8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 26, 2005

CADENCE DESIGN SYSTEMS, INC.

(Exact name of registrant as specified in charter)

Delaware
(State or other jurisdiction
of incorporation) 1-10606
(Commission file number) 77-0148231
(I.R.S. Employer
Identification Number)

2655 Seely Avenue, Building 5
San Jose, California
(Address of principal executive offices) 95134
(Zip Code)

Registrant’s telephone number, including area code: (408) 943-1234

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))

TABLE OF CONTENTS

	Item 2.02. Results of Operations and Financial Condition.
	Item 9.01. Financial Statements and Exhibits.
SIGNATURES
EXHIBIT INDEX
EXHIBIT 99.1

Item 2.02. Results of Operations and Financial Condition.

     On October 26, 2005, Cadence Design Systems, Inc. (“Cadence”) issued a press release announcing its financial results for the third quarter of 2005, ended October 1, 2005. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated by reference herein.

Item 9.01. Financial Statements and Exhibits.

     (c) Exhibits

Exhibit	Description
99.1	Press release issued by Cadence Design Systems, Inc. on October 26, 2005

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: October 26, 2005

CADENCE DESIGN SYSTEMS, INC.
By:	/s/ R.L. Smith McKeithen
	R.L. Smith McKeithen
	Senior Vice President, General Counsel and Secretary

EXHIBIT INDEX

Exhibit
No.	Description
99.1	Press Release issued by Cadence Design Systems, Inc. on October 26, 2005

EX-99.1

EXHIBIT 99.1

For more information, please contact:

Investors and Shareholders
Jennifer Jordan
Cadence Design Systems, Inc.
408-944-7100
investor_relations@cadence.com

Media and Industry Analysts
Adolph Hunter
Cadence Design Systems, Inc.
408-914-6016
publicrelations@cadence.com

Cadence Reports Q3 Revenue Up 12% Over Q3 2004

     SAN JOSE, Calif.—Oct. 26, 2005—Cadence Design Systems, Inc. (NYSE: CDN) (NASDAQ: CDN) today reported third quarter 2005 revenue of $337 million, an increase of twelve percent over the $302 million reported for the same period last year. On a GAAP basis, Cadence® recognized net income of $21 million, or $0.07 per share, in the third quarter of 2005, compared to $20 million, or $0.07 per share, in the same period last year.

     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 and deferred compensation, in-process research and development charges, integration and other acquisition-related expenses, executive severance payments, restructuring charges 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 our non-GAAP measure.

     Using this non-GAAP measure, net income in the third quarter 2005 was $67 million, or $0.21 per share, on a fully diluted basis as compared to $52 million, or $0.17 per share, on a fully diluted basis in the same period last year.

     “We had great response across the board in the third quarter, including a number of significant competitive wins,” said Mike Fister, president and CEO of Cadence Design Systems,

Inc. “Customers are buying from Cadence both for the depth and breadth of our technology, and our ability to deliver at an enterprise level.”

     Added Bill Porter, senior vice president and chief financial officer: “Once again, we had solid results in the third quarter across product lines and geographies. Both our verification and digital solutions continue to build momentum.”

     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 that may be completed after Oct. 26, 2005.

Business Outlook

     For the fourth quarter of 2005, the company expects total revenue in the range of $360 million to $370 million. Fourth quarter GAAP earnings per fully diluted share are expected to be in the range of $0.17 to $0.19. Diluted earnings per share using the non-GAAP measure defined below are expected to be in the range of $0.27 to $0.29.

     For the full year 2005, the company expects total revenue in the range of $1.31 billion to $1.32 billion. On a GAAP basis, net income per fully diluted share for fiscal 2005 is expected in the range of $0.25 to $0.27. Using the non-GAAP measure defined below, fully diluted earnings per share for fiscal 2005 are expected to be in the range of $0.80 to $0.82.

     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

     Fister and Porter will host a third quarter 2005 financial results audio webcast today, Oct. 26, 2005, 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 Oct. 26, 2005, at 5 p.m. Pacific time and ending at 5 p.m. Pacific time on Nov. 3, 2005. 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 2004 revenues of approximately $1.2 billion, and has approximately 5,000 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 and the Cadence logo are registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.

     The statements contained above regarding the company’s third quarter 2005 results, those contained in the Business Outlook section above and the statements by Mike Fister and 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 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 Jan. 1, 2005, and the quarterly report on Form 10-Q for the quarter ended July 2, 2005.

