie, Kevin S. Palatnik, John B. Shoven, PhD, Donald L. Lucas and Roger S. Siboni. These complaints are virtually identical to one another, and purport to bring suit derivatively, on behalf of Cadence, against certain of Cadence’s current and former officers and directors for breach of fiduciary duty. Many of the allegations underlying this claim are similar or identical to the allegations in the consolidated securities class action lawsuits described above. The complaints seek unspecified monetary and equitable relief, as well as attorneys’ fees and costs.These cases were stayed while the parties participated in the mediation process. On February 8, 2011, the parties to these derivative cases agreed to settle all of them in exchange for certain corporate governance changes that Cadence has agreed to put in place, along with an agreement that an application by plaintiffs’ counsel to the Court for an attorneys’ fee of approximately $1.8 million is appropriate. The fee will be paid by Cadence’s insurance carriers. Cadence agreed to this settlement without admitting any wrongdoing on the part of the company or any of its current or former directors or executive officers. The District Court preliminarily approved the settlement of the derivative actions on November 15, 2011. Notice of the settlement was given to Cadence’s shareholders according to the District Court’s preliminary approval order. On April 23, 2012, the District Court entered an order granting final approval of the derivative settlement, and entered its final judgment and order of dismissal with prejudice.90-day90-day period. Cadence did not incur any significant costs related to warranty obligations during the three months ended March 30, 2013 or March 31, 2012 or April 2, 2011.. or April 2, 2011.NOTE 13. STATEMENT OF CASH FLOWS.The supplemental cash flow information for the three months ended March 31, 2012 and April 2, 2011 is as follows: Three Months Ended March 31,
2012 April 2,
2011 (In thousands) $ 4,699 $ 3,885 $ 15 $ — $ 122 $ — 14.11. OTHER INCOME, NET and April 2, 2011 was as follows: Three Months Ended March 31,
2012 April 2,
2011 (In thousands) $ 337 $ 373 — 2,621 1,798 1,735 100 (479 ) 34 (30 ) 117 65 48 184 $ 2,434 $ 4,469 Three Months Ended March 30,
2013 March 31,
2012 (In thousands) Interest income $ 425 $ 337 Gains (losses) on sale of marketable debt and equity securities, net (25 ) 117 Gains on sale of non-marketable equity investments 1,190 — Gains on securities in Cadence’s NQDC 152 1,798 Gains on foreign exchange 764 100 Other income (expense), net (331 ) 82 Total other income, net $ 2,175 $ 2,434 15.12. SEGMENT REPORTINGonupon the country in which the product is used or services are delivered. Long-lived assets are attributed to geography based on the country where the assets are located. and April 2, 2011: Three Months Ended March 31,
2012 April 2,
2011 (In thousands) $ 130,455 $ 112,019 8,124 5,141 138,579 117,160 13,255 11,725 46,454 44,551 59,709 56,276 56,219 50,165 16,523 11,634 44,800 30,867 61,323 42,501 $ 315,830 $ 266,102 Three Months Ended March 30,
2013 March 31,
2012 (In thousands) Americas: United States $ 149,171 $ 130,455 Other Americas 4,615 8,124 Total Americas 153,786 138,579 Europe, Middle East and Africa 78,920 59,709 Japan 53,474 56,219 Asia 68,086 61,323 Total $ 354,266 $ 315,830 31,30, 2013 and December 29, 2012 and December 31, 2011: As of March 31,
2012 December 31,
2011 (In thousands) $ 226,619 $ 230,884 28 35 226,647 230,919 792 797 4,189 4,016 4,981 4,813 3,144 3,960 7,796 7,820 15,175 15,005 22,971 22,825 $ 257,743 $ 262,517 As of March 30,
2013 December 29,
2012 (In thousands) Americas: United States $ 209,006 $ 214,711 Other Americas 216 185 Total Americas 209,222 214,896 Europe, Middle East and Africa 4,994 5,410 Japan 979 1,649 Asia 22,260 22,484 Total $ 237,455 $ 244,439 Condensed Consolidated Financial Statementscondensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q, or this Quarterly Report, and in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.29, 2012. Certain of these statements, including, but not limited to, statements regarding the extent and timing of future revenues and expenses and customer demand, statements regarding the deployment of our products, statements regarding our reliance on third parties and other statements using words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “projects,” “should,” “will” and “would,” and words of similar import and the negatives thereof, constitute forward-looking statements. These statements are predictions based upon our current expectations about future events. Actual results could vary materially as a result of certain factors, including, but not limited to, those expressed in these statements. We refer you to the “Risk Factors,” “Results of Operations,” “Disclosures About Market Risk,” and “Liquidity and Capital Resources” sections contained in this Quarterly Report, and the risks discussed in our other Securities Exchange Commission, or SEC, filings, which identify important risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements.software, hardware and intellectual property which are used by semiconductor and electronic systemsolutions that our customers use to develop and design increasingly complex integrated circuits, or ICs, and electronic devices. We licenseOur solutions are designed to help our customers reduce the time to bring an IC or electronic device to market and to reduce their design and development costs. Our offerings include software, and two categories of intellectual property, or IP commonly(commonly referred to as verification IP, or VIP, and Design IP. In addition, we sellIP), and lease hardware technology. We provide maintenance for our product offerings and provide engineering services related to methodology, education and hosted design solutions, which help our customers manage and accelerate their electronics product development processes.revenuebusiness is generated from integrated circuit, or IC,semiconductor and electronics systems manufacturers and designers and the renewal of many of our customer contracts is dependent upon their commencement of new design projects. As a result, our revenuebusiness is significantly influenced by our customers’ business outlook and investment in the introduction of new products and the improvement of existing products.the price-sensitivethese markets, they serve, our customers demand high levels of productivity from their design teams, better predictability in theirshorter development schedules, and high quality products.products and lower development costs. Semiconductor and electronics systems companies are responding to these challenges and users’ demand for increased functionality and miniaturizationsmaller devices by combining subsystems –- such as radio frequency, or RF, wireless communication, video signal processing, microprocessors and microprocessors – eithermemory controllers - onto a single silicon chip, creating a system-on-chip, or SoC, or by combining multiple chips into a single chip package in a format referred to as system-in-package, or SiP. The trend toward subsystem integration has required these chip makers to find solutions to challenges previously addressed by system companies, such as verifying system-level functionality and hardware-software interoperability.Designdesign IP developed by us or third parties to create SoCs, and combining ICs and SoCs with software to create electronic systems. Our strategy is to provide our customers with the ability to address the broad range of issues that arise at the silicon, SoC, and system levels.The most significantOur semiconductor and systems customers deliver a wide rangeProviders of products in segments such as smart phones, tablets, televisions, communications and internet infrastructure, and computing platforms. Providers ofelectronic design automation, or EDA, solutions must deliver products that address thethese technical challenges while improving the productivity, predictability, reliability and profitability of the design processes and products of their customers.revenues include allrevenue includes fees earned from granting licenses to use our software and IP, and from sales and leases of our hardware products.Functional VerificationSystem Interconnect Design; and Design IP;Custom IC Design;DFM; andSystem Interconnect Design.EncounterVirtuoso® custom IC design, Encounter® digital IC design Virtuosoand Allegro® custom design and Allegro® system interconnect design. Our functional verification offerings include VIP products and are supplemented by our Design IP offerings and our hardware offerings. In addition, we augment these platform product offerings with a set of DFM products that service both the digital and custom IC design flows.services, ready-to-use packages of technologies assembled from our broad portfolio of IP and other associated components that provide comprehensive solutions for low power, mixed signal and advanced-node designs at smaller geometries referred to as advanced process nodes, as well as popular designs based on intellectual propertydesign IP owned and licensed by other companies such as ARM Holdings Plc.plc. These solutions and their constituent elements are marketed to users who specialize in areas such as system design and verification, functional verification, logic design, digital implementation, custom IC design and printed circuit board, or PCB, and IC package and SiP design.