EXHIBIT 99.1
FOR MORE INFORMATION, PLEASE CONTACT:
Alan Lindstrom
Investors and Shareholders
Cadence Design Systems, Inc.
408-944-7100
investor_relations@cadence.com
Adolph Hunter
Media and Industry Analysts
Cadence Design Systems, Inc.
408-914-6016
publicrelations@cadence.com
CADENCE REPORTS SOLID SECOND QUARTER RESULTS
SAN JOSE, Calif., July 21, 2004 -- Cadence Design Systems, Inc. (NYSE and
NASDAQ: CDN) today announced total revenue for the second quarter of 2004 of
$287 million compared to $277 million in the same period last year. On a GAAP
basis, Cadence(R) recognized net income of $4 million, or $0.01 per share in the
second quarter of 2004, compared to a net loss of $5 million, or $0.02 per share
in the same period last year.
In addition to using GAAP results in evaluating Cadence's business,
management also believes it is useful to measure results using a non-GAAP
measure of net income (loss), which excludes as applicable amortization of
intangible assets and deferred stock compensation, in-process research and
development charges, integration and other acquisition-related expenses,
restructuring charges and equity in losses (income) from investments. Non-GAAP
net income (loss) is reduced 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, earnings in the second quarter were $42 million, or $0.15
per share, on a fully diluted basis as compared to $29 million, or $0.10 per
share, on a fully diluted basis, in the same period last year.
"We had solid financial results demonstrated by growth in the second
quarter and we delivered innovative new technology," said Mike Fister, Cadence
President and CEO. "Through collaboration and innovation, we have continued to
help our customers address their most important design and manufacturing
challenges."
BUSINESS HIGHLIGHTS OF Q2 2004
Cadence made significant gains in digital design with the release of
Encounter(TM) 4.1 and First Encounter(R) Global Physical Synthesis (GPS), a
second-generation global physical synthesis solution.
GPS enables larger and more complex chips to be created, and in less time, than
is possible using first generation methods. The company also introduced
NanoRoute(TM) with super-threaded route acceleration, giving what was already
the industry's fastest router another 10 to 20 times performance boost.
Cadence continued to drive collaboration to solve complex design and
design-to-manufacturing challenges. A partnership was created with ASML to
develop advanced resolution enhancement, or RET, solutions that operate
seamlessly with Cadence custom design flows. Cadence also signed an agreement
with Rambus, which underscored the company's strategy of providing
differentiated design intellectual property (IP) through extensive collaboration
with world-class third-party IP providers. The agreement will provide customers
with first-time access to industry-leading serial-link IP and design services
from a single source, lowering design-in cost and design-cycle time.
"Our new technology is being adopted by companies ranging from our premier
design partners to leading-edge new ventures like Digeo, Inc.," Fister said.
"Moving forward, our focus will be on developing even deeper partnerships with
our customers to help them achieve their business goals."
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 July 21, 2004.
BUSINESS OUTLOOK
For the third quarter of 2004, the company expects total revenue in the
range of $300 million to $310 million. Third quarter GAAP earnings per fully
diluted share are expected to be in the range of $0.08 to $0.10. Diluted
earnings per share using our non-GAAP measure defined below are expected to be
in the range of $0.18 to $0.20.
For the full year 2004, the company expects total revenue in the range of
$1.175 billion to $1.225 billion. On a GAAP basis, we expect net income per
fully diluted share for fiscal 2004 in the range of $0.25 to $0.32. Using our
non-GAAP measure defined below, we expect fully diluted earnings per share for
fiscal 2004 to be in the range of $0.70 to $0.77.
A schedule showing a reconciliation of the business outlook from GAAP net
income (loss) and diluted net income (loss) per share to our non-GAAP net income
(loss) and diluted net income (loss) per share is included with this release.
