Room 4561
May 5, 2006
Michael J. Fister
President and Chief Executive Officer
Cadence Design Systems, Inc.
2655 Seely Avenue, Building 5
San Jose, CA 95134
Re: Cadence Design Systems, Inc.
Form 10-K for the Fiscal Year Ended December 31, 2005
Filed March 10, 2006
Form 8-K Filed February 1, 2006
File no. 1-10606
Dear Mr. Fister:
We have reviewed the above referenced filings and have the
following comments. Please note that we have limited our review
to
the matters addressed in the comments below. Where indicated, we
think you should revise your document in response to these
comments.
If you disagree, we will consider your explanation as to why our
comment is inapplicable or a revision is unnecessary. Please be
as
detailed as necessary in your explanation. In some of our
comments,
we may ask you to provide us with supplemental information so we
may
better understand your disclosure. After reviewing this
information,
we may or may not raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K for the Fiscal Year Ended December 31, 2005
Notes To Consolidated Financial Statements
Note 2. Summary of Significant Accounting Policies
Revenue Recognition, page 63
1. On page 7, you indicate that the Company offers subscription
licenses to customers who desire rights to remix in new technology
during the life of contract, which allows the customers limited
access to unspecified new technology on a when and if available
basis. On page 73 you indicate that subscription licenses allow
customers limited rights to "exchange" the licensed software for
unspecified technology in the future. Please address the
following:
* Tell us, in detail, what you mean by remix rights. Do the
subscription licensees have the right to receive the unspecified
additional technology in addition to their license or are they
required to exchange their existing technology for the new
technology?
* Please explain how you analyzed these rights pursuant to
paragraphs
48 - 51 of SOP 97-2 and how your accounting complies with this
guidance.
2. We note your disclosure on page 7 where you indicate that term
licenses do not include remix rights. We further note your
disclosure on page 73 where you indicate that term licenses offer
limited rights to exchange the licensed software for technology
available at the time of purchase and revenue associated with term
license is recognized upon the delivery. Please address the
following:
* Tell us, in detail, what you mean by "limited rights to exchange
the licensed software for technology available at the time of
purchase." Does this mean that your customers have the right to
exchange licensed software for other software products during the
term of their license? If so, does the exchanged software have no
more than minimal differences in price, functionality, or
features?
Also, if the customers decide to exercise their right to exchange,
can they still use the licensed software?
* Please explain how you analyzed these rights pursuant to
paragraphs
50 & 51 of SOP 97-2 and SFAS 48, as applicable, and tell is us how
your accounting complies with this guidance.
3. We note your disclosures on page 74 where you indicate that
significant judgment is involved in assessing whether a fee is
fixed
or determinable, including "assessing whether a contract amendment
to
a term arrangement constitutes a concession." Please explain what
you mean by "contract amendment" and tell us how you account for
such
changes to your contracts.
Note 16. Income Taxes, page 102
4. We note from your disclosures on page 102 that the IRS proposes
to
assess an aggregate tax deficiency for the tax years 1997 - 1999
of
approximately $143 million, plus interest. We further note that
the
Company has protested certain of the proposed adjustments with the
Appeals Office of the IRS and the matter is presently being
considered. Has the Company accrued and/or paid any portion of
this
deficiency? If not, please explain as it appears the Company is
disputing only certain of the proposed adjustments. Tell us the
current status of your appeal and tell us how you considered SFAS
5
in accounting for this contingency.
Form 8-K Filed February 1, 2006
5. We note your reconciliation of GAAP net income to non-GAAP net
income includes an adjustment for the "Income tax related to
repatriation of foreign earnings" and yet there does not appear to
be
any discussion in the Company`s Form 8-K regarding this
adjustment.
Tell us how you considered the disclosure requirements of Item
10(e)(1)(i)(C) and (D) of Regulation S-K with regards to this
adjustment.
As appropriate, please amend your filing and respond to these
comments within 10 business days or tell us when you will provide
us
with a response. Please submit all correspondence and
supplemental
materials on EDGAR as required by Rule 101 of Regulation S-T. You
may wish to provide us with marked copies of any amendment to
expedite our review. Please furnish a cover letter with any
amendment that keys your responses to our comments and provides
any
requested information. Detailed cover letters greatly facilitate
our
review. Please understand that we may have additional comments
after
reviewing any amendment and your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Kari Jin, Staff Accountant, at (202) 551-
3481
or me at (202) 551-3730 if you have questions regarding these
comments.
Sincerely,
Kathleen Collins
Accounting Branch Chief
Mr. Michael J. Fister
Cadence Design Systems, Inc.
May 5, 2006
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