<SUBMISSION>
<ACCESSION-NUMBER>0000950134-04-004613
<TYPE>10-K
<PUBLIC-DOCUMENT-COUNT>18
<PERIOD>20040103
<FILING-DATE>20040402
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>CADENCE DESIGN SYSTEMS INC
<CIK>0000813672
<ASSIGNED-SIC>7372
<IRS-NUMBER>770148231
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>0102
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-K
<ACT>34
<FILE-NUMBER>001-10606
<FILM-NUMBER>04714884
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>2655 SEELY ROAD BLDG 5
<CITY>SAN JOSE
<STATE>CA
<ZIP>95134
<PHONE>4089431234
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>555 RIVER OAKS PARKWAY
<CITY>SAN JOSE
<STATE>CA
<ZIP>95134
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>ECAD INC /DE/
<DATE-CHANGED>19880609
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>f93607e10vk.htm
<DESCRIPTION>FORM 10-K
<TEXT>
<HTML>
<HEAD>
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<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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<B><FONT size="5">UNITED STATES</FONT></B>

<DIV align="center">
<B><FONT size="5">SECURITIES AND EXCHANGE COMMISSION</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">Washington,&nbsp;D.C. 20549</FONT></B>
</DIV>

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<P align="center">
<B><FONT size="5">FORM 10-K</FONT></B>

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<TR>
    <TD width="15%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="82%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">(Mark&nbsp;One)</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2"><FONT face="wingdings">&#254;</FONT></FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <B><FONT size="2">ANNUAL REPORT PURSUANT TO SECTION&nbsp;13 OR
    15(d) OF THE<BR>
    SECURITIES EXCHANGE ACT OF 1934</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <B><FONT size="2">For the fiscal year ended January&nbsp;3,
    2004</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <B><FONT size="2">OR</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2"><FONT face="wingdings">&#111;</FONT></FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <B><FONT size="2">TRANSITION REPORT PURSUANT TO SECTION&nbsp;13
    OR 15(d) OF THE<BR>
    SECURITIES EXCHANGE ACT OF 1934</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    <B><FONT size="2">For the transition period
    from &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</FONT></B></TD>
</TR>

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<P align="center">
<B><FONT size="2">Commission file number 1-10606</FONT></B>

<P align="center">
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<P align="center">
<B><FONT size="5">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">(Exact name of registrant as specified in its
charter)</FONT></B>
</DIV>

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<TR>
    <TD width="57%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="40%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B><FONT size="2">Delaware<BR>
    (State or Other Jurisdiction of<BR>
    Incorporation or Organization)</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">77-0148231<BR>
    (I.R.S. Employer<BR>
    Identification No.)</FONT></B></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
<B><FONT size="2">2655 Seely Avenue, Building 5, San&nbsp;Jose,
California 95134</FONT></B>

<DIV align="center">
<B><FONT size="2">(Address of Principal Executive Offices,
including Zip Code)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">(408)&nbsp;943-1234</FONT></B>

<DIV align="center">
<B><FONT size="2">(Registrant&#146;s Telephone Number, including
Area Code)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Securities registered pursuant to
Section&nbsp;12(b) of the Act:</FONT></B>

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<TR>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="48%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Common Stock, $.01&nbsp;par value per share<BR>
    (Title of Each Class)</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <B><FONT size="2">New&nbsp;York Stock Exchange<BR>
    (Names of Each Exchange on which Registered)</FONT></B></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
<B><FONT size="2">Securities registered pursuant to
Section&nbsp;12(g) of the Act:</FONT></B>

<DIV align="center">
<B><FONT size="2">None</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Indicate by check mark whether the Registrant:
(1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12&nbsp;months (or for such shorter period
that the Registrant was required to file such reports), and
(2)&nbsp;has been subject to such filing requirements for the
past
90&nbsp;days.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yes&nbsp;<FONT face="wingdings">&#254;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Indicate by check mark if disclosure of
delinquent filers pursuant to Item&nbsp;405 of
Regulation&nbsp;S-K is not contained herein, and will not be
contained, to the best of the Registrant&#146;s knowledge, in
definitive proxy or information statements incorporated by
reference in Part&nbsp;III of this Form&nbsp;10-K or any
amendment to this
Form&nbsp;10-K.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule&nbsp;12b-2).&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yes&nbsp;<FONT face="wingdings">&#254;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT face="wingdings">&#111;</FONT>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The aggregate market value of the voting and
non-voting common equity held by non-affiliates computed by
reference to the price at which the common equity was last sold
as of the last business day of the Registrant&#146;s most
recently completed second fiscal quarter June&nbsp;28, 2003 was
$3,153,500,295.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On March&nbsp;6, 2004 approximately
270,169,346&nbsp;shares of the Registrant&#146;s Common Stock,
$0.01&nbsp;par value, were outstanding.
</FONT>

<P align="center">
<B><FONT size="2">DOCUMENTS INCORPORATED BY REFERENCE</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Portions of the definitive proxy statement for
the 2004 Annual Meeting are incorporated by reference into
Part&nbsp;III hereof.
</FONT>

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<A name="tocpage"></A>
</DIV>

