SOURCE: CADENCE DESIGN SYSTEMS, INC.

April 23, 2008 16:05 ET

Cadence Reports Q1 Revenue of $287 Million

SAN JOSE, CA--(Marketwire - April 23, 2008) - Cadence Design Systems, Inc. (NASDAQ: CDNS) today reported first quarter 2008 revenue of $287 million, compared to revenue of $365 million reported for the same period in 2007. On a GAAP basis, Cadence recognized a net loss of $19 million, or $(0.07) per share on a diluted basis, in the first quarter of 2008, compared to net income of $44 million, or $0.15 per share on a diluted basis, in the same period in 2007.

In addition to using GAAP results in evaluating Cadence's business, management believes it is useful to measure results using a non-GAAP measure of net income, which excludes, as applicable, amortization of intangible assets, stock-based compensation expense, in-process research and development charges, certain termination and legal costs, integration and acquisition-related costs, gains or losses and expenses or credits related to non-qualified deferred compensation plan assets, executive severance payments, restructuring charges and credits, losses on extinguishment of debt and equity in losses (income) from investments. Non-GAAP net income is adjusted by the amount of additional taxes or tax benefit that the company would accrue if it used non-GAAP results instead of GAAP results to calculate the company's tax liability. See "GAAP to non-GAAP Reconciliation" below for further information on the non-GAAP measure.

Using this non-GAAP measure, net income in the first quarter of 2008 was $12 million, or $0.04 per share on a diluted basis, as compared to $75 million, or $0.26 per share on a diluted basis, in the same period in 2007.

"First quarter results met our expectations and we'll continue to focus on improving our operating performance throughout the year," said Bill Porter, executive vice president and chief administrative officer.

The following statements are based on current expectations. These statements are forward looking, and actual results may differ materially. These statements do not include the impact of any mergers, acquisitions or other business combinations completed after Mar. 29, 2008.

Business Outlook

For the second quarter of 2008, the company expects total revenue in the range of $310 million to $320 million. Second quarter GAAP net income per diluted share is expected to be in the range of $0.02 to $0.04. Diluted earnings per share using the non-GAAP measure defined below are expected to be in the range of $0.13 to $0.15.

For the full year 2008, the company expects total revenue in the range of $1.490 billion to $1.540 billion. On a GAAP basis, net income per diluted share for fiscal 2008 is expected to be in the range of $0.64 to $0.72. Using the non-GAAP measure defined below, diluted earnings per share for fiscal 2008 are expected to be in the range of $1.14 to $1.22.

A schedule showing a reconciliation of the business outlook from GAAP net income and diluted net income per share to the non-GAAP net income and diluted net income per share is included with this release.

Audio Webcast Scheduled

Mike Fister, Cadence's president and CEO, and Bill Porter, executive vice president and chief administrative officer, will host a first quarter 2008 financial results audio webcast today, Apr. 23, 2008, at 2 p.m. (Pacific) / 5 p.m. (Eastern). Attendees are asked to register at the Web site at least 10 minutes prior to the scheduled webcast. An archive of the webcast will be available starting Apr. 23, 2008, at 5 p.m. Pacific time and ending at 5 p.m. Pacific time on Apr. 30, 2008. Webcast access is available at www.cadence.com/company/investor_relations.

About Cadence

Cadence enables global electronic-design innovation and plays an essential role in the creation of today's integrated circuits and electronics. Customers use Cadence® software and hardware, methodologies, and services to design and verify advanced semiconductors, consumer electronics, networking and telecommunications equipment, and computer systems. Cadence reported 2007 revenues of approximately $1.6 billion, and has approximately 5,100 employees. The company is headquartered in San Jose, Calif., with sales offices, design centers, and research facilities around the world to serve the global electronics industry. More information about the company, its products, and services is available at www.cadence.com.

Cadence is a registered trademark and the Cadence logo is a trademark of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.

