Financial: Cadence Reports Record Revenue and Earnings Per Share for Fourth Quarter and 1998; Revenue Increases 22% to $345 million for Q4 and 33% to $1.2 billion for 1998 - Cadence Design Systems - Company Financial Information

Edge: Work-Group Computing Report, Feb 1, 1999

Cadence Design Systems, Inc. Tuesday announced record revenue and diluted earnings per share for both the fourth quarter of 1998 and the year ended January 2, 1999. For comparative purposes, except where noted, the results discussed throughout this release exclude the effects of unusual items. Revenue of $345 million for the fourth quarter of 1998 increased 22% compared to the prior year quarter while diluted earnings per share of $0.36 increased 24%.

The Company continued to drive overall electronic design automation (EDA) industry growth with Cadence revenue totaling $1.2 billion for the year, an increase of 33% over the prior year. Full year diluted earnings per share increased 27% over 1997 to $1.18. Software product revenue for the fourth quarter totaled $205 million, up 16% from the prior year quarter, while services revenue increased to $71 million, up 51% over the same period. Fiscal year 1998 product revenue grew 31% to reach $695 million, and services revenue totaled $256 million, representing 59% growth year-over-year. Most notable in the fourth quarter was the improvement in services gross margin, increasing to 31% from 26% in the previous quarter. The Company leveraged this services margin improvement to generate $116 million in operating income, for an operating margin of 33.6%, a new all-time high mark for Cadence. Reported results for the fourth quarter of 1998 reflect unusual charges of $45 million, primarily due to services related restructuring costs. Including the effect of unusual items, diluted earnings per share was $0.22. "We've just concluded a very successful year for Cadence. Our fourth quarter results and strong performance throughout 1998 validate our strategy for delivering technology in software and services," said Jack Harding, president and CEO of Cadence. "We've broken through the billion dollar revenue barrier, and are well-positioned for growth in 1999." Harding remarked that the Company's achievements in 1998 reflect its continued commitment to addressing the complex challenges facing semiconductor and electronics systems companies. "We have made great strides in developing a portfolio of advanced electronic design solutions and expertise that enable our customers to rapidly respond to the unprecedented pace of technological change in their markets. Our unique combination of design software, methodology consulting services, and design services offers the most flexible solution set to help customers differentiate their products and accelerate time to market." In 1998 Cadence continued its drive toward delivering a complete solution for deep-submicron, system-on-chip designs. The Company pursued its strategy through a combination of internal research and development, coupled with strategic acquisitions complementing its internal strengths, in each of its design software and services businesses. Key acquisitions included: Symbionics Group Ltd. and Excellent Design, Inc., design services groups specializing in wireless communications and high-performance integrated circuit design; Bell Labs Integrated Circuit Design Automation Group, developer of advanced tools and consulting services for simulation and verification; and Ambit Design Systems, Inc., provider of next-generation synthesis tools for the most advanced system-on-a-chip designs. In connection with these acquisitions, the Company recorded charges to earnings for acquired in-process research and development of $339 million. The Securities and Exchange Commission (SEC) is currently reviewing these charges. The SEC may require the Company to restate its historical financial statements, and to record as intangible assets amounts that had been previously written off as in-process research and development. The effect of such restatement would be to increase prior year earnings and reduce subsequent reported earnings as the intangible assets are amortized. Cadence is the largest supplier of software products, consulting services, and design services 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 more than 4,000 employees and 1998 annual sales of $1.2 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 may be obtained from the World Wide Web at http://www.cadence.com.