Cadence Reports Fourth Quarter and Fiscal Year 2011 Financial Results

Cadence's management believes it is useful in measuring Cadence's operations to exclude amortization of intangible assets and integration and acquisition-related costs, including changes in the fair value of contingent consideration related to prior acquisitions, because these costs are primarily fixed at the time of an acquisition and generally cannot be changed by Cadence's management in the short term. In addition, Cadence's management believes it is useful to exclude stock-based compensation expense, because it is based on many subjective inputs at a point in time and many of these inputs are not necessarily directly attributable to the underlying performance of Cadence's business operations, and such exclusion enhances investors' ability to review Cadence's business from the same perspective as Cadence's management. Cadence's management also believes it is useful to exclude costs and charges related to shareholder litigation because these costs and charges are not related to Cadence's core business operations. Cadence's management also believes that it is useful to exclude restructuring charges and credits. During the fourth quarter of 2010, Cadence commenced a restructuring program and has paid substantially all termination benefits and costs as of the fourth quarter of 2011. Cadence's management believes that in measuring the company's operations, it is useful to exclude any such restructuring charges and credits because exclusion of such charges and credits permits consistent evaluations of Cadence's performance before and after such actions are taken. Cadence's management also believes it is useful to exclude gains or losses and expenses or credits related to the non-qualified deferred compensation plan assets because these gains or losses and expenses or credits are not part of Cadence's direct costs of operations, but reflect changes in the value of assets held in the non-qualified deferred compensation plan. Cadence's management also believes it is useful to exclude executive and other employee severance costs because exclusion of such costs permits consistent evaluations of Cadence's performance. Cadence's management also believes it is useful to exclude the amortization of the discount on convertible notes because this incremental cost recorded as interest expense does not represent a cash obligation of the company and is not part of Cadence's direct cost of operations. Finally, Cadence's management believes it is useful to exclude the equity in losses or income from investments, write-down of investments and gains or losses on the sale of investments because these items are not part of Cadence's direct cost of operations. Rather, these are non-operating items that are included in other income or expense and are part of the company's investment activities.

During the fourth quarter of 2011, Cadence's non-GAAP net income also excluded the effect of an income tax expense associated with Cadence's effective settlement of an IRS examination of Cadence's federal income tax returns for the tax years 2006 through 2009. During the second quarter of 2011, Cadence's non-GAAP net income also excluded the effect of an income tax benefit associated with Cadence's effective settlement of an IRS examination of Cadence's federal income tax returns for the tax years 2003 through 2005. During the third quarter of 2010, Cadence's non-GAAP net income also excluded the effect of an income tax benefit associated with Cadence's effective settlement of an IRS examination of Cadence's federal income tax returns for the tax years 2000 through 2002. Cadence's management believes it is useful to exclude the income tax expense and benefits associated with these settlements because exclusion of such tax expenses and benefits permits consistent evaluations of Cadence's performance. Cadence does not expect settlements resulting in income tax expenses or benefits of the magnitude recorded during the third quarter of 2010 to occur frequently.

During the second and fourth quarters of 2010, Cadence's non-GAAP net income also excluded losses associated with its repurchase of a portion of its 1.375% Convertible Senior Notes Due December 15, 2011 and a portion of its 1.500% Convertible Senior Notes Due December 15, 2013. Cadence's management believes it is useful to exclude the losses on the extinguishment of debt as the losses are not directly related to Cadence's core business operations and similar transactions are not expected to occur frequently.

During the second quarter of 2011, Cadence's non-GAAP net income also excluded the effect of an income tax benefit associated with an acquisition Cadence completed during the second quarter of 2011. During the second quarter of 2010, Cadence's non-GAAP net income also excluded the effect of an income tax benefit associated with Cadence's acquisition of Denali Software, Inc. Cadence's management believes it is useful to exclude the tax benefits associated with these acquisitions because exclusion of such tax benefits permits consistent evaluations of Cadence's performance. Cadence does not expect an acquisition-related income tax benefit of the magnitude recorded in the second quarter of 2010 to be recorded frequently.

Cadence's management believes that non-GAAP net income provides useful supplemental information to Cadence's management and investors regarding the performance of the company's business operations and facilitates comparisons to the company's historical operating results. Cadence's management also uses this information internally for forecasting and budgeting. Non-GAAP financial measures should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with GAAP. Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures contained within this press release with their most directly comparable GAAP financial results.