The statements contained above regarding the company's first quarter 2008 results, those contained in the Business Outlook section above and the statements by Bill Porter include forward-looking statements based on current expectations or beliefs, as well as a number of preliminary assumptions about future events that are subject to factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Readers are cautioned not to put undue reliance on these forward-looking statements, which are not a guarantee of future performance and are subject to a number of uncertainties and other factors, many of which are outside Cadence's control, including, among others: Cadence's ability to compete successfully in the design automation product and the commercial electronic design and methodology services industries; the mix of products and services sold and the timing of significant orders for its products; economic uncertainty; fluctuations in rates of exchange between the U.S. dollar and the currencies of other countries in which Cadence does business; and the acquisition of other companies or technologies or the failure to successfully integrate those it acquires.

For a detailed discussion of these and other cautionary statements, please refer to the company's filings with the Securities and Exchange Commission. These include the company's Annual Report on Form 10-K for the year ended Dec. 29, 2007.

GAAP to non-GAAP Reconciliation

Cadence management evaluates and makes operating decisions using various operating measures. These measures are generally based on the revenues of its product, maintenance and services business operations and certain costs of those operations, such as cost of revenues, research and development, sales and marketing and general and administrative expenses. One such measure is non-GAAP net income, which is a non-GAAP financial measure under Section 101 of Regulation G under the Securities Exchange Act of 1934, as amended. This measure consists of GAAP net income (loss) excluding, as applicable, amortization of intangible assets, stock-based compensation expense, in-process research and development charges, certain termination and legal costs, integration and acquisition-related costs, gains or losses and expenses or credits related to non-qualified deferred compensation plan assets, executive severance payments, restructuring charges and credits (primarily related to excess facilities), losses on extinguishment of debt and equity in losses (income) from investments. Intangible assets consist primarily of purchased or licensed technology, backlog, patents, trademarks, distribution rights, customer contracts and related relationships and non-compete agreements. Non-GAAP net income is adjusted by the amount of additional taxes or tax benefit that the company would accrue if it used non-GAAP results instead of GAAP results to calculate the company's tax liability.

Management believes it is useful in measuring Cadence's operations to exclude amortization of intangibles, in-process research and development and integration and acquisition-related costs because these costs are primarily fixed at the time of an acquisition and generally cannot be changed by management in the short term. In addition, management believes it is useful to exclude stock-based compensation expense because it enhances investors' ability to review Cadence's business from the same perspective as Cadence's management, which believes that stock-based compensation expense is not directly attributable to the underlying performance of the company's business operations. Management also believes that it is useful to exclude restructuring charges and credits. Cadence has dramatically reduced the size of its design services business and portions of its product and maintenance businesses over the past several years. As a result, in 2001, 2002 and 2003, Cadence's GAAP statements of operations included significant charges relating to such restructurings. Management believes that in measuring the company's operations it is useful to exclude any such restructuring charges and credits because its level of restructuring activities has significantly decreased. Management also believes it is useful to exclude executive severance costs and certain termination and legal costs as these costs do not occur frequently. Management also believes it is useful to exclude gains or losses and expenses or credits related to its non-qualified deferred compensation plan assets as these gains and expenses are not part of Cadence's direct costs of operations, but reflect changes in the value of assets held in the plan. Finally, management also believes it is useful to exclude the equity in losses (income) from investments, as these items are not part of Cadence's direct cost of operations. Rather, these are non-operating items that are included in other income (expense) and are part of the company's investment activities.

