Cadence's management believes it is useful in measuring Cadence's operations to exclude amortization of intangible assets and integration and acquisition-related costs 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 such exclusion enhances investors' ability to review Cadence's business from the same perspective as Cadence's management, which believes that stock-based compensation expense 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. Cadence's management also believes it is useful to exclude costs related to shareholder litigation because these costs 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 fiscal 2009, Cadence commenced a restructuring program that it expects to complete during the first fiscal 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 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 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 second quarter of fiscal 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 fiscal 2010, Cadence's non-GAAP net income also excluded the impact 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 benefit associated with this acquisition because Cadence does not expect an acquisition-related income tax benefit of the magnitude recorded in the second quarter of 2010 to be recorded frequently.
During the fourth quarter of fiscal 2009, Cadence's non-GAAP net loss also excluded the impact of an income tax benefit associated with the temporary increase in the net operating loss carryback period for operating losses Cadence incurred in the United States. Cadence's management believes it is useful to exclude the tax benefit associated with this change in the United States tax law because the extended net operating loss carryback period is only applicable for operating losses incurred during either fiscal 2008 or fiscal 2009.
Cadence's management believes that non-GAAP net income or net loss 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 or net loss and non-GAAP net income or net loss per diluted share for the periods shown below:
Net Income (Loss) Reconciliation Three Months Ended
--------------------
July 3, July 4,
2010 2009
--------- ---------
(unaudited)
(in thousands)
Net income (loss) on a GAAP basis $ 49,369 $ (74,357)
Amortization of acquired intangibles 3,142 4,820
Stock-based compensation expense 10,435 16,507
Non-qualified deferred compensation expenses
(credits) 1,192 (1,523)
Restructuring and other charges (credits) (317) 18,528
Shareholder litigation costs 2,862 -
Integration and acquisition-related costs 1,707 180
Amortization of debt discount 5,248 4,770
Other income or expense related to investments and
non-qualified deferred compensation plan assets* 202 2,321
Loss on extinguishment of debt 5,321 -
Acquisition-related income tax benefit (66,707) -
Income tax effect of non-GAAP adjustments 5,825 15,453
--------- ---------
Net income (loss) on a non-GAAP basis $ 18,279 $ (13,301)
========= =========
* 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
--------------------
July 3, July 4,
2010 2009
--------- ---------
(unaudited)
(in thousands, except per share data)
Diluted net income (loss) per share on a GAAP basis $ 0.19 $ (0.29)
Amortization of acquired intangibles 0.01 0.02
Stock-based compensation expense 0.04 0.06
Non-qualified deferred compensation expenses
(credits) - -
Restructuring and other charges (credits) - 0.07
Shareholder litigation costs 0.01 -
Integration and acquisition-related costs 0.01 -
Amortization of debt discount 0.02 0.02
Other income or expense related to investments and
non-qualified deferred compensation plan assets* - 0.01
Loss on extinguishment of debt 0.02 -
Acquisition-related income tax benefit (0.25) -
Income tax effect of non-GAAP adjustments 0.02 0.06
--------- ---------
Diluted net income (loss) per share on a non-GAAP
basis $ 0.07 $ (0.05)
========= =========
Shares used in calculation of diluted net income
(loss) per share --GAAP** 266,423 256,883
Shares used in calculation of diluted net income
(loss) per share --non-GAAP** 266,423 256,883
* 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 (loss) 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.
