EX-99.1 2 f19869exv99w1.htm EXHIBIT 99.1 exv99w1
 

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 Q1 Revenue Up 12% Over Q1 2005
     SAN JOSE, Calif.—April 26, 2006—Cadence Design Systems, Inc. (NASDAQ: CDNS) today reported first quarter 2006 revenue of $328 million, an increase of 12 percent over the $293 million reported for the same period in 2005. On a GAAP basis, Cadence® recognized net income of $22 million, or $0.07 per share, in the first quarter of 2006, compared to $1 million, or $0.00 per share, in the same period in 2005.
     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, deferred compensation, in-process research and development charges, integration and other acquisition-related expenses, gains and expenses related to non-qualified deferred compensation plan assets, 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 the non-GAAP measure.
     Using this non-GAAP measure, net income in the first quarter 2006 was $66 million, or $0.21 per share, on a diluted basis as compared to $45 million, or $0.15 per share, on a diluted basis in the same period in 2005.

Page 1 of 12

 

     “Consumer electronics, wireless and networking are driving the market. All of these require our customers to rapidly develop analog mixed-signal and system validation expertise,” said Mike Fister, president and CEO of Cadence Design Systems, Inc. “The performance of our custom IC and verification businesses this quarter clearly demonstrates our market leadership.”
     Bill Porter, executive vice president and chief financial officer added, “We had a good quarter across all geographies, especially in Japan, and we continued to make progress on our objectives to demonstrate growth, execute consistently and achieve our operating targets.”
     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 April 1, 2006.
Business Outlook
     For the second quarter of 2006, the company expects total revenue in the range of $340 million to $350 million. Second quarter GAAP earnings per diluted share are expected to be in the range of $0.09 to $0.11. Diluted earnings per share using the non-GAAP measure defined below are expected to be in the range of $0.21 to $0.23.
     For the full year 2006, the company expects total revenue in the range of $1.41 billion to $1.46 billion. On a GAAP basis, net income per diluted share for fiscal 2006 is expected in the range of $0.47 to $0.55. Using the non-GAAP measure defined below, diluted earnings per share for fiscal 2006 are expected to be in the range of $0.97 to $1.05.
     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.

Page 2 of 12

 

Audio Webcast Scheduled
     Fister and Porter will host a first quarter 2006 financial results audio webcast today, April 26, 2006, 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 April 26, 2006, at 5 p.m. Pacific time and ending at 5 p.m. Pacific time on May 3, 2006. 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 2005 revenues of approximately $1.3 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 first quarter 2006 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 Dec. 31, 2005.

Page 3 of 12

 

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, stock-based compensation, 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), gains and expenses related to non-qualified deferred compensation plan assets 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. In addition, management believes it is useful to exclude stock-based compensation 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 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. Management 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. Finally, 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.

Page 4 of 12

 

     The following tables reconcile the specific items excluded from GAAP net income in the calculation of non-GAAP net income for the periods shown below:
                                 
                         
  Net Income Reconciliation     Quarters Ended          
                         
        April 1, 2006       April 2, 2005            
                         
        (unaudited)            
                         
 
(in thousands)
                              
                         
 
Net income on a GAAP basis
     $ 21,779       $ 1,023            
                         
 
Amortization of acquired intangibles
       20,715         25,661            
                         
 
Stock–based compensation expense
       29,665         - - - -            
                         
 
Non-qualified deferred compensation expense
       2,348         - - - -            
                         
 
Deferred compensation
       - - - -         11,357            
                         
 
Restructuring and other charges
       (430 )       17,489            
                         
 
Write-off of acquired in-process technology
       900         - - - -            
                         
 
Integration and acquisition-related costs
       512         660            
                         
 
Equity in losses from investments, gain on non-qualified deferred compensation plan assets
       (2,530 )       4,097            
                         
 
Income tax effect of non-GAAP adjustments
       (6,600 )       (15,318 )          
                         
 
Cumulative effect of change in accounting principle
       (418 )       - - - -            
                         
 
Net income on a non-GAAP basis
     $ 65,941       $ 44,969            
                         

Page 5 of 12

 

                                 
                         
  Diluted Net Income per Share                            
  Reconciliation     Quarters Ended            
                         
