10-QPeriod: Q3 FY2005

CADENCE DESIGN SYSTEMS INC Quarterly Report for Q3 Ended Oct 1, 2005

Filed November 7, 2005For Securities:CDNS

Summary

Cadence Design Systems, Inc. (CDNS) reported its financial results for the quarterly period ended October 1, 2005. The company demonstrated revenue growth, primarily driven by its product segment, which increased by 19% year-over-year for the three months ended October 1, 2005. This growth was largely attributed to strong performance in Digital IC Design, Custom IC Design, and Functional Verification products. While overall revenue increased, the services segment experienced a decline. The company's balance sheet shows a healthy increase in cash and cash equivalents, reaching $618.8 million, up from $448.5 million at the beginning of the year. However, goodwill significantly increased due to the acquisition of Verisity Ltd. in April 2005 for $325.4 million, which added $221.5 million in goodwill. Restructuring charges were also a notable factor, with $34.8 million recorded for the nine months ended October 1, 2005, reflecting ongoing efforts to optimize operational efficiency. Investors should note the ongoing IRS tax examination concerning tax years 1997-1999, which proposes a significant deficiency, although the company is contesting it.

Key Highlights

  • 1Total revenue increased by 12% year-over-year to $337.4 million for the third quarter of 2005.
  • 2Product revenue saw a substantial 19% increase year-over-year, driven by Digital IC Design, Custom IC Design, and Functional Verification products.
  • 3The company's cash and cash equivalents grew significantly to $618.8 million as of October 1, 2005, indicating strong liquidity.
  • 4Goodwill increased substantially to $1.23 billion, primarily due to the $325.4 million acquisition of Verisity Ltd. in April 2005.
  • 5Restructuring and other charges amounted to $34.8 million for the nine months ended October 1, 2005, indicating ongoing operational adjustments.
  • 6Net income for the nine months ended October 1, 2005, was $22.8 million, an increase from $14.7 million in the prior year period.
  • 7The company faces an ongoing IRS tax examination proposing a deficiency of approximately $143.0 million plus interest for tax years 1997-1999, which is being contested.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in product revenue, which saw a 19% year-over-year increase. This was largely due to strong performance in the Digital IC Design, Custom IC Design, and Functional Verification product segments.

The acquisition of Verisity Ltd. in April 2005 for $325.4 million significantly increased the company's goodwill by $221.5 million. Verisity's results have been included in Cadence's financial statements since the acquisition date.

The IRS has completed its examination for tax years 1997-1999 and proposed an aggregate tax deficiency of approximately $143.0 million plus interest. Cadence is protesting these proposed adjustments with the IRS Appeals Office, believing it has meritorious defenses. The company acknowledges that an adverse outcome could materially affect its results of operations, financial position, or cash flows in future periods.

Cadence Design Systems maintained a strong liquidity position, with cash and cash equivalents totaling $618.8 million as of October 1, 2005. This represents a significant increase from $448.5 million at the beginning of the fiscal year. The company expects these resources and operating cash flow to be sufficient for its working capital and capital requirements for at least the next 12 months.