“Results"Results of Operations”Operations" and “Liquidity"Liquidity and Capital Resources.”Condensed Consolidated Financial Statements,condensed consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our Condensed Consolidated Balance Sheets.condensed consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. At least quarterly, we evaluate our assumptions, judgments andaccordingly.as deemed necessary. Historically, our assumptions, judgments and estimates relative to our critical accounting estimates have not differed materially from actual results. For further information about our critical accounting estimates, see the discussion in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading “Critical Accounting Estimates” in our Annual Report on Form 10-K for the fiscal year ended 31, 2011.31, 2012,30, 2013, as compared to the three months ended April 2, 2011,March 31, 2012, reflect the following:of:A general increaseof increased business levels and increased revenue recognized from bookings in the annualized values of software contracts with our customers;Increases in the sale and lease of our hardware products; andOur continuing transition to a ratable license mix, under which most orders made in any period generate revenue in future periods.forprimarily consisting of costs related to hiring additional employees subsequent to March 31, 2012 and incremental costs related to employees added from our acquisition of Sigrity, Inc., or Sigrity, during fiscal 2012;improvingthe release of uncertain tax benefits recorded in a past business levels.combination. We principally use three license types: subscription, term and perpetual. The different license types provide a customer with different conditions of use for our products, such as:The right to access new technology;The duration of the license; andPayment timing.license typeshardware and software products in the bookings executed in any given period and whether the revenue for such bookings is recognized over multiple periods or up-front, upon completion of delivery.an increase in hardware sales, beyond our current expectations, because product revenue for hardware sales is generally recognized up-front in the quarter in which delivery is completed.Approximately and April 2, 2011 was of a type for which the revenue is recurring, or ratable, in nature.Customer preferences regarding conditions of use determine the license type, timing of revenue recognition and potential future business activity. For example, if a customer chooses a fixed duration of use, this will result in either a subscription or a term license. A business implication of this decision is that, at the expiration of the license period, the customer must decide whether to continue using the technology and therefore renew the license agreement. Historically, larger customers generally have used products from two or more of our five product groups and rarely completely terminate their business with us upon expiration of the license.31, 2011.Although we believe that pricing volatility has not generally been a material component of the change in our revenue from period to period, we believe that the amount of revenue recognized in future periods will depend on, among other things, the:Competitiveness of our new technology;Length of our sales cycle; andSize, duration, timing, terms and type of:Contract renewals with existing customers;Additional sales to existing customers; andSales to new customers.The value and renewal of contracts, and consequently product revenue recognized, are affected by the competitiveness of our products. Product revenue recognized in any period is also affected by the extent to which customers purchase subscription, term or perpetual licenses, and by the extent to which contracts contain flexible payment terms. and April 2, 2011 and the change in revenue between periods: Three Months Ended Change March 31,
2012 April 2,
2011 Amount Percentage (In millions, except percentages) $ 190.0 $ 141.8 $ 48.2 34 % 29.5 27.8 1.7 6 % 96.3 96.5 (0.2 ) (0 )% $ 315.8 $ 266.1 $ 49.7 19 % Three Months Ended Change March 30,
2013 March 31,
2012 Amount Percentage (In millions, except percentages) Product and maintenance $ 328.3 $ 286.3 $ 42.0 15 % Services 26.0 29.5 (3.5 ) (12 )% Total revenue $ 354.3 $ 315.8 $ 38.5 12 % 31, 2012,30, 2013, as compared to the three months ended April 2, 2011,March 31, 2012, primarily because of increased business levels an increase in revenue related to the sale and lease of our hardware products and increased revenue recognized from bookings in prior periods.Servicesservices and other for the past five consecutive quarters: Three Months Ended March 31,
2012 December 31,
2011 October 1,
2011 July 2,
2011 April 2,
2011 30 % 32 % 30 % 33 % 28 % 23 % 21 % 22 % 21 % 24 % 23 % 23 % 23 % 22 % 20 % 8 % 8 % 9 % 8 % 10 % 7 % 6 % 6 % 6 % 8 % 9 % 10 % 10 % 10 % 10 % 100 % 100 % 100 % 100 % 100 % Three Months Ended March 30,
2013 December 29,
2012 March 31,
2012Functional Verification, Hardware and IP 26 % 30 % 30 % 33 % 30 % Digital IC Design 25 % 23 % 23 % 22 % 23 % Custom IC Design 25 % 24 % 24 % 22 % 23 % System Interconnect Design 10 % 9 % 9 % 8 % 8 % Design for Manufacturing 7 % 6 % 6 % 6 % 7 % Services and other 7 % 8 % 8 % 9 % 9 % Total 100 % 100 % 100 % 100 % 100 % Notesnotes to Consolidated Financial Statementsconsolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011,29, 2012, certain of our licensing arrangements allow customers the ability to remix among software products. Additionally, we have arrangements with customers that include a combination of our products, with the actual product selection and number of licensed users to be determined at a later date. For these arrangements, we estimate the allocation of the revenue to product groups based upon the expected usage of our products. The actual usage of our products by these customers may differ and, if that proves to be the case, the revenue allocation in the table above would differ. Design IP product group for the quarters presented are generallyprimarily related to changes in revenue related to our hardware products. Three Months Ended Change March 31,
2012 April 2,
2011 Amount Percentage (In millions, except percentages) $ 130.5 $ 112.0 $ 18.5 17 % 8.1 5.1 3.0 59 % 59.7 56.3 3.4 6 % 56.2 50.2 6.0 12 % 61.3 42.5 18.8 44 % $ 315.8 $ 266.1 $ 49.7 19 % For the primary factors contributing to our increase in revenue across our geographies see the general description under “Revenue by Period” above.Revenue by Geography as a Percent of Total Revenue Three Months Ended March 31,
2012 April 2,
2011 41 % 42 % 3 % 2 % 19 % 21 % 18 % 19 % 19 % 16 % 100 % 100 % No one customer accounted for 10% or more of total revenue during the three months ended March 31, 2012 and April 2, 2011. Three Months Ended Change March 30,
2013 March 31,
2012 Amount Percentage (In millions, except percentages) United States $ 149.2 $ 130.5 $ 18.7 14 % Other Americas 4.6 8.1 (3.5 ) (43 )% Europe, Middle East and Africa 78.9 59.7 19.2 32 % Japan 53.5 56.2 (2.7 ) (5 )% Asia 68.1 61.3 6.8 11 % Total revenue $ 354.3 $ 315.8 $ 38.5 12 % United States dollar weakens in value against the Japanese yen and reduced revenue from those contracts in periods whenstrengthens against the United States dollar strengthens against the Japanese yen.dollar. For an additional description of how changes in foreign exchange rates affect our Condensed Consolidated Financial Statements,condensed consolidated financial statements, see the discussion under the heading “Item 3. Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Risk.” Three Months Ended March 30,
2013 March 31,
2012United States 42 % 41 % Other Americas 2 % 3 % Europe, Middle East and Africa 22 % 19 % Japan 15 % 18 % Asia 19 % 19 % Total 100 % 100 % Three Months Ended Change March 31,
2012 April 2,
2011 Amount Percentage (In millions, except percentages) $ 15.4 $ 14.2 $ 1.2 8 % 19.4 20.1 (0.7 ) (3 %) 11.8 10.9 0.9 8 % Three Months Ended Change March 30,
2013 March 31,
2012 Amount Percentage (In millions, except percentages) Product and maintenance $ 29.8 $ 27.2 $ 2.6 10 % Services 18.3 19.4 (1.1 ) (6 )% and April 2, 2011: Three Months Ended March 31,
2012 April 2,
2011 8 % 10 % 66 % 72 % 12 % 11 % Three Months Ended March 30,
2013 March 31,
2012Product and maintenance 9 % 10 % Services 71 % 66 % products. Costproducts, employee salary, benefits and other employee-related costs, cost of productour customer support services, amortization of acquired intangibles, as well as the costs of technical documentation and royalties payable to third-party vendors. Costs associated with our hardware products includesinclude materials, assembly and overhead. These additional hardware manufacturing costs make our cost of hardware product higher, as a percentage of revenue, than our cost of software and IP products. Cost of product also includes the cost of employee salary, benefits and other employee-related costs, including stock-based compensation expense, amortization of acquired intangibles directly related to our products, as well as the costs of technical documentation and royalties payable to third-party vendors. Three Months Ended Change March 31,
2012 April 2,
2011 Amount Percentage (In millions, except percentages) $ 12.5 $ 12.0 $ 0.5 4 % 2.9 2.2 0.7 32 % $ 15.4 $ 14.2 $ 1.2 8 % The changes in cost Three Months Ended Change March 30,
2013 March 31,