<P align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>

<P align="center">
<B><FONT size="2">2003 FORM 10-K ANNUAL REPORT</FONT></B>

<P align="center">
<B><FONT size="2">Table of Contents</FONT></B>

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<TR>
    <TD width="19%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="70%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="7" align="left" valign="top">
    <B><FONT size="2">&nbsp;<A HREF='#101'>PART&nbsp;I</A></FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#102'>Item&nbsp;1.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#102'>Business</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#103'>Item&nbsp;2.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#103'>Properties</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#104'>Item&nbsp;3.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#104'>Legal Proceedings</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#105'>Item&nbsp;4.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#105'>Submission of Matters to a
    Vote of Security Holders</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7" align="left" valign="top">
    <B><FONT size="2">&nbsp;<A HREF='#106'>PART&nbsp;II</A></FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#107'>Item&nbsp;5.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#107'>Market for Registrant&#146;s
    Common Equity and Related Stockholder Matters and Issuer
    Purchases of Equity Securities</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#108'>Item&nbsp;6</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#108'>Selected Financial Data</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#109'>Item&nbsp;7.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#109'>Management&#146;s Discussion
    and Analysis of Financial Condition and Results of Operations</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#110'>Item&nbsp;7A.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#110'>Quantitative and Qualitative
    Disclosures About Market Risk</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#111'>Item&nbsp;8.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#111'>Financial Statements and
    Supplementary Data</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#112'>Item&nbsp;9.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#112'>Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#113'>Item&nbsp;9A.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#113'>Controls and Procedures</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7" align="left" valign="top">
    <B><FONT size="2">&nbsp;<A HREF='#114'>PART&nbsp;III</A></FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#115'>Item&nbsp;10.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#115'>Directors and Executive
    Officers of the Registrant</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#116'>Item&nbsp;11.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#116'>Executive Compensation</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#117'>Item&nbsp;12.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#117'>Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#118'>Item&nbsp;13.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#118'>Certain Relationships and
    Related Transactions</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#119'>Item&nbsp;14.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#119'>Principal Accountant Fees
    and Services</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7" align="left" valign="top">
    <B><FONT size="2">&nbsp;<A HREF='#120'>PART&nbsp;IV</A></FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">&nbsp;<A HREF='#121'>Item&nbsp;15.</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#121'>Exhibits, Financial
    Statement Schedules and Reports on Form 8-K</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&nbsp;<A HREF='#122'>Signatures</A>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv10w21.txt">EXHIBIT 10.21</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv10w23.txt">EXHIBIT 10.23</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv10w30.txt">EXHIBIT 10.30</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv10w31.txt">EXHIBIT 10.31</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv10w32.txt">EXHIBIT 10.32</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv10w73.txt">EXHIBIT 10.73</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv10w74.txt">EXHIBIT 10.74</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv10w75.txt">EXHIBIT 10.75</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv10w76.txt">EXHIBIT 10.76</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv10w77.txt">EXHIBIT 10.77</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv21w01.txt">EXHIBIT 21.01</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv23w01.txt">EXHIBIT 23.01</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv23w02.txt">EXHIBIT 23.02</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv31w01.txt">EXHIBIT 31.01</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv31w02.txt">EXHIBIT 31.02</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv32w01.txt">EXHIBIT 32.01</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="f93607exv32w02.txt">EXHIBIT 32.02</A></FONT></TD></TR>
</TABLE>
</CENTER>

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<DIV align="left">
<A name='101'></A>
</DIV>

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<P align="center">
<B><U><FONT size="2">PART&nbsp;I.</FONT></U></B>

<DIV align="left">
<A name='102'></A>
</DIV>

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<P align="left">
<B><U><FONT size="2">Item&nbsp;1.&nbsp;Business</FONT></U></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This Annual Report on Form&nbsp;10-K and the
documents incorporated by reference in this Annual Report
contain forward-looking statements. Certain of such statements,
including, without limitation, statements regarding the extent
and timing of future revenues and expenses and customer demand,
statements regarding the deployment of our products, statements
regarding our reliance on third parties and other statements
using words such as &#147;anticipates,&#148;
&#147;believes,&#148; &#147;could,&#148; &#147;estimates,&#148;
&#147;expects,&#148; &#147;intends,&#148; &#147;may,&#148;
&#147;plans,&#148; &#147;should,&#148; &#147;will&#148; and
&#147;would,&#148; and words of similar import and the negatives
thereof, constitute forward-looking statements. These statements
are predictions based upon our current expectations about future
events. Actual results could vary materially as a result of
certain factors, including but not limited to, those expressed
in these statements. We refer you to the
&#147;Competition,&#148; &#147;Proprietary Technology,&#148;
&#147;Factors That May Affect Future Results,&#148;
&#147;Results of Operations,&#148; &#147;Disclosures About
Market Risk,&#148; and &#147;Liquidity and Capital
Resources&#148; sections contained in this Annual Report and the
risks discussed in our other SEC filings, which identify
important risks and uncertainties that could cause actual
results to differ materially from those contained in the
forward-looking statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We urge you to consider these factors carefully
in evaluating the forward-looking statements contained in this
Annual Report. All subsequent written or oral forward-looking
statements attributable to our company or persons acting on our
behalf are expressly qualified in their entirety by these
cautionary statements. The forward-looking statements included
in this Annual Report are made only as of the date of this
Annual Report. We do not intend, and undertake no obligation, to
update these forward-looking statements.
</FONT>