Management believes that non-GAAP net income provides useful supplemental information to management and investors regarding the performance of the company's business operations and facilitates comparisons to our historical operating results. Management also uses this information internally for forecasting and budgeting. Non-GAAP financial measures should not be considered as a substitute for 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 (loss) in the calculation of non-GAAP net income for the periods shown below:

Net Income (Loss) Reconciliation                    Quarters Ended
                                            ------------------------------
                                            March 29, 2008  March 31, 2007
                                            --------------  --------------
                                                      (unaudited)
(in thousands)
Net income (loss) on a GAAP basis           $      (18,747) $       44,421
   Amortization of acquired intangibles             11,491          11,290
   Stock-based compensation expense                 21,590          27,682
   Non-qualified deferred compensation
    expenses (credits)                                (102)          3,157
   Restructuring and other charges
    (credits)                                            -            (945)
   Write-off of acquired in-process
    technology                                         600               -
   Integration and acquisition-related costs           274             353
   Equity in losses from investments, gains
    and losses on non-qualified deferred
    compensation plan assets - recorded in
    Other income, net                                6,394          (2,702)
   Income tax effect of non-GAAP adjustments        (9,651)         (7,952)
                                            --------------  --------------
Net income on a non-GAAP basis              $       11,849  $       75,304
                                            ==============  ==============



Diluted Net Income (Loss) per Share
 Reconciliation                                     Quarters Ended
                                            ------------------------------
                                            March 29, 2008  March 31, 2007
                                            --------------  --------------
                                                     (unaudited)
(in thousands, except per share data)
Diluted net income (loss) per share on a
 GAAP basis                                 $        (0.07) $         0.15
   Amortization of acquired intangibles               0.04            0.04
   Stock-based compensation expense                   0.08            0.09
   Non-qualified deferred compensation
    expenses (credits)                                   -            0.01
   Restructuring and other charges
    (credits)                                            -               -
   Write-off of acquired in-process
    technology                                           -               -
   Integration and acquisition-related costs             -               -
   Equity in losses from investments, gains
    and losses on non-qualified deferred
    compensation plan assets - recorded in
    Other income, net                                 0.02           (0.01)
   Income tax effect of non-GAAP adjustments         (0.03)          (0.02)
                                            --------------  --------------
Diluted net income per share on a non-GAAP
 basis                                      $         0.04  $         0.26
                                            ==============  ==============
Shares used in calculation of diluted net
 income (loss) per share - GAAP (A)                262,825         293,603
Shares used in calculation of diluted net
 income per share -  non-GAAP (A)                  279,400         293,603


(A) 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.

Investors are encouraged to look at GAAP results as the best measure of financial performance. For example, amortization of intangibles or in-process technology are important to consider because they may represent initial expenditures that under GAAP are reported across future fiscal periods. Likewise, stock-based compensation expense is an obligation of the company that should be considered. Restructuring charges can be triggered by acquisitions or product adjustments as well as overall company performance within a given business environment. Losses on extinguishment of debt can be incurred on remaining convertible notes. All of these metrics are important to financial performance generally.

Though Cadence management finds its non-GAAP measure is useful in evaluating the performance of Cadence's business, its reliance on this measure is limited because items excluded from such measures often have a material effect on Cadence's earnings and earnings per share calculated in accordance with GAAP. Therefore, Cadence management typically uses its non-GAAP earnings and earnings per share measures, in conjunction with GAAP earnings and earnings per share measures, to address these limitations.

Cadence believes that presenting its non-GAAP measure of earnings and earnings per share provides investors with an additional tool for evaluating the performance of the company's business, which management uses in its own evaluation of performance, and an additional baseline for assessing the future earnings potential of the company. While the GAAP results are more complete, the company prefers to allow investors to have this supplemental measure since, with reconciliation to GAAP, it may provide additional insight into its financial results.

Cadence expects that its corporate representatives will meet privately during the quarter with investors, the media, investment analysts and others. At these meetings, Cadence may reiterate the Business Outlook published in this press release. At the same time, Cadence will keep this press release, including the outlook, publicly available on its Web site.

Prior to the start of the Quiet Period (described below), the public may continue to rely on the Business Outlook contained herein as still being Cadence's current expectations on matters covered unless Cadence publishes a notice stating otherwise.

