| 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 | |
| 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 $668,328 and $658,990, respectively Goodwill Acquired intangibles, net of accumulated amortization of $89,572 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 (benefit) for income taxes Provision (benefit) for income taxes Net income Basic net income per share Diluted net income per share 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 and maturity of available-for-sale securities Purchases 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 diluted earnings per share if its average closing stock price exceeds 2015 Notes Fundamental change put right Make-whole premium Financial covenants 2011 met for a particular quarter. Principal amount Unamortized debt discount Liability component Effective interest rate Contractual interest expense Amortization of debt discount As of Principal maturity value – at issuance Outstanding principal maturity value – at June 30, 2012 Contractual interest rate Contractual maturity date 2011 Equity component – included in common stock Principal amount Unamortized debt discount Liability component Effective interest rate Contractual interest expense Amortization of debt discount July 2, 2012, Cadence acquired Sigrity, Inc., or Sigrity, a provider of signal and power integrity analysis tools for system, printed circuit board and integrated circuit package designs. Cadence is incorporating the Sigrity technology into its Allegro product offering. The goodwill associated with this acquisition resulted primarily from Cadence's expectation of synergies from the integration of Sigrity's product offerings with Cadence's product offerings, and is not deductible for income tax purposes. Comparative pro forma financial information for this acquisition has not been presented because the results of operations were not material to Cadence’s Condensed Consolidated Financial Statements. The changes in the carrying amount of goodwill during the Balance as of December 31, 2011 Effect of foreign currency translation Balance as of June 30, 2012 Existing technology Agreements and relationships Distribution rights Tradenames, trademarks and patents Total acquired intangibles 2011 Cost of product Amortization of acquired intangibles Total amortization of acquired intangibles product and amortization expense from a maintenance agreement intangible asset is included in cost of maintenance. 2012 – remaining period 2013 2014 2015 2016 Thereafter Total estimated amortization expense Balance, March 31, 2012 Restructuring and other charges (credits), net Cash payments Effect of foreign currency translation Balance, June 30, 2012 Balance, December 31, 2011 Restructuring and other charges (credits), net Cash payments Effect of foreign currency translation Balance, June 30, 2012 Accounts receivable Installment contract receivables, short-term Long-term receivables Total 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 and Assets Cash equivalents: Money market funds Commercial paper Bank certificates of deposit Short-term investments: Corporate debt securities United States government agency securities United States Treasury securities Bank certificates of deposit Commercial paper Marketable equity 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 Short-term investments: Marketable equity 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 2011 Balance as of December 31, 2011 Payments Adjustments Balance as of June 30, 2012 September 29, 2012 and December 31, 2011 were as follows: Cash and interest bearing deposits Money market funds Commercial paper Bank certificates of deposit Total cash and cash equivalents 2011 Corporate debt securities United States government agency securities United States Treasury securities Bank certificates of deposit Commercial paper Marketable equity securities Total short-term investments 2011 Due in less than one year Due in one to three years Total marketable debt securities included in short-term investments Gains on sale of marketable equity securities Losses on sale of marketable equity securities Total net gains (losses) on sale of marketable equity securities Amortization of premium (discount) 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 2022) Non-vested shares of restricted stock Total potential common shares excluded Balance as of March 31, 2012 Net income Reissuance of treasury stock Balance as of June 30, 2012 Balance as of December 31, 2011 Net income Reissuance of treasury stock Balance as of June 30, 2012 Unrealized holding gains or losses Reclassification of unrealized holding gains or losses to other income, net Changes in unrealized holding gains or losses Foreign currency translation gain Changes in defined benefit plan liabilities Unrealized holding gains on available-for-sale securities Total accumulated other comprehensive income 2011 obligations, mergers and acquisitions, licensing, contracts, distribution arrangements and employee relations matters. At least quarterly, Cadence reviews the status of each significant matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount or the range of loss can be estimated, Cadence accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on Cadence’s judgments using the best information available at the time. As additional information becomes available, Cadence reassesses the potential liability related to pending claims and litigation matters and may revise estimates. Cash Paid During the Period for: Interest Income taxes, including foreign withholding tax Non-cash Investing and Financing Activities: Stock options assumed for acquisition Available-for-sale securities received from customer Interest income Gains (losses) on sale of marketable equity securities Gains on sale of non-marketable equity investments Gains on securities in Cadence’s non-qualified deferred compensation trust Gains (losses) on foreign exchange Equity losses from non-marketable investments Write-down of non-marketable investments Other income, net Total other income, net Americas: United States Other Americas Total Americas Europe, Middle East and Africa Japan Asia Total Americas: United States Other Americas Total Americas Europe, Middle East and Africa Japan Asia Total 2011 schedules and high quality products. Semiconductor and electronics systems companies are responding to demand for increased functionality and miniaturization by combining subsystems – such as radio frequency, or RF, wireless communication, video signal processing and microprocessors – either 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. Digital IC Design; Functional Verification and Design IP; Custom IC Design; Design for Manufacturing, or DFM; and System Interconnect Design. We have identified certain items that management uses as performance indicators to manage our business, including revenue, certain elements of operating expenses and cash flow from operations, and we describe these items further below under the heading “Results of Operations” and “Liquidity and Capital Resources.” An increase in the combined value of our product and maintenance revenue, primarily because An increase in employee-related costs, primarily consisting An increase in variable compensation during the The timing of our product revenue is significantly affected by the mix of license types 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. 2011 Competitiveness of our new technology; Size, duration, timing, terms and type of: Contract renewals with existing customers; Additional sales to existing customers; and Sales to new customers. Product Services Maintenance Total revenue Product Services Maintenance Total revenue Functional Verification and Design IP Digital IC Design Custom IC Design System Interconnect Design for Manufacturing Services and other Total products, which are included in the Functional Verification and Design IP product group. 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 revenue United States Other Americas Europe, Middle East and Africa Japan Asia Total Product Services Maintenance Product Services Maintenance Product Services Maintenance Product-related costs Amortization of acquired intangibles Total cost of product Product-related costs Amortization of acquired intangibles Total cost of product Qualitative Disclosures About Market Risk – Foreign Currency Risk.” Sigrity. Operating expenses Percentage of total revenue Operating expenses Percentage of total revenue Marketing and sales Percentage of total revenue Marketing and sales Percentage of total revenue Salary, benefits and other employee-related costs Other individually insignificant items Research and development Percentage of total revenue Research and development Percentage of total revenue Salary, variable compensation, benefits and other employee-related costs Other individually insignificant items higher salary, benefits and other employee related costs, as noted above, and higher professional services costs. General and administrative Percentage of total revenue General and administrative Percentage of total revenue Professional services Salary, benefits and other employee-related costs Net recoveries of allowance for doubtful accounts Other individually insignificant items Amortization of acquired intangibles Amortization of acquired intangibles amortized, which was partially offset by increased amortization of intangible assets related to our acquisition of Sigrity. 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 Total interest expense Interest income Gains on sale of marketable equity securities Gains on sale of non-marketable equity investments Gains on trading securities in the non-qualified deferred compensation trust Gains (losses) on foreign exchange Other income, net Total other income, net Provision (benefit) for income taxes Effective tax rate period and the tax benefit from the effective settlement of a foreign tax examination. 2011 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 2011 Increase in cash and cash equivalents Increase in short-term investments Decrease in current portion of deferred revenue Decrease in accounts payable and accrued liabilities Decrease in prepaid expenses and other Decrease in inventories Increase in convertible notes 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 available-for-sale securities Proceeds from the sale and maturity of available-for-sale securities Purchases of property, plant and equipment Proceeds from the sale of long-term investments Cash paid in business combinations and asset acquisitions, net of cash acquired Other individually insignificant items acquisition. Tax effect related to employee stock transactions allocated to equity Proceeds from the issuance of common stock Stock received for payment of employee taxes on vesting of restricted stock Other individually insignificant items of operations. In certain countries where we invoice customers in the local currency, Japan in particular, our revenues benefit from a weaker dollar and are adversely affected by a stronger dollar. The opposite impact occurs in countries where we record expenses in local currencies. In those cases, our operating expenses benefit from a stronger dollar and are adversely affected by a weaker dollar. 