<P align="left">
<B><FONT size="2">Overview</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence Design Systems,&nbsp;Inc., or
Cadence&#174;, licenses electronic design automation, or EDA,
software, sells or leases hardware technology and provides
design and methodology services throughout the world to help
accelerate and manage customers&#146; electronic product
development processes. Our broad range of products and services
are used by the world&#146;s leading electronics companies to
design and develop complex integrated circuits, or ICs, and
personal and commercial electronic systems. We have
approximately 4,800 employees, in approximately 60 sales
offices, design centers and research facilities located around
the world.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We were formed as a Delaware corporation in April
1987. Our headquarters are located at 2655 Seely Avenue,
San&nbsp;Jose, California 95134. Our telephone number is
(408)&nbsp;943-1234. Our website can be accessed at
www.cadence.com. We make available free of charge copies of our
SEC filings and submissions on the investor relations page of
our website at <I>www.cadence.com</I> as soon as practicable
after electronically filing or furnishing such documents with
the SEC. Our Corporate Governance Guidelines, Code of Business
Conduct and the charters of the Audit Committee, Compensation
Committee and Corporate Governance and Nominating Committee of
our Board of Directors are also posted on the investor relations
page of our website at <I>www.cadence.com</I>. Stockholders may
request copies of these documents by writing to our Corporate
Secretary at the address above.
</FONT>

<P align="left">
<B><FONT size="2">Factors Driving the Electronic Design
Automation Industry</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the last decade, the worldwide
communications, business productivity and consumer electronics
markets drove development in the electronics industry.
Ever-decreasing silicon manufacturing process geometries coupled
with the move to 300&nbsp;millimeter wafer production drive IC
cost decreases,<B><I> </I></B>volume increases and greater
complexity for providers of electronics devices. At the same
time, the development of ICs with greater functionality
complicates effective integration of components into complete
electronic systems. These market and technology forces pose
major challenges for the global electronics design community,
and consequently create significant opportunities and challenges
for EDA product and services providers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From a design perspective, many of today&#146;s
complex ICs are system-on-a-chip, referred to as SoC, devices.
These SoC devices, as described in more detail below, contain
one or more processors, memory and
</FONT>

<P align="center"><FONT size="2">1
</FONT>

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<DIV align="left">
<FONT size="2">application-specific logic. SoC design requires
implementing an entire electronics sub-system on a single IC.
Smaller feature sizes make it possible to put additional
circuitry on a single segment of silicon, or die. The ICs
fabricated on these dies include one or more processors
(microprocessors and digital signal processors), a
high-performance bus for on-chip data communication, numerous
memory devices and peripherals, custom digital logic, custom
analog logic and millions of lines of software code. Such
devices offer benefits in terms of price, performance, power and
size. However, they are extremely difficult to design. Designing
these SoC devices requires the convergence of what have
previously been distinct domains for embedded software, digital
logic, analog circuitry and printed circuit board, or PCB,
design. This convergence is changing the way designs for these
devices are created.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The increasing complexity of electronic devices
poses major challenges for design teams in the migration to
nanometer, or one billionth of a meter, design and SoC design
(for reference, the diameter of the period at the end of this
sentence is approximately 400,000 nanometers). Nanometer design
refers to the design of ICs that will have feature sizes smaller
than 180 nanometers. IC feature sizes for wires, transistors and
contacts decrease with each advance in the semiconductor
manufacturing process. Each successive move to a smaller feature
size (e.g., decreasing from 130 nanometers to 90 nanometers and
smaller) requires introducing new capabilities throughout the
entire design and manufacturing chain to account for new
physical effects. For example, at 130 nanometers, signal
integrity issues such as signal interference between wires, or
crosstalk; power distribution management, or IR
(voltage)&nbsp;drop; and electrical noise on IC performance,
have become critical. At 90 nanometers, power leakage
dramatically affects overall IC power consumption and creates
additional design challenges. The increased complexity,
electrical noise and power consumption due to leakage, combine
to increase pressure on the ability to reach the desired
operating frequency, commonly known as timing closure.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These trends pose significant new challenges for
electronics design teams. Specifically, nanometer design
requires designers to take into account many physical effects
that were too small to impact performance of larger circuit
geometries. SoC design requires new approaches to managing
complexity and its related risks. The electronics industry
addresses these challenges in a number of ways, including the
use of new EDA products, the upgrade of existing tools and
design methodologies, and offering the advantages of highly
integrated front-to-back design solutions.
</FONT>

<P align="left">
<B><FONT size="2">Operating Segments</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We manage our business through three operating
segments: Products, Services and Maintenance. The Products
segment develops and markets our software and hardware
technologies to our customers. The Maintenance segment services
the ongoing, after-sale support requirements of those products
through technical support and software updates. The Services
segment provides our customers with educational services focused
on training customers for the efficient and effective use of our
technologies, methodology services to assist customers in
optimizing the use of our technologies within their design
activities, and design services to develop complex ICs and other
electronic components for our customers. See
&#147;Competition&#148; below and Note&nbsp;19, Segment
Reporting, to our Consolidated Financial Statements for
additional information related to these operating segments.
</FONT>

<P align="left">
<B><FONT size="2">Products</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Through our Products segment, we offer one of the
most comprehensive sets of EDA products in the industry. Our
products improve designer productivity and design quality
throughout the electronic design process. Product revenues
include all fees earned from granting licenses to use our
software and sales and leases of our hardware products, and
exclude revenues derived from Maintenance and Services. We offer
customers three license types for our software: perpetual, term
and subscription. See &#147;Software Licensing
Arrangements&#148; below for additional discussion of our
license types.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Product revenue represented 59% of our total
revenue in 2003, 63% in 2002 and 58% in 2001.
</FONT>