Beginning June 13, 2008, Cadence will observe a "Quiet Period" during which the Business Outlook as provided in this press release and the company's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q no longer constitute the company's current expectations. During the Quiet Period, the Business Outlook in these documents should be considered to be historical, speaking as of prior to the Quiet Period only and not subject to update by the company. During the Quiet Period, Cadence representatives will not comment on Cadence's business outlook or its financial results or expectations. The Quiet Period will extend until the day when Cadence's Second Quarter 2008 Earnings Release is published, which is currently scheduled for July 23, 2008.

                       Cadence Design Systems, Inc.
                  Condensed Consolidated Balance Sheets
                   March 29, 2008 and December 29, 2007
                              (In thousands)
                                (Unaudited)


                                                  March 29,   December 29,
                                                    2008          2007
                                                ------------- -------------

Current Assets:
  Cash and cash equivalents                     $     825,545 $   1,062,920
  Short-term investments                               11,157        15,193
  Receivables, net of allowances of $2,752 and
    $2,895, respectively                              346,321       326,211
  Inventories                                          29,771        31,003
  Prepaid expenses and other                           97,940        94,236
                                                ------------- -------------
    Total current assets                            1,310,734     1,529,563

Property, plant and equipment, net of
 accumulated depreciation of $633,059 and
 $624,680, respectively                               345,918       339,463
Goodwill                                            1,315,561     1,310,211
Acquired intangibles, net                             124,196       127,072
Installment contract receivables                      214,991       238,010
Other assets                                          326,003       326,831
                                                ------------- -------------
Total Assets                                    $   3,637,403 $   3,871,150
                                                ============= =============

Current Liabilities:
  Convertible notes                             $     230,385 $     230,385
  Accounts payable and accrued liabilities            220,906       289,934
  Current portion of deferred revenue                 298,956       265,168
                                                ------------- -------------
    Total current liabilities                         750,247       785,487
                                                ------------- -------------

Long-term Liabilities:
  Long-term portion of deferred revenue               135,465       136,655
  Convertible notes                                   500,000       500,000
  Other long-term liabilities                         357,986       368,942
                                                ------------- -------------
    Total long-term liabilities                       993,451     1,005,597
                                                ------------- -------------

Stockholders' Equity                                1,893,705     2,080,066
                                                ------------- -------------
Total Liabilities and Stockholders' Equity      $   3,637,403 $   3,871,150
                                                ============= =============




                       Cadence Design Systems, Inc.
              Condensed Consolidated Statements of Operations
         For the Quarters Ended March 29, 2008 and March 31, 2007
                 (In thousands, except per share amounts)
                                (Unaudited)



                                                         Quarters Ended
                                                      --------------------
                                                      March 29,  March 31,
                                                        2008       2007
                                                      ---------  ---------
Revenue:
  Product                                             $ 156,193  $ 237,904
  Services                                               32,196     31,922
  Maintenance                                            98,800     95,359
                                                      ---------  ---------

    Total revenue                                       287,189    365,185
                                                      ---------  ---------

Costs and Expenses:
  Cost of product                                        12,001     15,652
  Cost of services                                       25,193     23,615
  Cost of maintenance                                    14,540     15,123
  Marketing and sales                                    93,034    102,698
  Research and development                              125,356    117,065
  General and administrative                             37,708     40,611
  Amortization of acquired intangibles                    5,760      4,509
  Restructuring and other charges (credits)                   -       (945)
  Write-off of acquired in-process technology               600          -
                                                      ---------  ---------

    Total costs and expenses                            314,192    318,328
                                                      ---------  ---------

      Income (loss) from operations                     (27,003)    46,857

  Interest expense                                       (2,995)    (3,460)
  Other income, net                                       5,763     19,530
                                                      ---------  ---------

      Income (loss) before provision (benefit) for
       income taxes                                     (24,235)    62,927

  Provision (benefit) for income taxes                   (5,488)    18,506
                                                      ---------  ---------

      Net income (loss)                               $ (18,747) $  44,421
                                                      =========  =========


