Cadence Design Systems (CDNS) 8-K Cadence Reports Second Quarter Results

Exhibit 99.1

For more information, please contact:

Investors and Shareholders:
Alan Lindstrom
Cadence Design Systems, Inc.
408-944-7100
investor_relations@cadence.com

Media and Industry Analysts:
Jenny Gispen-Schultz
Cadence Design Systems, Inc.
408-944-7280
jennyg@cadence.com

 
Cadence Reports Second Quarter Results

San Jose, Calif., July 15, 2003—Cadence Design Systems, Inc. (NYSE: CDN) today announced total revenue for the second quarter of 2003 of $276 million, with subscription licenses approximately 82 percent of software product bookings. Pro forma earnings were $25 million or $0.09 per share based on fully diluted shares outstanding.

On a GAAP basis, including amortization of acquired intangibles, deferred stock compensation and other charges, the results were a net loss of $8 million or a net loss of $0.03 per share. A reconciliation of GAAP to pro forma earnings is included with this press release.

“I am pleased with these results, which reflect the good progress we’ve made in driving the new generation of EDA technologies into the market,” said Ray Bingham, Cadence president and CEO. “We continue to develop and integrate advanced, market-proven technologies that enable our customers to compete in an increasingly challenging technical and economic environment.”

Business Highlights

In the second quarter, the Cadence® Encounter® and Incisive™ platforms continued to penetrate key accounts. Encounter has now been deployed in more than 200 production tapeouts. And, for the second quarter in a row since its introduction, the Incisive platform was ahead of plan, gaining momentum with customers around the globe.

This week, Cadence concluded an agreement to acquire Verplex Systems, Inc., another key milestone in the Cadence digital IC design platform strategy. “The pending acquisition of Verplex is part of our ongoing strategy to provide

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customers with a complete solution to the increasingly complex challenges of IC design verification,” said Bingham. “We will incorporate Verplex’s formal verification technology into the Cadence Encounter digital IC platform’s nanometer implementation flow, the industry’s route to big, fast chips, and into the market-leading Cadence Incisive verification platform.”

Cadence also strengthened relationships with its Japanese customers as a result of acquiring major parts of the Innotech EDA software distribution business. Cadence Japan will now sell directly to every major IC company in the Japanese semiconductor industry. Innotech will focus on systems, a growth segment, and on developing new business. This arrangement provides Cadence with a more efficient channel and a larger presence in Japan.

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, other than Verplex, that may be completed after June 28, 2003.

Business Outlook

Subscriptions are expected to make up 80 percent to 90 percent of software product bookings for the year. For Q3, the company expects total revenue in the range of $265 million to $275 million and 65 percent to 70 percent of software product revenue from ratable backlog. Pro forma diluted earnings per share is expected to be in the range of $0.11 to $0.13, with a GAAP diluted loss per share in the range of $0.18 to $0.16. For the full year 2003, the company expects total revenues to be in the range of $1.09 billion to $1.13 billion. Pro forma diluted earnings per share for 2003 are expected to be in the range of $0.48 to $0.52, with a GAAP diluted loss per share expected to be in the range of $0.13 to $0.09.

Cadence continues to focus on cost reduction, and plans to eliminate approximately 500 jobs. This action, affecting about 10 percent of the workforce worldwide, will result in restructuring charges of $60 million in the third quarter.

Costs and expenses are expected to be down by about 20 percent for the second half of 2003 on a year-over-year basis.

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

Cadence expects to complete its acquisition of Verplex in the third quarter. However, the closing is subject to a number of conditions, the satisfaction of which may delay the closing or the failure of which to be satisfied could result in the termination of the definitive agreement.

Audio Webcast Scheduled

Cadence Design Systems, Inc.’s Ray Bingham, chief executive officer, and Bill Porter, chief financial officer, will host a second quarter Financial Results Audio webcast today, July 15, 2003, at 1:45 p.m. (Pacific) / 4:45 p.m. (Eastern). Attendees are asked to register at the website at least 10 minutes prior to the scheduled webcast. An archive of the webcast will be available starting July 15 at

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5:00 p.m. Pacific time and ending at 5:00 p.m. on July 22. Webcast access is available at www.cadence.com/company/investor   relations.