<P align="center"><FONT size="2">2
</FONT>

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<P align="left">
<B><FONT size="2">Product Strategy</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">With the addition of emerging nanometer design
considerations to the already burgeoning set of traditional
design tasks, complex SoC or IC design can no longer be
accomplished using a collection of discrete design tools. What
previously consisted of sequential design activities must be
merged and accomplished nearly simultaneously without
time-consuming data translation steps. We have formulated a
design solution strategy that combines our &#147;best in
class&#148; design technologies into &#147;platforms&#148; for
four major design activities: functional verification, digital
IC design, custom IC design and system interconnect. The four
Cadence design platforms are Incisive<SUP>TM</SUP> Functional
Verification, Encounter<SUP>TM</SUP> Digital IC Design,
Virtuoso&#174; Custom Design and Allegro&#174; System
Interconnect Platforms. In addition, we augment these platform
product offerings with a comprehensive set of design for
manufacturing products that span both the digital and custom IC
design flows. These four platforms, together with our design for
manufacturing products comprise our primary product lines.
</FONT>

<P align="left">
<I><FONT size="2">Incisive Functional Verification
Platform</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Incisive functional verification platform
supports a unified methodology, from design of the total system,
to design-in of particular ICs, to design of specific systems,
for all design domains. Compared to traditional simulation
approaches, the Incisive platform provides faster full-chip
verification throughout the entire design cycle, which
significantly reduces total verification time.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Incisive platform employs a single-kernel
architecture that overcomes fragmentation by unifying multiple
verification techniques around a single engine. It also provides
support for open design and verification standards as well as
analog/mixed-signal verification. The same platform delivers
Palladium&#174; hardware in-circuit emulation and simulation
acceleration-on-demand, transaction-level support, HDL analysis,
coverage, debug and analysis, and test generation. Not only is
Incisive designed so customers can adopt these technologies
incrementally, it can also deliver the speed and efficiency
required to compress overall verification time. The
QuickCycles<SUP>TM</SUP> capability allows customers to access
Palladium simulation acceleration and emulation products on a
pay-as-you-go basis, either on the customer site or remotely
over a high-speed, secure network connection.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As part of the Incisive functional verification
platform,&nbsp;Incisive Conformal&#174; provides a complete
logic equivalence checking solution for verifying that the RTL
specification is equivalent to the final IC layout. Conformal
verifies a variety of circuits, including complex arithmetic
logic, datapath, memories, and custom logic.
</FONT>

<P align="left">
<I><FONT size="2">Encounter Digital IC Design Platform</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Encounter digital IC design platform employs
a unified architecture for full digital implementation of
nanometer-scale designs. It is based on a single user interface
and unified in-memory data model, and was specifically designed
to analyze and optimize wiring throughout the design process. It
is comprised of the following core technologies:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Encounter RTL Compiler, featuring global
    synthesis for timing closure, which uses a patented set of
    global focus algorithms that maximize circuit performance;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">First Encounter&#174; Ultra, a silicon virtual
    prototyping system that assists in managing the IC design
    process;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">NanoRoute<SUP>TM</SUP> Ultra, which uses
    graph-based routing technologies to efficiently support
    variable-spacing, variable-width routes for nanometer process
    technologies;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">CeltIC<SUP>TM</SUP> signal integrity analyzer,
    which is used by leading silicon foundries for ensuring that the
    chip designed with the Encounter platform does not contain any
    fatal signal integrity defects;&nbsp;and
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Encounter Test Solutions<SUP>TM</SUP> which
    identify opportunities for yield improvements by accelerating
    defect identification, and by linking design data with
    manufacturing data.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Unlike traditional &#147;front-end/back-end&#148;
systems, the Encounter platform does not require translations
between common tasks such as placement, power distribution,
routing, and timing/crosstalk analysis. The
</FONT>

<P align="center"><FONT size="2">3
</FONT>

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<DIV align="left">
<FONT size="2">SoC Encounter<SUP>TM</SUP> configuration supports
hierarchical designs, with full-chip support for designs
containing more than 50&nbsp;million gates. (A gate is an
electronic switch that allows or prevents the flow of current in
a circuit.) Nano Encounter<SUP>TM</SUP> supports full-chip
implementation for non-hierarchical chips and blocks of up to
10&nbsp;million gates.
</FONT>
</DIV>

<P align="left">
<I><FONT size="2">Virtuoso Custom Design Platform</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Virtuoso custom design platform enables
development of silicon-accurate analog, custom digital, radio
frequency and mixed-signal designs. With the Virtuoso platform,
custom design teams are able to deliver silicon-accurate
designs&nbsp;&#151; while addressing the growing number of
physical effects in package, power grid, interconnect, devices,
and substrate.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">By using its advanced custom design methodology
for custom/mixed-signal design, the Virtuoso platform enables
highly accurate design predictability by ensuring that the
circuit design representation will behave correctly in the final
manufactured silicon. The Virtuoso platform reduces design time
by providing:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">A specification-driven environment that automates
    the entire design process;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Multi-mode simulation (digital, analog and radio
    frequency) using a common syntax, model, and equations;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Fast custom layout technologies;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Highly accurate electrical vs. physical effects
    analysis;&nbsp;and
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Physical design integration and silicon analysis
    for complex custom, cell-based, and mixed custom designs using
    our Open Access<SUP>TM</SUP> database.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<I><FONT size="2">Design For Manufacturing</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The physical design of ICs requires detailed
analysis and optimization to ensure the design can be
manufactured. Our Fire&nbsp;&#38; Ice&#174; QX products take the
designer&#146;s representation of the IC and extract the
physical properties of the design to enable further analysis.
Our SignalStorm&#174;, VoltageStorm&#174; and
ElectronStorm&#174; products address nanometer design challenges
associated with on-chip distribution of power, timing and
crosstalk effects. The Substrate Noise Analyst product, designed
for radio frequency, analog, and mixed-signal ICs, provides a
silicon-accurate model for detecting fatal substrate coupling
defects to enable chip integration. Our Assura products perform
design rule checking to ensure the proposed design meets the
requirements of the foundry&#146;s manufacturing process rules.
Our software and services are designed to provide comprehensive,
high-speed verification that an IC will perform as designed,
taking into account the complex effects of nanometer
semiconductor physics.
</FONT>