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. Forward Contracts: British pound European Union euro India rupee Japanese yen Chinese renminbi Canadian dollar Other Total Estimated fair value addition, sales of our hardware products depend on the commencement of new projects for the design and development of complex integrated circuits and systems by our customers. These projects often require significant commitments of time and capital, so our hardware sales may be delayed or may decrease if our customers delay commencement of projects or cancel projects because their capital spending is constrained due to end market uncertainty or uncertainty in the global economy generally. The verification hardware market is highly competitive and our customers may choose to purchase a competitor’s verification hardware product based on cost, performance or other factors. These factors may result in lower hardware revenue, which would have an adverse effect on our business, results of operations or cash flows. Migration to nanometer design – the continuous shrinkage of the size of process features and other features, such as wires, transistors and contacts on ICs, due to the ongoing advances in the semiconductor manufacturing processes – represents a major challenge for participants in the semiconductor industry, from IC design and design automation to design of manufacturing equipment and the manufacturing process itself. Shrinking transistor sizes are challenging the industry in the application of more complex physics and chemistry in order to produce advanced silicon devices. For EDA tools, models of each component’s electrical properties and behavior become more complex as do requisite analysis, design and verification capabilities. Novel design tools and methodologies must be invented quickly to remain competitive in the design of electronics in the smallest nanometer ranges. 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 Design IP with custom logic to create ICs or SoCs. The unavailability of a broad range of high-quality Design 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. 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. Adoption of cloud computing technologies with accompanying new business models for an increasing number of software categories, including EDA. 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 bookings, revenue or earnings estimates; Announcements of a restructuring plan; Changes in management; A gain or loss of a significant customer or market segment share; Announcements of new products or acquisitions of new technologies by us, our competitors or our customers; and Market conditions in the IC, electronics systems and semiconductor industries. 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 products for promotional purposes or as a long-term pricing strategy or provide guarantees of prices and product implementations. These practices could, over time, significantly constrain the prices that we can charge for our products. If we cannot offset price reductions with a corresponding increase in the number of sales or with lower spending, then the reduced license revenues resulting from lower prices could have an adverse effect on our results of operations. 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; International economic downturn; 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 States and other governments’ licensing requirements for exports, which may lengthen the sales cycle or restrict or prohibit the sale or licensing of certain products. 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. 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; The failure to understand and compete effectively in markets where we have limited experience. These arrangements may impact our liquidity, financial position and results of operations. 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. of one of our vendors, the market perception of the effectiveness of our security measures could be harmed and we could suffer damage to our reputation or our business, or lose existing customers and lose our ability to obtain new customers. The timing of customers’ competitive evaluation processes; or Customers’ budgetary constraints and budget cycles. 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. 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 IRS, and state and foreign tax authorities. 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 supply of certain hardware components if we are unable to purchase sufficient components on a timely basis or at all for any reason. 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. 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. 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 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. Period April 1, 2012 – May 5, 2012 May 6, 2012 – June 2, 2012 June 3, 2012 – June 30, 2012 Total Exhibit Title /s/ Lip-Bu Tan /s/ Geoffrey G. Ribar Page PART I. PageFINANCIAL INFORMATION PART I. Item 1. Item 1.Financial Statements: 1 2 3 4 5 27 43Item 4. PART II. Item 4.Controls and Procedures 46Item 1. Item 1A. PART II.OTHER INFORMATION Item 1.Legal Proceedings 47 Item 1A.Risk Factors47 64 65Item 4. Item 5. Item 4.Mine Safety Disclosures 65Item 6. Item 5.Other Information65 Item 6.Exhibits6566 June 30,
2012 December 31,
2011 ASSETS $ 661,658 $ 601,602 51,304 3,037 123,243 136,772 41,066 43,243 219,199 215,113 61,976 64,216 1,158,446 1,063,983 251,920 262,517 192,238 192,125 159,807 173,234 7,750 11,371 59,096 58,039 $ 1,829,257 $ 1,761,269 LIABILITIES AND STOCKHOLDERS’ EQUITY $ 301,292 $ 294,061 219,199 215,113 153,957 165,791 328,405 340,401 1,002,853 1,015,366 58,213 73,959 135,006 131,920 131,172 128,894 324,391 334,773 1,741,869 1,733,884 (266,820 ) (290,462 ) (1,018,190 ) (1,083,245 ) 45,154 50,953 502,013 411,130 $ 1,829,257 $ 1,761,269 September 29,
2012 December 31,
2011ASSETS Current Assets: Cash and cash equivalents $ 649,099 $ 601,602 Short-term investments 95,819 3,037 Receivables, net of allowances of $110 and $0, respectively 123,206 136,772 Inventories 34,629 43,243 2015 Notes Hedges 287,079 215,113 Prepaid expenses and other 60,780 64,216 Total current assets 1,250,612 1,063,983 Property, plant and equipment, net of accumulated depreciation of $638,552 and $658,990, respectively 246,856 262,517 Goodwill 233,275 192,125 Acquired intangibles, net of accumulated amortization of $97,746 and $91,542, respectively 192,768 173,234 Long-term receivables 5,668 11,371 Other assets 59,335 58,039 Total Assets $ 1,988,514 $ 1,761,269 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Convertible notes $ 305,029 $ 294,061 2015 Notes Embedded Conversion Derivative 287,079 215,113 Accounts payable and accrued liabilities 160,250 165,791 Current portion of deferred revenue 322,260 340,401 Total current liabilities 1,074,618 1,015,366 Long-Term Liabilities: Long-term portion of deferred revenue 58,436 73,959 Convertible notes 136,594 131,920 Other long-term liabilities 130,478 128,894 Total long-term liabilities 325,508 334,773 Commitments and Contingencies (Note 12) Stockholders’ Equity: Common stock and capital in excess of par value 1,711,797 1,733,884 Treasury stock, at cost (207,018 ) (290,462 ) Accumulated deficit (962,515 ) (1,083,245 ) Accumulated other comprehensive income 46,124 50,953 Total stockholders’ equity 588,388 411,130 Total Liabilities and Stockholders’ Equity $ 1,988,514 $ 1,761,269 Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 $ 208,301 $ 157,938 $ 398,325 $ 299,757 28,966 29,477 58,508 57,282 89,209 95,855 185,473 192,333 326,476 283,270 642,306 549,372 21,585 20,074 36,986 34,268 17,071 20,616 36,445 40,691 10,821 10,716 22,632 21,614 80,418 77,006 164,213 155,378 112,031 99,268 220,625 200,567 30,244 25,377 58,014 44,679 3,643 4,505 7,429 8,964 43 751 (8 ) 710 275,856 258,313 546,336 506,871 50,620 24,957 95,970 42,501 (8,566 ) (10,768 ) (17,103 ) (21,754 ) 3,669 8,394 6,103 12,863 45,723 22,583 84,970 33,610 9,337 (4,325 ) 17,480 379 $ 36,386 $ 26,908 $ 67,490 $ 33,231 $ 0.13 $ 0.10 $ 0.25 $ 0.13 $ 0.13 $ 0.10 $ 0.24 $ 0.12 269,739 263,191 268,840 262,362 275,318 270,885 276,526 269,732 Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011Revenue: Product $ 216,561 $ 163,966 $ 614,886 $ 463,723 Services 28,415 29,102 86,923 86,384 Maintenance 93,557 99,389 279,030 291,722 Total revenue 338,533 292,457 980,839 841,829 Costs and Expenses: Cost of product 23,337 18,185 60,323 52,453 Cost of services 16,809 20,410 53,254 61,101 Cost of maintenance 11,124 11,223 33,756 32,837 Marketing and sales 82,461 79,914 246,674 235,292 Research and development 115,078 103,154 335,703 303,721 General and administrative 26,350 24,041 84,364 68,720 Amortization of acquired intangibles 3,876 3,786 11,305 12,750 Restructuring and other charges (credits) 57 (433 ) 49 277 Total costs and expenses 279,092 260,280 825,428 767,151 Income from operations 59,441 32,177 155,411 74,678 Interest expense (8,737 ) (10,830 ) (25,840 ) (32,584 ) Other income (expense), net (131 ) 7,244 5,972 20,107 Income before provision (benefit) for income taxes 50,573 28,591 135,543 62,201 Provision (benefit) for income taxes (8,011 ) 485 9,469 864 Net income $ 58,584 $ 28,106 $ 126,074 $ 61,337 Net income per share – basic $ 0.22 $ 0.11 $ 0.47 $ 0.23 Net income per share – diluted $ 0.21 $ 0.10 $ 0.45 $ 0.23 Weighted average common shares outstanding – basic 271,350 264,723 269,643 263,149 Weighted average common shares outstanding – diluted 283,328 270,741 278,760 270,068 Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 $ 36,386 $ 26,908 $ 67,490 $ 33,231 (2,366 ) 5,725 (4,832 ) 5,605 (1,017 ) (7,709 ) (1,021 ) (8,078 ) 84 45 54 13 (3,299 ) (1,939 ) (5,799 ) (2,460 ) $ 33,087 $ 24,969 $ 61,691 $ 30,771 Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011Net income $ 58,584 $ 28,106 $ 126,074 $ 61,337 Other comprehensive income (loss), net of tax effects: Foreign currency translation gain (loss) 1,025 26 (3,808 ) 5,631 Changes in unrealized holding gains or losses on available-for-sale securities, net of reclassification adjustment for realized gains and losses (120 ) (447 ) (1,141 ) (8,525 ) Changes in defined benefit plan liabilities 65 23 120 36 Total other comprehensive income (loss), net of tax effects 970 (398 ) (4,829 ) (2,858 ) Comprehensive income $ 59,554 $ 27,708 $ 121,245 $ 58,479 Six Months Ended June 30,
2012 July 2,
2011 $ 601,602 $ 557,409 67,490 33,231 43,736 46,283 11,529 14,587 21,886 19,698 (4,169 ) (13,676 ) 125 136 459 (4,811 ) — (5,885 ) 3,439 2,518 16,513 64,535 499 (6,987 ) 414 1,969 (169 ) 1,479 (4,694 ) (48,650 ) (27,446 ) 25,979 (1,424 ) (4,628 ) 128,188 125,778 136 9,588 (49,083 ) — 44 2,785 (18,269 ) (11,312 ) (250 ) (608 ) (1,041 ) (22,865 ) (68,463 ) (22,412 ) (2,907 ) (2,829 ) 4,075 967 (39 ) — 13,063 10,302 (9,897 ) (7,389 ) 4,295 1,051 (3,964 ) 3,491 60,056 107,908 $ 661,658 $ 665,317 Nine Months Ended September 29,