About Cadence

Cadence is the largest supplier of electronic design technologies, methodology services, and design services. Cadence solutions are used to accelerate and manage the design of semiconductors, computer systems, networking and telecommunications equipment, consumer electronics, and a variety of other electronics based products. With approximately 5000 employees and 2002 revenues of approximately $1.3 billion, Cadence has sales offices, design centers, and research facilities around the world. The company is headquartered in San Jose, Calif., and traded on the New York Stock Exchange under the symbol CDN. More information about the company, its products and services is available at www.cadence.com.

Cadence and the Cadence logo are registered trademarks, and Incisive 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 second quarter 2003 results, those contained in the Business Outlook section above and the statements by Ray Bingham 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 the control of Cadence, 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 them.

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 December 28, 2002 and Quarterly Report on Form 10-Q for the quarter ended March 29, 2003.

In the calculation of the company’s pro forma earnings and pro forma diluted earnings per share for this and other periods, Cadence has excluded one or more of the following items: amortization of acquired intangibles, amortization of

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deferred stock compensation, restructuring and other charges and write off of in-process technology from acquisitions, tax provisions, inventory write-downs, equity investment write-downs and certain non-routine legal costs. Cadence management uses pro forma earnings and pro forma diluted earnings per share to evaluate the performance of its core business of developing and selling its products and services and to estimate its future core performance, before taking into account the effect of typically non-cash items that are variable and difficult to predict from period to period.

Cadence management believes that the items excluded from its pro forma calculations are generally infrequent and somewhat unpredictable events or events whose impact on earnings will be resolved over a reasonably short, finite period of time. By excluding these variable and unpredictable, generally non-cash items that do not arise from the company’s core business operations, Cadence management believes it can better compare the revenues and costs of its operating business to the past and future operations of that operating business.

Though Cadence management finds these pro forma measures useful for evaluating aspects of Cadence’s business, its reliance on these measures is limited because these excluded items often have a material effect on Cadence’s earnings and earnings per share calculated in accordance with GAAP. Therefore, Cadence management always uses the pro forma earnings and earnings per share measures in conjunction with GAAP earnings and earnings per share measures. Just because an item may be non-cash does not mean it is not important to an understanding of a company’s financial statements. In fact, investors are encouraged to look at GAAP results as the best measure of financial performance. For example, amortization of intangibles, write-downs of assets or in-process technology are important to consider because they represent initial cash expenditures that are merely reported under GAAP across future fiscal periods. Likewise, deferred stock compensation expense is an obligation of the company that should be considered. Restructuring charges require cash outlays and 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. Therefore, Cadence management typically uses the pro forma earnings and earnings per share measures in conjunction with GAAP earnings and earnings per share measures, to address these limitations.

Cadence believes that presenting pro forma earnings and earnings per share measures provides investors with an additional tool for evaluating the company’s core performance that management uses in its own evaluation of performance, and a pro forma 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 metric since, with a reconciliation to GAAP, it may provide greater insight into our financial results.

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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 (www.cadence.com/company/investor_relations/index.html ). Prior to the start of the Quiet Period (described below), the public may continue to rely on the Business Outlook herein as still being Cadence’s current expectations on matters covered unless Cadence publishes a notice stating otherwise.

Beginning September 15, 2003, Cadence will observe a “Quiet Period” during which the Business Outlook as provided in this press release and the company’s most recent 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 concerning the outlook or Cadence’s financial results or expectations. The Quiet Period will extend until the day when Cadence’s next quarterly Earnings Release is published, currently scheduled for October 14, 2003.