AUDIO WEBCAST SCHEDULED
Cadence Design Systems, Inc.'s Ray Bingham, Chairman of the Board, Mike
Fister, President and CEO, and Bill Porter, Chief Financial Officer, will host a
second quarter Financial Results audio webcast today, July 21, 2004, at 2:00
p.m. (Pacific) / 5:00 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 21 at 5:00 p.m. Pacific time and ending
at 5:00 p.m. Pacific time on July 28. 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 4,850 employees and 2003 revenues
of approximately $1.1 billion, Cadence has sales offices, design centers, and
research facilities around the world. The company is headquartered in San Jose,
Calif., and is listed for trading on both the New York Stock Exchange and the
NASDAQ under the symbol CDN. More information about the company, its products
and services is available at www.cadence.com.
Cadence, First Encounter and the Cadence logo are registered trademarks, and
Encounter and NanoRoute are trademarks 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 2004
results, those contained in the Business Outlook section above and the
statements by Mike Fister 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 January 3,
2004 and Quarterly Report on Form 10-Q for the quarter ended April 3, 2004.
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 stock 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) 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
reduced 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 stock 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 three 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 costs are not part of the company's direct cost of
operations. Rather, these are non-operating costs 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:
STATEMENT OF OPERATIONS RECONCILIATION QUARTER ENDED
----------------------------
JULY 3, 2004 JUNE 28, 2003
------------ -------------
(in thousands)
Net income (loss) on a GAAP basis $ 3,803 $ (5,304)
Amortization of intangible assets 26,394 26,017
Amortization of deferred stock compensation 8,194 7,851
Restructuring charges 2,929 1,352
In-process research and development charges 7,000 3,800
Integration and other acquisition-related expenses 792 --
Equity in losses from investments 6,107 6,655
Tax effect (13,655) (11,751)
Net income on a non-GAAP basis $ 41,564 $ 28,620
STATEMENT OF OPERATIONS RECONCILIATION PER SHARE QUARTER ENDED
----------------------------
JULY 3, 2004 JUNE 28, 2003
------------ -------------
(in thousands, except per share data)
Diluted net income (loss) per share on a GAAP basis $ 0.01 $ (0.02)
Amortization of intangible assets 0.09 0.10
Amortization of deferred stock compensation 0.03 0.03
Restructuring charges 0.01 --
In-process research and development charges 0.03 0.01
Integration and other acquisition-related expenses -- --
Equity in losses from investments 0.02 0.02
Tax effect (0.04) (0.04)
Diluted net income per share on a non-GAAP basis $ 0.15 $ 0.10
Shares used in calculation of net income (loss) -- GAAP 278,645 267,887
Shares used in calculation of net income -- non-GAAP* 278,645 273,728
*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 stock 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 stock 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 to evaluate 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
a 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
(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 17, 2004, 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 on Cadence's business outlook or its financial
results or expectations. The Quiet Period will extend until the day when
Cadence's Third Quarter 2004 Earnings Release is published, currently scheduled
for October 20, 2004.
# # #
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 3, 2004 AND JANUARY 3, 2004
(IN THOUSANDS)
JULY 3, 2004 JANUARY 3, 2004
------------ ---------------
(UNAUDITED)
Current Assets:
Cash and cash equivalents $ 389,721 $ 384,525
Short-term investments 21,989 33,898
Receivables, net of allowance for doubtful accounts of
$9,328 and $9,067, respectively 347,631 348,680
Inventories 24,144 16,926
Prepaid expenses and other 71,227 58,212
------------ ---------------
Total current assets 854,712 842,241
Property, plant and equipment, net 398,535 403,847
Goodwill 984,690 922,797
Acquired intangibles, net 244,503 237,508
Installment contract receivables, net 74,354 121,627
Other assets 239,059 289,882
------------ ---------------
Total Assets $ 2,795,853 $ 2,817,902
============ ===============
Current Liabilities:
Accounts payable and accrued liabilities 261,516 243,450
Current portion of deferred revenue 242,580 238,478
------------ ---------------
Total current liabilities 504,096 481,928
------------ ---------------
Long-term Liabilities:
Long-term portion of deferred revenue 14,588 16,287
Convertible notes 420,000 420,000
Other long-term liabilities 290,050 327,406
------------ ---------------
Total long-term liabilities 724,638 763,693
------------ ---------------
Stockholders' Equity 1,567,119 1,572,281
------------ ---------------