2012 Amount Percentage (In millions, except percentages) Product and maintenance-related costs $ 26.0 24.3 $ 1.7 7 % Amortization of acquired intangibles 3.8 2.9 0.9 31 % Total cost of product and maintenance $ 29.8 $ 27.2 $ 2.6 10 % during the three months ended March 31, 2012, as compared to the three months ended April 2, 2011, were primarily due to increases in hardware costs and amortization of acquired intangibles. Hardware costs increased primarily due to an increase in hardware sales. Amortization of acquired intangibles included in cost of product increased primarily due to amortization of intangible assets acquired with our fiscal 2011 acquisitions.Cost of productmaintenance depends primarily upon the mix of hardware and software product sales in any given period, employee salary, benefits and other employee-related costs, and also dependsdepend upon the timing and extent to which we acquire intangible assets, acquire or license third-parties’ intellectual property or technology and sell our products that include such acquired or licensed intellectual property or technology.There were no significant changes in cost of services during the three months ended March 31, 2012, as compared to the three months ended April 2, 2011.Cost of services has decreased in recent fiscal quarters because certainCertain of our design services engineers have been redeployed to internal research and development projects or to assist with pre-sales activities.activities, resulting in lower cost of services expense. We expect to continue to utilize ourcertain design services engineers on internal projects and expect our cost of services to continue to decrease during the remainder of fiscal 2012, as compared to fiscal 2011.Cost of MaintenanceCost of maintenance includes the cost of our customer support services, such as telephone, online and on-site support, employee salary, benefits and other employee-related costs, and documentation of maintenance updates. There were no significant changes in cost of maintenance during the three months ended March 31, 2012, as compared to the three months ended April 2, 2011.or restructuring activities, foreign exchange rates cost reduction strategies and the impact of our variable compensation programs, which are driven by overall business performance. operating results.31, 2012, when30, 2013, as compared to the three months ended April 2, 2011,March 31, 2012, primarily due to hiring additional employees for our research and development activities, the addition of employees through our fiscal 2012 acquisition of Sigrity, and higher variable compensation as a result of improved business levels resultingperformance.variable compensation. and April 2, 2011 were as follows: Three Months Ended Change March 31,
2012 April 2,
2011 Amount Percentage (In millions, except percentages) $ 220.2 $ 199.0 $ 21.2 11 % 70 % 75 % Three Months Ended Change March 30,
2013 March 31,
2012 Amount Percentage (In millions, except percentages) Marketing and sales $ 90.4 $ 83.8 $ 6.6 8 % Research and development 124.1 108.6 15.5 14 % General and administrative 29.8 27.8 2.0 7 % Operating expenses $ 244.3 $ 220.2 $ 24.1 11 % Three Months Ended March 30,
2013 March 31,
2012Marketing and sales 26 % 27 % Research and development 35 % 34 % General and administrative 8 % 9 % Operating expenses 69 % 70 % Three Months Ended Change March 31,
2012 April 2,
2011 Amount Percentage (In millions, except percentages) $ 83.8 $ 78.4 $ 5.4 7 % 27 % 29 % 31, 2012,30, 2013, as compared to the three months ended April 2, 2011,March 31, 2012, were due to the following: Change (In millions) $ 4.9 0.5 $ 5.4 Change (In millions) Salary, benefits and other employee-related costs $ 6.2 Other individually insignificant items 0.4 $ 6.6 Three Months Ended Change March 31,
2012 April 2,
2011 Amount Percentage (In millions, except percentages) $ 108.6 $ 101.3 $ 7.3 7 % 34 % 38 % Change (In millions) Salary, benefits and other employee-related costs $ 10.8 Professional engineering services 2.0 Stock-based compensation 1.5 Other individually insignificant items 1.2 $ 15.5 April 2, 2011, wereMarch 31, 2012, is primarily due to hiring additional employees for our research and development activities, the addition of employees through our fiscal 2012 acquisition of Sigrity and increased costs associated with design services engineers utilized for internal research and development projects.following: Change (In millions) $ 6.9 1.1 (0.7 ) $ 7.3 Three Months Ended Change March 31,
2012 April 2,
2011 Amount Percentage (In millions, except percentages) $ 27.8 $ 19.3 $ 8.5 44 % 9 % 7 % Change (In millions) Professional services 2.1 Other individually insignificant items (0.1 ) $ 2.0 April 2, 2011, wereMarch 31, 2012, is primarily due to services rendered in connection with the following: Change (In millions) $ 5.2 1.7 1.6 $ 8.5 We recorded net recoveriesacquisitions of our allowance for doubtful accountsTensilica and Cosmic. Three Months Ended Change March 31,
2012 April 2,
2011 Amount Percentage (In millions, except percentages) $ 3.6 $ 4.5 $ (0.9 ) (20 )% The change in Three Months Ended Change March 30,
2013 March 31,
2012 Amount Percentage (In millions, except percentages) Amortization of acquired intangibles $ 3.8 $ 3.8 $ — — % resulted from certain acquired intangibles becoming fully amortized. Three Months Ended March 31,
2012 April 2,
2011 (In millions) $ — $ 0.5 0.5 0.6 2.3 2.3 — 1.7 1.5 1.5 3.6 3.3 — 0.2 0.1 0.1 0.5 0.5 — 0.3 $ 8.5 $ 11.0 Other Three Months Ended March 30,
2013 March 31,
2012 (In millions) Contractual interest expense: 2013 Notes 0.5 0.5 2015 Notes 2.3 2.3 Amortization of debt discount: 2013 Notes 1.7 1.5 2015 Notes 3.9 3.6 Amortization of deferred financing costs: 2013 Notes 0.1 0.1 2015 Notes 0.5 0.5 Other 0.3 — Total interest expense $ 9.3 $ 8.5 NetOther income, net, forTaxes2012 and April 2, 2011 was as follows: Three Months Ended March 31,
2012 April 2,
2011 (In millions) $ 0.3 $ 0.4 — 2.6 1.8 1.7 0.1 (0.5 ) 0.1 0.1 0.1 0.2 $ 2.4 $ 4.5 Income Taxes and April 2, 2011: Three Months Ended March 31,
2012 April 2,
2011 (In millions, except
percentages) $ 8.1 $ 4.7 20.8 % 42.7 % Three Months Ended March 30,
2013 March 31,
2012 (In millions, except percentages) Provision (benefit) for income taxes $ (27.6 ) $ 8.1 Effective tax rate (54.0 )% 20.8 % provisionbenefit for income taxes for the three months ended March 30, 2013 primarily consisted of the following:taxthe following:subsidiaries, interestsubsidiaries;benefits,positions; and excess Our provision for income taxes for the three months ended April 2, 2011 primarily consisted of tax expense related to certain of our foreign subsidiaries and interest expense on unrecognized tax benefits.We estimate our annual effective tax rate for fiscal 2012 to be approximately 18.5%, consisting of tax expense related to certain of our foreign subsidiaries, interest expense on unrecognized tax benefits, and excess tax benefits from stock-based compensation allocated to equity. Our estimate excludes additional excess tax benefits from stock-based compensation that may be allocated to equity in future periods since the excess tax benefits cannot be reasonably estimated. Excess tax benefits from stock-based compensation that are allocated to equity will increase the annual effective tax rate. Our estimate also does not include any tax expense or tax benefit related to effective settlements of tax examinations that may occur in the future.We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more than 50% likely that some portion or all of the deferred tax assets will not be realized. Our cumulative loss in the United States incurred over the three year period ended March 31, 2012 was considered significant negative evidence with a high level of objectivity that outweighed our ability to rely on projections of future income in determining whether a valuation allowance was needed. It is reasonably possible that we could have cumulative income over a three year period within the next twelve months. If, in the future, we determine that these deferred tax assets are more likely than not to be realized, a release of all or part of the related valuation allowance could result in a material income tax benefit in the period such determination is made.including the status of examinations by tax authorities and considerations related to the establishment or release of valuation allowance, see Note 6 in the Notesnotes to Consolidated Financial Statementsconsolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. As of March 31,
2012 December 31,
2011 Change (In millions) $ 663.0 $ 604.6 $ 58.4 $ 100.2 $ 48.6 $ 51.6 Three Months Ended March 31,
2012 April 2,
2011 Change (In millions) $ 60.7 $ 56.4 $ 4.3 $ (9.4 ) $ (4.2 ) $ (5.2 ) $ 9.4 $ 3.4 $ 6.0 As of March 30,
2013 December 29,
2012 Change (In millions) Cash, cash equivalents and short-term investments $ 911.2 $ 827.1 $ 84.1 Net working capital $ 251.3 $ 174.0 $ 77.3 and Cash Equivalents and Short-term Investments31, 2012,30, 2013, our principal sources of liquidity consisted of $663.0$911.2 million of cash, and cash equivalents and short-term investments, as compared to $604.6$827.1 million as of December 31, 2011.sourcessource of cash, cash equivalents and short-term investments during the three months ended March 31, 2012 were:Customer30, 2013 was customer payments for products, maintenance and services; andCashservices. We also received cash from stock purchases under our ESPP and from the exercise of stock options.usesuse of cash, cash equivalents and short-term investments during the three months ended March 31, 2012 were:Payments30, 2013 was payments relating to salaries, benefits, other employee-related costs and other operating expenses; andPurchases of property, plant and equipment.50%55% of our cash, cash equivalents and short-term investments were held by our foreign subsidiaries as of March 31, 2012.30, 2013. Our intent is to permanently reinvest our earnings from certain foreign operations. We do not anticipate we will need to repatriate dividends from foreign operations that are permanently reinvested in order to fund our domestic operations. In the event that dividends from foreign operations that are currently permanently reinvested are needed to fund United States liquidity, we could be required to accrue and pay additional taxes in order to repatriate these funds.and cash flows that are generated from operations and additional cash available under our revolving credit facility will be sufficient to meet our domestic and international working capital needs, and other capital and liquidity requirements, including acquisitions, for at least the next 12 months.