Cadence reported third quarter 2011 revenue of $292
million, compared to revenue of $238 million reported for
the same period in 2010. On a GAAP basis, Cadence
recognized net income of $28 million, or $0.10 per share on
a diluted basis in the third quarter of 2011, compared to
net income of $127 million, or $0.48 per share on a diluted
basis in the same period in 2010. GAAP net income for the
third quarter of 2010 included $148 million in income tax
benefit related to the settlement of an Internal Revenue
Service examination of Cadence's federal income tax returns
for the tax years 2000 through 2002.
Using Cadence's non-GAAP measure, net income in the third
quarter of 2011 was $37 million, or $0.14 per share on a
diluted basis, as compared to net income of $11 million, or
$0.04 per share on a diluted basis in the same period in
2010.
"Strong design activity in multiple market segments
continues to drive demand for our products and solutions,"
said Lip-Bu Tan, president and chief executive officer. "In
response to customer requirements, we have established our
readiness for 20-nanometer design and demonstrated product
leadership for the design of SoCs using advanced multi-core
processors."
"Cadence again posted strong results as operating
profitability continues to improve," added Geoff Ribar,
senior vice president and chief financial officer. "Given
the risks in the world economy we looked at our prospective
Q4 business very closely but still see good demand for
products and services as reflected in our increased
outlook."
In addition to using GAAP results to evaluate 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 expense, integration and
acquisition-related costs including changes in the fair
value of contingent consideration related to prior
acquisitions, acquisition-related income tax benefits,
income tax benefits related to the settlement of IRS
examinations, shareholder litigation costs and charges,
gains or losses and expenses or credits related to
non-qualified deferred compensation plan assets, executive
and other employee 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. 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.
The following statements are based on current expectations.
These statements are forward-looking, and actual results
may differ materially.
For the fourth quarter of 2011, the company expects total
revenue in the range of $295 million to $305 million.
Fourth quarter GAAP net income per diluted share is
expected to be in the range of $0.08 to $0.10. Net income
per diluted share using the non-GAAP measure defined below
is expected to be in the range of $0.14 to $0.16.
For 2011, the company expects total revenue in the range of
$1,135 million to $1,145 million. On a GAAP basis, net
income per diluted share for 2011 is expected to be in the
range of $0.31 to $0.33. Using the non-GAAP measure defined
below, net income per diluted share for 2011 is expected to
be in the range of $0.48 to $0.50.
A schedule showing a reconciliation of the business outlook
from GAAP net income and diluted net income per share to
non-GAAP net income and diluted net income per share is
included with this release.
Lip-Bu Tan, Cadence's president and chief executive officer,
and Geoff Ribar, Cadence's senior vice president and chief
financial officer, will host a third quarter 2011 financial
results audio webcast today, October 26, 2011, at 2 p.m.
(Pacific) / 5 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
October 26, 2011 at 5 p.m. (Pacific) and ending November 9,
2011 at 5 p.m. (Pacific). Webcast access is available at
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,
hardware, IP, and services to design and verify advanced
semiconductors, consumer electronics, networking and
telecommunications equipment, and computer systems. The
company is headquartered in San Jose, California, 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
The statements contained above regarding Cadence's third
quarter 2011 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)
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
thatrestructurings 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 Cadence's 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 1, 2011, 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, 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 excluding, as
applicable, amortization of intangible assets, stock-based
compensation expense, integration and acquisition-related
costs, including changes in the fair value of contingent
consideration related to prior acquisitions,
acquisition-related income tax benefits, income tax benefits
related to the settlement of IRS examinations, shareholder
litigation costs and charges, gains or losses and expenses or
credits related to non-qualified deferred compensation plan
assets, executive and other employee 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 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, including changes in the fair value of contingent
consideration related to prior acquisitions, 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 and charges related to shareholder
litigation because these costs and charges 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 the fourth quarter of 2010, Cadence
commenced a restructuring program and expects to have paid
substantially all termination benefits and costs by the
fourth quarter of 2011.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 and other
employee 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 the second quarter of 2011, 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 Services, or IRS, examination of Cadence's federal
income tax returns for the tax years 2003 through 2005.During
the third quarter of 2010, Cadence's non-GAAP net income also
excluded the effect of an income tax benefit associated with
Cadence's effective settlement of an 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 benefits associated with these
settlements because exclusion of such tax benefits permits
consistent evaluations of Cadence's performance.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 the second and fourth quarters of 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 the second quarter of 2011, Cadence's non-GAAP net
income also excluded the effect of an income tax benefit
associated with an acquisition Cadence completed during the
second quarter of 2011.During the second quarter of 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 benefits associated with these
acquisitions because exclusion of such tax benefits permits
consistent evaluations of Cadence's performance.Cadence does
not expect an acquisition-related income tax benefit of the
magnitude recorded in the second quarter of 2010 to be
recorded frequently.
Cadence's management believes that non-GAAP net income
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 and GAAP net income per diluted share in
the calculation of non-GAAP net income and non-GAAP net
income per diluted share for the periods shown below:
Other income or expense related to investments and
non-qualified deferred compensation plan assets*
(5,544)
1,834
Income tax benefit of IRS settlement
-
(148,302)
Income tax effect of non-GAAP adjustments
(12,619)
1,139
Net income on a non-GAAP basis
$37,295
$11,226
* 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.
Other income or expense related to investments and
non-qualified deferred compensation plan assets*
(0.02)
0.01
Income tax benefit of IRS settlement
-
(0.56)
Income tax effect of non-GAAP adjustments
(0.04)
-
Diluted net income per share on a non-GAAP basis
$0.14
$0.04
Shares used in calculation of diluted net income per
share -GAAP**
270,741
263,302
Shares used in calculation of diluted net income per
share -non-GAAP**
270,741
263,302
* 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 per
share are expected to be the same as shares used in the
calculation of non-GAAP net income 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 measures, to address these limitations.
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 business outlook, publicly available
on its website.
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 December 16, 2011, 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 any update by the
company. During the Quiet Period, Cadence's representatives
will not comment on Cadence's business outlook, financial
results or expectations. The Quiet Period will extend until
the day when Cadence's Fourth Quarter 2011 Earnings
Release is published, which is currently scheduled for
February 1, 2012.
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