Cadence's management believes it is useful in measuring Cadence's operations to exclude amortization of intangible assets, in-process research and development charges and integration and acquisition-related costs 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 it enhances investors' ability to review Cadence's business from the same perspective as Cadence's management, which believes that stock-based compensation expense is not directly attributable to the underlying performance of the company's business operations. Cadence's management also believes that it is useful to exclude restructuring charges and credits. During the second half of fiscal 2008 and the first half of fiscal 2009, Cadence commenced restructuring programs that it expects to complete in the first half of 2010. Cadence's management believes that in measuring the company's operations, it is useful to exclude any such restructuring charges and credits because Cadence does not undertake significant restructuring on a regular basis, and exclusion of such charges permits consistent evaluations of Cadence's performance before and after such actions are taken. Cadence's management also believes it is useful to exclude executive severance costs because these costs do not occur frequently. Cadence's management 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 and expenses 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 the amortization of the discount on convertible notes recorded under FSP APB 14-1 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. Cadence's management also believes it is useful to exclude the equity in losses (income) from investments and write-down 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 (expense) and are part of the company's investment activities. Finally, Cadence's management also believes it is useful to exclude impairment charges related to goodwill, intangible assets and fixed assets, and losses related to the liquidation of a subsidiary because these do not occur on a regular basis and are not part of the company's direct costs of operations.

During fiscal year 2008, Cadence's non-GAAP net loss also excluded the impact of tax expense associated with recording a valuation allowance against Cadence's deferred tax assets. Cadence's management believes it is useful to exclude the tax expense associated with this valuation allowance because Cadence does not expect changes in the valuation allowance of the magnitude recorded in the fourth quarter of 2008 to be recorded frequently.

During fiscal year 2008, Cadence's non-GAAP net loss also excluded the impact of tax expense associated with Cadence's repatriation of foreign earnings. Cadence's management believes it is useful to exclude the tax expense associated with the repatriation of foreign earnings because it resulted from an event that is not expected to occur frequently.

During fiscal year 2008, Cadence's non-GAAP net loss also excluded costs related to Cadence's withdrawn proposal to acquire Mentor Graphics Corporation and losses on the sale of Mentor Graphics Corporation shares Cadence acquired as part of the proposed acquisition. Cadence's management believes that in measuring Cadence's operations it is useful to exclude the costs and the losses associated with this proposed acquisition because these items are not directly related to Cadence's operating performance and resulted from events that are not expected to occur frequently.

Cadence's management believes that non-GAAP net income or net loss 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 loss and GAAP net loss per diluted share in the calculation of non-GAAP net income or net loss and non-GAAP net income or net loss per diluted share for the periods shown below:

Net Income (Loss) Reconciliation                   Three Months Ended
                                              ----------------------------
                                              July 4, 2009   June 28, 2008
                                              -------------  -------------
                                                             (As Adjusted)*
                                                      (unaudited)
(in thousands)
Net loss on a GAAP basis                      $     (74,357) $     (18,812)
  Amortization of acquired intangibles                4,820         11,630
  Stock-based compensation expense                   16,507         21,454
  Non-qualified deferred compensation
   expenses (credits)                                (1,523)        (3,050)
  Restructuring and other charges (credits)          18,528           (355)
  Integration and acquisition-related costs             180            256
  Amortization of debt discount                       4,770          4,032
  Equity in losses from investments,
   write-down of investments, gains and
   losses on non-qualified deferred
   compensation plan assets - recorded in
   Other income (expense), net                        2,321          6,676
  Income tax effect of non-GAAP adjustments          15,453          2,374
                                              -------------  -------------
Net income (loss) on a non-GAAP basis         $     (13,301) $      24,205
                                              =============  =============

*  Adjusted for the retrospective adoption of FSP APB 14-1




Diluted Net Income (Loss) per Share
 Reconciliation                                    Three Months  Ended
                                                                                            ----------------------------
                                                                                            July  4,  2009      June  28,  2008
                                                                                            -------------    -------------
                                                                                                                          (As  Adjusted)*
                                                                                                            (unaudited)
(in  thousands,  except  per  share  data)
Diluted  net  loss  per  share  on  a  GAAP  basis        $              (0.29)  $              (0.07)
    Amortization  of  acquired  intangibles                                  0.02                      0.04
    Stock-based  compensation  expense                                          0.06                      0.08
    Non-qualified  deferred  compensation
      expenses  (credits)                                                                          -                    (0.01)
    Restructuring  and  other  charges  (credits)                        0.07                            -
    Integration  and  acquisition-related  costs                              -                            -
    Amortization  of  debt  discount                                                0.02                      0.01
    Equity  in  losses  from  investments,
      write-down  of  investments,  gains  and
      losses  on  non-qualified  deferred
      compensation  plan  assets  -  recorded  in
      Other  income  (expense),  net                                                  0.01                      0.02
    Income  tax  effect  of  non-GAAP  adjustments                        0.06                      0.02
                                                                                            -------------    -------------
Diluted  net  income  (loss)  per  share  on  a
  non-GAAP  basis                                                              $              (0.05)  $                0.09
                                                                                            =============    =============
Shares  used  in  calculation  of  diluted  net
  loss  per  share  --GAAP  (A)                                                    256,883                252,629
Shares  used  in  calculation  of  diluted  net
  income  (loss)  per  share  --non-GAAP  (A)                          256,883                269,060


(A)    Shares  used  in  the  calculation  of  GAAP  net  income  (loss)  per  share  are
expected  to  be  the  same  as  shares  used  in  the  calculation  of  non-GAAP  net
income  (loss)  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.

*    Adjusted  for  the  retrospective  adoption  of  FSP  APB  14-1
 

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