2012 October 1,
2011Cash and Cash Equivalents at Beginning of Period $ 601,602 $ 557,409 Cash Flows from Operating Activities: Net income 126,074 61,337 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 67,171 68,934 Amortization of debt discount and fees 17,480 22,068 Stock-based compensation 34,285 31,589 Gain on investments, net (2,222 ) (19,220 ) Non-cash restructuring and other charges 188 202 Deferred income taxes (14,107 ) (4,741 ) Provisions (recoveries) for losses (gains) on receivables, net 120 (6,596 ) Other non-cash items 3,270 3,689 Changes in operating assets and liabilities, net of effect of acquired businesses: Receivables 24,276 63,729 Inventories 6,936 (9,767 ) Prepaid expenses and other 1,547 19,718 Other assets (3,101 ) 3,718 Accounts payable and accrued liabilities (1,714 ) (71,832 ) Deferred revenue (38,230 ) 20,245 Other long-term liabilities (1,855 ) (4,868 ) Net cash provided by operating activities 220,118 178,205 Cash Flows from Investing Activities: Proceeds from the sale and maturity of available-for-sale securities 7,436 9,588 Purchases of available-for-sale securities (101,248 ) — Proceeds from the sale of long-term investments 44 4,824 Purchases of property, plant and equipment (25,932 ) (17,703 ) Investment in venture capital partnerships and equity investments (250 ) (608 ) Cash paid in business combinations and asset acquisitions, net of cash acquired (66,432 ) (44,052 ) Net cash used for investing activities (186,382 ) (47,951 ) Cash Flows from Financing Activities: Principal payments on receivable sale financing (2,907 ) (2,829 ) Tax effect related to employee stock transactions allocated to equity 5,790 2,897 Payment of acquisition-related contingent consideration (39 ) — Proceeds from issuance of common stock 28,755 16,994 Stock received for payment of employee taxes on vesting of restricted stock (13,457 ) (9,926 ) Net cash provided by financing activities 18,142 7,136 Effect of exchange rate changes on cash and cash equivalents (4,381 ) 1,302 Increase in cash and cash equivalents 47,497 138,692 Cash and Cash Equivalents at End of Period $ 649,099 $ 696,101 2011.2011. Certain prior period balances have been reclassified to conform to current period presentation.$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. If a holder of the 2015 Notes elects to convert its notes prior to maturity, the 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 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$10.78$10.78$10.78 at expiration of the 2015 Warrants, Cadence will issue shares to settle the 2015 Warrants. (In thousands, except percentages) Outstanding principal maturity value – at June 30,September 29, 2012 $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 Cadence common stock over a specified period. Early conversion conditions (or the Early Conversion Conditions) 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 holders of the notes would be entitled to an increase to the conversion rate. This is referred to as a “make-whole premium.” None. July 1,September 30, 2012 through SeptemberDecember 29, 2012 because Cadence’s closing stock price exceeded $9.81$9.81 for at least 20 days in the 30-day30-day period prior to June 30, 2012.September 29, 2012. Accordingly, the net balance of the 2015 Notes of $301.3$305.0 million is classified as a current liability on Cadence’s Condensed Consolidated Balance Sheet as of June 30, 2012.September 29, 2012. The classification of the 2015 Notes as current or long-term on the Condensed 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.”June 30,September 29, 2012 Cadence would have recorded an expense of $55.4$51.2 million associated with the conversion, comprised of $48.7$45.0 million of unamortized debt discount and $6.7$6.2 million of unamortized transaction fees.June 30,September 29, 2012, the if-converted value of the 2015 Notes to the note holders of approximately $509.7$596.7 million exceeded the principal amount of $350.0 million.$350.0 million. The fair value of the 2015 Notes was $544.5$620.3 million as of June 30,September 29, 2012 and was $527.8$527.8 million as of December 31, 2011.2011. The 2015 Notes currently trade at a premium to the if-converted value of the notes. As of June 30,September 29, 2012, 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 the 2015 Notes. The 2015 Notes Embedded Conversion Derivative is carried on the Condensed Consolidated Balance Sheet at its estimated fair value. The fair value was $219.2$287.1 million as of June 30,September 29, 2012 and $215.1$215.1 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 Sheet at their estimated fair value. The fair value was $219.2$287.1 million as of June 30,September 29, 2012 and $215.1$215.1 million as of December 31, 2011.2011. 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. 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 and sixnine months ended June 30,September 29, 2012 and July 2,October 1, 2011 and did not have a net impact on the Condensed Consolidated Income Statements for the respective periods.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. Therefore, upon expiration of the 2015 Warrants Cadence will issue shares of common stock to the purchasers of the 2015 Warrants that represent the value by which the price of the common stock exceeds the strike price stipulated within the particular warrant agreement. Changes in the fair value of the 2015 Warrants will not be recognized in the Condensed Consolidated Financial Statements as long as the instruments remain classified as equity.June 30,September 29, 2012 and December 31, 2011 were as follows: As of June 30,
2012 December 31,
2011 (In thousands) $ 350,000 $ 350,000 (48,708 ) (55,939 ) $ 301,292 $ 294,061 As of September 29,
2012 December 31,
2011 (In thousands) Principal amount $ 350,000 $ 350,000 Unamortized debt discount (44,971 ) (55,939 ) Liability component $ 305,029 $ 294,061 sixnine months ended June 30,September 29, 2012 and July 2,October 1, 2011 were as follows: Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 (In thousands, except percentages) 8.1 % 8.1 % 8.1 % 8.1 % $ 2,289 $ 2,289 $ 4,578 $ 4,578 $ 3,638 $ 3,376 $ 7,231 $ 6,713 Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011 (In thousands, except percentages) Effective interest rate 8.1 % 8.1 % 8.1 % 8.1 % Contractual interest expense $ 2,289 $ 2,289 $ 6,867 $ 6,867 Amortization of debt discount $ 3,737 $ 3,453 $ 10,968 $ 10,166 $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.June 30,September 29, 2012, 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) Principal maturity value – at issuance $250,000 Outstanding principal maturity value – at September 29, 2012 $144,461 Contractual interest rate 1.500% Contractual maturity date December 15, 2013 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 Cadence common stock over a specified period. Early conversion conditions (or the Early Conversion Conditions) 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 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. June 30,September 29, 2012, none of the 2013 Notes Early Conversion Conditions had been met and the 2013 Notes are classified as a long-term liability on the Condensed Consolidated Balance Sheet. The classification of the 2013 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 closing stock price early conversion condition is met for that particular quarter.June 30,September 29, 2012, 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 $141.2$144.4 million as of June 30,September 29, 2012 and was $142.3$142.3 million as of December 31, 2011.$119.8$119.8 million and$0.4 million.$0.4 million. The estimated fair value of the remaining 2013 Notes Hedges was $0.7$1.0 million as of June 30,September 29, 2012 and $1.4$1.4 million as of December 31, 2011.2011. Subsequent changes in the fair value of the 2013 Notes Hedges will not be recognized in the Condensed 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 some of the 2013 Notes and the 2011 Notes in June 2010 and November 2010, Cadence also purchased some of the 2013 Warrants and the 2011 Warrants, reducing the number of shares of Cadence common stock available for purchase by 9.7 million shares at a cost of $0.1 million.$0.1 million. The 2011 Warrants expired on various dates from February 2012 through April 2012 and the 2013 Warrants will expire on various dates from February 2014 through April 2014.2014. The 2013 Warrants must be settled in net shares of Cadence’s common stock. Therefore, upon expiration of the 2013 Warrants Cadence will issue shares of common stock to the purchasers of the warrants that represent the value, if any, by which the price of the common stock exceeds the strike price stipulated within the particular warrant agreement. During the sixnine months ended June 30,September 29, 2012 the 2011 Warrants expired, reducing the number of shares of Cadence common stock available for purchase by 7.1 million shares. Changes in the fair value of 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.June 30,September 29, 2012 and December 31, 2011 were as follows: As of June 30,
2012 December 31,
2011 (In thousands) $ 63,027 $ 63,027 $ 144,461 $ 144,461 (9,633 ) (12,719 ) $ 134,828 $ 131,742 As of September 29,
2012 December 31,
2011 (In thousands) Equity component – included in common stock $ 63,027 $ 63,027 Principal amount $ 144,461 $ 144,461 Unamortized debt discount (8,045 ) (12,719 ) Liability component $ 136,416 $ 131,742 sixnine months ended June 30,September 29, 2012, and of the 2013 Notes and 2011 Notes for the three and sixnine months ended July 2,October 1, 2011, were as follows: Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 (In thousands, except percentages) 6.4 % 6.3 % 6.4 % 6.3 % $ 540 $ 1,053 $ 1,080 $ 2,106 $ 1,547 $ 3,212 $ 3,086 $ 6,409 Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011 (In thousands, except percentages) Effective interest rate 6.4 % 6.3 % 6.4 % 6.3 % Contractual interest expense $ 540 $ 1,053 $ 1,619 $ 3,161 Amortization of debt discount $ 1,588 $ 3,275 $ 4,674 $ 9,684 $420.0$420.0 million principal amount of its Zero Coupon Zero Yield Senior Convertible Notes Due 2023, or the 2023 Notes. As of June 30,September 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. (In thousands) Cash and cash equivalents $ 7,490 Trade receivables 4,254 Property, plant and equipment 238 Other assets 1,004 Acquired intangibles: Existing technology (four- to ten-year useful lives) 22,200 Agreements and relationships (three- to ten-year useful lives) 17,100 Tradenames and trademarks (nine-year useful lives) 1,300 Goodwill 39,680 Total assets acquired $ 93,266 Deferred revenue (3,800 ) Other liabilities (2,547 ) Long-term deferred tax liabilities (15,079 ) Net assets acquired $ 71,840 $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 June 30,September 29, 2012 was $3.9 million.$4.0 million. based on, or subject to the satisfaction of certain performance metrics. If performance is such that these payments are fully achieved, Cadence may be obligated to pay up to an aggregate of $21.2$18.8 million over the next 4643 months. Of the $21.2$18.8 million, up to $12.6$12.5 million would be recorded as operating expenses in the Condensed Consolidated Income Statements and up to $1.2 million would be recorded as additional goodwill.Statements.Goodwillsixnine months ended June 30,September 29, 2012 were as follows: Gross Carrying
