Cadence Design Systems (CDNS) 8-K Results of Operations and Financial Condition

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): August 4, 2010

CADENCE DESIGN SYSTEMS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	000-15867	77-0148231
(State or Other Jurisdiction	(Commission File Number)	(I.R.S. Employer
of Incorporation)		Identification No.)

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

(408) 943-1234
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

As part of the final review of the Form 10-Q for the quarter ended July 3, 2010 it was determined that, as a result of the accounting treatment for certain deferred payments in connection with Cadence Design Systems, Inc.’s (“Cadence”) acquisition of Denali Software, Inc., the second quarter 2010 Financial Schedules (“Q2 2010 Financial Schedules”) to Cadence’s earnings release dated July 28, 2010 (the “Q2 Earnings Release”) incorrectly categorized certain amounts reflected in the Q2 2010 Financial Schedules. The corrected amounts are provided herein and are in thousands, except for per share amounts.

• In the Condensed Consolidated Balance Sheets as of July 3, 2010:

• The actual amount of Prepaid expenses and other is $71,448 instead of $62,308, and the actual amount of Goodwill is $158,227 instead of $167,367, but Total Assets remains unchanged at $1,695,755.

• The actual amount of Accounts payable and accrued liabilities is $153,982 instead of $153,220, and the actual amount of Accumulated deficit is $1,215,391 instead of $1,214,629, but Total liabilities and stockholders’ equity remains unchanged at $1,695,755.

• In the Condensed Consolidated Statements of Operations for the three months ended July 3, 2010, the actual amount of Research and development expense is $91,880 instead of $91,118, and the actual amount of Net income is $48,607 instead of $49,369. Diluted net income per share for the same period is decreased because of the $762 in additional Research and development expense, which reduces Diluted net income per share by $0.003, which, with rounding, results in Diluted net income per share of $0.18 instead of $0.19.

• In the Condensed Consolidated Statements of Cash Flows for the three months ended July 3, 2010, the actual amount of Net income is $48,607 instead of $49,369, the actual amount of Change in Prepaid expenses and other is $(12,260) instead of $(3,120), the actual amount of Change in Accounts payable and accrued liabilities is $5,101 instead of $4,339, and the actual amount of Cash paid in business combinations and asset acquisitions, net of cash acquired is $(253,951) instead of $(263,091), but Cash and cash equivalents remained unchanged at $475,603.

Appropriate changes in subtotal amounts are also reflected below and in the Q2 2010 Financial Schedules, which are posted on Cadence’s website atwww.cadence.com, and the correct amounts are reflected in Cadence’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2010, filed today.

As a result of this accounting treatment, the guidance for third quarter 2010 GAAP net loss per diluted share is expected to be in the range of $(0.10) to $(0.08) instead of $(0.08) to $(0.06) and the guidance for fiscal 2010 GAAP net loss per diluted share is expected to be in the range of $(0.04) to $(0.00) instead of $(0.01) to $0.03.

All other guidance under “Business Outlook” in the Q2 Earnings Release remains unchanged, including the guidance for net income per diluted share using the non-GAAP measure set forth in the Q2 Earnings Release.

Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
July 3, 2010, As Reflected in Financial Statement Schedules Dated July 28, 2010 and
As Updated on August 4, 2010
(In thousands)
(Unaudited)

	July 3, 2010			Adjustments			July 3, 2010
	As reflected in						As updated on
	financial statement						August 4, 2010
	schedules dated
	July 28, 2010
Current Assets:
Cash and cash equivalents	$	475,603		$	—		$	475,603
Short-term investments		2,860			—			2,860
Receivables, net of allowances of $11,194		191,291			—			191,291
Inventories		23,874			—			23,874
Prepaid expenses and other		62,308			9,140			71,448
Total current assets		755,936			9,140			765,076
Property, plant and equipment, net of accumulated depreciation of $652,965		295,073			—			295,073
Goodwill		167,367			(9,140	)		158,227
Acquired intangibles, net of accumulated amortization of $90,983		192,422			—			192,422
Installment contract receivables		40,296			—			40,296
Other assets		244,661			—			244,661
Total Assets	$	1,695,755		$	—		$	1,695,755
Current Liabilities:
Accounts payable and accrued liabilities	$	153,220		$	762		$	153,982
Current portion of deferred revenue		290,105			—			290,105
Total current liabilities		443,325			762			444,087
Long-Term Liabilities:
Long-term portion of deferred revenue		92,477			—			92,477
Convertible notes		541,767			—			541,767
Other long-term liabilities		454,744			—			454,744
Total long-term liabilities		1,088,988			—			1,088,988
Stockholders’ Equity:
Common stock and capital in excess of par value		1,708,610			—			1,708,610
Treasury stock, at cost		(370,700	)		—			(370,700	)
Accumulated deficit		(1,214,629	)		(762	)		(1,215,391	)
Accumulated other comprehensive income		40,161			—			40,161
Total stockholders’ equity		163,442			(762	)		162,680
Total liabilities and stockholders’ equity	$	1,695,755		$	—		$	1,695,755

