Cadence Reports Fourth Quarter and Fiscal Year 2010 Financial Results - Updated For Form 10-K Filed February 24, 2011

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. 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 and its products and services is available at www.cadence.com.

The statements contained above regarding Cadence's fourth quarter and fiscal year 2010 results, as well as the information in the Business Outlook section and the statements by Lip-Bu Tan and Geoff Ribar 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 risks, uncertainties and other factors, many of which are outside Cadence's control, including, among others: (i) Cadence's ability to compete successfully in the electronic design automation product and the commercial electronic design and methodology services industries; (ii) Cadence's ability to successfully complete and realize the expected benefits of its restructurings without significant unexpected costs or delays, and the success of Cadence's other efforts to improve operational efficiency and growth; (iii) the mix of products and services sold and the timing of significant orders for Cadence's products, and its shift to a ratable license structure, which may result in changes in the mix of license types; (iv) change in customer demands, including the possibility that restructurings and other efforts to improve operational efficiency could result in delays in customers' purchases of products and services; (v) economic and industry conditions in regions in which Cadence does business; (vi) fluctuations in rates of exchange between the U.S. dollar and the currencies of other countries in which Cadence does business; (vii) capital expenditure requirements, legislative or regulatory requirements, interest rates and Cadence's ability to access capital and debt markets; (viii) the acquisition of other companies or technologies or the failure to successfully integrate and operate these companies or technologies Cadence acquires; (ix) the effects of restructurings and other efforts to improve operational efficiency on Cadence's business, including its strategic and customer relationships, ability to retain key employees and stock prices; (x) events that affect the reserves or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes, litigation or other matters; and (xi) the effects of any litigation or other proceedings to which Cadence is or may become a party.

For a detailed discussion of these and other cautionary statements related to our business, please refer to Cadence's filings with the Securities and Exchange Commission. These include Cadence's Annual Report on Form 10-K for the year ended January 2, 2010, Cadence's Quarterly Report on Form 10-Q for the period ended October 2, 2010 and Cadence's future filings.

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 or net loss, which is a non-GAAP financial measure under Section 101 of Regulation G under the Securities Exchange Act of 1934, as amended, and is GAAP net income or net loss excluding, as applicable, amortization of intangible assets, stock-based compensation expense, integration and acquisition-related costs, acquisition-related income tax benefits, income tax benefits related to the settlement of an IRS examination, shareholder litigation costs, gains or losses and expenses or credits related to non-qualified deferred compensation plan assets, executive severance costs, restructuring charges and credits, amortization of discount on convertible notes, losses on extinguishment of debt, equity in losses or income from investments, write-down of investments and gains or losses on the sale of 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 or net 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.

Cadence's management believes it is useful in measuring Cadence's operations to exclude amortization of intangible assets and integration and acquisition-related costs because these costs are primarily fixed at the time of an acquisition and generally cannot be changed by Cadence's management in the short term. In addition, Cadence's management believes it is useful to exclude stock-based compensation expense because such exclusion enhances investors' ability to review Cadence's business from the same perspective as Cadence's management, which believes that stock-based compensation expense is based on many subjective inputs at a point in time and many of these inputs are not necessarily directly attributable to the underlying performance of Cadence's business operations. Cadence's management also believes it is useful to exclude costs related to shareholder litigation because these costs are not related to Cadence's core business operations. Cadence's management also believes that it is useful to exclude restructuring charges and credits. During each of fiscal year 2009 and 2010, Cadence commenced a restructuring program and expects to have paid substantially all termination benefits and costs by the first fiscal quarter of 2011 and the fourth fiscal quarter of 2011, respectively. Cadence's management believes that in measuring the company's operations, it is useful to exclude any such restructuring charges and credits because exclusion of such charges and credits permits consistent evaluations of Cadence's performance before and after such actions are taken. Cadence's management also believes it is useful to exclude gains or losses and expenses or credits related to the non-qualified deferred compensation plan assets because these gains or losses and expenses or credits are not part of Cadence's direct costs of operations, but reflect changes in the value of assets held in the non-qualified deferred compensation plan. Cadence's management also believes it is useful to exclude executive severance costs as these costs do not occur frequently. Cadence's management also believes it is useful to exclude the amortization of the discount on convertible notes because this incremental cost recorded as interest expense does not represent a cash obligation of the company and is not part of Cadence's direct cost of operations. Finally, Cadence's management believes it is useful to exclude the equity in losses or income from investments, write-down of investments and gains or losses on the sale of investments because these items are not part of Cadence's direct cost of operations. Rather, these are non-operating items that are included in other income or expense and are part of the company's investment activities.