Amount (In thousands) $ 192,125 113 $ 192,238 (In thousands) Balance as of December 31, 2011 $ 192,125 Goodwill resulting from acquisitions 39,680 Additions due to contingent consideration* 1,041 Effect of foreign currency translation 429 Balance as of September 29, 2012 $ 233,275 June 30,September 29, 2012 were as follows, excluding intangibles that were fully amortized as of December 31, 2011: Gross Carrying
Amount Accumulated
Amortization Acquired
Intangibles, Net (In thousands) $ 90,516 $ (22,917 ) $ 67,599 117,580 (32,212 ) 85,368 30,100 (27,090 ) 3,010 11,183 (7,353 ) 3,830 $ 249,379 $ (89,572 ) $ 159,807 (In thousands) Existing technology $ 112,947 $ (26,561 ) $ 86,386 Agreements and relationships 134,982 (35,705 ) 99,277 Distribution rights 30,100 (27,843 ) 2,257 Tradenames, trademarks and patents 12,485 (7,637 ) 4,848 Total acquired intangibles $ 290,514 $ (97,746 ) $ 192,768 2011:2011: (In thousands) Existing technology $ 90,433 $ (17,119 ) $ 73,314 Agreements and relationships 118,060 (27,123 ) 90,937 Distribution rights 30,100 (25,585 ) 4,515 Tradenames, trademarks and patents 26,183 (21,715 ) 4,468 Total acquired intangibles $ 264,776 $ (91,542 ) $ 173,234 sixnine months ended June 30,September 29, 2012 and July 2,October 1, 2011 was as follows: Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 (In thousands) $ 2,891 $ 2,483 $ 5,790 $ 4,679 3,643 4,505 7,429 8,964 $ 6,534 $ 6,988 $ 13,219 $ 13,643 Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011 (In thousands) Cost of product $ 3,605 $ 2,906 $ 9,395 $ 7,585 Cost of maintenance 269 — 269 — Amortization of acquired intangibles 3,876 3,786 11,305 12,750 Total amortization of acquired intangibles $ 7,750 $ 6,692 $ 20,969 $ 20,335 of costsexpense from existing technology intangible assets is included in cost of product. (In thousands) $ 13,186 23,099 20,315 20,001 19,562 63,644 $ 159,807 (In thousands) 2012 – remaining period $ 7,764 2013 27,976 2014 25,178 2015 24,831 2016 24,309 Thereafter 82,710 Total estimated amortization expense $ 192,768 June 30,September 29, 2012, all severance and termination benefits have been paid.June 30, 2012: Excess
Facilities Other Total (In thousands) $ 4,792 $ 5 $ 4,797 48 (5 ) 43 (155 ) — (155 ) (173 ) — (173 ) $ 4,512 $ — $ 4,512 Balance, June 30, 2012 $ 4,512 Restructuring and other charges, net 57 Cash payments (176 ) Effect of foreign currency translation 99 Balance, September 29, 2012 $ 4,492 sixnine months ended June 30, 2012: Severance
and
Benefits Excess
Facilities Other Total (In thousands) $ 46 $ 4,976 $ 5 $ 5,027 (29 ) 26 (5 ) (8 ) (17 ) (460 ) — (477 ) — (30 ) — (30 ) $ — $ 4,512 $ — $ 4,512 Other Total (In thousands) Balance, December 31, 2011 $ 46 $ 4,976 $ 5 $ 5,027 Restructuring and other charges (credits), net (29 ) 83 (5 ) 49 Cash payments (17 ) (636 ) — (653 ) Effect of foreign currency translation — 69 — 69 Balance, September 29, 2012 $ — $ 4,492 $ — $ 4,492 ACCOUNTS RECEIVABLERECEIVABLES AND ALLOWANCES FOR DOUBTFUL ACCOUNTSaccounts receivablereceivables balances as of June 30,September 29, 2012 and December 31, 2011 were as follows: As of June 30,
2012 December 31,
2011 (In thousands) $ 75,135 $ 99,686 48,108 37,086 7,750 11,371 $ 130,933 $ 148,143 As of September 29,
2012 December 31,
2011 (In thousands) Accounts receivable $ 96,216 $ 99,686 Installment contract receivables, short-term 27,100 37,086 Long-term receivables 5,668 11,371 Total receivables $ 128,984 $ 148,143 Less allowance for doubtful accounts (110 ) — Total receivables, net $ 128,874 $ 148,143 and electronics systems industry.and consumer electronics industries. As of June 30,September 29, 2012, one customer accounted for 10% of Cadence’s total receivables and as of December 31, 2011, no single customer accounted for more than 10% of Cadence’s total receivables. As of June 30,September 29, 2012, approximately 49%55% of Cadence’s total receivables were attributable to the ten customers with the largest balances of total receivables. As of December 31, 2011, approximately 45% of Cadence’s total receivables were attributable to the ten customers with the largest balances of total receivables. As of December 31, 2011, approximately 45% of Cadence’s total receivables were attributable toten customers withchange in Cadence's allowance for doubtful accounts for the largest balances of total receivables.nine months ended September 29, 2012: Balance at Beginning of Period Charged to Costs and Expenses Uncollectible Accounts Written Off, Net Balance at End of Period Allowance for doubtful accounts $ — $ (120 ) $ 10 $ (110 ) •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.sixnine months ended June 30, 2012.The carrying value of Cadence’s cash and cash equivalents held in money market funds approximates fair value and is based on level 1 inputs. The carrying value of Cadence’s receivables, interest receivable, accounts payable and accrued liabilities approximates their fair value due to the short-term nature of these instruments and is based on level 2 inputs. The carrying values of Cadence’s long-term receivables approximate their fair values and are based on level 2 inputs, including current market rates of interest. September 29, 2012. The fair values of Cadence’s 2015 Notes Hedges and 2015 Notes Embedded Conversion Derivative are determined by level 1 and level 2 inputs, including interest rates, Cadence’s stock price and stock price volatility.June 30,September 29, 2012 and December 31, 2011: Fair Value Measurements as of June 30, 2012: Total Level 1 Level 2 Level 3 (In thousands) $ 520,546 $ 520,546 $ — $ — 1,200 — 1,200 — 1,000 — 1,000 — 26,084 — 26,084 — 2,208 2,208 — — 17,255 17,255 — — 1,995 — 1,995 — 1,498 — 1,498 — 2,264 2,264 — — 24,009 24,009 — — 219,199 — 219,199 — 942 — 942 — $ 818,200 $ 566,282 $ 251,918 $ — Total Level 1 Level 2 Level 3 (In thousands) $ 3,997 $ — $ — $ 3,997 219,199 — 219,199 — $ 223,196 $ — $ 219,199 $ 3,997 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 September 29, 2012: Total Level 1 Level 2 Level 3 (In thousands) Assets Cash equivalents: Money market funds $ 484,465 $ 484,465 $ — $ — United States Treasury securities 3,975 3,975 — — Bank certificates of deposit 1,000 — 1,000 — Corporate debt securities 501 — 501 — Commercial paper 500 — 500 — Short-term investments: Corporate debt securities 32,613 — 32,613 — Bank certificates of deposit 28,522 — 28,522 — United States Treasury securities 21,460 21,460 — — United States government agency securities 8,235 8,235 — — Commercial paper 2,988 — 2,988 — Marketable equity securities 2,001 2,001 — — Trading securities held in Non-Qualified Deferred Compensation Plan, or NQDC 23,561 23,561 — — 2015 Notes Hedges 287,079 — 287,079 — Foreign currency exchange contracts 778 — 778 — Total Assets $ 897,678 $ 543,697 $ 353,981 $ — Total Level 1 Level 2 Level 3 (In thousands) Liabilities Acquisition-related contingent consideration $ 4,108 $ — $ — $ 4,108 2015 Notes Embedded Conversion Derivative 287,079 — 287,079 — Total Liabilities $ 291,187 $ — $ 287,079 $ 4,108 Fair Value Measurements as of December 31, 2011: Total Level 1 Level 2 Level 3 (In thousands) Assets Cash equivalents – money market funds $ 484,102 $ 484,102 $ — $ — Short-term investments: Marketable equity securities 3,037 3,037 — — Trading securities held in NQDC 24,058 24,058 — — 2015 Notes Hedges 215,113 — 215,113 — Foreign currency exchange contracts 200 — 200 — Total Assets $ 726,510 $ 511,197 $ 215,313 $ — Total Level 1 Level 2 Level 3 (In thousands) Liabilities Acquisition-related contingent consideration $ 3,911 $ — $ — $ 3,911 2015 Notes Embedded Conversion Derivative 215,113 — 215,113 — Total Liabilities $ 219,024 $ — $ 215,113 $ 3,911 June 30,September 29, 2012 and December 31, 2011.2011. Cadence believes that its estimates and assumptions are reasonable, but significant judgment is involved.sixnine months ended June 30, 2012: (In thousands) $ 3,911 (39 ) 125 $ 3,997 (In thousands) Balance as of December 31, 2011 $ 3,911 Payments (39 ) Adjustments 236 Balance as of September 29, 2012 $ 4,108 As of September 29, 2012 December 31, 2011 (In thousands) Cash and cash equivalents $ 649,099 $ 601,602 Short-term investments 95,819 3,037 Cash, cash equivalents and short-term investments $ 744,918 $ 604,639 June 30,September 29, 2012 and December 31, 2011: As of June 30,
2012 December 31,
2011 (In thousands) $ 138,912 $ 117,500 520,546 484,102 1,200 — 1,000 — $ 661,658 $ 601,602 As of September 29,
2012 December 31,
2011 (In thousands) Cash and interest bearing deposits $ 158,658 $ 117,500 Money market funds 484,465 484,102 United States Treasury securities 3,975 — Bank certificates of deposit 1,000 — Corporate debt securities 501 — Commercial paper 500 — Total cash and cash equivalents $ 649,099 $ 601,602 an other-than-temporary decline in fair value has occurred. Cadence reviews its available-for-sale securities each quarter to determine if an other-than-temporary decline in fair value has occurred. For an available-for-sale debt security, an other-than-temporary decline in fair value has occurred when the security’s fair value is less than its amortized cost basis and Cadence intends to sell the security, or it is more likely than not that Cadence will be required to sell the security, before recovery of its amortized cost basis. Cadence records realized gains, realized losses and other-than-temporary impairments as part of other income (expense), net in the Condensed Consolidated Income Statements.June 30,September 29, 2012 and December 31, 2011: As of June 30, 2012 Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value (In thousands) $ 26,101 $ 7 $ (24 ) $ 26,084 2,206 2 — 2,208 17,258 — (3 ) 17,255 2,000 — (5 ) 1,995 1,497 1 — 1,498 1,830 434 — 2,264 $ 50,892 $ 444 $ (32 ) $ 51,304 As of September 29, 2012 (In thousands) Corporate debt securities $ 32,551 $ 63 $ (1 ) $ 32,613 Bank certificates of deposit 28,506 17 (1 ) 28,522 United States Treasury securities 21,436 24 — 21,460 United States government agency securities 8,222 13 — 8,235 Commercial paper 2,986 2 — 2,988 Marketable equity securities 1,823 178 — 2,001 Total short-term investments $ 95,524 $ 297 $ (2 ) $ 95,819 As of December 31, 2011 (In thousands) Marketable equity securities $ 1,830 $ 1,207 $ — $ 3,037 Total short-term investments $ 1,830 $ 1,207 $ — $ 3,037 2012.2012 and the three months ended September 29, 2012. As of June 30,September 29, 2012, any security Cadence held with an unrealized loss had been held for less than threesix months.June 30,September 29, 2012, by contractual maturity, are shown in the table below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties. Amortized