The following tables reconcile the specific items excluded from GAAP net income or net loss and GAAP net income or net loss per diluted share in the calculation of non-GAAP net income and non-GAAP net income per diluted share for the periods shown below:

                                                                            
Net Income (Loss) Reconciliation                     Three Months Ended     
                                                 -------------------------- 
                                                 December 31,   January 1,  
                                                     2011          2011     
                                                 ------------  ------------ 
                                                         (unaudited)        
(in thousands)                                                              
Net income (loss) on a GAAP basis                $     10,892  $    (37,037)
  Amortization of acquired intangibles                  6,681         6,655 
  Stock-based compensation expense                     11,999        10,643 
  Non-qualified  deferred  compensation  expenses                                                            
      (credits)                                                                                      (3,560)                2,416  
    Restructuring  and  other  charges                                                    83                13,225  
    Shareholder  litigation  costs                                                        192                        14  
    Litigation  charges                                                                                -                15,800  
    Executive  and  other  employee  severance  costs                    2,931                          -  
    Integration  and  acquisition-related  costs                              353                  4,265  
    Amortization  of  debt  discount                                                  6,432                  6,352  
    Other  income  or  expense  related  to  investments                                                        
      and  non-qualified  deferred  compensation  plan                                                          
      assets*                                                                                            3,482                (2,347)
    Loss  on  extinguishment  of  debt                                                        -                      384  
    Income  tax  expense  of  IRS  settlements                                  3,893                          -  
    Income  tax  effect  of  non-GAAP  adjustments                          2,367                (2,806)
                                                                                                  ------------    ------------  
Net  income  on  a  non-GAAP  basis                                      $          45,745    $          17,564  
                                                                                                  ============    ============  
                                                                                                                                                        
*  Includes,  as  applicable,  equity  in  losses  or  income  from  investments,          
    write-down  of  investments,  gains  or  losses  on  sale  of  investments  and          
    gains  or  losses  on  non-qualified  deferred  compensation  plan  assets                
    recorded  in  Other  income  (expense),  net.                                                                    
                                                                                                                                                        
                                                                                                                                                        
Net  Income  Reconciliation                                                                Years  Ended                
                                                                                                  --------------------------  
                                                                                                  December  31,      January  1,    
                                                                                                          2011                    2011          
                                                                                                  ------------    ------------  
                                                                                                                  (unaudited)                
(in  thousands)                                                                                                                            
Net  income  on  a  GAAP  basis                                              $          72,229    $        126,538  
    Amortization  of  acquired  intangibles                                  27,016                20,808  
    Stock-based  compensation  expense                                          43,588                43,460  
    Non-qualified  deferred  compensation  expenses                                                            
      (credits)                                                                                          (383)                2,906  
    Restructuring  and  other  charges                                                  360                10,152  
    Shareholder  litigation  costs                                                    1,545                  4,328  
    Litigation  charges                                                                                -                15,800  
    Executive  and  other  employee  severance  costs                    6,178                  1,627  
    Integration  and  acquisition-related  costs                          2,598                12,170  
    Amortization  of  debt  discount                                                26,214                22,936  
    Other  income  or  expense  related  to  investments                                                        
      and  non-qualified  deferred  compensation  plan                                                          
      assets*                                                                                        (15,682)              (5,875)
    Loss  on  extinguishment  of  debt                                                        -                  5,705  
    Acquisition-related  income  tax  benefit                              (5,021)            (66,707)
    Income  tax  benefit  of  IRS  settlements                                (1,787)          (148,302)
    Income  tax  effect  of  non-GAAP  adjustments                      (18,579)                7,179  
                                                                                                  ------------    ------------  
Net  income  on  a  non-GAAP  basis                                      $        138,276    $          52,725  
                                                                                                  ============    ============  
                                                                                                                                                        
*  Includes,  as  applicable,  equity  in  losses  or  income  from  investments,          
    write-down  of  investments,  gains  or  losses  on  sale  of  investments  and          
    gains  or  losses  on  non-qualified  deferred  compensation  plan  assets                
    recorded  in  Other  income  (expense),  net.                                                                    
                                                                                                                                                        