During fiscal year 2010, Cadence's non-GAAP net income also excluded the effect of an income tax benefit associated with Cadence's effective settlement of an Internal Revenue Service, or IRS, examination of Cadence's federal income tax returns for the tax years 2000 through 2002. Cadence's management believes it is useful to exclude the income tax benefit associated with this settlement because Cadence does not expect settlements resulting in income tax provisions or benefits of the magnitude recorded during the third quarter of 2010 to occur frequently.

During fiscal year 2010, Cadence's non-GAAP net income also excluded losses associated with its repurchase of a portion of its 1.375% Convertible Senior Notes Due December 15, 2011 and a portion of its 1.500% Convertible Senior Notes Due December 15, 2013. Cadence's management believes it is useful to exclude the losses on the extinguishment of debt as the losses are not directly related to Cadence's core business operations and similar transactions are not expected to occur frequently.

During fiscal year 2010, Cadence's non-GAAP net income also excluded the effect of an income tax benefit associated with Cadence's acquisition of Denali Software, Inc. Cadence's management believes it is useful to exclude the tax benefit associated with this acquisition because Cadence does not expect an acquisition-related income tax benefit of the magnitude recorded in the second quarter of 2010 to be recorded frequently.

During fiscal year 2009, Cadence's non-GAAP net loss also excluded the effect of an income tax benefit associated with the temporary increase in the net operating loss carryback period for operating losses Cadence incurred in the United States. Cadence's management believes it is useful to exclude the tax benefit associated with this change in the United States tax law because the extended net operating loss carryback period is only applicable for operating losses incurred during either fiscal year 2008 or fiscal year 2009.

Cadence's management believes that non-GAAP net income or net loss provides useful supplemental information to Cadence's management and investors regarding the performance of the company's business operations and facilitates comparisons to the company's historical operating results. Cadence's management also uses this information internally for forecasting and budgeting. Non-GAAP financial measures should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with GAAP. Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures contained within this press release with their most directly comparable GAAP financial results.

The following tables reconcile the specific items excluded from GAAP net income or net loss and GAAP net income or net loss per diluted share in the calculation of non-GAAP net income or net loss and non-GAAP net income or net loss per diluted share for the periods shown below:

Net Income (Loss) Reconciliation	Three Months Ended
	January 1, 2011	January 2, 2010
(in thousands)	(unaudited)
Net income (loss) on a GAAP basis	$(37,037)	$1,790
Amortization of acquired intangibles	6,655	4,391
Stock-based compensation expense	10,643	11,016
Non-qualified deferred compensation expenses	2,416	3,389
Restructuring and other charges	13,225	13,543
Shareholder litigation costs	14	-
Litigation charges	15,800	-
Integration and acquisition-related costs	4,265	135
Amortization of debt discount	6,352	4,870
Other income or expense related to investments and non-qualified deferred compensation plan assets*	(2,347)	(3,177)
Loss on extinguishment of debt	384	-
Income tax effect of the increase in United States net operating loss carryback period	-	(14,825)
Income tax effect of non-GAAP adjustments	(2,806)	(6,070)
Net income on a non-GAAP basis	$17,564	$15,062

* Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on sale of investments and gains or losses on non-qualified deferred compensation plan assets recorded in Other income (expense), net.