Cost Fair
Value (In thousands) $ 13,124 $ 13,115 35,938 35,925 $ 49,062 $ 49,040 (In thousands) Due in less than one year $ 56,437 $ 56,485 Due in one to three years 37,264 37,333 Total marketable debt securities included in short-term investments $ 93,701 $ 93,818 sixnine months ended June 30,September 29, 2012 and July 2,October 1, 2011 were as follows: Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 (In thousands) (In thousands) $ — $ 7,987 $ 117 $ 8,052 (2 ) (8 ) (2 ) (8 ) $ (2 ) $ 7,979 $ 115 $ 8,044 Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011 (In thousands) (In thousands) Gains on sale of marketable debt and equity securities $ 8 $ — $ 125 $ 8,052 sixnine months ended June 30,September 29, 2012 and July 2,October 1, 2011 was as follows: Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 (In thousands) (In thousands) $ 20 $ — $ 20 $ — Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011 (In thousands) (In thousands) Amortization of premium (discount) $ 251 $ — $ 271 $ — June 30,September 29, 2012 and December 31, 2011 were as follows: As of June 30,
2012 December 31,
2011 (In thousands) $ 6,135 $ 6,157 4,320 4,303 $ 10,455 $ 10,460 As of September 29,
2012 December 31,
2011 (In thousands) Cost method $ 5,054 $ 6,157 Equity method 4,283 4,303 Total non-marketable investments $ 9,337 $ 10,460 sixnine months ended June 30,September 29, 2012 and July 2,October 1, 2011 were as follows: Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 (In thousands) (In thousands) $ — $ 108 $ — $ 2,729 Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011 (In thousands) (In thousands) Gains on sale of non-marketable investments $ — $ 5,379 $ — $ 8,108 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.sixnine months ended June 30,September 29, 2012, and July 2,October 1, 2011, are as follows: Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 (In thousands, except per share amounts) $ 36,386 $ 26,908 $ 67,490 $ 33,231 269,739 263,191 268,840 262,362 11 11 11 11 637 — 1,580 — 4,931 7,683 6,095 7,359 275,318 270,885 276,526 269,732 $ 0.13 $ 0.10 $ 0.25 $ 0.13 $ 0.13 $ 0.10 $ 0.24 $ 0.12 Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011 (In thousands, except per share amounts) Net income $ 58,584 $ 28,106 $ 126,074 $ 61,337 Weighted average common shares used to calculate basic net income per share 271,350 264,723 269,643 263,149 2023 Notes 11 11 11 11 2015 Warrants 6,286 — 3,148 — Stock-based compensation 5,681 6,007 5,958 6,908 Weighted average common shares used to calculate diluted net income per share 283,328 270,741 278,760 270,068 Net income per share - basic $ 0.22 $ 0.11 $ 0.47 $ 0.23 Net income per share - diluted $ 0.21 $ 0.10 $ 0.45 $ 0.23 sixnine months ended June 30,September 29, 2012, and July 2,October 1, 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 Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 (In thousands) — 46,382 — 46,382 6,830 14,184 6,830 14,184 14,228 18,812 14,149 18,564 203 9 118 25 21,261 79,387 21,097 79,155 Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011 (In thousands) 2015 Warrants (various expiration dates through 2015) — 46,382 — 46,382 2011 Warrants and 2013 Warrants (various expiration dates through 2014) 6,830 17,916 6,830 18,194 Options to purchase shares of common stock (various expiration dates through 2022) 10,003 14,184 12,767 14,184 Non-vested shares of restricted stock 10 2,805 82 21 Total potential common shares excluded 16,843 81,287 19,679 78,781 sixnine months ended June 30,September 29, 2012 were as follows: Three Months
Ended (In thousands) $ (1,053,745 ) 36,386 (831 ) $ (1,018,190 ) Six Months
Ended (In thousands) $ (1,083,245 ) 67,490 (2,435 ) $ (1,018,190 ) (In thousands) Balance as of June 30, 2012 $ (1,018,190 ) Net income 58,584 Reissuance of treasury stock (2,909 ) Balance as of September 29, 2012 $ (962,515 ) Nine Months
Ended (In thousands) Balance as of December 31, 2011 $ (1,083,245 ) Net income 126,074 Reissuance of treasury stock (5,344 ) Balance as of September 29, 2012 $ (962,515 ) sixnine months ended June 30,September 29, 2012, and July 2, 2011: Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 (In thousands) (In thousands) $ (1,019 ) $ 270 $ (906 ) $ (34 ) 2 (7,979 ) (115 ) (8,044 ) $ (1,017 ) $ (7,709 ) $ (1,021 ) $ (8,078 ) Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011 (In thousands) Unrealized holding gains or losses $ (112 ) $ (447 ) $ (1,018 ) $ (481 ) Reclassification of unrealized holding gains or losses to other income (expense), net (8 ) — (123 ) (8,044 ) $ (120 ) $ (447 ) $ (1,141 ) $ (8,525 ) June 30,September 29, 2012, and December 31, 2011: June 30,
2012 December 31,
2011 (In thousands) $ 49,158 $ 53,990 (4,414 ) (4,468 ) 410 1,431 $ 45,154 $ 50,953 September 29,
2012 December 31,
2011 (In thousands) Foreign currency translation gain $ 50,182 $ 53,990 Changes in defined benefit plan liabilities (4,348 ) (4,468 ) Unrealized holding gains on available-for-sale securities 290 1,431 Total accumulated other comprehensive income $ 46,124 $ 50,953 During 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. 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 (subsequently amended on October 13, 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 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 was to 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. 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 2008, two derivative complaints were filed in Santa Clara County Superior Court, or Superior Court. 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 named 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 alleged 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 were similar to those alleged in the securities class action case described above. In addition, the claims included 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 sought 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. The allegations underlying these claims were similar or identical to the allegations in the consolidated securities class action lawsuits and consolidated derivative complaints described above. In addition, the claims included allegations that Cadence’s independent auditors performed allegedly inadequate audits. The complaint sought 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 were virtually identical to one another, and purported 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 were similar or identical to the allegations in the consolidated securities class action lawsuits described above. The complaints sought 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 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 was paid by Cadence’s insurance carriers during the three months ended June 30, 2012. 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. 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 and sixnine months ended June 30,September 29, 2012, or July 2, 2011.October 1, 2011.sixnine months ended June 30,September 29, 2012, or July 2, 2011.October 1, 2011.sixnine months ended June 30,September 29, 2012, and July 2,October 1, 2011, is as follows: Six Months Ended June 30,
2012 July 2,
2011 (In thousands) $ 5,677 $ 6,708 $ 9,801 $ 9,209 $ — $ 1,600 $ 15 $ 160 Nine Months Ended September 29,
2012 October 1,
2011 (In thousands) Cash Paid During the Period for: Interest $ 5,677 $ 6,708 Income taxes, including foreign withholding tax $ 12,481 $ 13,304 Non-cash Investing and Financing Activities: Stock options assumed for acquisition $ — $ 1,600 Available-for-sale securities received from customer $ 20 $ 312 Receivables related to sales of cost-method investments $ — $ 4,858 sixnine months ended June 30,September 29, 2012, and July 2,October 1, 2011, was as follows: Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 (In thousands) $ 308 $ 324 $ 645 $ 697 (2 ) 7,979 115 8,044 — 108 — 2,729 2,278 1,177 4,076 2,912 1,070 (1,246 ) 1,170 (1,725 ) (34 ) (35 ) — (65 ) (22 ) — (22 ) — 71 87 119 271 $ 3,669 $ 8,394 $ 6,103 $ 12,863 Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011 (In thousands) Interest income $ 650 $ 318 $ 1,295 $ 1,015 Amortization of premium or discount on marketable debt securities (251 ) — (271 ) — Gains on sale of marketable debt and equity securities, net 8 — 123 8,044 Gains on sale of non-marketable equity investments — 5,379 — 8,108 Gains (losses) on securities in Cadence’s NQDC (839 ) 204 3,237 3,116 Gains (losses) on foreign exchange 1,376 1,259 2,546 (466 ) Equity losses from non-marketable investments (34 ) (39 ) (34 ) (104 ) Write-down of non-marketable investments (1,081 ) — (1,103 ) — Other income, net 40 123 179 394 Total other income (expense), net $ (131 ) $ 7,244 $ 5,972 $ 20,107 onupon 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.sixnine months ended June 30,September 29, 2012 and July 2, 2011: Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 (In thousands) $ 142,925 $ 124,191 $ 273,380 $ 236,210 5,802 8,200 13,926 13,341 148,727 132,391 287,306 249,551 64,996 56,458 124,705 112,734 53,880 49,194 110,099 99,359 58,873 45,227 120,196 87,728 $ 326,476 $ 283,270 $ 642,306 $ 549,372 Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011 (In thousands) Americas: United States $ 141,509 $ 123,808 $ 414,888 $ 360,018 Other Americas 4,733 6,116 18,659 19,457 Total Americas 146,242 129,924 433,547 379,475 Europe, Middle East and Africa 66,392 61,643 191,097 174,377 Japan 58,757 50,989 168,856 150,348 Asia 67,142 49,901 187,339 137,629 Total $ 338,533 $ 292,457 $ 980,839 $ 841,829 June 30,September 29, 2012 and December 31, 2011: As of June 30,
2012 December 31,
2011 (In thousands) $ 222,232 $ 230,884 23 35 222,255 230,919 4,858 4,813 2,695 3,960 22,112 22,825 $ 251,920 $ 262,517 NOTE 16. SUBSEQUENT EVENT:On July 2, 2012, Cadence acquired Sigrity, Inc., or Sigrity, a provider of signal and power integrity analysis tools for system, printed circuit board and integrated circuit package design, for cash consideration of approximately $78.3 million, net of cash acquired of approximately $7.8 million. The consideration includes approximately $14.2 million of cash payments that were deferred on the acquisition date and are conditioned upon certain Sigrity shareholders remaining employees of Cadence over designated retention periods. Cadence will expense the $14.2 million over the designated retention periods. The remaining consideration of approximately $64.1 million will be allocated based on the fair value of the net assets acquired. Cadence is in the process of determining the fair value of the net assets acquired and will include Sigrity’s results of operations in its financial statements with effect from the purchase date. Comparative pro forma financial information for this acquisition has not been presented because the results of operations were not material to Cadence’s Condensed Consolidated Financial Statements. As of September 29,
2012 December 31,
