10-KPeriod: FY2006

CADENCE DESIGN SYSTEMS INC Annual Report, Year Ended Dec 30, 2006

Filed February 23, 2007For Securities:CDNS

Summary

Cadence Design Systems Inc. reported solid financial performance for the fiscal year ended December 29, 2006, demonstrating robust revenue growth and improved profitability. Total revenue reached $1.48 billion, a 12% increase year-over-year, driven by strong performance in product revenue, particularly from Functional Verification and Custom IC Design platforms. The company also saw a 7% increase in services revenue. Net income grew significantly to $142.6 million, or $0.46 per diluted share, a substantial increase from the previous year, reflecting effective cost management and operational efficiencies. The adoption of SFAS No. 123R for stock-based compensation did increase operating expenses, but the company managed to translate top-line growth into bottom-line improvements. Financially, Cadence maintained a strong liquidity position with $958.4 million in cash, cash equivalents, and short-term investments. The company also actively managed its capital structure, issuing new convertible senior notes and repurchasing a portion of existing notes. Looking ahead, Cadence appears well-positioned to capitalize on the ongoing demand for electronic design automation solutions.

Key Highlights

  • 1Total revenue increased by 12% to $1.48 billion in fiscal 2006.
  • 2Net income rose significantly to $142.6 million, or $0.46 per diluted share, from $49.3 million, or $0.16 per diluted share, in fiscal 2005.
  • 3Functional Verification and Custom IC Design product lines showed strong growth.
  • 4Adoption of SFAS No. 123R resulted in a substantial increase in stock-based compensation expense ($104 million in 2006 vs. $39.9 million in 2005).
  • 5Cash, cash equivalents, and short-term investments totaled $958.4 million, indicating a strong liquidity position.
  • 6The company issued new convertible senior notes ($500 million) and repurchased existing notes in December 2006.
  • 7No single customer accounted for 10% or more of total revenue in 2006, indicating a diversified customer base.

Frequently Asked Questions

Revenue growth in 2006 was primarily driven by increased product revenue, particularly from the Functional Verification and Custom IC Design platforms. Services revenue also contributed positively with a 7% increase due to higher utilization and realization rates for services personnel.

The adoption of SFAS No. 123R (Share-Based Payment) effective January 1, 2006, led to a significant increase in stock-based compensation expense. Total stock-based compensation expense rose from $39.9 million in 2005 to $104 million in 2006. This expense was recognized across various operating departments, including R&D, Marketing & Sales, and General & Administrative.

Cadence demonstrated a strong financial position, with total assets of $3.44 billion and stockholders' equity of $1.70 billion as of December 30, 2006. The company maintained robust liquidity, with $958.4 million in cash, cash equivalents, and short-term investments, providing ample resources for operations and strategic initiatives.

Yes, in December 2006, Cadence issued $500 million in aggregate principal amount of 1.375% Convertible Senior Notes due 2011 and 1.500% Convertible Senior Notes due 2013. Proceeds were used for general corporate purposes and to repurchase $189.6 million of its 2023 Convertible Notes.