$51.6$77.3 million as of March 31, 2012,30, 2013, as compared to December 31, 2011,29, 2012, due to the following: Change (In millions) $ 58.1 28.2 22.0 5.0 (3.6 ) (1.5 ) (56.8 ) 0.2 $ 51.6 The 2015 Notes are convertible into cash from April 1, 2012 through June 30, 2012 because our stock price exceeded $9.81 for at least 20 of the last 30 trading days prior to March 31, 2012. Accordingly, we classified the net balance of the 2015 Notes of $297.7 million as a current liability on our Condensed Consolidated Balance Sheet as of March 31, 2012. The classification of the 2015 Notes as a current or long-term liability on the Condensed Consolidated Balance Sheet is evaluated at each balance sheet date and may change from time to time, depending on whether the stock price conversion condition, as described above, has been met in a particular fiscal quarter. If the note holders elect to convert their 2015 Notes prior to maturity, any unamortized discount and transaction fees will be expensed at the time of conversion. If the entire outstanding principal amount had been converted on March 31, 2012, we would have recorded an expense of $59.5 million associated with the conversion, comprised of $52.3 million of unamortized debt discount and $7.2 million of unamortized transaction fees.The classification of the liability associated with the 2015 Notes Embedded Conversion Derivative and the 2015 Notes Hedges asset as current or long-term on our Condensed Consolidated Balance Sheet corresponds with the classification of the 2015 Notes. As such, we classified the fair value of the 2015 Notes Embedded Conversion Derivative as a current liability on our Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011. We also classified the fair value of the 2015 Notes Hedges as current assets on our Condensed Consolidated Balance Sheets as of March 31, 2012 andDecember 31, 2011. The value of the 2015 Notes Embedded Conversion Derivative liability and the value of the 2015 Notes Hedges asset offset one another and the changes in the fair value of these instruments resulted in no net change to our net working capital as of March 31, 2012.If the holders of our 2015 Notes elect to convert their notes into cash, we would be required to make cash payments of up to $350.0 million prior to the maturity of the 2015 Notes. In connection with the 2015 Notes, we entered into the 2015 Notes Hedges and sold warrants to limit our exposure to the additional cash payments above the $350.0 million principal balance in the event of a cash conversion of the 2015 Notes. The 2015 Notes currently trade at a premium to their if-converted value, and we do not anticipate a conversion of the 2015 Notes by the note holders between April 1, 2012 and June 30, 2012. However, if the holders of the 2015 Notes elect to convert their notes between April 1, 2012 and June 30, 2012, we expect to have sufficient cash to fund any payment resulting from a conversion.For an additional description of our 2015 Notes, and the conversion terms thereof, see Note 2 in our Notes to Condensed Consolidated Financial Statements. Change (In millions) Increase in cash and cash equivalents $ 83.8 Decrease in accounts payable and accrued liabilities 14.7 Decrease in current portion of deferred revenue 10.2 Decrease in prepaid expenses and other (4.4 ) Increase in convertible notes (5.6 ) Decrease in receivables, net (22.6 ) Other individually insignificant items 1.2 $ 77.3 The changes in net cash provided by Three Months Ended Change March 30,
2013 March 31,
2012 (In millions) Cash provided by operating activities $ 75.3 $ 60.7 $ 14.6 forincreased $14.6 million during the three months ended March 31, 2012,30, 2013, as compared to the three months ended April 2, 2011, wereMarch 31, 2012, due to the following: Change (In millions) $ 32.5 (28.2 ) $ 4.3 Change (In millions) Net income, net of non-cash related gains and losses $ 57.7 Changes in operating assets and liabilities, net of effect of acquired businesses (43.1 ) $ 14.6 charges,items 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.If our customers experience adverse changes in the future, are not successful in generating sufficient cash or are precluded from securing financing, they may delay purchasing our products and services, or 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 would adversely affect our cash flow. Additionally, our customers may seek to renegotiate pre-existing contractual commitments. Though we have not 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 cash flows from operations. For an additional description of our accounts receivable, see Note 6 in our Notes to Condensed Consolidated Financial Statements.We expect to pay an additional $4.8 million related to our previous restructuring activities, primarily for payments related to vacated facilities, net of expected sublease income. Three Months Ended Change March 30, 2013 March 31, 2012 (In millions) Cash used for investing activities (1.8 ) (9.4 ) 7.6 31, 2012,30, 2013, as compared to the three months ended April 2, 2011,March 31, 2012, were due to the following: Change (In millions) $ (3.0 ) (2.6 ) (1.5 ) 1.5 0.4 $ (5.2 ) Change (In millions) Proceeds from the sale of available-for-sale securities $ 15.0 Purchases of available-for-sale securities (24.3 ) Proceeds from the maturity of available-for-sale securities 8.7 Proceeds from the sale of long-term investments 6.1 Purchases of property, plant and equipment 1.6 Other individually insignificant items 0.5 $ 7.6 31, 2012,30, 2013, we may be obligated to make payments based on, or subject to the satisfaction of, certain performance metrics. If performance is such that these payments are fully achieved, we would be obligated to pay up to an aggregate of $31.4$14.4 million in cash during the next 4937 months. Three Months Ended Change March 30, 2013 March 31, 2012 (In millions) Cash provided by financing activities 15.2 9.4 5.8 Change (In millions) Proceeds from the issuance of common stock $ 9.0 Tax effect related to employee stock transactions allocated to equity 2.4 Principal payments on receivable financing (2.5 ) Stock received for payment of employee taxes on vesting of restricted stock (2.6 ) Other individually insignificant items (0.5 ) $ 5.8 31, 2012,30, 2013, as compared to the three months ended April 2, 2011, were due to the following: Change (In millions) $ 3.9 2.8 2.7 (3.3 ) (0.1 ) $ 6.0 For an additional description of our 2013 Notes and 2015 Notes, and the conversion terms thereof, see Note 2 in our Notes to Condensed Consolidated Financial Statements and “Net Working Capital,” above.We recorded losses on the reissuance of treasury stock of $1.6 million during the three months ended March 31, 2012, as compared to $6.5 million duringresulted from an increase in the three months ended April 2, 2011.31, 2012,30, 2013, we had convertible notes outstanding with a net liability value of approximately $430.9$452.4 million and that mature between December 15, 2013, and June 1, 2015. The principal maturity value of these convertible notes is approximately $494.5 million.$494.5 million. The total cash or stock payable upon the early conversion of these notes, as determined by the indenture of each security, will be their principal amount plus any additional conversion value that would be due upon conversion.$10.78$10.78 per share. Although our incremental cash payout exposure above the conversion price is limited by the hedges to the $350.0$350.0 million outstanding principal value of the 2015 Notes, we will experience dilution to our stock and to our diluted earnings per share from the outstanding warrants2015 Warrants to the extent our average closing stock price exceeds $10.78. $10.78 in any fiscal quarter until the 2015 Notes are converted and the 2015 Warrants are settled.$9.81$9.81 for at least 20 of the last 30 trading days. The 2015 Notes are convertible into cash from March 31, 2013 through June 29, 2013 because our closing stock price exceeded $9.81 for at least 20 of the last 30 trading days prior to March 30, 2013. Accordingly, the net balance of the 2015 Notes of $312.7 million is classified as a current liability on our condensed consolidated balance sheet as of March 30, 2013. While holders of the 2015 Notes would have the right to convert their notes if early conversion conditions are met, we do not expect holders of the 2015 Notes to convert their notes under such circumstances because the economic value to the holders of the notes has exceeded and likely will continue to exceed the cash received upon conversion. If the holders of our 2015 Notes elect to convert their notes into cash, we would be required to make cash payments of up to $350 million prior to the maturity of the 2015 Notes. In connection with the 2015 Notes, we entered into the 2015 Notes Hedges and sold warrants to limit our exposure to the additional cash payments above the $350 million principal balance in the event of a cash conversion of the 2015 Notes. The 2015 Notes currently trade at a premium to their if-converted value, and we do not anticipate a conversion of the 2015 Notes by the note holders between March 31, 2013 and June 29, 2013. However, if the holders of the 2015 Notes were to chooseelect to convert attheir notes between March 31, 2013 and June 29, 2013, we expect to have sufficient cash, cash equivalents, short-term investments and access to our revolving credit facility to fund any payment resulting from a time in which the notes are convertible, it could have a significant negative impact on our cash and liquidity.