<P align="left">
<I><FONT size="2">Allegro System Interconnect Design
Platform</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Cadence Allegro system interconnect design
platform enables collaborative design of high-performance
interconnect across the domains of IC, package and PCB, reducing
cost and time to market. The system interconnect&nbsp;&#151;
between I/ O buffers and across ICs, packages and
PCBs&nbsp;&#151; can be optimized through the platform&#146;s
co-design methodology, reducing both hardware costs and design
cycles. The Allegro platform&#146;s constraint-driven
methodology includes advanced capabilities for design capture,
signal integrity and physical implementation. The Allegro
co-design methodology is supported by our Encounter and Virtuoso
platforms, enabling effective design chain collaboration.
Silicon design-in kits speed time to market by allowing IC
companies to shorten new device adoption time and allowing
systems companies to accelerate PCB system design cycles.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The System Interconnect product group includes
the Allegro system interconnect platform and the OrCAD product
line of PCB design products that is priced for the individual
user. The OrCAD product line is marketed exclusively through a
worldwide network of value added resellers.
</FONT>

<P align="center"><FONT size="2">4
</FONT>

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<P align="left">
<I><FONT size="2">Verification and Application Specific
Programming, or ASP, Services</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We offer verification and ASP services through
Time-to-Market Engineering, or TtME, services. Our TtME team
provides customers with consulting services, project services
and/or complete turnkey services for verification acceleration
and system emulation. QuickCycles allows customers to access
Palladium simulation acceleration and emulation products on a
pay-as-you-go basis, either on the customer internet site or
remotely over a high-speed, secure network connection.
</FONT>

<P align="left">
<I><FONT size="2">Third Party Programs and Initiatives</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We recognize that certain of our customers may
also use internally-developed design tools or design tools
provided by other EDA companies. We support the integration of
third party design products through our Open Access Initiative
and Connections&#174; Program. Open Access is a full-featured
EDA database that supports access and manipulation of its
internal EDA data via a fully documented and freely available
programming interface. This provides an open application program
interface, or API, through which applications developed by our
customers, by their other EDA vendors, or by university research
groups can all operate within a single database and with Cadence
platforms. We have contributed the open access database to the
Open Access Coalition, which is operated by the Silicon
Integration Initiative, an organization of EDA, electronic
system and semiconductor industry leaders focused on improving
productivity and reducing cost in creating and producing
integrated silicon systems. The Connections Program provides
other EDA companies with access to our products to ensure that
our products work well with those third party tools. Over 120
EDA providers are members of the Connections Program.
Additionally, we collaborate throughout the silicon design chain
with leading IP, silicon foundry, and library provider partners
to support customer-owned tooling, or COT, solutions for our
customers. We also assist and support library providers in the
integration of our design and verification products and model
formats into COT library solutions. In addition, we work with
vendors of Application Specific Integrated Circuits, or ASICs,
to ensure predictable and smooth handoff of design data from
mutual customers to ASIC implementation. These relationships are
integral to providing complete design chain solutions to IC and
electronic systems designers who depend on coordinated offerings
from multiple suppliers.
</FONT>

<P align="left">
<B><FONT size="2">Maintenance</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Maintenance segment comprises our customer
support activities for our software and hardware products. We
provide technical support to our customers to facilitate their
use of our products. A high level of customer service and
support is critical to the adoption and successful use of our
products, which results in a close link between the Product and
Maintenance segments.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have a global customer support organization
and specialized field application engineering teams located in
each of our operating regions, to provide assistance to
customers where and when they need it.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Standard maintenance support includes three major
components: our Sourcelink&#174; online support portal, which
provides 24&nbsp;hour access to real-time technical information
on our products; contact center support&nbsp;&#151; telephone,
email and web access to our support engineers; and software
updates&nbsp;&#151; periodic updates with regression-tested
critical fixes and updated functionality available via CDs or
secure internet download.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Maintenance is offered to customers as an
integral, non-cancelable component of our subscription license
agreements, or as a separate agreement subject to annual renewal
for our term and perpetual license agreements. During the recent
downturn in the electronics industry, some customers facing
constrained budgets elected not to renew maintenance agreements
associated with license agreements with us.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Some of our customers have relocated, or expanded
the presence of their design teams away from their headquarters
or historical locations to less expensive locations in emerging
growth regions. Accordingly, to provide the most responsive and
effective support for our customers, we expect to continue to
expand the presence of our own support and application
engineering teams into emerging growth regions around the world.
</FONT>