2011 (In thousands) Americas: United States $ 215,656 $ 230,884 Other Americas 84 35 Total Americas 215,740 230,919 Europe, Middle East and Africa 5,081 4,813 Japan 2,247 3,960 Asia 23,788 22,825 Total $ 246,856 $ 262,517 Our strategy is toWe provide our customers with the ability to address the broad range of issues that arise at the silicon, SoC and system levels.Subsequent EventOn July 2, 2012, we acquired Sigrity, Inc., or Sigrity, a providersixnine months ended June 30,September 29, 2012, as compared to the three and sixnine months ended July 2,October 1, 2011, reflect the following:of:Aof a general increase in the annualized values of software contracts with our customers;Increasescustomers and an increase 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.primarily of variable compensation.provision fornine months ended September 29, 2012 as compared to the same period in 2011; andtaxes,tax benefit in the three months ended September 29, 2012, primarily resulting from non-recurringa release of valuation allowance against our deferred tax benefits recognized during three and six months ended July 2, 2011.assets due to the acquisition of intangible assets held by Sigrity. 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.sixnine months ended June 30,September 29, 2012 and July 2,October 1, 2011 was of a type for which the revenue is recurring, or ratable, in nature.2011.Length of our sales cycle; andThe value and renewalJune 30,September 29, 2012 and July 2,October 1, 2011 and the change in revenue between periods: Three Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 208.3 $ 157.9 $ 50.4 32 % 29.0 29.5 (0.5 ) (2 )% 89.2 95.9 (6.7 ) (7 )% $ 326.5 $ 283.3 $ 43.2 15 % Three Months Ended Change September 29,
2012 October 1,
2011 Amount Percentage (In millions, except percentages) Product $ 216.6 $ 164.0 $ 52.6 32 % Services 28.4 29.1 (0.7 ) (2 )% Maintenance 93.5 99.4 (5.9 ) (6 )% Total revenue $ 338.5 $ 292.5 $ 46.0 16 % sixnine months ended June 30,September 29, 2012 and July 2,October 1, 2011 and the change in revenue between periods: Six Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 398.3 $ 299.8 $ 98.5 33 % 58.5 57.3 1.2 2 % 185.5 192.3 (6.8 ) (4 )% $ 642.3 $ 549.4 $ 92.9 17 % Nine Months Ended Change September 29,
2012 October 1,
2011 Amount Percentage (In millions, except percentages) Product $ 614.9 $ 463.7 $ 151.2 33 % Services 86.9 86.4 0.5 1 % Maintenance 279.0 291.7 (12.7 ) (4 )% Total revenue $ 980.8 $ 841.8 $ 139.0 17 % sixnine months ended June 30,September 29, 2012, as compared to the three and sixnine months ended July 2,October 1, 2011, 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. Maintenance revenue decreased on a standalone basis during the three and sixnine months ended June 30,September 29, 2012, as compared to the three and sixnine months ended July 2,October 1, 2011, primarily because of the increased allocation to product revenue due to the decreasedgradual decline in the average duration of our time-based software license arrangements. Three Months Ended June 30,
2012 March 31,
2012 December 31,
2011 October 1,
2011 July 2,
2011 33 % 30 % 32 % 30 % 33 % 22 % 23 % 21 % 22 % 21 % 22 % 23 % 23 % 23 % 22 % 8 % 8 % 8 % 9 % 8 % 6 % 7 % 6 % 6 % 6 % 9 % 9 % 10 % 10 % 10 % 100 % 100 % 100 % 100 % 100 % Three Months Ended September 29,
2012 Functional Verification and Design IP 30 % 33 % 30 % 32 % 30 % Digital IC Design 23 % 22 % 23 % 21 % 22 % Custom IC Design 24 % 22 % 23 % 23 % 23 % System Interconnect 9 % 8 % 8 % 8 % 9 % Design for Manufacturing 6 % 6 % 7 % 6 % 6 % Services and other 8 % 9 % 9 % 10 % 10 % Total 100 % 100 % 100 % 100 % 100 % products. Three Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 142.9 $ 124.2 $ 18.7 15 % 5.8 8.2 (2.4 ) (29 %) 65.0 56.5 8.5 15 % 53.9 49.2 4.7 10 % 58.9 45.2 13.7 30 % $ 326.5 $ 283.3 $ 43.2 15 % Six Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 273.4 $ 236.2 $ 37.2 16 % 13.9 13.3 0.6 5 % 124.7 112.8 11.9 11 % 110.1 99.4 10.7 11 % 120.2 87.7 32.5 37 % $ 642.3 $ 549.4 $ 92.9 17 % Three Months Ended Change September 29,
2012 October 1,
2011 Amount Percentage (In millions, except percentages) United States $ 141.5 $ 123.8 $ 17.7 14 % Other Americas 4.7 6.1 (1.4 ) (23 )% Europe, Middle East and Africa 66.4 61.6 4.8 8 % Japan 58.8 51.0 7.8 15 % Asia 67.1 50.0 17.1 34 % Total revenue $ 338.5 $ 292.5 $ 46.0 16 % Nine Months Ended Change September 29,
2012 October 1,
2011 Amount Percentage (In millions, except percentages) United States $ 414.9 $ 360.0 $ 54.9 15 % Other Americas 18.7 19.5 (0.8 ) (4 )% Europe, Middle East and Africa 191.1 174.4 16.7 10 % Japan 168.8 150.3 18.5 12 % Asia 187.3 137.6 49.7 36 % Total revenue $ 980.8 $ 841.8 $ 139.0 17 % Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 44 % 44 % 43 % 43 % 2 % 3 % 2 % 2 % 20 % 20 % 19 % 21 % 16 % 17 % 17 % 18 % 18 % 16 % 19 % 16 % 100 % 100 % 100 % 100 % Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011United States 42 % 42 % 42 % 43 % Other Americas 1 % 2 % 2 % 2 % Europe, Middle East and Africa 20 % 21 % 20 % 21 % Japan 17 % 18 % 17 % 18 % Asia 20 % 17 % 19 % 16 % Total 100 % 100 % 100 % 100 % sixnine months ended June 30,September 29, 2012 and July 2, 2011.October 1, 2011. Three Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 21.6 $ 20.1 $ 1.5 7 % 17.1 $ 20.6 (3.5 ) (17 %) 10.8 $ 10.7 0.1 1 % Six Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 37.0 $ 34.3 $ 2.7 8 % 36.4 $ 40.7 (4.3 ) (11 %) 22.6 $ 21.6 1.0 5 % Three Months Ended Change September 29,
2012 October 1,
2011 Amount Percentage (In millions, except percentages) Product $ 23.3 $ 18.2 $ 5.1 28 % Services $ 16.8 $ 20.4 (3.6 ) (18 )% Maintenance $ 11.1 $ 11.2 (0.1 ) (1 )% Nine Months Ended Change September 29,
2012 October 1,
2011 Amount Percentage (In millions, except percentages) Product $ 60.3 $ 52.4 $ 7.9 15 % Services $ 53.3 $ 61.1 (7.8 ) (13 )% Maintenance $ 33.8 $ 32.8 1.0 3 % sixnine months ended June 30,September 29, 2012 and July 2, 2011: Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 10 % 13 % 9 % 11 % 59 % 70 % 62 % 71 % 12 % 11 % 12 % 11 % Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011Product 11 % 11 % 10 % 11 % Services 59 % 70 % 61 % 71 % Maintenance 12 % 11 % 12 % 11 % Three Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 18.7 $ 17.6 $ 1.1 6 % 2.9 2.5 0.4 16 % $ 21.6 $ 20.1 $ 1.5 7 % Six Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 31.2 $ 29.6 $ 1.6 5 % 5.8 4.7 1.1 23 % $ 37.0 $ 34.3 $ 2.7 8 % Three Months Ended Change September 29,
2012 October 1,
2011 Amount Percentage (In millions, except percentages) Product-related costs $ 19.7 $ 15.3 $ 4.4 29 % Amortization of acquired intangibles 3.6 2.9 0.7 24 % Total cost of product $ 23.3 $ 18.2 $ 5.1 28 % Nine Months Ended Change September 29,
2012 October 1,
2011 Amount Percentage (In millions, except percentages) Product-related costs $ 50.9 $ 44.8 $ 6.1 14 % Amortization of acquired intangibles 9.4 7.6 1.8 24 % Total cost of product $ 60.3 $ 52.4 $ 7.9 15 % sixnine months ended June 30,September 29, 2012, as compared to the three and sixnine months ended July 2,October 1, 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 acquisition of Sigrity on July 2, 2012 and our fiscal 2011 acquisitions.$3.5$3.6 million during the three months ended June 30,September 29, 2012, as compared to the three months ended July 2,October 1, 2011, and decreased by $4.3$7.8 million during the sixnine months ended June 30,September 29, 2012, as compared to the sixnine months ended July 2,October 1, 2011, primarily due to a decrease in employee salary, benefits and other employee-related costs. Certain of our design services engineers have been redeployed to internal research and development projects or to assist with pre-sales activities, resulting in lower cost of services expense. We expect to continue to utilize our services engineers on internal projects and pre-sales activities and we expect our cost of services to continue to decrease during the remainder of fiscal 2012, as compared to fiscal 2011.sixnine months ended June 30,September 29, 2012, as compared to the three and sixnine months ended July 2, 2011.October 1, 2011.and six months ended June 30,September 29, 2012 when, as compared to the three and six months ended July 2,October 1, 2011, primarily due to hiring additional employees for our research and development activities and the addition of employees through the acquisition of Sigrity employees. Our employee salary and other compensation-related costs increased during the nine months ended September 29, 2012, as compared to the nine months ended October 1, 2011, primarily due to hiring additional employees for our research and development activities, the addition of employees through the acquisition of Sigrity and improved business levels resulting in higher variable compensationcompensation.due to hiringwe recognize higher expenses when the United States dollar weakens against other currencies. For an additional researchdescription of how changes in foreign exchange rates affect our Condensed Consolidated Financial Statements, see the discussion under the heading “Item 3. Quantitative and development employees.Sigrity on July 2, 2012.sixnine months ended June 30,September 29, 2012 and July 2,October 1, 2011 were as follows: Three Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 222.6 $ 201.7 $ 20.9 10 % 68 % 71 % Six Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 442.8 $ 400.7 $ 42.1 11 % 69 % 73 % Three Months Ended Change September 29,
2012 October 1,
2011 Amount Percentage (In millions, except percentages) Marketing and sales $ 82.5 $ 79.9 $ 2.6 3 % Research and development 115.1 103.2 11.9 12 % General and administrative 26.4 24.0 2.4 10 % Operating expenses $ 224.0 $ 207.1 $ 16.9 8 % Nine Months Ended Change September 29,
2012 October 1,
2011 Amount Percentage (In millions, except percentages) Marketing and sales $ 246.7 $ 235.3 $ 11.4 5 % Research and development 335.7 303.7 32.0 11 % General and administrative 84.4 68.7 15.7 23 % Operating expenses $ 666.8 $ 607.7 $ 59.1 10 % Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011Marketing and sales 24 % 27 % 25 % 28 % Research and development 34 % 35 % 34 % 36 % General and administrative 8 % 8 % 9 % 8 % Operating expenses 66 % 71 % 68 % 72 % Three Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 80.4 $ 77.0 $ 3.4 4 % 25 % 27 % Six Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 164.2 $ 155.4 $ 8.8 6 % 26 % 28 % sixnine months ended June 30,September 29, 2012, as compared to the three and sixnine months ended July 2,October 1, 2011, were due to the following: Change Three Months
Ended Six Months
Ended (In millions) $ 3.3 $ 7.8 0.1 1.0 $ 3.4 $ 8.8 Change Nine Months Ended (In millions) Salary, benefits and other employee-related costs $ 1.7 $ 9.4 Other individually insignificant items 0.9 2.0 $ 2.6 $ 11.4 Three Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 112.0 $ 99.3 $ 12.7 13 % 34 % 35 % Six Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 220.6 $ 200.6 $ 20.0 10 % 34 % 37 % sixnine months ended June 30,September 29, 2012, as compared to the three and nine months ended October 1, 2011, were due to the following: Change Nine Months Ended (In millions) Salary, benefits and other employee-related costs $ 9.5 $ 25.8 Professional services 2.1 2.5 Stock-based compensation 0.7 2.2 Other individually insignificant items (0.4 ) 1.5 $ 11.9 $ 32.0 and six months ended July 2,October 1, 2011, wereis primarily due to hiring additional employees for our research and development activities and the addition of employees through the acquisition of Sigrity.following: Change Three Months
