Cadence Reports Q3 Revenue Up 12% Over Q3 2004
SAN JOSE, Calif., 26 Oct 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.

Click here for the Q3 2005 Financial Schedules.

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.

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.

For more information, please contact:
Jennifer Jordan
direct:408.944.7100
investor_relations@cadence.com
Investors and Shareholders
Cadence Design Systems, Inc.
Adolph Hunter
direct:408.914.6016
publicrelations@cadence.com
Media and Industry Analysts
Cadence Design Systems, Inc.


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