        April 1, 2006       April 2, 2005            
                         
        (unaudited)            
                         
 
(in thousands, except per share data)
                              
                         
 
Diluted net income per share on a GAAP basis
     $ 0.07       $ 0.00            
                         
 
Amortization of acquired intangibles
       0.07         0.08            
                         
 
Stock–based compensation expense
       0.09         - - - -            
                         
 
Non-qualified deferred compensation expense
       0.01         - - - -            
                         
 
Deferred compensation
       - - - -         0.04            
                         
 
Restructuring and other charges
       - - - -         0.06            
                         
 
Write-off of acquired in-process technology
       - - - -         - - - -            
                         
 
Integration and acquisition-related costs
       - - - -         - - - -            
                         
 
Equity in losses from investments, gain on non-qualified deferred compensation plan assets
       (0.01 )       0.01            
                         
 
Income tax effect of non-GAAP adjustments
       (0.02 )       (0.04 )          
                         
 
Cumulative effect of change in accounting principle
       - - - -         - - - -            
                         
 
Diluted net income per share on a non-GAAP basis
     $ 0.21       $ 0.15            
                         
 
Shares used in calculation of diluted net income per share — GAAP
       315,354         307,354            
                         
 
Shares used in calculation of diluted net income per share —non-GAAP (A)
       315,354         307,354            
                         
 
(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.
            
                         

Page 6 of 12

 

Investors are encouraged to look at GAAP results as the best measure of financial performance. For example, amortization of intangibles, 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 and stock-based compensation expenses are obligations 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 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 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 June 16, 2006, 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 2006 Earnings Release is published, which is currently scheduled for July 26, 2006.

Page 7 of 12

 

Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
April 1, 2006 and December 31, 2005
(In thousands)
(Unaudited)
                 
    April 1, 2006     December 31, 2005  
 
                
Current Assets:
                
Cash and cash equivalents
   $ 872,886     $ 861,315  
Short-term investments
     32,054       33,276  
Receivables, net of allowance for doubtful accounts
of $9,738 and $10,979, respectively
     242,565       282,073  
Inventories
     23,379       28,902  
Prepaid expenses and other
     78,326       70,736  
 
            
Total current assets
     1,249,210       1,276,302  
 
                
Property, plant and equipment, net of accumulated
depreciation of $566,381 and $549,593, respectively
     358,141       356,945  
Goodwill
     1,250,430       1,232,926  
Acquired intangibles, net
     141,628       153,847  
Installment contract receivables
     111,257       102,748  
Other assets
     271,164       278,544  
 
            
Total Assets
   $ 3,381,830     $ 3,401,312  
 
            
 
                
Current Liabilities:
                
Current portion of long-term debt
   $ 36,000     $ 32,000  
Accounts payable and accrued liabilities
     237,222       300,586  
Current portion of deferred revenue
     282,577       273,265  
 
            
Total current liabilities
     555,799       605,851  
 
            
 
                
Long-term Liabilities:
                
Long-term portion of deferred revenue
     64,508       51,864  
Convertible notes
     420,000       420,000  
Long-term debt
     91,000       128,000  
Other long-term liabilities
     362,852       350,893  
 
            
Total long-term liabilities
     938,360       950,757  
 
            
 
                
Stockholders’ Equity
     1,887,671       1,844,704  
 
            
Total Liabilities and Stockholders’ Equity
   $ 3,381,830     $ 3,401,312  
 
            

Page 8 of 12

 

Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Quarters Ended April 1, 2006 and April 2, 2005
(In thousands, except per share amounts)
(Unaudited)
                 
    Quarters Ended  
    April 1,
2006		     April 2,
2005		  
Revenue:
                
Product
   $ 208,122     $ 173,409  
Services
     32,431       32,443  
Maintenance
     87,661       86,685  
 
            
 
                
Total revenue
     328,214       292,537  
 
            
 
                
Costs and Expenses:
                
Cost of product
     20,480       21,933  
Cost of services
     24,067       22,488  
Cost of maintenance
     16,050       14,267  
Marketing and sales
     94,476       79,694  
Research and development
     116,261       90,386  
General and administrative
     35,041       25,933  
Amortization of acquired intangibles
     8,350       10,611  
Deferred compensation
     —       11,357  
Restructuring and other charges
     (430 )     17,489  
Write-off of acquired in-process technology
     900       —  
 