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 (loss), 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 and deferred compensation, in-process research and development charges, integration and other acquisition-related expenses, restructuring charges (severance and benefits, excess facilities and asset-related restructuring charges), executive severance payments and equity in losses (income) from investments. Intangible assets consist primarily of purchased technology, backlog, patents, trademarks, distribution rights, customer contracts and related relationships and non-compete agreements. Non-GAAP net income (loss) 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, deferred compensation, in-process research and development and acquisition-related expenses because these costs are primarily fixed at the time of an acquisition and generally cannot be changed by management in the short term. Management believes that it also is useful to exclude restructuring costs. 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 have included significant charges relating to such restructurings. Cadence believes that in measuring its operations it is useful to exclude such restructuring costs because the company’s level of restructuring activities is expected to significantly decrease in the foreseeable future. Management also believes it is useful to exclude the equity in losses (income) from investments and investment write-downs, as these items are not part of the company’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 (loss) 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 table reconciles the specific items excluded from GAAP in the calculation of non-GAAP net income for the periods shown below:

Net Income Reconciliation	Quarter Ended
(in thousands)	October 1, 2005			October 2, 2004
Net income on a GAAP basis	$	21,271		$	19,631
Amortization of acquired intangibles		29,175			26,660
Deferred compensation		15,413			5,060
Restructuring and other charges		3,782			1,036
In-process research and development charges		—			2,000
Executive severance payments		4,369			—
Integration and acquisition-related costs		717			694
Equity in losses from investments, gain on Non-Qualified Deferred Compensation plan assets		3,043			5,624
Income tax effect of non-GAAP adjustments		(11,034	)		(9,194	)
Net income on a non-GAAP basis	$	66,736		$	51,511

Diluted Net Income per Share Reconciliation	Quarter Ended
(in thousands, except per share data)	October 1, 2005			October 2, 2004
Diluted net income per share on a GAAP basis	$	0.07		$	0.07
Amortization of acquired intangibles		0.09			0.09
Deferred compensation		0.05			0.02
Restructuring and other charges		0.01			—
In-process research and development charges		—			0.01
Executive severance payments		0.01			—
Integration and acquisition-related costs		—			—
Equity in losses from investments, gain on Non-Qualified Deferred Compensation plan assets		0.01			0.02
Income tax effect of non-GAAP adjustments		(0.03	)		(0.04	)
Diluted net income per share on a non-GAAP basis	$	0.21		$	0.17
Shares used in calculation of diluted net income per share —GAAP		317,741			301,714
Shares used in calculation of diluted net income per share —non-GAAP (A)		317,741			301,714

(A) Shares used in the calculation of GAAP earnings per share are expected to be the same as shares used in the calculation of non-GAAP earnings per share except when the company reports a GAAP loss and non-GAAP income, or GAAP income and a non-GAAP loss.

Investors are encouraged to look at GAAP results as the best measure of financial performance. For example, amortization of intangibles or amortization of deferred compensation or in-process technology are important to consider because they may represent initial expenditures that under GAAP are reported across future fiscal periods. Likewise, deferred 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. All of these metrics are important to financial performance generally.

Though Cadence management finds its non-GAAP measure 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 base line 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 our 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 Dec. 16, 2005, 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 Fourth Quarter 2005 Earnings Release is published, currently scheduled for Feb. 1, 2006.

# # #

Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
October 1, 2005 and January 1, 2005
(In thousands)
(Unaudited)

	October 1, 2005		January 1, 2005
Current Assets:
Cash and cash equivalents	$	618,770	$	448,517
Short-term investments		30,579		144,491
Receivables, net of allowance for doubtful accounts of $13,326 and $12,734, respectively		277,117		384,114
Inventories		26,365		20,481
Prepaid expenses and other		97,735		72,312
Total current assets		1,050,566		1,069,915
Property, plant and equipment, net of accumulated depreciation of $533,148 and $498,424, respectively		353,402		390,367
Goodwill		1,234,866		995,065
Acquired intangibles, net		175,112		195,655
Installment contract receivables		61,643		96,038
Other assets		238,959		242,799
Total Assets	$	3,114,548	$	2,989,839
Current Liabilities:
Accounts payable and accrued liabilities	$	236,392	$	277,992
Current portion of deferred revenue		254,021		270,966
Total current liabilities		490,413		548,958
Long-term Liabilities:
Long-term portion of deferred revenue		19,535		20,847
Convertible notes		420,000		420,000
Other long-term liabilities		317,702		300,064
Total long-term liabilities		757,237		740,911
Stockholders’ Equity		1,866,898		1,699,970
Total Liabilities and Stockholders’ Equity	$	3,114,548	$	2,989,839

Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Quarters and Nine Months Ended October 1, 2005 and October 2, 2004
(In thousands, except per share amounts)
(Unaudited)

	Quarters Ended						Nine Months Ended
	October 1, 2005			October 2, 2004			October 1, 2005			October 2, 2004
Revenue:
Product	$	218,559		$	183,030		$	593,812		$	503,053
Services		31,684			34,447			93,513			104,064
Maintenance		87,138			84,104			263,504			247,267
Total revenue		337,381			301,581			950,829			854,384
Costs and Expenses:
Cost of product		18,537			25,033			62,631			58,590
Cost of services		22,944			23,132			68,715			69,526
Cost of maintenance		14,777			12,643			43,926			39,813
Marketing and sales		94,280			76,736			260,546			238,131
Research and development		93,539			85,300			275,343			263,541
General and administrative		29,962			23,620			92,078			63,749
Amortization of acquired intangibles		13,912			12,741			39,200			44,672
Deferred compensation		15,413			5,060			35,405			17,121
Restructuring and other charges		3,782			1,036			34,785			9,400
Write-off of acquired in-process technology		—			2,000			9,400			9,000
Total costs and expenses		307,146			267,301			922,029			813,543
Income from operations		30,235			34,280			28,800			40,841
Interest expense		(1,217	)		(1,564	)		(3,943	)		(4,820	)
Other income (expense), net		4,667			(4,181	)		11,356			(13,960	)
Income before provision for income taxes		33,685			28,535			36,213			22,061
Provision for income taxes		12,414			8,904			13,436			7,382
Net income	$	21,271		$	19,631		$	22,777		$	14,679
Basic net income per share	$	0.08		$	0.07		$	0.08		$	0.05
Diluted net income per share	$	0.07		$	0.07		$	0.08		$	0.05
Weighted average common shares outstanding — basic		281,222			270,509			277,474			271,514
Weighted average common shares outstanding — diluted		317,741			301,714			312,587			306,887

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended October 1, 2005 and October 2, 2004
(In thousands)
(Unaudited)

	Nine Months Ended
	October 1,			October 2,
	2005			2004
Cash and Cash Equivalents at Beginning of Period	$	448,517		$	309,175
Cash Flows from Operating Activities:
Net income		22,777			14,679
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		143,725			138,510
Deferred compensation		35,405			17,121
Equity in loss from investments, net		6,192			16,167
Gain on investments, net		(16,045	)		(3,182	)
Write-down of investment securities		10,184			2,995
Write-off of acquired in-process technology		9,400			9,000
Non-cash restructuring and other charges		2,179			—
Tax benefits from employee stock transactions		3,723			—
Tax benefit of call options		1,843			—
Deferred income taxes		(5,369	)		—
Proceeds from the sale of receivables		129,047			15,198
Provisions for losses on trade accounts receivable and sales returns		569			2,168
Other non-cash items		(48	)		1,008
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables		123,076			6,411
Inventories		(5,052	)		(3,367	)
Prepaid expenses and other		(17,042	)		(4,470	)
Installment contract receivables		(113,688	)		6,514
Other assets		(1,873	)		9,022
Accounts payable and accrued liabilities		(49,132	)		(22,846	)
Deferred revenue		(20,028	)		13,295
Other long-term liabilities		(10,232	)		15,721
Net cash provided by operating activities		249,611			233,944
Cash Flows from Investing Activities:
Proceeds from sale of available-for-sale securities		14,921			3,557
Proceeds from sale of short-term investments		289,225			413,935
Purchases of short-term investments		(180,975	)		(400,510	)
Proceeds from the sale of long-term investments		6,033			6,942
Proceeds from sale of property, plant and equipment		33,625			3,625
Purchases of property, plant and equipment		(49,954	)		(46,788	)
Purchases of software licenses		(500	)		(757	)
Investment in venture capital partnerships and equity investments		(9,184	)		(17,353	)
Cash paid in business combinations and asset acquisitions, net of cash acquired		(295,438	)		(115,170	)
Net cash used for investing activities		(192,247	)		(152,519	)
Cash Flows from Financing Activities:
Principal payments on capital leases		(58	)		(354	)
Payment of convertible notes issuance costs		—			(1,920	)
Proceeds from issuance of common stock		109,408			65,842
Purchases of treasury stock		—			(94,103	)
Net cash provided by (used for) financing activities		109,350			(30,535	)
Effect of exchange rate changes on cash and cash equivalents		3,539			1,567
Increase in cash and cash equivalents		170,253			52,457
Cash and Cash Equivalents at End of Period	$	618,770		$	361,632