# # #

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Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
June 28, 2003 and December 28, 2002
(In $000’s)

			June 28,		December 28,
			2003		2002
			(Unaudited)
Current Assets:
	Cash and cash equivalents		$	207,213	$	371,327
	Short-term investments			34,205		24,286
	Receivables, net			327,977		313,968
	Inventories			11,277		9,614
	Prepaid expenses and other			46,103		39,448
		Total current assets		626,775		758,643
Property, plant and equipment, net				421,728		434,491
Acquired intangibles, net				1,058,115		883,339
Installment contract receivables, net				121,170		113,185
Other assets				211,881		248,603
Total Assets			$	2,439,669	$	2,438,261
Current Liabilities:
	Current portion of capital lease obligations		$	933	$	1,609
	Accounts payable and accrued liabilities			268,020		297,399
	Deferred revenue			218,060		212,882
		Total current liabilities		487,013		511,890
Long-term Liabilities:
	Long-term debt and capital lease obligations			35,125		52,659
	Other long-term liabilities			285,757		214,407
		Total long-term liabilities		320,882		267,066
Stockholders’ equity				1,631,774		1,659,305
Total Liabilities and Stockholders’ Equity			$	2,439,669	$	2,438,261

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Operations
For the Quarters and Six Months Ended June 28, 2003 and June 29, 2002
(In $000’s, except per share amounts)
(Unaudited)

				Quarters Ended						Six Months Ended
				June 28, 2003			June 29, 2002			June 28, 2003			June 29, 2002
Revenue:
	Product			$	160,630		$	226,064		$	301,912		$	445,113
	Services				34,801			37,026			67,189			80,292
	Maintenance				81,006			81,730			163,212			164,129
		Total revenue			276,437			344,820			532,313			689,534
Costs and Expenses:
	Cost of product				7,019			29,822			15,230			47,922
	Cost of services				23,971			28,784			47,598			61,550
	Cost of maintenance				13,929			17,340			29,004			33,768
	Marketing and sales				85,265			96,170			168,880			192,951
	Research and development				88,376			78,255			173,498			156,445
	General and administrative				20,107			25,552			46,784			63,082
	Amortization of acquired intangibles				26,017			19,048			51,303			37,697
	Amortization of deferred stock compensation				9,517			7,454			19,137			10,947
	Restructuring and other charges				1,352			55,523			1,352			73,231
	Write-off of acquired in-process technology				3,800			27,400			5,500			27,400
		Total costs and expenses			279,353			385,348			558,286			704,993
			Loss from operations		(2,916	)		(40,528	)		(25,973	)		(15,459	)
	Interest expense				(640	)		(421	)		(1,314	)		(900	)
	Other expense, net				(6,192	)		(9,401	)		(5,284	)		(3,919	)
			Loss before provision (benefit) for income taxes		(9,748	)		(50,350	)		(32,571	)		(20,278	)
	Provision (benefit) for income taxes				(1,895	)		(4,029	)		(5,602	)		4,698
			Net loss	$	(7,853	)	$	(46,321	)	$	(26,969	)	$	(24,976	)
Basic net loss per share				$	(0.03	)	$	(0.18	)	$	(0.10	)	$	(0.10	)
Diluted net loss per share				$	(0.03	)	$	(0.18	)	$	(0.10	)	$	(0.10	)
Weighted average common shares outstanding					267,887			251,250			268,128			250,453
Weighted average common and potential common shares outstanding — assuming dilution					267,887			251,250			268,128			250,453
Supplemental diluted earnings per share before amortization of acquired intangibles, amortization of deferred stock compensation, restructuring and other charges, write-off of acquired in-process technology, write-down of equity investments to fair value, reserve against inventory, non-recurring legal costs, and income tax effect of pro forma adjustments				$	0.09		$	0.24		$	0.13		$	0.47

Cadence Design Systems, Inc.
Pro Forma Condensed Consolidated Statements of Operations
Impact of Pro Forma Adjustments on Reported Net Loss
For the Quarters Ended June 28, 2003 and June 29, 2002
(In $000’s, except per share amounts)
(Unaudited)