                                                                                                                                                        
Diluted  Net  Income  (Loss)  per  Share                                                                                  
  Reconciliation                                                                            Three  Months  Ended          
                                                                                                  --------------------------  
                                                                                                  December  31,      January  1,    
                                                                                                          2011                    2011          
                                                                                                  ------------    ------------  
                                                                                                                  (unaudited)                
(in  thousands,  except  per  share  data)                                                                              
Diluted  net  income  (loss)  per  share  on  a  GAAP                                                              
  basis                                                                                      $              0.04    $            (0.14)
    Amortization  of  acquired  intangibles                                      0.03                    0.03  
    Stock-based  compensation  expense                                              0.05                    0.04  
    Non-qualified  deferred  compensation  expenses                                                            
      (credits)                                                                                        (0.01)                  0.01  
    Restructuring  and  other  charges                                                      -                    0.05  
    Shareholder  litigation  costs                                                            -                          -  
    Litigation  charges                                                                                -                    0.06  
    Executive  and  other  employee  severance  costs                      0.01                          -  
    Integration  and  acquisition-related  costs                                  -                    0.02  
    Amortization  of  debt  discount                                                    0.02                    0.02  
    Other  income  or  expense  related  to  investments                                                        
      and  non-qualified  deferred  compensation  plan                                                          
      assets*                                                                                              0.01                  (0.01)
    Loss  on  extinguishment  of  debt                                                        -                          -  
    Income  tax  expense  of  IRS  settlements                                    0.01                          -  
    Income  tax  effect  of  non-GAAP  adjustments                            0.01                  (0.01)
                                                                                                  ------------    ------------  
Diluted  net  income  per  share  on  a  non-GAAP  basis  $              0.17    $              0.07  
                                                                                                  ============    ============  
Shares  used  in  calculation  of  diluted  net  income                                                        
  (loss)  per  share  --GAAP**                                                        273,057              259,781  
Shares  used  in  calculation  of  diluted  net  income                                                        
  per  share  --non-GAAP**                                                              273,057              266,275  
                                                                                                                                                        
*    Includes,  as  applicable,  equity  in  losses  or  income  from  investments,        
      write-down  of  investments,  gains  or  losses  on  sale  of  investments  and        
      gains  or  losses  on  non-qualified  deferred  compensation  plan  assets              
      recorded  in  Other  income  (expense),  net.                                                                  
                                                                                                                                                        
**  Shares  used  in  the  calculation  of  GAAP  net  income  (loss)  per  share  are      
      expected  to  be  the  same  as  shares  used  in  the  calculation  of  non-GAAP  net
      income  per  share,  except  when  the  company  reports  a  GAAP  net  loss  and        
      non-GAAP  net  income,  or  GAAP  net  income  and  a  non-GAAP  net  loss.                  
                                                                                                                                                        
                                                                                                                                                        
Diluted  Net  Income  per  Share  Reconciliation                            Years  Ended                
                                                                                                  --------------------------  
                                                                                                  December  31,      January  1,    
                                                                                                          2011                    2011          
                                                                                                  ------------    ------------  
                                                                                                                  (unaudited)                
(in  thousands,  except  per  share  data)                                                                              
Diluted  net  income  per  share  on  a  GAAP  basis          $              0.27    $              0.48  
    Amortization  of  acquired  intangibles                                      0.10                    0.08  
    Stock-based  compensation  expense                                              0.16                    0.16  
    Non-qualified  deferred  compensation  expenses                                                            
      (credits)                                                                                                -                    0.01  
    Restructuring  and  other  charges                                                      -                    0.04  
    Shareholder  litigation  costs                                                      0.01                    0.02  
    Litigation  charges                                                                                -                    0.06  
    Executive  and  other  employee  severance  costs                      0.02                    0.01  
    Integration  and  acquisition-related  costs                            0.01                    0.05  
    Amortization  of  debt  discount                                                    0.10                    0.08  
    Other  income  or  expense  related  to  investments                                                        
      and  non-qualified  deferred  compensation  plan                                                          
      assets*                                                                                            (0.06)                (0.02)
    Loss  on  extinguishment  of  debt                                                        -                    0.02  
    Acquisition-related  income  tax  benefit                                (0.02)                (0.25)
    Income  tax  benefit  of  IRS  settlements                                  (0.01)                (0.56)
    Income  tax  effect  of  non-GAAP  adjustments                          (0.07)                  0.02  
                                                                                                  ------------    ------------  
Diluted  net  income  per  share  on  a  non-GAAP  basis  $              0.51    $              0.20  
                                                                                                  ============    ============  
Shares  used  in  calculation  of  diluted  net  income                                                        
  per  share  --GAAP**                                                                      270,816              265,871  
Shares  used  in  calculation  of  diluted  net  income                                                        
  per  share  --non-GAAP**                                                              270,816              265,871  
                                                                                                                                                        
*    Includes,  as  applicable,  equity  in  losses  or  income  from  investments,        
      write-down  of  investments,  gains  or  losses  on  sale  of  investments  and        
      gains  or  losses  on  non-qualified  deferred  compensation  plan  assets              
      recorded  in  Other  income  (expense),  net.                                                                  
                                                                                                                                                        
**  Shares  used  in  the  calculation  of  GAAP  net  income  per  share  are  expected  
      to  be  the  same  as  shares  used  in  the  calculation  of  non-GAAP  net  income    
      per  share,  except  when  the  company  reports  a  GAAP  net  loss  and  non-GAAP    
      net  income,  or  GAAP  net  income  and  a  non-GAAP  net  loss.                                    
                                                                                                                                                        
 

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