Ended Six Months
Ended (In millions) $ 9.7 $ 16.2 3.0 3.8 $ 12.7 $ 20.0 Three Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 30.2 $ 25.4 $ 4.8 19 % 9 % 9 % Six Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 58.0 $ 44.7 $ 13.3 30 % 9 % 8 % sixnine months ended June 30,September 29, 2012, as compared to the three and sixnine months ended July 2,October 1, 2011, were due to the following: Change Three Months
Ended Six Months
Ended (In millions) $ 2.4 $ 4.3 0.7 1.1 0.7 5.9 1.0 2.0 $ 4.8 $ 13.3 Change Nine Months Ended (In millions) Salary, benefits and other employee-related costs $ 1.9 $ 4.2 Net recoveries of allowance for doubtful accounts 0.8 6.7 Professional services (1.3 ) 2.4 Other individually insignificant items 1.0 2.4 $ 2.4 $ 15.7 $5.9$0.7 million during the sixthree months ended July 2,October 1, 2011 and $6.6 million during the nine months ended October 1, 2011 because we collected certain receivables that previously had been included in our allowance for doubtful accounts. These recoveries resulted in reductions in our general and administrative expense during the three and nine months ended October 1, 2011 and, as a result, our general and administrative expense increased for the three and nine months ended September 29, 2012. We had previously recorded reserves for certain customers based on changes in our assessment of collectabilitycollectibility for those customers. The principal factor for the assessment at that time was a general deterioration of economic conditions having a significant impact on certain customers. These customers’ business prospects eventually improved, and we were able to collect the majority of those receivables that had previously been reserved, resulting in recoveries of previously reserved bad debts. Three Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 3.6 $ 4.5 $ (0.9 ) (20 )% Six Months Ended Change June 30,
2012 July 2,
2011 Amount Percentage (In millions, except percentages) $ 7.4 $ 9.0 $ (1.6 ) (18 )% Three Months Ended Change September 29,
2012 October 1,
2011 Amount Percentage (In millions, except percentages) Amortization of acquired intangibles $ 3.9 $ 3.8 $ 0.1 3 % changeincrease in amortization of acquired intangibles during the three months ended September 29, 2012, as compared to the three months ended October 1, 2011, resulted from increased amortization of intangible assets related to our acquisition of Sigrity, which was partially offset by certain acquired intangibles becoming fully amortized. Nine Months Ended Change September 29,
2012 October 1,
2011 Amount Percentage (In millions, except percentages) Amortization of acquired intangibles $ 11.3 $ 12.8 $ (1.5 ) (12 )% amortized. Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 (In millions) $ — $ 0.5 $ — $ 1.0 0.5 0.5 1.0 1.1 2.3 2.3 4.6 4.6 — 1.7 — 3.5 1.5 1.5 3.0 2.9 3.6 3.4 7.2 6.7 — 0.2 — 0.3 0.1 0.1 0.2 0.2 0.5 0.5 1.0 0.9 0.1 0.1 0.1 0.6 $ 8.6 $ 10.8 $ 17.1 $ 21.8 Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011 (In millions) Contractual cash interest expense: 2011 Notes $ — $ 0.5 $ — $ 1.6 2013 Notes 0.5 0.6 1.6 1.6 2015 Notes 2.3 2.3 6.9 6.9 Amortization of debt discount: 2011 Notes — 1.7 — 5.3 2013 Notes 1.6 1.5 4.7 4.4 2015 Notes 3.7 3.4 11.0 10.2 Amortization of deferred financing costs: 2011 Notes — 0.2 — 0.5 2013 Notes 0.1 0.1 0.3 0.3 2015 Notes 0.5 0.5 1.5 1.4 Other — — (0.1 ) 0.4 Total interest expense $ 8.7 $ 10.8 $ 25.9 $ 32.6 Other income, net, for the three and six months ended June 30, 2012 and July 2, 2011 was as follows: Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 (In millions) $ 0.3 $ 0.3 $ 0.7 $ 0.7 — 8.0 0.1 8.0 — 0.1 — 2.7 2.3 1.2 4.1 2.9 1.1 (1.3 ) 1.2 (1.7 ) — 0.1 — 0.3 $ 3.7 $ 8.4 $ 6.1 $ 12.9 Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011 (In millions) Interest income $ 0.7 $ 0.3 $ 1.3 $ 1.0 Amortization of premium or discount on marketable debt securities (0.3 ) — (0.3 ) — Gains on sale of marketable debt and equity securities, net — — 0.1 8.0 Gains on sale of non-marketable equity investments — 5.4 — 8.1 Gains (losses) on securities in the non-qualified deferred compensation trust (0.8 ) 0.2 3.2 3.1 Gains (losses) on foreign exchange 1.4 1.3 2.5 (0.5 ) Write-down of non-marketable investments (1.1 ) — (1.1 ) — Other income, net — — 0.3 0.4 Total other income (expense), net $ (0.1 ) $ 7.2 $ 6.0 $ 20.1 sixnine months ended June 30,September 29, 2012 and July 2, 2011: Three Months Ended Six Months Ended June 30,
2012 July 2,
2011 June 30,
2012 July 2,
2011 (In millions, except percentages) $ 9.3 $ (4.3 ) $ 17.5 $ 0.4 20.4 % (19.2 %) 20.6 % 1.1 % Three Months Ended Nine Months Ended September 29,
2012 October 1,
2011 September 29,
2012 October 1,
2011 (In millions, except percentages) Provision (benefit) for income taxes $ (8.0 ) $ 0.5 $ 9.5 $ 0.9 Effective tax rate (15.8 )% 1.7 % 7.0 % 1.4 % three and sixnine months ended June 30,September 29, 2012 primarily consisted of tax expense related to certain of our foreign subsidiaries and excess tax benefit from employee stock compensation that was allocated to equity, which was partially offset by a tax benefit from the release of valuation allowance of $14.8 million against our deferred tax assets due to the acquisition of intangible assets held by Sigrity during the period.stock-basedemployee stock compensation that were allocated to equity.equity, which was partially offset by the tax benefit from the effective settlement of a foreign tax examination. Our provision (benefit) for income taxes for the three and sixnine months ended July 2,October 1, 2011 was primarily consistedcomprised of atax expense on certain of our foreign subsidiaries and interest expense on unrecognized tax benefits, which was partially offset by the tax benefit related toof $5.7 million from the effective settlement of the Internal Revenue Service, or IRS, examination of our federal income tax returns for the tax years 2003 through 2005, and athe tax benefit from the release of valuation allowance of $5.0 million against our deferred tax assets due to the acquisition of intangible assets held by a company acquired during the periods.10.0%9%, consisting of tax expense related to certain of our foreign subsidiaries, interest expense on unrecognized tax benefits, excess tax benefits from stock-based compensation allocated to equity and the expected release of valuation allowance against our deferred tax assets due to the acquisition of intangible assets held by Sigrity which was acquired on July 2, 2012.Sigrity. Our estimate excludes additional excess tax benefits from stock-based compensation that may be allocated toperiodsperiod 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.June 30,September 29, 2012 was considered significant negative evidence with a high level of objectivity that outweighed our ability to rely onother favorable evidence, such as the increase in ratable license mix and 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 twelvesix 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.2011. As of June 30,
2012 December 31,
2011 Change (In millions) $ 713.0 $ 604.6 $ 108.4 $ 155.6 $ 48.6 $ 107.0 Six Months Ended June 30,
2012 July 2,
2011 Change (In millions) $ 128.2 $ 125.8 $ 2.4 $ (68.5 ) $ (22.4 ) $ (46.1 ) $ 4.3 $ 1.1 $ 3.2 As of September 29,
2012 December 31,
2011 Change (In millions) Cash, cash equivalents and short-term investments $ 744.9 $ 604.6 $ 140.3 Net working capital $ 176.0 $ 48.6 $ 127.4 Nine Months Ended September 29,
2012 October 1,
2011 Change (In millions) Cash provided by operating activities $ 220.1 $ 178.2 $ 41.9 Cash used for investing activities $ (186.4 ) $ (48.0 ) $ (138.4 ) Cash provided by financing activities $ 18.1 $ 7.1 $ 11.0 June 30,September 29, 2012, our principal sources of liquidity consisted of $713.0$744.9 million of cash, cash equivalents and short-term investments, as compared to $604.6$604.6 million as of December 31, 2011.threenine months ended June 30,September 29, 2012 we invested $49.1$100 million of our cash equivalents in marketable debt securities, including corporate debt securities, United States Treasury securities, United States government agency securities, bank certificates of deposit and commercial paper. Our investments in marketable debt securities are classified as available for sale and are included in cash and cash equivalents and short-term investments as of June 30, 2012.September 29, 2012. Our investments are made in accordance with our cash investment policy, which governs the amounts and types of investments we hold in our portfolio. Our investment portfolio could be affected by various risks and uncertainties including credit risk, interest rate risk and general market risk, as outlined in Part II, Item 1A, “Risk Factors.”sixnine months ended June 30,September 29, 2012 was customer payments for products, maintenance and services. We also received cash from stock purchases under our ESPP and from the exercise of stock options.sixnine months ended June 30,September 29, 2012 was payments relating to salaries, benefits, other employee-related costs and other operating expenses. We also used cash for our acquisition of Sigrity during the three months ended September 29, 2012 and to purchase property, plant and equipment.June 30, 2012.September 29, 2012. 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.$107.0$127.4 million as of June 30,September 29, 2012, as compared to December 31, 2011, due to the following: Change (In millions) $ 60.1 48.3 12.0 11.8 (2.2 ) (2.2 ) (7.2 ) (13.5 ) (0.1 ) $ 107.0 Change (In millions) Increase in short-term investments $ 92.8 Increase in cash and cash equivalents 47.5 Decrease in current portion of deferred revenue 18.1 Decrease in accounts payable and accrued liabilities 5.5 Decrease in prepaid expenses and other (3.4 ) Decrease in inventories (8.6 ) Increase in convertible notes (11.0 ) Decrease in receivables, net (13.6 ) Other individually insignificant items 0.1 $ 127.4 July 1,September 30, 2012 through SeptemberDecember 29, 2012 because our closing stock price exceeded $9.81$9.81 for at least 20 of the last 30 trading days prior to June 30, 2012.September 29, 2012. Accordingly, the net balance of the 2015 Notes of $301.3$305.0 million is classified as a current liability on our Condensed Consolidated Balance Sheet as of June 30, 2012.September 29, 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 June 30,September 29, 2012 we would have recorded an expense of $55.4$51.2 million associated with the conversion, comprised of $48.7$45.0 million of unamortized debt discount and $6.7$6.2 million of unamortized transaction fees.June 30,September 29, 2012 and December 31, 2011.2011. We also classified the fair value of the 2015 Notes Hedges as current assets on our Condensed Consolidated Balance Sheets as of June 30,September 29, 2012 and December 31, 2011.2011. 