				Quarter Ended										Quarter Ended
				June 28, 2003										June 29, 2002
				As Reported			Adjustments			��	Pro Forma			As Reported			Adjustments			Pro Forma
Revenue:
	Product			$	160,630		$	—			$	160,630		$	226,064		$	—		$	226,064
	Services				34,801			—				34,801			37,026			—			37,026
	Maintenance				81,006			—				81,006			81,730			—			81,730
		Total revenue			276,437			—				276,437			344,820			—			344,820
Costs and Expenses:
	Cost of product				7,019			—				7,019			29,822			(13,805	)(F)		16,017
	Cost of services				23,971			—				23,971			28,784			—			28,784
	Cost of maintenance				13,929			—				13,929			17,340			—			17,340
	Marketing and sales				85,265			—				85,265			96,170			—			96,170
	Research and development				88,376			—				88,376			78,255			—			78,255
	General and administrative				20,107			—				20,107			25,552			—			25,552
	Amortization of acquired intangibles				26,017			(26,017	)(A)			—			19,048			(19,048	)(A)		—
	Amortization of deferred stock compensation				9,517			(9,517	)(B)			—			7,454			(7,454	)(B)		—
	Restructuring and other charges				1,352			(1,352	)(C)			—			55,523			(55,523	)(C)		—
	Write-off of acquired in-process technology				3,800			(3,800	)(D			—			27,400			(27,400	)(D)		—
		Total costs and expenses			279,353			(40,686	)			238,667			385,348			(123,230	)		262,118
			Income (loss) from operations		(2,916	)		40,686				37,770			(40,528	)		123,230			82,702
	Interest expense				(640	)		—				(640	)		(421	)		—			(421	)
	Other income (loss), net				(6,192	)		3,623	(E)			(2,569	)		(9,401	)		10,000	(E)		599
			Income (loss) before provision (benefit) for income taxes		(9,748	)		44,309				34,561			(50,350	)		133,230			82,880
	Provision (benefit) for income taxes				(1,895	)		10,881	(G)			8,986			(4,029	)		25,578	(G)		21,549
			Net Income (loss)	$	(7,853	)	$	33,428			$	25,575		$	(46,321	)	$	107,652		$	61,331
Basic net income (loss) per share				$	(0.03	)					$	0.10		$	(0.18	)				$	0.24
Diluted net income (loss) per share				$	(0.03	)					$	0.09		$	(0.18	)				$	0.24
Weighted average common shares outstanding					267,887							267,887			251,250						251,250
Weighted average common and potential common shares outstanding — assuming dilution					267,887							273,728			251,250						258,660

Notes:

(A) Non-cash amortization of acquired intangibles

(B) Non-cash amortization of deferred stock compensation

(C) Restructuring and other charges

(D) Write-off of acquired in-process technology

(E) Write-down of equity investments to fair value

(F) Reserve against inventory

(G) Income tax effect of pro forma adjustments

Cadence Design Systems, Inc.
Pro Forma Condensed Consolidated Statements of Operations
Impact of Pro Forma Adjustments on Reported Net Loss
For the Six Months Ended June 28, 2003 and June 29, 2002
(In $000’s, except per share amounts)
(Unaudited)

				Six Months Ended									Six Months Ended
				June 28, 2003									June 29, 2002
				As Reported			Adjustments			Pro Forma			As Reported			Adjustments			Pro Forma
Revenue:
	Product			$	301,912		$	—		$	301,912		$	445,113		$	—		$	445,113
	Services				67,189			—			67,189			80,292			—			80,292
	Maintenance				163,212			—			163,212			164,129			—			164,129
		Total revenue			532,313			—			532,313			689,534			—			689,534
Costs and Expenses:
	Cost of product				15,230			—			15,230			47,922			(13,805	)(F)		34,117
	Cost of services				47,598			—			47,598			61,550			—			61,550
	Cost of maintenance				29,004			—			29,004			33,768			—			33,768
	Marketing and sales				168,880			—			168,880			192,951			—			192,951
	Research and development				173,498			—			173,498			156,445			—			156,445
	General and administrative				46,784			—			46,784			63,082			(11,100	)(G)		51,982
	Amortization of acquired intangibles				51,303			(51,303	)(A)		—			37,697			(37,697	)(A)		—
	Amortization of deferred stock compensation				19,137			(19,137	)(B)		—			10,947			(10,947	)(B)		—
	Restructuring and other charges				1,352			(1,352	)(C)		—			73,231			(73,231	)(C)		—
	Write-off of acquired in-process technology				5,500			(5,500	)(D)		—			27,400			(27,400	)(D)		—
		Total costs and expenses			558,286			(77,292	)		480,994			704,993			(174,180	)		530,813
			Income (loss) from operations		(25,973	)		77,292			51,319			(15,459	)		174,180			158,721
	Interest expense				(1,314	)		—			(1,314	)		(900	)		—			(900	)
	Other income (loss), net				(5,284	)		3,623	(E)		(1,661	)		(3,919	)		10,000	(E)		6,081
			Income (loss) before provision for income taxes		(32,571	)		80,915			48,344			(20,278	)		184,180			163,902
	Provision (benefit) for income taxes				(5,602	)		18,172	(H)		12,570			4,698			37,917	(H)		42,615
			Net Income (loss)	$	(26,969	)	$	62,743		$	35,774		$	(24,976	)	$	146,263		$	121,287
Basic net income (loss) per share				$	(0.10	)				$	0.13		$	(0.10	)				$	0.48
Diluted net income (loss) per share				$	(0.10	)				$	0.13		$	(0.10	)				$	0.47
Weighted average common shares outstanding					268,128						268,128			250,453						250,453
Weighted average common and potential common shares outstanding — assuming dilution					268,128						273,239			250,453						259,734