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Operations
For the Three Months Ended July 3, 2010, As Reflected in Financial Statement Schedules Dated July 28, 2010 and
As Updated on August 4, 2010
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended
	July 3, 2010			Adjustments			July 3, 2010
	As reflected in						As updated on
	financial						August 4, 2010
	statement
	schedules dated
	July 28, 2010
Revenue:
Product	$	117,066			—		$	117,066
Services		25,258			—			25,258
Maintenance		84,740			—			84,740
Total revenue		227,064			—			227,064
Costs and Expenses:
Cost of product		7,123			—			7,123
Cost of services		21,556			—			21,556
Cost of maintenance		10,481			—			10,481
Marketing and sales		71,513			—			71,513
Research and development		91,118			762			91,880
General and administrative		17,058			—			17,058
Amortization of acquired intangibles		2,551			—			2,551
Restructuring and other charges (credits)		(317	)		—			(317	)
Total costs and expenses		221,083			762			221,845
Income from operations		5,981			(762	)		5,219
Interest expense		(7,972	)		—			(7,972	)
Other expense, net		(3,100	)		—			(3,100	)
Loss before benefit for income taxes		(5,091	)		(762	)		(5,853	)
Benefit for income taxes		(54,460	)		—			(54,460	)
Net income	$	49,369		$	(762	)	$	48,607
Basic net income per share	$	0.19					$	0.19
Diluted net income per share *	$	0.19					$	0.18
Weighted average common shares outstanding — basic		262,163						262,163
Weighted average common shares outstanding — diluted		266,423						266,423

* The actual Diluted net income per share is reduced because of the $762 in additional Research and development expense, which reduces Diluted net income per share by $0.003, which, with rounding, reduces Diluted net income per share to $0.18 instead of $0.19.

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended July 3, 2010, As Reflected in Financial Statement Schedules Dated July 28, 2010 and
As Updated on August 4, 2010
(In thousands)
(Unaudited)

	Three Months Ended						Three Months Ended
	July 3, 2010			Adjustments			July 3, 2010
	As reflected in						As updated on
	financial statement schedules dated July 28, 2010						August 4, 2010
Cash and Cash Equivalents at Beginning of Period	$	619,303		$	—		$	619,303
Cash Flows from Operating Activities:
Net income		49,369			(762	)		48,607
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		19,868			—			19,868
Amortization of debt discounts and fees		5,778			—			5,778
Loss on extinguishment of debt		5,321			—			5,321
Stock-based compensation		10,435			—			10,435
Loss on equity method investments		46			—			46
Gain on investments, net		(1,344	)		—			(1,344	)
Write-down of investment securities		1,500			—			1,500
Impairment of property, plant and equipment		263			—			263
Deferred income taxes		(67,560	)		—			(67,560	)
Provisions (recoveries) for losses (gains) on trade and installment contract receivables		(10,385	)		—			(10,385	)
Other non-cash items		2,400			—			2,400
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables		(1,395	)		—			(1,395	)
Installment contract receivables		12,710			—			12,710
Inventories		(4,876	)		—			(4,876	)
Prepaid expenses and other		(3,120	)		(9,140	)		(12,260	)
Other assets		(1,788	)		—			(1,788	)
Accounts payable and accrued liabilities		4,339			762			5,101
Deferred revenue		28,069			—			28,069
Other long-term liabilities		8,508			—			8,508
Net cash provided by operating activities		58,138			(9,140	)		48,998
Cash Flows from Investing Activities:
Proceeds from the sale of long-term investments		1,169			—			1,169
Purchases of property, plant and equipment		(8,866	)		—			(8,866	)
Purchases of software licenses		(2,030	)		—			(2,030	)
Investment in venture capital partnerships and equity investments		(500	)		—			(500	)
Cash paid in business combinations and asset acquisitions, net of cash acquired		(263,091	)		9,140			(253,951	)
Net cash used for investing activities		(273,318	)		9,140			(264,178	)
Cash Flows from Financing Activities:
Proceeds from issuance of 2015 Notes		350,000			—			350,000
Payment of Convertible Senior Notes		(187,150	)		—			(187,150	)
Payment of 2015 Notes issuance costs		(9,800	)		—			(9,800	)
Purchase of 2015 Notes Hedges		(76,635	)		—			(76,635	)
Proceeds from termination of Convertible Senior Notes Hedges		280			—			280
Proceeds from sale of 2015 Warrants		37,450			—			37,450
Tax benefit from employee stock transactions		29			—			29
Proceeds from issuance of common stock		75			—			75
Stock received for payment of employee taxes on vesting of restricted stock		(2,035	)		—			(2,035	)
Purchases of treasury stock		(39,997	)		—			(39,997	)
Net cash provided by financing activities		72,217			—			72,217
Effect of exchange rate changes on cash and cash equivalents		(737	)		—			(737	)
Decrease in cash and cash equivalents		(143,700	)		—			(143,700	)
Cash and Cash Equivalents at End of Period	$	475,603		$	—		$	475,603

Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income (Loss) Per Share
As Reflected in Financial Statement Schedules dated July 28, 2010 and
As Updated on August 4, 2010
(Unaudited)

	Three Months Ending		Three Months Ending		Year Ending			Year Ending
	October 2, 2010		October 2, 2010		January 1, 2011			January 1, 2011
	Forecast		Forecast		Forecast			Forecast
	As reflected in		As updated on		As reflected in			As updated on
	financial statement		August 4, 2010		financial statement			August 4, 2010
	schedules dated				schedules dated
	July 28, 2010				July 28, 2010
Diluted net income (loss) per share on a GAAP basis	$(0.08) to $(0.06)		$(0.10) to $(0.08)		$(0.01) to $0.03			$(0.04) to $(0.00)
Amortization of acquired intangibles		0.03		0.03		0.08			0.08
Stock-based compensation expense		0.04		0.04		0.16			0.16
Non-qualified deferred compensation expenses		—		—		0.01			0.01
Restructuring and other charges (credits)		—		—		(0.01	)		(0.01	)
Shareholder litigation costs		—		—		0.01			0.01
Integration and acquisition-related costs		—		0.02		0.01			0.04
Other income or expense related to investments and non-qualified deferred compensation plan assets*		—		—		(0.02	)		(0.02	)
Loss on extinguishment of debt		—		—		0.02			0.02
Amortization of debt discount		0.02		0.02		0.09			0.09
Acquisition-related income tax benefit		—		—		(0.25	)		(0.25	)
Income tax effect of non-GAAP adjustments		—		—		0.03			0.03
Diluted net income per share on a non-GAAP basis	$0.01 to $0.03		$0.01 to $0.03		$0.12 to $0.16			$0.12 to $0.16

* Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on sale of investments and gains or losses on non-qualified deferred compensation plan assets recorded in Other income (expense), net.

Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income (Loss)
As Reflected in Financial Statement Schedules dated July 28, 2010 and
As Updated on August 4, 2010
(Unaudited)

	Three Months Ending			Three Months Ending			Year Ending			Year Ending
	October 2, 2010			October 2, 2010			January 1, 2011			January 1, 2011
	Forecast			Forecast			Forecast			Forecast
	As reflected in			As updated on			As reflected in			As updated on
	financial statement			August 4, 2010			financial statement			August 4, 2010
	schedules dated						schedules dated
($ in Millions)	July 28, 2010						July 28, 2010
Net income (loss) on a GAAP basis	$(22) to $(16)			$(26) to $(20)			$(2) to $8			$(11) to $(1)
Amortization of acquired intangibles		7			7			21			21
Stock-based compensation expense		12			12			43			43
Non-qualified deferred compensation expenses		—			—			2			2
Restructuring and other charges (credits)		—			—			(1	)		(1	)
Shareholder litigation costs		—			—			3			3
Integration and acquisition-related costs		1			5			3			12
Other income or expense related to investments and non-qualified deferred compensation plan assets*		—			—			(5	)		(5	)
Loss on extinguishment of debt		—			—			5			5
Amortization of debt discount		6			6			23			23
Acquisition-related income tax benefit		—			—			(67	)		(67	)
Income tax effect of non-GAAP adjustments		(1	)		(1	)		7			7
Net income on a non-GAAP basis	$3 to $9			$3 to $9			$32 to $42			$32 to $42

* Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on sale of investments and gains or losses on non-qualified deferred compensation plan assets recorded in Other income (expense), net.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: August 4, 2010

CADENCE DESIGN SYSTEMS, INC.
By:	/s/ Kevin S. Palatnik
	Kevin S. Palatnik
	Senior Vice President and Chief Financial Officer