            
 
                
Total costs and expenses
     315,195       294,158  
 
            
 
                
Income (loss) from operations
     13,019       (1,621 )
 
                
Interest expense
     (3,540 )     (1,381 )
Other income, net
     28,450       4,507  
 
            
 
                
Income before provision for income taxes and
cumulative effect of change in accounting principle
     37,929       1,505  
 
                
Provision for income taxes
     16,568       482  
 
            
 
                
Net income before cumulative effect of change in
accounting principle
     21,361       1,023  
 
                
Cumulative effect of change in accounting principle, net of tax
     418       —  
 
            
 
                
Net income
   $ 21,779     $ 1,023  
 
            
 
                
Net income per share before cumulative effect of change in
                
accounting principle:
                
Basic
   $ 0.08     $ 0.00  
 
            
Diluted
   $ 0.07     $ 0.00  
 
            
 
                
Net income per share after cumulative effect of change in accounting principle:
                
Basic
   $ 0.08     $ 0.00  
 
            
Diluted
   $ 0.07     $ 0.00  
 
            
 
                
Weighted average common shares outstanding — basic
     281,642       274,201  
 
            
 
                
Weighted average common shares outstanding — diluted
     315,354       307,354  
 
            

Page 9 of 12

 

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Quarters Ended April 1, 2006 and April 2, 2005
(In thousands)
(Unaudited)
                 
    Quarters Ended  
    April 1,     April 2,  
    2006     2005  
 
                
Cash and Cash Equivalents at Beginning of Period
   $ 861,315     $ 448,517  
 
            
Cash Flows from Operating Activities:
                
Net income
     21,779       1,023  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Cumulative effect of change in accounting principle
     (418 )     —  
Depreciation and amortization
     40,942       44,354  
Stock-based compensation
     29,665       8,005  
Equity in loss from investments, net
     300       2,446  
Gain on investments, net
     (20,048 )     (10,161 )
Write-down of investment securities
     1,001       6,193  
Write-off of acquired in-process technology
     900       —  
Non-cash restructuring and other charges
     44       1,352  
Tax benefit of call options
     954       —  
Deferred income taxes
     3,880       —  
Proceeds from the sale of receivables
     24,595       40,933  
Recoveries for gains on trade accounts receivable and sales returns
     (1,240 )     (1,774 )
Other non-cash items
     2,251       3,352  
Changes in operating assets and liabilities, net of effect of acquired businesses:
                
Receivables
     66,015       80,851  
Inventories
     2,133       707  
Prepaid expenses and other
     (8,492 )     (1,807 )
Installment contract receivables
     (57,333 )     (35,147 )
Other assets
     (2,139 )     407  
Accounts payable and accrued liabilities
     (89,530 )     (60,552 )
Deferred revenue
     20,693       (15,595 )
Other long-term liabilities
     5,442       2,406  
 
            
Net cash provided by operating activities
     41,394       66,993  
 
            
 
                
Cash Flows from Investing Activities:
                
Proceeds from sale of available-for-sale securities
     3,687       9,953  
Proceeds from sale of short-term investments
     —       289,225  
Purchases of short-term investments
     —       (180,975 )
Proceeds from the sale of long-term investments
     20,000       4,607  
Purchases of property, plant and equipment
     (15,279 )     (19,587 )
Investment in venture capital partnerships and equity investments
     (2,000 )     (2,430 )
Cash paid in business combinations and asset acquisitions, net of cash acquired
     (1,329 )     (1,411 )
 
            
Net cash provided by investing activities
     5,079       99,382  
 
            
 
                
Cash Flows from Financing Activities:
                
Principal payments on term loan
     (33,000 )     (27 )
Tax benefits from employee stock transactions
     6,140       —  
Proceeds from issuance of common stock
     61,460       39,589  
Purchases of treasury stock
     (69,032 )     —  
 
            
Net cash provided by (used for) financing activities
     (34,432 )     39,562  
 
            
 