Basic net income (loss) per share                     $   (0.07) $    0.16
                                                      =========  =========

Diluted net income (loss) per share                   $   (0.07) $    0.15
                                                      =========  =========

Weighted average common shares outstanding - basic      262,825    269,660
                                                      =========  =========

Weighted average common shares outstanding - diluted    262,825    293,603
                                                      =========  =========





                       Cadence Design Systems, Inc.
              Condensed Consolidated Statements of Cash Flows
       For the Three Months Ended March 29, 2008 and March 31, 2007
                              (In thousands)
                                (Unaudited)



                                                     Three Months Ended
                                                  ------------------------
                                                   March 29,    March 31,
                                                     2008         2007
                                                  -----------  -----------

Cash and Cash Equivalents at Beginning of Period  $ 1,062,920  $   934,342
                                                  -----------  -----------
Cash Flows from Operating Activities:
   Net income (loss)                                  (18,747)      44,421
   Adjustments to reconcile net income (loss) to
    net cash provided by (used for) operating
    activities:
      Depreciation and amortization                    32,982       31,920
      Stock-based compensation                         21,590       27,682
      Equity in loss from investments, net                333          637
      Gain on investments, net                           (224)      (7,498)
      Gain on sale and leaseback of land and
       buildings                                         (535)     (11,127)
      Write-down of investment securities               5,401            -
      Write-off of acquired in-process technology         600            -
      Tax benefit from call options                         -        1,906
      Deferred income taxes                                 -          191
      Proceeds from the sale of receivables,  net      15,660       41,434
      Provisions (recoveries) for losses (gains)
       on trade accounts receivable and sales
       returns                                           (142)       1,283
      Other non-cash items                              1,075        3,216
      Changes in operating assets and
       liabilities, net of effect of acquired
       businesses:
         Receivables                                  (20,431)      18,156
         Installment contract receivables              23,253      (87,504)
         Inventories                                    1,281         (651)
         Prepaid expenses and other                    (3,546)      (9,832)
         Other assets                                  (4,344)      (4,346)
         Accounts payable and accrued liabilities     (80,931)     (37,729)
         Deferred revenue                              22,530        6,661
         Other long-term liabilities                  (14,886)         143
                                                  -----------  -----------
            Net cash provided by (used for)
             operating activities                     (19,081)      18,963
                                                  -----------  -----------

Cash Flows from Investing Activities:
  Proceeds from sale of short-term investments              -          197
  Proceeds from the sale of long-term investments       3,250        4,787
  Proceeds from the sale of property, plant and
   equipment                                                -       46,500
  Purchases of property, plant and equipment          (24,595)     (20,394)
  Purchases of software licenses                         (375)           -
  Investment in venture capital partnerships and
   equity investments                                       -       (1,499)
  Cash paid in business combinations and asset
   acquisitions, net of cash acquired,
   and acquisition of intangibles                      (5,560)      (1,547)
                                                  -----------  -----------
           Net cash provided by (used for)
            investing activities                      (27,280)      28,044
                                                  -----------  -----------

Cash Flows from Financing Activities:
  Principal payments on term loan                           -      (28,000)
  Tax benefit from employee stock transactions             95        8,642
  Proceeds from issuance of common stock               25,485      111,616
  Stock received for payment of employee taxes on
   vesting of restricted stock                         (2,207)      (6,223)
  Purchases of treasury stock                        (216,236)    (121,455)
                                                  -----------  -----------
           Net cash used for financing activities    (192,863)     (35,420)
                                                  -----------  -----------

Effect of exchange rate changes on cash and cash
 equivalents                                            1,849          825
                                                  -----------  -----------

Increase (decrease) in cash and cash equivalents     (237,375)      12,412
                                                  -----------  -----------

Cash and Cash Equivalents at End of Period        $   825,545  $   946,754
                                                  ===========  ===========