Net Income (Loss) Reconciliation	Years Ended
	January 1, 2011	January 2, 2010
(in thousands)	(unaudited)
Net income (loss) on a GAAP basis	$126,538	$(149,871)
Amortization of acquired intangibles	20,808	19,941
Stock-based compensation expense	43,460	54,706
Non-qualified deferred compensation expenses (credits)	2,906	(644)
Restructuring and other charges	10,152	31,376
Shareholder litigation costs	4,328	-
Litigation charges	15,800	-
Executive severance costs	1,627	-
Integration and acquisition-related costs	12,170	665
Amortization of debt discount	22,936	19,104
Other income or expense related to investments and non-qualified deferred compensation plan assets*	(5,875)	6,738
Loss on extinguishment of debt	5,705	-
Acquisition-related income tax benefit	(66,707)	-
Income tax benefit of IRS settlement	(148,302)	-
Income tax effect of the increase in United States net operating loss carryback period	-	(14,825)
Income tax effect of non-GAAP adjustments	7,179	16,812
Net income (loss) on a non-GAAP basis	$52,725	$(15,998)

* Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on sale of investments and gains or losses on non-qualified deferred compensation plan assets recorded in Other income (expense), net.

Diluted Net Income (Loss) per Share Reconciliation	Three Months Ended
	January 1, 2011	January 2, 2010
(in thousands, except per share data)	(unaudited)
Diluted net income (loss) per share on a GAAP basis	$(0.14)	$0.01
Amortization of acquired intangibles	0.03	0.02
Stock-based compensation expense	0.04	0.04
Non-qualified deferred compensation expenses	0.01	0.01
Restructuring and other charges	0.05	0.05
Shareholder litigation costs	-	-
Litigation charges	0.06	-
Integration and acquisition-related costs	0.02	-
Amortization of debt discount	0.02	0.02
Other income or expense related to investments and non-qualified deferred compensation plan assets*	(0.01)	(0.01)
Loss on extinguishment of debt	-	-
Income tax effect of the increase in United States net operating loss carryback period	-	(0.06)
Income tax effect of non-GAAP adjustments	(0.01)	(0.02)
Diluted net income per share on a non-GAAP basis	$0.07	$0.06
Shares used in calculation of diluted net income (loss) per share —GAAP**	259,781	265,093
Shares used in calculation of diluted net income per share —non-GAAP**	266,275	265,093

* Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on sale of investments and gains or losses on non-qualified deferred compensation plan assets recorded in Other income (expense), net.

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

Diluted Net Income (Loss) per Share Reconciliation	Years Ended
	January 1, 2011	January 2, 2010
(in thousands, except per share data)	(unaudited)
Diluted net income (loss) per share on a GAAP basis	$0.48	$(0.58)
Amortization of acquired intangibles	0.08	0.08
Stock-based compensation expense	0.16	0.21
Non-qualified deferred compensation expenses (credits)	0.01	-
Restructuring and other charges	0.04	0.12
Shareholder litigation costs	0.02	-
Litigation charges	0.06	-
Executive severance costs	0.01	-
Integration and acquisition-related costs	0.05	-
Amortization of debt discount	0.08	0.07
Other income or expense related to investments and non-qualified deferred compensation plan assets*	(0.02)	0.03
Loss on extinguishment of debt	0.02	-
Acquisition-related income tax benefit	(0.25)	-
Income tax benefit of IRS settlement	(0.56)	-
Income tax effect of the increase in United States net operating loss carryback period	-	(0.06)
Income tax effect of non-GAAP adjustments	0.02	0.07
Diluted net income (loss) per share on a non-GAAP basis	$0.20	$(0.06)
Shares used in calculation of diluted net income (loss) per share —GAAP**	265,871	257,782
Shares used in calculation of diluted net income (loss) per share —non-GAAP**	265,871	257,782

* Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on sale of investments and gains or losses on non-qualified deferred compensation plan assets recorded in Other income (expense), net.

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

Investors are encouraged to look at the GAAP results as the best measure of financial performance. For example, amortization of intangibles is important to consider because it may represent an initial expenditure that under GAAP is 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. All of these metrics are important to financial performance generally.

Although Cadence's management finds the non-GAAP measures useful in evaluating the performance of Cadence's business, reliance on these measures 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's management typically uses the non-GAAP earnings and earnings per share measures, in conjunction with the GAAP earnings and earnings per share measure