Cadence Design Systems, Inc.
As of October 26, 2005
Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income Per Share
(Unaudited)

	Quarter ended		Year ended
	December 31, 2005		December 31, 2005
	Forecast		Forecast
Diluted net income per share on a GAAP basis	$	0.17 to $0.19	$	0.25 to $0.27
Amortization of acquired intangibles		0.07		0.34
Deferred compensation		0.02		0.13
Restructuring and other charges		—		0.11
Write-off of acquired in-process technology		—		0.03
Executive severance payments		—		0.02
Integration and acquisition-related costs		—		0.01
Equity in losses from investments, gain on Non-Qualified Deferred Compensation plan assets		0.01		0.04
Income tax effect of non-GAAP adjustments		—		(0.13)
Diluted net income per share on a non-GAAP basis	$	0.27 to $0.29	$	0.80 to $0.82

Cadence Design Systems, Inc.
As of October 26, 2005
Impact of Non-GAAP Adjustments on Forward Looking Net Income
(Unaudited)

	Quarter ended		Year ended
	December 31, 2005		December 31, 2005
($ in Millions)	Forecast		Forecast
Net income on a GAAP basis	$	54 to $60	$	77 to $83
Amortization of acquired intangibles		21		106
Deferred compensation		8		43
Restructuring and other charges		—		35
Write-off of acquired in-process technology		—		9
Executive severance payments		—		8
Integration and acquisition-related costs		1		4
Equity in losses from investments, gain on Non-Qualified Deferred Compensation plan assets		2		14
Income tax effect of non-GAAP adjustments		1		(44)
Net income on a non-GAAP basis	$	87 to $93	$	252 to $258

Cadence Design Systems, Inc.
(Unaudited)

Revenue Mix by Geography (% of Total Revenue)

	2003															2004															2005
	Q1			Q2			Q3			Q4			Year			Q1			Q2			Q3			Q4			Year			Q1			Q2			Q3
GEOGRAPHY
North America		55	%		54	%		59	%		64	%		58	%		53	%		57	%		56	%		45	%		52	%		46	%		49	%		53	%
Europe		17	%		15	%		19	%		16	%		17	%		16	%		19	%		20	%		30	%		22	%		16	%		17	%		21	%
Japan		20	%		22	%		13	%		13	%		17	%		22	%		14	%		15	%		14	%		16	%		30	%		25	%		20	%
Asia		8	%		9	%		9	%		7	%		8	%		9	%		10	%		9	%		11	%		10	%		8	%		9	%		6	%
Total		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%

Revenue Mix by Product Group (% of Total Revenue)

	2003															2004															2005
	Q1			Q2			Q3			Q4			Year			Q1			Q2			Q3			Q4			Year			Q1			Q2			Q3
PRODUCT GROUP
Functional Verification		20	%		18	%		18	%		20	%		19	%		20	%		20	%		18	%		19	%		19	%		20	%		19	%		21	%
Digital IC Design		24	%		22	%		27	%		20	%		23	%		25	%		21	%		24	%		27	%		24	%		26	%		23	%		26	%
Custom IC Design		27	%		28	%		27	%		27	%		27	%		27	%		24	%		27	%		27	%		27	%		24	%		31	%		27	%
Design for Manufacturing		9	%		10	%		7	%		13	%		10	%		6	%		9	%		12	%		8	%		9	%		9	%		9	%		9	%
System Interconnect		8	%		9	%		8	%		10	%		9	%		10	%		9	%		8	%		9	%		9	%		10	%		9	%		8	%
Services & Other		12	%		13	%		13	%		10	%		12	%		12	%		17	%		11	%		10	%		12	%		11	%		9	%		9	%
Total		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%

Note: Product Group total revenue includes Product + Maintenance