<P align="center"><FONT size="2">5
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Maintenance revenues represented 29% of our total
revenue in 2003, 26% in 2002 and 24% in 2001. Maintenance
revenue in 2004 will be predominately generated from backlog.
</FONT>

<P align="left">
<B><FONT size="2">Services</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We offer a number of fee-based services,
including education and engineering services related to design
and methodology services. These services may be sold and
performed in conjunction with the sale, lease or license of our
products or sold separately.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Services revenue represented 12% of our total
revenue in 2003, 11% in 2002 and 18% in 2001.
</FONT>

<P align="left">
<I><FONT size="2">Education Services</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our educational services include Internet,
classroom and custom courses, the content of which ranges from
how to use the most recent product features to instructions in
the latest design techniques.
</FONT>

<P align="left">
<I><FONT size="2">Design and Methodology Services</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We offer engineering services and reusable design
technologies to aid customers with the design of complex ICs. We
focus our offerings primarily on SoC devices, including both
Application Specific Integrated Circuits, or ASICS, and
Application Specific Standard Parts, and on analog and mixed
signal ICs. The customers for these services primarily consist
of semiconductor and systems companies developing products for
the communications, computing, and consumer market segments. We
offer engineering capabilities to assist customers from product
concept through volume manufacturing.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We also make our design intellectual property, or
design IP, portfolio available to customers as part of our
complete technology and services solution. These reusable design
and methodology components enable us to more efficiently deliver
our services, and allow our customers to reduce the design
complexity and time to market for the development of complex
SoCs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In our design and methodology service practices,
we leverage our cumulative experience and knowledge of design
practices across many customers and different design
environments to improve our own service teams&#146; and our
customers&#146; productivity. We work with customers using
outsourcing, consultative and collaborative models depending on
their projects and needs. Our Virtual Computer-Aided Design, or
VCAD, model enables our engineering teams at one or more of our
locations to virtually work &#147;side-by-side&#148; with our
customers&#146; teams located elsewhere during the course of
their design and engineering projects through a secure private
network infrastructure.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Through collaboration with our customers, we are
able to design advanced ICs, gaining direct and early visibility
to industry design issues that may not be addressed adequately
by today&#146;s design automation solutions. This enables us to
accelerate the development of new software technology to meet
the market&#146;s current and future design requirements.
</FONT>

<P align="left">
<B><FONT size="2">Marketing and Sales</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We generally use a direct sales force consisting
of sales people and applications engineers to market our
products and provide maintenance and services to existing and
prospective customers. Applications engineers provide technical
pre-sales as well as post-sales support for software products.
Our Methodology Services group provides on-site resources and
capabilities to help customers improve productivity with their
design activity. Due to the complexity of EDA products and the
electronic design process in general, the sales cycle is
generally long, requiring three to six months or more. During
the sales cycle, our direct sales force generally provides
technical presentations, product demonstrations and support for
on-site customer evaluation of our software. We also use
traditional marketing approaches to promote our products and
services, including advertising, direct mail, telemarketing,
trade shows, public relations and the Internet.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Internationally, we market and support our
products and services primarily through our subsidiaries. Until
June&nbsp;28, 2003, we licensed most of our software products in
Japan through Innotech Corporation, of which we
</FONT>

<P align="center"><FONT size="2">6
</FONT>

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<DIV align="left">
<FONT size="2">are an approximately 15% stockholder. In June
2003, we purchased certain assets from Innotech, including
distribution rights for certain customers in Japan. Since June
2003, we directly license our software products to customers for
which we acquired the distribution rights from Innotech.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Research and Development</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our investment in research and development was
$340.1&nbsp;million in 2003, $326.4&nbsp;million in 2002 and
$297.3&nbsp;million in 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The primary areas of our research include SoC
design, the design of silicon devices in the nanometer range,
high-speed board design, architectural-level design,
high-performance logic verification technology and hardware/
software co-design. Because the electronics industry combines
rapid innovation with rapidly increasing design and
manufacturing complexity, we focus significant investment on
enhancing our current products, as well as creating new products
and techniques.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our future performance depends largely on our
ability to maintain and enhance our current product lines to
meet advancing semiconductor manufacturing capability, develop
or acquire new products and services from third parties,
maintain technological competitiveness and meet increasingly
complex customer requirements. In addition to research and
development conducted within each of our segments, we maintain
Cadence Laboratories, an advanced research group responsible for
exploring new directions and applications of our technologies,
migrating new technologies into our existing offerings and
maintaining strong industry relationships.
</FONT>

<P align="left">
<B><FONT size="2">Manufacturing and Distribution</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our software production operations consist of
configuring the customer&#146;s order, outsourcing the recording
of the product electronically or on CD-ROM, and producing
customer-unique access keys allowing customers to use licensed
products. Software and documentation are generally made
available to customers by secured electronic delivery. User
manuals and other documentation are generally available on
CD-ROM, but are occasionally supplied in hard copy format.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence performs final assembly and test of its
hardware verification, acceleration and emulation products in
San&nbsp;Jose, California. Subcontractors manufacture all major
subassemblies, including all individual printed circuit boards
and custom ICs, and supply them to us for qualification and
testing prior to their incorporation into the assembled product.
</FONT>