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 June 30, 2012.September 29, 2012.$350.0$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$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 July 1,September 30, 2012 and SeptemberDecember 29, 2012.2012. However, if the holders of the 2015 Notes elect to convert their notes between July 1,September 30, 2012 and SeptemberDecember 29, 2012 we expect to have sufficient cash, cash equivalents and short-term investments to fund any payment resulting from a conversion.increased $2.4were $220.1 million during the sixnine months ended June 30,September 29, 2012, an increase of $41.9 million as compared to cash flows from operating activities of $178.2 million during the sixnine months ended July 2,October 1, 2011, due to the following: Change (In millions) $ 52.4 (50.0 ) $ 2.4 Change (In millions) Net income, net of non-cash related gains and losses $ 75.0 Changes in operating assets and liabilities, net of effect of acquired businesses (33.1 ) $ 41.9 $4.5$4.5 million related to our previous restructuring activities, primarily for payments related to vacated facilities, net of expected sublease income.sixnine months ended June 30,September 29, 2012, as compared to the sixnine months ended July 2,October 1, 2011, were due to the following: Change (In millions) $ (49.1 ) (9.5 ) (7.0 ) (2.8 ) 21.8 0.5 $ (46.1 ) Change (In millions) Purchases of available-for-sale securities $ (101.2 ) Cash paid in business combinations and asset acquisitions, net of cash acquired (22.4 ) Purchases of property, plant and equipment (8.2 ) Proceeds from the sale of long-term investments (4.8 ) Proceeds from the sale and maturity of available-for-sale securities (2.2 ) Other individually insignificant items 0.4 $ (138.4 ) threenine months ended June 30,September 29, 2012 we invested $49.1$100 million of our cash equivalents in marketable debt securities. For an additional description of these investments, see “Cash and Cash Equivalents and Short-term Investments” above.June 30,September 29, 2012, 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 $21.2$18.8 million in cash during the next 4643 months.approximately $78.3$78.5 million net (net of cash acquired of approximately $7.8 million. The consideration includes approximately $14.2$7.5 million) of cash payments that werewhich $64.3 million was paid at closing, and $14.2 million was deferred on the acquisition date and areis conditioned upon certain Sigrity shareholders remaining employees of Cadence over designated retention periods. We recorded expense of $1.8 million during the three months ended September 29, 2012 related to this deferred purchase consideration and will expense the $14.2remaining $12.4 million over the designatedremaining retention periods and we will include these deferred payments as a use of cash for operating activities in the period we make the payments. During Julythe three months ended September 29, 2012 we paid approximately $64.1recorded cash used for investing activities of $64.3 million net of the cash acquired, related to the Sigrity acquisition that we will include as a use of cash for investing activities during the three months ending September 29, 2012.sixnine months ended June 30,September 29, 2012, as compared to the sixnine months ended July 2,October 1, 2011, were due to the following: Change (In millions) $ 3.1 2.8 (2.5 ) (0.2 ) $ 3.2 Change (In millions) Proceeds from the issuance of common stock $ 11.8 Tax effect related to employee stock transactions allocated to equity 2.9 Stock received for payment of employee taxes on vesting of restricted stock (3.5 ) Other individually insignificant items (0.2 ) $ 11.0 June 30,September 29, 2012, we had convertible notes outstanding with a net liability value of $436.1$441.4 million and that mature between December 15, 2013, and June 1, 2015. The principal maturity value of these convertible notes is $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 2015 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. 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 the 2015 Notes elect to convert their notes between July 1,September 30, 2012 and SeptemberDecember 29, 2012, we expect to have sufficient cash, cash equivalents and short-term investments to fund any payment resulting from a conversion. However, if holders of a significant portion of the 2015 Notes were to choose to convert at a time in which the notes are convertible, it could have a significant negative impact on our cash, cash equivalents and short-term investments 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.June 30, 2012.September 29, 2012. The information is provided in United States dollar equivalent amounts. The table presents the notional amounts, at contract exchange rates, and the weighted 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 August 2012. Notional
Principal Weighted
Average
Contract
Rate (In millions) $ 34.4 0.65 30.4 0.80 22.3 56.04 17.1 78.36 17.0 6.35 13.5 1.03 23.1 N/A $ 157.8 $ 0.9 (In millions) Forward Contracts: European Union euro $ 35.2 0.78 Japanese yen 32.4 77.92 Indian rupee 17.1 55.45 Chinese renminbi 16.7 6.34 Canadian dollar 13.6 0.97 Israeli shekel 8.7 3.97 Other 12.9 N/A Total $ 136.6 Estimated fair value $ 0.8 June 30,September 29, 2012 include $49.0$99.8 million of marketable debt securities that may have their market value adversely impacted if market interest rates rise. Such variability in market interest rates may result in a negative impact on the results of our investment activities. As of June 30,September 29, 2012, an increase in the market rates of interest of 1% would result in a decrease in the fair values of our marketable debt securities by approximately $0.6 million.$0.8 million.June 30, 2012.September 29, 2012.$10.78$10.78 at that time. The following table shows the number of shares that Cadence would issue to 2015 Warrant counterparties at expiration of the warrants assuming various Cadence closing stock prices on the datedates of warrant expiration: 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 $10.78.$10.78.$10.5$9.3 million as of June 30,September 29, 2012, and$10.5 million as of December 31, 2011.2011.June 30, 2012.September 29, 2012.June 30,September 29, 2012, 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.June 30,September 29, 2012 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.halfthree quarters of 2012. Inc., EVE SA, SpringSoft, Inc. and Zuken Ltd., and many others offering “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. In the area of Design IP, we compete with Synopsys and numerous smaller IP companies. Synopsys recently acquired Magma Design Automation, Inc., EVE, SA and Springsoft, Inc. which will impact the competitive landscape of the industry. We expect that Synopsys’s integration of Magma technologyits acquired companies into its product offerings will result in increased competition, which could harm our business, results of operations or cash flows.56%58% during the three months ended June 30,September 29, 2012, and 56%58% during the three months ended July 2,October 1, 2011, a substantial portion of which is denominated in United States dollars. We expect that revenue from ourhalfthree quarters of fiscal 2012. 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.June 30,September 29, 2012, approximately 50% of our cash and cash equivalents balance was held by subsidiaries outside the United States, with the remainder of the balance held by us or our subsidiaries in the United States. We believe that the combination of our existing United States cash balances and future United States operating cash flows 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.June 30,September 29, 2012, we had outstanding indebtedness with a principal balance of $494.7$494.7 million as follows:June 30,September 29, 2012, warrants for the purchase of approximately 6.8 million shares of Cadence’s common stock were outstanding at a strike price of $31.50$31.50 per share. We also entered into separate warrant transactions at the time of the issuance of the 2015 Notes for the purchase of up to approximately 46.4 million shares of Cadence’s common stock at a strike price of $10.78$10.78 per share. These warrants will be settled 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 which the price of our common stock exceeds the strike price stipulated within the particular warrant agreement. If Cadence’s stock price is above the warrants’ strike price upon expiration of the warrants, the warrants will dilute the ownership interest to our existing stockholders. The warrants will also dilute our diluted earnings per share in periods when our average closing stock price exceeds the strike price of the particular warrant. Any sales in the public market of commonJune 30,September 29, 2012 our closing stock price exceeded $9.81$9.81 for at least 20 of the last 30 trading days prior to June 30, 2012.September 29, 2012. As a result, the 2015 Notes are convertible into cash from July 1,September 30, 2012 through SeptemberDecember 29, 2012 and we have classified our 2015 Notes as a current liability on our Condensed Consolidated Balance Sheet as of June 30, 2012.September 29, 2012. The 2013 Notes are not currently convertible.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 June 30, 2012.September 29, 2012. 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$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.$500.0$500.0 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$500.0 million in the aggregate. The following table sets forth the repurchases we made during the three months ended June 30, 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) 2,332 $ 11.58 — $ 814.4 290,419 $ 10.96 — $ 814.4 3,169 $ 10.87 — $ 814.4 295,920 $ 10.96 — Period July 1, 2012 – August 4, 2012 6,402 $ 11.22 — $ 814.4 August 5, 2012 – September 1, 2012 204,599 $ 12.55 — $ 814.4 September 2, 2012 – September 29, 2012 32,429 $ 13.42 — $ 814.4 Total 243,430 $ 12.64 — (1)(1) Shares purchased that were not part of our publicly announced repurchase programs represent the surrender of shares of restricted stock to pay income taxes due upon vesting, and do not reduce the dollar value that may yet be purchased under our publicly announced repurchase programs. (a) The following exhibits are filed herewith: Incorporated by Reference Form File No. Filing Date 10.01 The Registrant’s 1995 Directors Stock Incentive Plan. 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:July 26, 2012 DATE: October 25, 2012 By: Lip-Bu Tan President, Chief Executive Officer and Director DATE:July 26, 2012 DATE: October 25, 2012 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 ProvidedHerewith 10.01The Registrant’s 1995 Directors Stock Incentive Plan.X31.01 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 67