Notes:

(A) Non-cash amortization of acquired intangibles

(B) Non-cash amortization of deferred stock compensation

(C) Restructuring and other charges

(D) Write-off of acquired in-process technology

(E) Write-down of equity investments to fair value

(F) Reserve against inventory

(G) Non-recurring legal costs

(H) Income tax effect of pro forma adjustments

Cadence Design Systems, Inc.
As of July 15, 2003
Impact of Pro Forma Adjustments on Forward Looking Diluted Net Income per Share
(In $000,000’s, except per share amounts)
(Unaudited)

		Quarter Ended
		September 27,			Year Ended
		2003			January 3, 2004
GAAP net income (loss) per share		$(0.18) to $(0.16)			$(0.13) to $(0.09)
	Amortization of acquired intangibles		0.10			0.38
	Amortization of deferred stock compensation		0.04			0.15
	Write-off of in-process technology		0.01			0.03
	Restructuring and other charges		0.22			0.24
	Write-down of equity investments		0.00			0.01
	Income tax effect of reconciling items		(0.08	)		(0.20	)
Pro forma diluted net income per share		$0.11 to $0.13			$0.48 to $0.52

Cadence Design Systems, Inc.

2001-2003 Revenue Detail by Product Group ($ Millions)

						2001										2002						2003
		Q1		Q2		Q3		Q4		Year		Q1		Q2		Q3		Q4		Year		Q1		Q2
Product Revenue:
	IC Implementation		96.3		96.3		135.6		117.3		445.5		122.6		137.8		122.4		91.3		474.2		77.6		94.1
	IP Creation		64.9		71.0		63.7		93.3		292.9		73.8		71.0		68.0		47.8		260.5		54.2		53.5
	PSD		20.1		22.9		18.1		31.1		92.2		22.7		17.2		19.9		17.4		77.2		9.5		13.0
Total Product Revenue			181.3		190.2		217.4		241.7		830.5		219.0		226.1		210.3		156.5		811.9		141.3		160.6
Services			80.0		73.8		58.0		51.5		263.4		43.3		37.0		34.0		35.5		149.8		32.4		34.8
Maintenance			83.4		83.6		84.6		85.0		336.6		82.4		81.7		83.0		84.3		331.3		82.2		81.0
TOTAL REVENUE			344.7		347.6		360.0		378.2		1,430.4		344.7		344.8		327.2		276.3		1,293.1		255.9		276.4

2001-2003 Revenue Detail by Geography ($ Millions)

			2001					2002			2003
	Q1	Q2	Q3	Q4	Year	Q1	Q2	Q3	Q4	Year	Q1	Q2
North America	217.0	201.2	178.8	224.1	821.0	204.5	185.7	193.6	160.7	744.4	135.5	151.1
Europe	59.6	85.6	118.3	70.1	333.6	56.6	95.9	61.1	44.3	257.9	44.7	41.6
Japan	48.9	43.5	30.1	58.8	181.3	61.6	36.5	47.1	43.5	188.7	53.4	59.6
Asia	19.1	17.4	32.9	25.2	94.5	22.0	26.7	25.5	27.8	102.0	22.2	24.1
TOTAL REVENUE	344.7	347.6	360.0	378.2	1,430.4	344.7	344.8	327.2	276.3	1,293.1	255.9	276.4