                
Effect of exchange rate changes on cash and cash equivalents
     (470 )     2,366  
 
            
 
                
Increase in cash and cash equivalents
     11,571       208,303  
 
            
 
                
Cash and Cash Equivalents at End of Period
   $ 872,886     $ 656,820  
 
            

Page 10 of 12

 

Cadence Design Systems, Inc.
As of April 26, 2006
Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income Per Share
(Unaudited)
                 
    Quarter ended     Year ended  
    July 1, 2006     December 30, 2006  
    Forecast     Forecast  
 
                
Diluted net income per share on a GAAP basis
   $0.09 to $0.11     $0.47 to $0.55  
 
                
Amortization of acquired intangibles
     0.05       0.19  
Stock-based compensation expense
     0.09       0.31  
Non-qualified deferred compensation expense
     —       0.01  
Integration and acquisition-related costs
     —       0.01  
Income tax effect of non-GAAP adjustments
     (0.02)     (0.02)
 
                
 
            
Diluted net income per share on a non-GAAP basis
   $0.21 to $0.23     $0.97 to $1.05  
 
            
Cadence Design Systems, Inc.
As of April 26, 2006
Impact of Non-GAAP Adjustments on Forward Looking Net Income
(Unaudited)
                 
    Quarter ended     Year ended  
    July 1, 2006     December 30, 2006  
($ in Millions)   Forecast     Forecast  
 
                
Net income on a GAAP basis
   $25 to $31     $152 to $176  
 
                
Amortization of acquired intangibles
     17       62  
Stock-based compensation expense
     27       101  
Non-qualified deferred compensation expense
     1       5  
Restructuring and other charges
     1       1  
Integration and acquisition-related costs
     1       2  
Equity in losses from investments, gain on Non-Qualified Deferred Compensation plan assets
     1       1  
Income tax effect of non-GAAP adjustments
     (7)     (5)
 
                
 
            
Net income on a non-GAAP basis
   $66 to $72     $319 to $343  
 
            

Page 11 of 12

 

Cadence Design Systems, Inc.
(Unaudited)
Revenue Mix by Geography (% of Total Revenue)
                                                                                         
    2004   2005   2006  
GEOGRAPHY   Q1     Q2     Q3     Q4     Year     Q1     Q2     Q3     Q4     Year     Q1  
               
 
                                                                                        
North America
     53 %     57 %     55 %     45 %     52 %     46 %     49 %     53 %     42 %     48 %     51 %
Europe
     16 %     19 %     21 %     30 %     22 %     16 %     17 %     21 %     20 %     18 %     19 %
Japan
     22 %     14 %     15 %     14 %     16 %     30 %     25 %     20 %     26 %     25 %     21 %
Asia
     9 %     10 %     9 %     11 %     10 %     8 %     9 %     6 %     12 %     9 %     9 %
Total
     100 %     100 %     100 %     100 %     100 %     100 %     100 %     100 %     100 %     100 %     100 %
Revenue Mix by Product Group (% of Total Revenue)
                                                                                         
    2004   2005   2006  
PRODUCT GROUP   Q1     Q2     Q3     Q4     Year     Q1     Q2     Q3     Q4     Year     Q1  
               
 
                                                                                        
Functional Verification
     20 %     20 %     18 %     19 %     19 %     20 %     19 %     21 %     25 %     21 %     26 %
Digital IC Design
     25 %     21 %     24 %     27 %     24 %     27 %     23 %     26 %     29 %     28 %     20 %
Custom IC Design
     27 %     24 %     27 %     27 %     27 %     23 %     31 %     27 %     22 %     25 %     27 %
Design for Manufacturing
     6 %     9 %     12 %     8 %     9 %     9 %     9 %     9 %     8 %     9 %     8 %
System Interconnect
     10 %     9 %     8 %     9 %     9 %     10 %     9 %     8 %     7 %     8 %     9 %
Services & Other
     12 %     17 %     11 %     10 %     12 %     11 %     9 %     9 %     9 %     9 %     10 %
Total
     100 %     100 %     100 %     100 %     100 %     100 %     100 %     100 %     100 %     100 %     100 %
 
Note: Product Group total revenue includes Product + Maintenance

Page 12 of 12