$31.50$31.50 per share. We will experience dilution to our stock and to diluted earnings per share from the outstanding warrants to the extent our stock price exceeds $31.50.$31.50.2013 with our cash on hand and future cash flows from operations.2013. The 2013 Notes could become convertible prior to their maturity if certain conversion conditions are met. However, we do not currently expect that any of the conversion conditions towill be met prior to the maturity of the 2013 Notes. We also believe that we will have sufficient cash in future periods as well as access to our revolving credit facility to service the maturities of our 2015 Notes, but future changes in our cash position, cash flows from operating activities, cash flows from investing activities, cash flows from financing activities, as well as general business levels and changes in our access to financing may impact our ability to settle the principal amount payable to the holders of the 2013 Notes and 2015 Notes when they mature or convert.our Notesthe notes to Condensed Consolidated Financial Statements and “Net Working Capital,” above.condensed consolidated financial statements.Most of our revenue is transacted in United States dollars. The fluctuations in our operating expenses outside the United States resulting from volatility in the United States dollar against certain foreign currencies are not generally moderated by corresponding fluctuations in our revenues, except for our operations in Japan.TheWe enter into currency forward exchange contracts based on estimated future asset and liability exposures, and the effectiveness of our hedging program depends on our ability to estimate future asset and liability exposures. We enter into currency forward exchange contracts based on estimatedthese future asset and liability exposures. Recognized gains and losses with respect to our current hedging activities will ultimately depend on how accurately we are able to match the amount of currency forward exchange contracts with actual underlying asset and liability exposures.31, 2012.30, 2013. The information is provided in United States dollar equivalent amounts. The table presents the notional amounts, at contract exchange rates, and the weighted-averageweighted average contractual foreign currency exchange rates expressed as units of the foreign currency per United States dollar, which in some cases may not be the market convention for quoting a particular currency. All of these forward contracts mature before or during June 2012. Notional
Principal Weighted
Average
Contract
Rate (In millions) $ 25.1 50.47 24.8 0.77 16.9 6.32 14.1 82.44 13.6 0.99 8.6 3.78 7.6 29.48 8.1 N/A $ 118.8 $ 0.2 (In millions) Forward Contracts: European Union euro $ 48.1 0.77 India rupee 23.4 54.60 Israeli shekel 12.7 3.68 Japanese yen 12.3 94.64 Chinese renminbi 12.1 6.27 Canadian dollar 9.0 1.03 Other 13.5 N/A Total $ 131.1 Estimated fair value $ (0.5 ) equivalents. equivalents and outstanding balances drawn on our credit facility, if any.WePursuant to our investment policy, we limit the amount of our credit exposure to any one issuer, other than in securities issued by the United States.investmentssecurities with a maturity of three months or less at the date of purchase are considered to be cash equivalents. InvestmentsSecurities with maturities greater than three months are classified as available-for-sale and are considered to be short-term investments. The carrying value of our interest-bearing instruments approximated fair value as of March 31, 2012. The following table presents30, 2013.carrying value and related weighted-averagecredit facility is utilized could be adversely affected by changes in interest rates. Interest rates under our revolving credit facility can fluctuate based on changes in market interest rates for our interest-bearing instruments, which are all classified as cash and cash equivalentsin an interest rate margin that varies based on our Condensed Consolidated Balance Sheet asconsolidated leverage ratio. As of March 31, 2012. Carrying
Value Average
Interest Rate (In millions) $ 529.2 0.03 % 68.3 0.32 % 17.5 6.57 % $ 615.0 0.24 % Shares (In millions) $11.00 0.9 $12.00 4.7 $13.00 7.9 $14.00 10.7 $15.00 13.0 $16.00 15.1 $17.00 17.0 $18.00 18.6 $19.00 20.1 $20.00 21.4 Notesnotes to Condensed Consolidated Financial Statementscondensed consolidated financial statements and “Liquidity and Capital Resources – Other Factors Affecting Liquidity and Capital Resources,” under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”Investments87 in our Notesthe notes to Condensed Consolidated Financial Statements,condensed consolidated financial statements, and Note 109 in the Notesnotes to Consolidated Financial Statementsconsolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011,29, 2012, for an additional description of these investments. Our investments in non-marketable investments had a carrying value of $10.5$7.0 million as of March 31, 201230, 2013, and $10.5$7.3 million as of December 31, 2011.31, 2012.31, 2012,30, 2013, our CEO and CFO have concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.31, 201230, 2013 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.On April 23, 2012, the United States District Court entered final approval of the settlements of the pending derivative and securities litigation, and dismissed those lawsuits. See Note 12 in our Notes to Condensed Consolidated Financial Statements for an additional description of our legal proceedings and these settlements.2010.2010 and early reports indicate that semiconductor industry revenue during 2012 was slightly lower than 2011. Spending on EDA products and services grew moderately during 2012 may grow moderately as customers invest in new projects, orfiscal 2012. While spending on EDA products and services has grown in recent years, the outlook for the semiconductor industry for 2013 is uncertain and may declineresult in 2012.We have experienced varied operating results, and our operating results for any particular fiscal period are affected by the timing of significant bookings for our products, fluctuations in customer preferences for license types and the timing of revenue recognition under those license types.We have recorded net losses in the past and may record net losses in the future. Various factors affect our operating results and some of them are not within our control. Our operating results for any period are affected by the timing of certain bookings for our software and hardware products and by bookings levels.Our operating results are also affected by the mix of software license types and bookings for sales or leases of hardware products executed in any given period. Revenue is affected by the timing of software license renewals, changes in existing contractual arrangements with customers and the mix of license types (i.e., perpetual, term or subscription) for existing customers. Our software license mix is such that a substantial proportion of licenses require ratable revenue recognition, and we expect the license mix, combined with the modest growth in spending by our customers in the semiconductor sector, may make it difficult for us to rapidly increase our revenue in future fiscal periods. The timing of our revenue recognition may be deferred until payments become due and payable from customers with nonlinear payment terms or as cash is collected from customers with low credit ratings.Revenue related to our hardware business is generally recognized upon delivery. We expect revenue related to our hardware business to be cyclical, with our hardware related revenue generally increasing after the release of a new generation of hardware products and then declining gradually as that generation of hardware products gets older, until eventually, a new generation of hardware products is released and the cycle restarts. Any variation from these expectations could have a material impact on our business.We plan our operating expenses based on forecasted revenue, expected business needs and other factors. These expenses and the effect of long-term commitments are relatively fixed in the short term. Bookings and the related revenue are harder to forecast in a difficult economic environment. If the macroeconomic environment weakens, and we experience a shortfall in bookings, our operating results could differ from our expectations because we may not be able to quickly reduce our expenses in response to short-term business changes.The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on our results of operations (see “Critical Accounting Estimates” under Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”). Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that may lead us to change our methods, estimates and judgments. Changes in those methods, estimates and judgments could significantly affect our results of operations.You should not view our historical results of operations as reliable indicators of our future performance. If our revenue, operating results or business outlook for future periods fall short of the levels expected by securities analysts or investors, the trading price of our common stock could decline.MigrationChanges in the design and manufacturing of ICs, including migration to nanometer design –advanced process nodes and the continuous shrinkageintroduction of the size of process features and other features,three dimensional transistors, such as wires,fin-based, multigate transistors, and contacts on ICs, dueor FinFETs, present major challenges to the ongoing advances in the semiconductor manufacturing processes – represents a major challenge for participants in the semiconductor industry, fromparticularly in IC design, and design automation, to design of manufacturing equipment, and the manufacturing process itself. Shrinking transistor sizes are challengingWith migration to advanced process nodes, the industry in the application ofmust adapt to more complex physics and chemistry in ordermanufacturing challenges such as the need to produce advanceddraw features on silicon devices. For EDA tools, modelsthat are many times smaller than the wavelength of light used to draw the features via lithography. Models of each component’s electrical properties and behavior also become more complex as do requisite analysis, design, verification and verificationmanufacturing capabilities. Novel design tools and methodologies must be invented and enhanced quickly to remain competitive in the design of electronics in the smallest nanometer ranges.nanometeradvanced node design are leading some customers to work with older,more mature, less risky manufacturing processes that may reduce their need to upgrade or enhance their EDA products and design flows.Designdesign IP with custom logic to create ICs or SoCs. The unavailability of a broad range of high-quality Designdesign IP (including our own) that can be reliably incorporated into a customer’s design with our software products and services could lead to reduced demand for our products and services. uncompetitive or obsolete. To compete successfully, we must develop, acquire or license new products and improve our existing products and processes on a schedule that keeps pace with technological developments and the requirements for products addressing a broad spectrum of designers and designer expertise in our industries. Our hardware platforms must be enhanced periodically to reduce the likelihood that a competitor surpasses the capabilities we offer. We must also be able to support a range of changing computer software, hardware platforms and customer preferences. A rapid transition to different business models associated with cloud computing technologies could result in reduced revenue. We cannot guarantee that we will be successful in keeping pace with all, or any, of the customer trends.Our operating resultsAt the time of issuance of our convertible notes due in 2015, we entered into separate warrant transactions for the purchase of up to approximately 46.4 million shares of our common stock at a strike price of $10.78 per share. At the time of issuance of our convertible notes due 2013, we also entered into separate warrant transactions, and revenue couldwarrants are currently outstanding to purchase approximately 6.8 million shares of our common stock at a strike price of $31.50 per share. These warrants will be adversely affectedsettled in net shares. Therefore, upon expiration of the warrants, we will issue shares of our common stock to the purchasers of the warrants that represent the value by customer payment delays, customer bankruptcies and defaults or modificationswhich the price of licenses.Occasionally, our customers file for bankruptcy or request to modify license terms, but these events generally have not had a material impact on our business or operating results.common stock exceeds the strike price stipulated within the particular warrant agreement. If our customers experience adverse changesstock price is above the warrants’ strike price upon expiration of the warrants, the warrants will dilute the ownership interest of our existing stockholders. The warrants will also dilute our diluted earnings per share in their business, they may delay or default on their payment obligationsperiods when our average closing stock price exceeds the strike price of the particular warrant. Any sales in the public market of common stock issuable upon net settlement at expiration of the warrants could adversely affect then current market prices of our common stock. Additional risk factors related to us, file for bankruptcy or modify or cancel plansour indebtedness are described below under "Risks Related to license our products. If our customers are not successful in generating sufficient cash or are precluded from securing financing, theyOur Securities and Indebtedness."be ablerealize the expected benefits of these acquisitions.pay,acquire other companies and businesses in the future. While we expect to carefully analyze each potential acquisition before committing to the transaction, we may not consummate any particular transaction, but may nonetheless incur significant costs, 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 revenue and cash flow. Additionally, our customers may seek to renegotiate pre-existing contractual commitments. Payment defaults by our customers or significant reductions in existing contractual commitments could haveif a material adverse effect on our financial condition and operating results. Because of the relatively high levels of volatility that continue to drive significant fluctuations in asset prices, as well as concern regarding high levels of leverage in sovereign and corporate debt, the capital and credit markets are volatile and unpredictable. If we were to seek funding from the capital or credit markets in response to any material level of customer defaults,transaction is consummated, we may not be able to secure fundingintegrate and manage acquired products and businesses effectively or to integrate and retain key personnel from the acquired companies or businesses. In addition, acquisitions involve a number of risks. If any of the following acquisition-related risks occur, our business, operating results or financial condition could be seriously harmed:terms acceptablethe performance of the acquired businesses or the employees who joined us with the acquired businesses. We may continue to use contingent purchase price payments in connection with acquisitions in the future. The performance goals pursuant to which these future payments may be made generally relate to achievement by the acquired business, or by the employees who joined us with the acquired business of certain specified bookings, revenue, run rate, product proliferation, product development or at all, whichemployee retention goals during a specified period following completion of the applicable acquisition. Future acquisitions may have ainvolve issuances of stock as full or partial payment of the purchase price for the acquired business, grants of incentive stock or options to employees of the acquired businesses (which may be dilutive to existing stockholders), expenditure of substantial cash resources or the incurrence of material negative effect onamounts of debt. These arrangements may impact our business.customers; andMarket conditions in the IC, electronics systems and semiconductor industries.We have been engaged in a consolidated securities class action lawsuit and shareholder derivative lawsuits. For information regarding the litigation matters in which we are currently engaged, please refer to the discussion under Item 1, “Legal Proceedings”"Legal Proceedings" and Note 1210 in our Notesnotes to Condensed Consolidated Financial Statements.condensed consolidated financial statements. We cannot provide any assurances that the final outcome of these lawsuits or any other proceedings that may arise in the future will not have a material adverse effect on our business, operating results, financial condition or cash flows. Litigation can be time consuming and expensive and could divert management’s time and attention from our business, which could have a material adverse effect on our revenues and operating results.renew maintenance agreements and purchase additional services. In some cases, maintenance is renewable annually at a customer’s option, and there are no mandatory payment obligations or obligations to license additional software. If our customers decide not to renew their maintenance agreements or license additional products or contract for additional services, or if they reduce the scope of the maintenance agreements, our revenue could decrease, which could have an adverse effect on our operating results. Our customers, many of which are large semiconductor and systems companies, often have significant bargaining power in negotiations with us. Mergers or acquisitions of our customers can reduce the total level of purchases of our software and services, and in some cases, increase customers’ bargaining power in negotiations with their suppliers, including us.must also gain industry acceptance for our engineering services and offer better strategic concepts, technical solutions, prices and response time, or a combination of these factors, than those of our competitors and the internal design departments of electronics manufacturers. We may not be able to compete successfully in these industries. Factors that could affect our ability to succeed include: products and maintenance most frequently with Synopsys, Inc. and Mentor Graphics Corporation, but also with numerous other EDA providers (such as Ansys, Inc., Atrenta, Inc., ATopTech, Inc., Berkeley Design Automation, Inc., EVE SA, SpringSoft, Inc. and Zuken Ltd., and many others offering “point solutions”"point solutions"), with manufacturers of electronic devices that have developed, acquired or have the capability to develop their own EDA products, and with numerous electronics design and consulting companies. Synopsys recently acquired Magma Design Automation, Inc., which will impact the competitive landscape of the industry. In the area of Design IP, we compete with Synopsys and numerous smaller IP companies.also be subject to othera number of risks, including:International economic downturn;StatesStates’ and other governments’ licensing requirements for exports, which may lengthen