<P align="left">
<B><FONT size="2">Proprietary Technology</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our success depends, in part, upon our
proprietary technology. We generally rely on patents,
copyrights, trademarks, trade secret laws, licenses and
restrictive agreements to establish and protect our proprietary
rights in technology and products. Many of our products include
software or other intellectual property licensed from third
parties. We may have to seek new or renew existing licenses for
this third party software and other intellectual property in the
future. As part of performing design services for customers, our
design services business licenses certain software and other
intellectual property of third parties, including that of our
competitors.
</FONT>

<P align="left">
<B><FONT size="2">Competition</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The competitive conditions for our Products and
Maintenance segments are closely related. In these segments, we
compete in the EDA market primarily with three other significant
companies: Synopsys,&nbsp;Inc., Mentor Graphics Corporation and
Magma Design Automation,&nbsp;Inc. In 2002 and 2003,
Synopsys,&nbsp;Inc. acquired two significant companies, Avant!
Corporation and Numerical Technologies,&nbsp;Inc., and the
combined companies offer a broader product range than any of
them did before the mergers. We also compete with numerous
smaller EDA companies, with manufacturers of electronic devices
that have developed or have the capability to develop their own
EDA products, and with numerous electronics design and consulting
</FONT>

<P align="center"><FONT size="2">7
</FONT>

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<DIV align="left">
<FONT size="2">companies. We generally compete on the basis of
product quality and features, integration in a platform or
compatibility with other tools, price and payment terms and
maintenance offerings.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our Maintenance business flows directly from the
Products business. The competitive issues associated with the
Maintenance segment are substantially the same as those for the
Products segment in that every maintenance contract is the
direct result of a product contract, and once we have entered
into a product contract, maintenance is generally purchased by
the customer to ensure that the customer will receive access to
bug fixes and service releases, as and when they are made
available, and other continued support.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Certain competitive factors in the Services
business as described in this annual report on form 10-K differ
from those of the Products and Maintenance businesses. We
compete less with other EDA companies in this business segment,
and more with independent design service businesses. These
companies vary greatly in focus, geographic location,
capability, cost structure and pricing. In addition,
manufacturers of electronic devices may be reluctant to purchase
services from independent vendors, such as Cadence, because they
wish to promote their own internal design departments. We
compete with these companies by focusing on the design of
complex analog and digital ICs. It is our strategy to use design
services as a differentiator to further promote our Products and
Maintenance businesses.
</FONT>

<P align="left">
<B><FONT size="2">Backlog</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our backlog on January&nbsp;3, 2004 was
approximately $1.6&nbsp;billion as compared to $1.4&nbsp;billion
on December&nbsp;28, 2002. Backlog consists of revenue to be
recognized over multiple fiscal periods after January&nbsp;3,
2004:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">From the sale or lease of hardware and
    subscription licenses for software products;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">For maintenance contracts on hardware and
    software products;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">From orders for hardware and software products
    sold on perpetual and term licenses on which customers have
    requested delivery dates after January&nbsp;3, 2004;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">To be recognized under term licenses under which
    payments are in less than near equal installments;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">From license arrangements for which
    collectibility is not probable;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">From the undelivered portion of services
    contracts that is recognized on a percentage-of-completion
    basis;&nbsp;and
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">From services contracts recognized under the
    completed contract method for which services have not yet been
    completed.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The substantial majority of our backlog is
generated by our product and maintenance segments, as customer
licenses generally include both product and maintenance
components. Services is not a significant component of backlog.
We expect that maintenance revenue in 2004 will be predominately
generated from backlog. We have not historically experienced
significant cancellations of our contracts with customers.
However, we often reschedule the required completion dates of
services contracts which, at times, defers revenue recognition
under those contracts beyond the original expected completion
date. Changes in customer license types or payment terms also
can impact the timing of revenue recognition. See &#147;Software
Licensing Arrangements&#148; for discussion of product revenue
recognized from backlog.
</FONT>

<P align="left">
<B><FONT size="2">Revenue Seasonality</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Historically, orders and revenue have been lowest
in our first quarter and highest in our fourth quarter, with a
material decline between the fourth quarter of one year and the
first quarter of the next year. We expect the first quarter will
remain our lowest quarter for orders and revenues; orders and
revenues in other quarters will vary based on the particular
timing and type of licenses entered into with large customers.
</FONT>

<P align="left">
<B><FONT size="2">Employees</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of February&nbsp;7, 2004, we employed
approximately 4,800 individuals, with approximately 2,250 in
sales, services, marketing, support and manufacturing
activities, approximately 1,900 in product development and
</FONT>