Total Liabilities and Stockholders' Equity $ 2,795,853 $ 2,817,902
============ ===============
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS AND SIX MONTHS ENDED JULY 3, 2004 AND JUNE 28, 2003
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
QUARTERS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
JULY 3, 2004 JUNE 28, 2003 JULY 3, 2004 JUNE 28, 2003
------------ ------------- ------------ -------------
Revenue:
Product $ 165,286 $ 160,774 $ 320,023 $ 309,232
Services 37,253 34,801 69,617 67,189
Maintenance 84,540 81,006 163,163 163,212
------------ ------------- ------------ -------------
Total revenue 287,079 276,581 552,803 539,633
------------ ------------- ------------ -------------
Costs and Expenses:
Cost of product 15,043 16,881 33,557 34,245
Cost of services 23,295 24,456 46,394 48,851
Cost of maintenance 13,465 14,533 27,170 30,133
Marketing and sales 80,172 82,620 161,395 166,235
Research and development 91,090 88,376 178,241 173,498
General and administrative 20,205 20,107 39,973 46,784
Amortization of acquired intangibles 16,021 15,066 31,931 29,906
Amortization of deferred stock compensation 8,194 7,851 16,152 13,932
Restructuring and other charges 2,929 1,352 8,364 1,352
Write-off of acquired in-process technology 7,000 3,800 7,000 5,500
------------ ------------- ------------ -------------
Total costs and expenses 277,414 275,042 550,177 550,436
------------ ------------- ------------ -------------
Income (loss) from operations 9,665 1,539 2,626 (10,803)
Interest expense (1,699) (640) (3,256) (1,314)
Other expense, net (3,215) (7,898) (5,844) (11,407)
------------ ------------- ------------ -------------
Income (loss) before provision (benefit) for income taxes 4,751 (6,999) (6,474) (23,524)
Provision (benefit) for income taxes 948 (1,695) (1,522) (5,182)
------------ ------------- ------------ -------------
Net income (loss) $ 3,803 $ (5,304) $ (4,952) $ (18,342)
============ ============= ============ =============
Basic net income (loss) per share $ 0.01 $ (0.02) $ (0.02) $ (0.07)
============ ============= ============ =============
Diluted net income (loss) per share $ 0.01 $ (0.02) $ (0.02) $ (0.07)
============ ============= ============ =============
Weighted average common shares outstanding 272,362 267,887 272,210 268,128
============ ============= ============ =============
Weighted average common and potential common shares
outstanding - assuming dilution 278,645 267,887 272,210 268,128
============ ============= ============ =============
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 3, 2004 AND JUNE 28, 2003
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
----------------------
JULY 3, JUNE 28,
2004 2003
--------- ---------
Cash and Cash Equivalents at Beginning of Period $ 384,525 $ 371,327
--------- ---------
Cash Flows from Operating Activities:
Net Loss (4,952) (18,342)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 92,870 95,215
Amortization of deferred stock compensation 16,152 13,932
Equity in loss from investments, net 11,150 5,382
Gain on sale of investments (7,297) --
Write-off of investment securities 1,924 4,460
Write-off of acquired in-process technology 7,000 5,500
Proceeds from sale of receivables 5,149 27,880
Provisions for losses on trade accounts receivable and sales returns 14 13,582
Other non-cash items (263) 3,249
Changes in operating assets and liabilities, net of effect of acquired and disposed
businesses:
Receivables 1,080 (5,078)
Inventories (7,218) (1,663)
Prepaid expenses and other (5,968) (2,859)
Installment contract receivables 43,741 (33,529)
Other assets 1,050 20,953
Accounts payable and accrued liabilities (11,569) (89,712)
Deferred revenue 1,885 (6,802)
Other long-term liabilities 16,272 8,393
--------- ---------
Net cash provided by operating activities 161,020 40,561
--------- ---------
Cash Flows from Investing Activities:
Proceeds from sale and maturities of short-term investments - available-for-sale 3,557 --
Proceeds from the sale of long-term investments 6,942 --
Proceeds from sale of equipment 3,625 --
Purchases of property, plant and equipment (33,688) (40,105)
Purchases of software licenses (650) (2,282)
Investment in venture capital partnerships and equity investments (13,417) (9,402)
Net cash paid in business combinations (96,803) (102,353)
--------- ---------
Net cash used for investing activities (130,434) (154,142)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from credit facility -- 45,000
Principal payments on credit facility and capital leases (321) (63,247)
Payment of convertible notes issuance costs (1,920) --
Proceeds from issuance of common stock 45,866 28,796
Purchases of treasury stock (69,846) (61,964)
--------- ---------
Net cash used for financing activities (26,221) (51,415)
--------- ---------
--------- ---------
Effect of exchange rate changes on cash 831 882
--------- ---------
--------- ---------
Net increase (decrease) in cash and cash equivalents 5,196 (164,114)
--------- ---------
--------- ---------
Cash and Cash Equivalents at End of Period $ 389,721 $ 207,213
========= =========
CADENCE DESIGN SYSTEMS, INC.
