10-KPeriod: FY2009

CADENCE DESIGN SYSTEMS INC Annual Report, Year Ended Jan 3, 2009

Filed March 2, 2009For Securities:CDNS

Summary

Cadence Design Systems, Inc. (CDNS) reported a significant downturn in fiscal year 2008, heavily impacted by the deteriorating macroeconomic environment. This led to a substantial decrease in revenue, a net loss for the year, and considerable impairment charges, including a goodwill impairment of $1.317 billion and impairments of intangible and tangible assets totaling $47.1 million. The company also recorded a $332.9 million valuation allowance against its deferred tax assets. In response to these challenges, Cadence initiated a significant restructuring plan, including a workforce reduction of at least 625 positions, expected to yield approximately $150 million in annual savings. The company is also transitioning its licensing mix to offer customers greater flexibility, which will result in a higher portion of revenue being recognized ratably. Despite the current headwinds, Cadence reported $572.1 million in cash, cash equivalents, and short-term investments at the end of the fiscal year, and expects these resources to be sufficient for at least the next 12 months.

Financial Highlights

31 data points
Beta

Revenue

$1.04B

95.2% Gross Margin

Net Income

-$1.86B

-178.8% Net Margin

EPS (Diluted)

$-7.30

Cash & Equivalents

$568.25M

Free Cash Flow

-$27.00M

Financial Statements
Beta
Revenue$1.04B
Cost of Revenue$50.30M
Gross Profit$988.31M
Operating Expenses$2.61B
Operating Income-$1.57B
Interest Expense$27.40M
Net Income-$1.86B
EPS (Basic)$-7.30
EPS (Diluted)$-7.30
Shares Outstanding (Basic)254.32M
Shares Outstanding (Diluted)254.32M

Key Highlights

  • 1Fiscal year 2008 revenue decreased by 35.8% to $1.039 billion from $1.615 billion in fiscal year 2007.
  • 2The company recorded a net loss of $1.854 billion for fiscal year 2008, a significant drop from a net income of $296.3 million in fiscal year 2007.
  • 3A goodwill impairment charge of $1.317 billion was recognized in fiscal year 2008, eliminating all goodwill on the balance sheet.
  • 4Cadence initiated a restructuring plan in fiscal year 2008, reducing its workforce by at least 625 positions, with expected annual savings of $150 million.
  • 5The company established a valuation allowance of $332.9 million against its deferred tax assets due to uncertainties in their realization.
  • 6Cash and cash equivalents and short-term investments decreased to $572.1 million as of January 3, 2009, from $1.078 billion as of December 29, 2007.
  • 7The company experienced executive leadership changes, with the resignation of its CEO and four other officers in October 2008, followed by the appointment of a new CEO in January 2009.

Frequently Asked Questions

The substantial decrease in revenue was primarily attributed to the deteriorating macroeconomic environment, which negatively impacted customer R&D budgets, and a transition in the company's license mix towards ratable revenue recognition. This led to lower business levels and longer sales cycles.

The goodwill impairment of $1.317 billion indicates that the acquired goodwill was no longer considered to have value. The $332.9 million valuation allowance against deferred tax assets reflects management's assessment that it is not more likely than not that these assets will be realized, potentially due to past losses and uncertain future profitability.

Cadence implemented a significant restructuring plan, including workforce reductions of over 625 positions, aimed at reducing costs by approximately $150 million annually. The company is also shifting its licensing strategy to offer more flexibility to customers, which involves recognizing more revenue ratably over time.

As of January 3, 2009, Cadence had $572.1 million in cash, cash equivalents, and short-term investments. Management expects these resources, along with cash flow from operations, to be sufficient to meet working capital needs for at least the next 12 months. However, they anticipate that net cash flows from operating activities may be negative in fiscal year 2009 due to lower order levels and reduced receivable sales.