the sales cycle or restrict or prohibit the sale or licensing of certain products.including our Chief Executive Officer, and other key employees, including key development personnel.employees. Competition for highly skilled executive officers and employees can be intense, particularly in geographic areas recognized as high technology centers such as the Silicon Valley area, where our principal offices are located, and in other locations where we maintain facilities. We may also experience increased compensation costs that are not offset by either improved productivity or higher sales. We may not be successful in recruiting new personnel and in retaining and motivating existing personnel. From time to time, there may be changes in our management team resulting from the hiring and departure of executive officers, and as a result, we may experience disruption to our business that may harm our operating results and our relationships with our employees, customers and suppliers may be adversely affected. To attract, retain and motivate individuals with the requisite expertise, we may be required to grant large numbers of stock options or other stock-based incentive awards, which may be dilutive to existing stockholders and increase compensation expense, and pay significant base salaries and cash bonuses, which could harm our operating results. The high cost of training new employees, not fully utilizing these employees, or losing trained employees to competing employers could also reduce our operating margins and harm our business or operating results.including(including increases in shares available for issuance under such plans,plans), and prohibit publicly-traded companies from giving atechnologyproducts and IP and integrating acquired technology into existing platforms is expensive, and these investments often require a long time to generate returns. Our strategy involves significant investments in research and development and related product opportunities. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain and improve our competitive position. However, we cannot ensure that we will receive significant, if any, revenue from these investments.We have acquired and expect to acquire other companies and businesses and may not realize the expected benefits of these acquisitions.We have acquired and expect to acquire other companies and businesses in the future. While we expect to carefully analyze each potential acquisition before committing to the transaction, we may not consummate any particular transaction, but may nonetheless incur significant costs, or if a transaction is consummated, we may not be able to integrate and manage acquired products and businesses effectively or to integrate and retain key personnel from the acquired companies or businesses. In addition, acquisitions involve a number of risks. If any of the following acquisition-related risks occur, our business, operating results or financial condition could be seriously harmed:Difficulties in combining previously separate businesses into a single unit;The substantial diversion of management’s attention from day-to-day business when evaluating and negotiating these transactions and integrating an acquired business;The discovery, after completion of the acquisition, of unanticipated liabilities assumed from the acquired business or of assets acquired, such that we cannot realize the anticipated value of the acquisition;The failure to realize anticipated benefits such as cost savings and revenue enhancements;The failure to retain key employees of the acquired business;Difficulties related to integrating the products of an acquired business in, for example, distribution, engineering, licensing models and customer support areas;Unanticipated costs;Customer dissatisfaction with existing license agreements with us, possibly dissuading them from licensing or buying products acquired by us after the effective date of the license; andThe failure to understand and compete effectively in markets where we have limited experience.In a number of our completed acquisitions, we have agreed to make future payments, either in the form of employee bonuses or contingent purchase price payments based on the performance of the acquired businesses or the employees who joined us with the acquired businesses. We may continue to use contingent purchase price payments in connection with acquisitions in the future. The performance goals pursuant to which these future payments may be made generally relate to achievement by the acquired business, or by the employees who joined us with the acquired business of certain specified bookings, revenue, run rate, product proliferation, product development or employee retention goals during a specified period following completion of the applicable acquisition. Future acquisitions may involve issuances ofstock as full or partial payment of the purchase price for the acquired business, grants of incentive stock or options to employees of the acquired businesses (which may be dilutive to existing stockholders), expenditure of substantial cash resources or the incurrence of material amounts of debt.The specific performance goal levels and amounts and timing of employee bonuses or contingent purchase price payments vary with each acquisition. While we expect to derive value from an acquisition in excess of such contingent payment obligations, our strategy may change and we may be required to make certain contingent payments without deriving the anticipated value.Designdesign IP product-related patents. New patents are being issued at a rapid rate and are owned by EDA companies as well as entities and individuals outside the EDA industry, including parties whose income is primarily derived from infringement-related litigation. It is not always practicable to determine in advance whether a product or any of its components infringes the patent rights of others. As a result, from time to time, we may be compelled to respond to or prosecute intellectual property infringement claims to protect our rights or defend a customer’s rights.Designdesign IP products that are incorporated into a customer productmakes the timing of our revenue difficult to predict and may cause our operating results to fluctuate unexpectedly.The effect of foreign exchange rate fluctuations may adversely impact our financial condition.We have significant operations outside the United States. Our revenue from international operations as a percentage of total revenue was approximately 59% during the three months ended March 31, 2012 and 58% during the three months ended April 2, 2011, a substantial portion of which is denominated in United States dollars. We expect that revenue from our international operations will continue to account for a significant portion of our total revenue. We also transact business in various foreign currencies, primarily the Japanese yen. The volatility of foreign currencies in certain regions, most notably the Japanese yen, European Union euro, British pound and Indian rupee have had and may in the future have an effect on our revenue or operating results.Fluctuations in the rate of exchange between the United States dollar and the currencies of other countries where we conduct business could seriously affect our business, operating results or financial condition. For example, when a foreign currency declines in value relative to the United States dollar, it takes more of the foreign currency to purchase the same amount of United States dollars than before the change. If we price our products and services in the foreign currency, we receive fewer United States dollars than we did before the change. If we price our products and services in United States dollars, the decrease in value of the local currency results in an increase in the price for our products and services compared to those products of our competitors that are priced in local currency. This could result in our prices being uncompetitive in markets where business is transacted in the local currency. On the other hand, when a foreign currency increases in value relative to the United States dollar, it takes more United States dollars to purchase the same amount of the foreign currency. As we use the foreign currency to pay for payroll costs and other operating expenses in our international operations, this results in an increase in operating expenses.Exposure to foreign currency transaction risk can arise when transactions are conducted in a currency different from the functional currency of one of our subsidiaries. A subsidiary’s functional currency is generally the currency in which it primarily conducts its operations, including product pricing, expenses and borrowings. Although we attempt to reduce the effect of foreign currency fluctuations, significant exchange rate movements may hurt our results of operations as expressed in United States dollars.principles.2012.2013. A change in these or other principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change. In addition, the SEC announcedis considering a multi-year plan that could ultimately lead to the use of International Financial Reporting Standards by United States issuers in their SEC filings. Any such change could have a significant effect on our reported financial results.31, 2012,30, 2013, approximately 50%55% of our cash, and cash equivalents and short-term investments balance was held by subsidiaries outside the United States, with the remainder of the and future United States operating cash flows and cash available under our revolving credit facility are sufficient to meet our ongoing United States operating expenses and debt repayment obligations. However, if these sources of cash were insufficient to meet our future funding