AS OF JULY 21, 2004
IMPACT OF NON-GAAP ADJUSTMENTS ON FORWARD LOOKING DILUTED NET INCOME PER SHARE
(UNAUDITED)
QUARTER ENDED YEAR ENDED
OCTOBER 2, 2004 JANUARY 1, 2005
--------------- ---------------
FORECAST FORECAST
--------------- ---------------
Diluted net income per share on a GAAP basis $0.08 to $0.10 $0.25 to $0.32
Amortization of intangible assets 0.09 0.37
Amortization of deferred stock compensation 0.03 0.11
Restructuring charges -- 0.03
In-process research and development charges -- 0.03
Integration and other acquisition-related expenses -- 0.01
Equity in losses from investments 0.02 0.07
Tax effect (0.04) (0.17)
--------------- ---------------
Diluted net income per share on a non-GAAP basis $0.18 to $0.20 $0.70 to $0.77
=============== ===============
CADENCE DESIGN SYSTEMS, INC.
AS OF JULY 21, 2004
IMPACT OF NON-GAAP ADJUSTMENTS ON FORWARD LOOKING NET INCOME
(UNAUDITED)
QUARTER ENDED YEAR ENDED
OCTOBER 2, 2004 JANUARY 1, 2005
--------------- ---------------
($ IN MILLIONS) FORECAST FORECAST
--------------- ---------------
Net income on a GAAP basis $22 to $28 $72 to $92
Amortization of intangible assets 26 102
Amortization of deferred stock compensation 7 30
Restructuring charges -- 8
In-process research and development charges -- 7
Integration and other acquisition-related expenses 1 3
Equity in losses from investments 4 21
Tax effect (11) (48)
--------------- ---------------
Net income on a non-GAAP basis $49 to $55 $195 to $215
=============== ===============
CADENCE DESIGN SYSTEMS, INC.
(UNAUDITED)
REVENUE MIX BY GEOGRAPHY (% OF TOTAL REVENUE)
2003 2004
------------------------------------ ------------
GEOGRAPHY Q1 Q2 Q3 Q4 YEAR Q1 Q2
---- ---- ---- ---- ---- ---- ----
North America 55% 54% 59% 64% 58% 53% 57%
Europe 17% 15% 19% 16% 17% 16% 19%
Japan 20% 22% 13% 13% 17% 22% 14%
Asia 8% 9% 9% 7% 8% 9% 10%
TOTAL 100% 100% 100% 100% 100% 100% 100%
REVENUE MIX BY PRODUCT GROUP (% OF TOTAL REVENUE)
2003 2004
------------------------------------ ------------
PRODUCT GROUP Q1 Q2 Q3 Q4 YEAR Q1 Q2
---- ---- ---- ---- ---- ---- ----
Functional Verification 20% 18% 18% 20% 19% 20% 20%
Digital IC Design 24% 22% 27% 20% 23% 25% 21%
Custom IC Design 27% 28% 27% 27% 27% 27% 24%
Design for Manufacturing 9% 10% 7% 13% 10% 6% 9%
System Interconnect 8% 9% 8% 10% 9% 10% 9%
Services & Other 12% 13% 13% 10% 12% 12% 17%
TOTAL 100% 100% 100% 100% 100% 100% 100%
Note: Product Group total revenue includes Product + Maintenance