                       Cadence Design Systems, Inc.
                           As of April 23, 2008
          Impact of Non-GAAP Adjustments on Forward Looking Diluted
                           Net Income Per Share
                                (Unaudited)



                                          Quarter ended      Year ended
                                          June 28, 2008   January 3, 2009
                                        ----------------  ----------------
                                            Forecast          Forecast
                                        ----------------  ----------------

Diluted net income per share on a GAAP
 basis                                   $0.02 to $0.04    $0.64 to $0.72

  Amortization of acquired intangibles        0.04              0.17
  Stock-based compensation expense            0.08              0.32
  Integration and acquisition-related
   costs                                        -                 -
  Equity in losses from investments,
   gains and losses on non-qualified
   deferred compensation plan assets          0.01              0.03
  Income tax effect of non-GAAP
   adjustments                               (0.02)            (0.02)

Diluted net income per share on a       ----------------  ----------------
 non-GAAP basis                          $0.13 to $0.15    $1.14 to $1.22
                                        ================  ================



                         Cadence Design Systems, Inc.
                            As of April 23, 2008
        Impact of Non-GAAP Adjustments on Forward Looking Net Income
                               (Unaudited)


                                         Quarter ended      Year ended
                                         June 28, 2008    January 3, 2009
                                        ----------------  ----------------
($ in Millions)                             Forecast          Forecast
                                        ----------------  ----------------

Net income on a GAAP basis                  $5 to $11       $169 to $191

  Amortization of acquired intangibles         12                44
  Stock-based compensation expense             22                85
  Integration and acquisition-related
   costs                                        -                 1
  Equity in losses from investments,
   gains and losses on non-qualified
   deferred compensation plan assets            1                 8
  Income tax effect of non-GAAP
   adjustments                                 (6)               (4)

                                        ----------------  ----------------
Net income on a non-GAAP basis              $34 to $40       $303 to $325
                                        ================  ================





                       Cadence Design Systems, Inc.
                                (Unaudited)


Revenue Mix by Geography (% of Total Revenue)


                            2006                      2007            2008
                  ========================  ========================  ====
GEOGRAPHY          Q1   Q2   Q3   Q4  Year   Q1   Q2   Q3   Q4  Year   Q1
                  ===  ===  ===  ===  ====  ===  ===  ===  ===  ====  ====

 Americas          51%  48%  54%  60%   54%  48%  52%  41%  50%   49%   40%
 Europe            19%  18%  22%  19%   19%  15%  17%  25%  17%   18%   22%
 Japan             21%  24%  13%  10%   17%  27%  14%  22%  22%   21%   26%
 Asia               9%  10%  11%  11%   10%  10%  17%  12%  11%   12%   12%
Total             100% 100% 100% 100%  100% 100% 100% 100% 100%  100%  100%



Revenue Mix by Product Group (% of Total Revenue)

                             2006                     2007            2008
                  ========================  ========================  ====
PRODUCT GROUP      Q1   Q2   Q3   Q4  Year   Q1   Q2   Q3   Q4  Year   Q1
                  ===  ===  ===  ===  ====  ===  ===  ===  ===  ====  ====

 Functional
  Verification     26%  22%  24%  23%   24%  24%  24%  20%  26%   24%   20%
 Digital IC
  Design           20%  26%  19%  26%   24%  26%  29%  27%  27%   27%   27%
 Custom IC Design  27%  27%  30%  26%   27%  24%  24%  32%  25%   27%   25%
 Design for
  Manufacturing     8%   8%   8%   6%    7%   7%   7%   6%   6%    6%    6%
 System
  Interconnect      9%   8%  10%  11%    9%  10%   8%   7%   9%    8%   11%
 Services & Other  10%   9%   9%   8%    9%   9%   8%   8%   7%    8%   11%
Total             100% 100% 100% 100%  100% 100% 100% 100% 100%  100%  100%


Note: Product Group total revenue includes Product + Maintenance

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