obligations in the United States, we could be required to seek other available funding sources, which could negatively impact our results of operations, financial position and the market price of our common stock.We depend on a sole supplier for certain hardware components, making us vulnerable to supply shortages and price fluctuation.We are dependent on a sole supplier for certain hardware components. Our reliance on a sole supplier could result in product delivery problems and reduced control over product pricing and quality, as well as limit our ability to identify and qualify another supplier in a timely manner. While it is our goal to have multiple sources to procure certain key components, in some cases it is not practical or feasible to do so. We may suffer a disruption in the supplyWhile those restructuring plans are almost complete, we may not be able to realize the expected long-term benefits ofThe only remaining activities in our restructuring plans suchrelate to facilities vacated as improvements in operating margins and cash flows. Our inability to realizepart of these benefits may result in an inefficient business structure that could negatively affect our results of operations.plans. Our restructuring plans may also subject us to litigation risks and expenses. In addition, our restructuring plans may have other consequences, such as attrition beyond our planned reduction in workforce, a negative effect on employee morale or our ability to attract highly skilled employees. Our competitors may also seek to gain a competitive advantage over us. The restructuring plans could also cause our remaining employees to leave or result in reduced productivity by our employees, and, in turn, this may affect our revenue and other operating results in the future.Companiesthat lose employees to competitors, they frequently claim that these competitors have engaged in unfair hiring practices or that the employment of these persons would involve the disclosure or use of trade secrets. These claims could prevent us from hiring employees or cause us to incur liability for damages. We could also incur substantial costs in defending ourselves or our employees against these claims, regardless of their merits. Defending ourselves from these claims could also divert the attention of our management away from our operations.debt.debt, and, as of March 30, 2013, we have the ability to borrow an additional $250 million under a credit facility. As of March 31, 2012,30, 2013, we had outstanding indebtedness with a principal balance of $494.7$494.7 million as follows:Cash Convertible Senior Notes Duecash convertible senior notes due 2015, or ourthe 2015 Notes;Convertible Senior Notes Dueconvertible senior notes due December 15, 2013, or ourthe 2013 Notes; andZero Coupon Zero Yield Senior Convertible Notes Due 2023, or our 2023 Notes.zero coupon zero yield senior convertible notes due 2023.Warrant transactions associated with our 2013 Notes and 2015 Notes will, in certain circumstances, dilute the ownership interests31, 2012,30, 2013 our closing stock price exceeded $9.81$9.81 for at least 20 of the last 30 trading days prior to March 31, 2012.30, 2013. As a result, the 2015 Notes are convertible into cash from April 1, 2012March 30, 2013 through June 30, 201229, 2013 and we have classified our 2015 Notes as a current liability on our Condensed Consolidated Balance Sheetconsolidated balance sheet as of March 31, 2012.30, 2013. The 2013 Notes are not currently convertible.Condensed Consolidated Balance Sheetconsolidated balance sheet as of the end of that fiscal quarter.“fundamental change”"fundamental change" in our corporate ownership or structure, such as a change of control in which substantially all of the consideration does not consist of publicly traded securities, prior to maturity of the 2013 Notes and the 2015 Notes. The repurchase price for the 2013 Notes and the 2015 Notes in the event of a fundamental change must be paid solely in cash. This repayment obligation may have the effect of discouraging, delaying or preventing a takeover of our company. Payment of the notes prior to their scheduled maturities could have a significant negative impact on our cash and liquidity and could impact our ability to invest financial resources in other strategic initiatives.became convertible into cash at the end of the second quarter of fiscal 2011, were not convertible as of the end of the third quarter of fiscal 2011, but were again convertible as of December 31, 2011 and as of March 31, 2012.30, 2013. The convertible note hedge transactions in connection with the 2015 Notes, or the 2015 Notes Hedges, are intended to reduce our exposure above the $350.0 million principal balance in the event of a cash conversion of the 2015 Notes. If the hedge participants fail to meet their obligations for any reason, it could have a material adverse effect on our liquidity and financial condition.thisthe decline may trigger the right of the holders of the 2013 Notes or the 2015 Notes to convert such notes into cash and shares of our common stock, as applicable.$500.0$500 million in the aggregate. In August 2008, our Board of Directors authorized another program to repurchase shares of our common stock in the open market with a value of up to an additional $500.0$500 million in the aggregate. As described in Note 2 in the notes to condensed consolidated financial statements, our revolving credit facility restricts certain payments, including share repurchases. We did not repurchase shares under these repurchase programs during the three months ended March 30, 2013, and $814.4 million remains under our repurchase authorization as of March 30, 2013.sets forth thepresents repurchases we madeand shares surrendered by employees to satisfy income tax withholding obligations during the three months ended March 31, 2012: Total Number
of Shares
Purchased(1) Average
Price Paid
Per Share Total Number of
Shares Purchased
as Part of
Publicly Announced
Plan or Program Maximum Dollar
Value of Shares that
May Yet
Be Purchased Under
Publicly Announced
Plan or Program(1)
(In millions) 9,841 $ 10.66 — $ 814.4 208,810 $ 11.92 — $ 814.4 227,614 $ 12.44 — $ 814.4 446,265 $ 12.15 — Period December 30, 2012 – February 2, 2013 31,481 $ 13.72 — $ 814.4 February 3, 2013 – March 2, 2013 459,531 $ 14.27 — $ 814.4 March 3, 2013 – March 30, 2013 54,157 $ 13.73 — $ 814.4 Total 545,169 $ 14.18 — (1)(1) Shares purchased that were not part of our publicly announced repurchase programs represent theemployee surrender of shares of restricted stock to paysatisfy employee income taxestax withholding obligations due upon vesting, and do not reduce the dollar value that may yet be purchased under our publicly announced repurchase programs.None.(a) The following exhibits are filed herewith: Incorporated by Reference Exhibit Title Form File No. Filing Date ExhibitNumber Exhibit Title Form File No. ExhibitNo. Filing Date ProvidedHerewith 10.012.01 Offer Letter,Agreement and Plan of Merger, dated February 6, 2012, betweenas of March 11, 2013, among the Registrant, Tundra Holdings, Inc., Tundra Subsidiary Corporation, Tensilica, Inc. and Martin Lund.Shareholder Representative Services LLC, as Stockholder Agent. X 10.01 Employment Agreement, effective as of March 28, 2013, between Registrant and Martin N. Lund. X 31.01 Certification of the Registrant’s Chief Executive Officer, Lip-Bu Tan, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. X 31.02 Certification of the Registrant’s Chief Financial Officer, Geoffrey G. Ribar, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. X 32.01 Certification of the Registrant’s Chief Executive Officer, Lip-Bu Tan, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 32.02 Certification of the Registrant’s Chief Financial Officer, Geoffrey G. Ribar, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 101.INS XBRL Instance Document. X 101.SCH XBRL Taxonomy Extension Schema Document. X 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. X 101.DEF XBRL Definition Linkbase Document. X 101.LAB XBRL Taxonomy Extension Label Linkbase Document. X 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. X DATE:April 27, 2012 DATE: April 25, 2013 By: Lip-Bu Tan President, Chief Executive Officer and Director DATE:April 27, 2012 DATE: April 25, 2013 By: Geoffrey G. Ribar Senior Vice President and Chief Financial Officer Incorporated by Reference Exhibit Title Form File No. Filing Date ExhibitNumber Exhibit Title Form File No. ExhibitNo. Filing Date ProvidedHerewith2.01 Agreement and Plan of Merger, dated as of March 11, 2013, by and among the Registrant, Tundra Holdings, Inc., Tundra Subsidiary Corporation, Tensilica, Inc. and Shareholder Representative Services LLC, solely as Stockholder Agent. X 10.01 Offer Letter, dated February 6, 2012,Employment Agreement, effective as of March 28, 2013, between the Registrant and Martin N. Lund. X 31.01 Certification of the Registrant’s Chief Executive Officer, Lip-Bu Tan, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. X 31.02 Certification of the Registrant’s Chief Financial Officer, Geoffrey G. Ribar, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. X 32.01 Certification of the Registrant’s Chief Executive Officer, Lip-Bu Tan, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 32.02 Certification of the Registrant’s Chief Financial Officer, Geoffrey G. Ribar, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 101.INS XBRL Instance Document. X 101.SCH XBRL Taxonomy Extension Schema Document. X 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. X 101.DEF XBRL Definition Linkbase Document. X 101.LAB XBRL Taxonomy Extension Label Linkbase Document. X 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. X 63