<P align="center"><FONT size="2">8
</FONT>

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<DIV align="left">
<FONT size="2">approximately 650 in management, administration
and finance. None of our employees is represented by a labor
union, and we have experienced no work stoppages. We believe
that our employee relations are good.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Software Licensing Arrangements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We sell software using three license types:
subscription, term and perpetual. Customers who prefer to
license technology for a specified, limited period of time will
choose either a subscription or term license and customers who
prefer to have the right to use the technology continuously
without time restriction choose perpetual licenses. Customers
who desire rights to remix in new technology during the life of
the contract select a subscription license, which allows
customers limited access to unspecified new technology on a
when-and-if-available basis, as opposed to a term or perpetual
license which does not include remix rights to new technology.
Payment terms for subscription and term licenses generally
provide for installments over the license period and for
perpetual licenses generally are net 30&nbsp;days.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our revenue recognition depends on a number of
contract-specific terms and conditions, including the license
type, payment terms, creditworthiness of the customer and other
factors as more fully described under the heading &#147;Critical
Accounting Estimates&#148; under Item&nbsp;7,
&#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations.&#148; Revenue associated
with subscription licenses is recognized over multiple periods
over the license term whereas product revenue associated with
term and perpetual licenses may be eligible for revenue
recognition upon the effective date and delivery of the license,
assuming all other criteria for revenue recognition have been
met.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Product revenue recognized from backlog comprised
approximately 60% of total product revenue in 2003, 45% in 2002
and 30% in 2001. Our revenue and results of operations may fall
short of expectations due to the actual mix of license types
executed in any given period and due to other contract-specific
terms and conditions as discussed above. We are subject to
greater credit risk on subscription and term licenses, as
compared to perpetual licenses, due to the installment payment
terms generally associated with those license types. Otherwise,
the particular risks to us of one license type versus another
type do not vary considerably.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From time to time we sell receivables from our
licenses with installment payment terms on a non-recourse basis
to third party financing institutions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For further discussion of our license agreements,
revenue recognition policies and results of operations, please
refer to &#147;Critical Accounting Estimates&#148; found in
Item&nbsp;7, &#147;Management&#146;s Discussion and Analysis of
Financial Condition and Results of Operations.&#148;
</FONT>

<P align="left">
<B><FONT size="2">International Operations</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have offices located in China, France,
Germany,&nbsp;India, Japan, Russia, Taiwan, the United Kingdom
and other areas throughout the world. These offices primarily
provide sales, research and development and operational support
functions. We consider customer sales and support requirements,
the availability of a skilled workforce, costs and efficiencies
among other relative benefits when determining what operations
to locate internationally. For additional information regarding
our international operations see Note&nbsp;19, Segment
Reporting, to our Consolidated Financial Statements.
</FONT>

<P align="left">
<B><FONT size="2">Factors That May Affect Future
Results</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Our business faces many risks. Described below
are what we believe to be the material risks that we face. If
any of the events or circumstances described in the following
risks actually occurs, our business, financial condition or
results of operations could suffer.</FONT></I>

<P align="center"><FONT size="2">9
</FONT>

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<P align="left">
<B><FONT size="2">Risks Related to Our Business</FONT></B>

<P align="left">
<B><I><FONT size="2">We are subject to the cyclical nature of
the integrated circuit and electronics systems industries, and
any</FONT></I></B>

<DIV align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;downturn
may reduce our revenue.</FONT></I></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Purchases of our products and services are
dependent upon the commencement of new design projects by IC
manufacturers and electronics systems companies. The IC industry
is cyclical and is characterized by constant and rapid
technological change, rapid product obsolescence and price
erosion, evolving standards, short product life cycles and wide
fluctuations in product supply and demand.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The IC and electronics systems industries have
experienced significant downturns, often connected with, or in
anticipation of, maturing product cycles of both these
industries&#146; and their customers&#146; products and a
decline in general economic conditions. These downturns have
been characterized by diminished product demand, production
overcapacity, high inventory levels and accelerated erosion of
average selling prices.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since 2001,&nbsp;IC manufacturers and electronics
systems companies have experienced a downturn in demand and
production which has resulted in reduced research and
development spending by many of our customers. While many of
these companies appear to have experienced a gradual recovery in
the second half of 2003, they have continued their focus on cost
containment. Any economic downturn could harm our business,
operating results and financial condition.
</FONT>

<P align="left">
<B><I><FONT size="2">Our failure to respond quickly to
technological developments could make our products uncompetitive
<BR>
 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
obsolete.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The industries in which we compete experience
rapid technology developments, changes in industry standards,
changes in customer requirements and frequent new product
introductions and improvements. Currently, the industries we
serve are experiencing several revolutionary trends:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Migration to nanometer design: the size of
    features such as wires, transistors and contacts on ICs is
    shrinking due to advances in semiconductor manufacturing
    processes. Process feature sizes refer to the width of the
    transistors and the width and spacing of the interconnect on the
    IC. Feature size is normally identified by the headline
    transistor length, which is shrinking from 180&nbsp;nanometers
    to 130&nbsp;nanometers and smaller. This is commonly referred to
    in the semiconductor industry as the migration to nanometer
    design. It represents a major challenge for participants in the
    semiconductor industry, from IC design and design automation to
    design of manufacturing equipment and the manufacturing process
    itself. Shrinkage of transistor length to such infinitesimal
    proportions is challenging fundamental laws of physics and
    chemistry.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The ability to design System-on-Chip, or
    SoC,&nbsp;ICs increases the complexity of managing a design that
    at the lowest level is represented by billions of shapes on the
    fabrication mask. In addition, SoCs typically incorporate
    microprocessors and digital signal processors that are
    programmed with software, requiring simultaneous design of the
    IC and the related software embedded on the IC.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Increased capability of Field-Programmable Gate
    Array, or FPGA, technologies creates an alternative to IC
    implementation for some electronics companies. This could reduce
    demand for Cadence&#146;s IC implementation products and
    services.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">A growing number of low-cost design services
    businesses could reduce the need for some IC companies to invest
    in EDA products.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The challenges of nanometer design are leading
    some customers to work with older, less risky manufacturing
    processes. This may reduce their need to upgrade their EDA
    products and design flows.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If we are unable to respond quickly and
successfully to these developments and the evolution of these
changes, we may lose our competitive position, and our products
or technologies may become uncompetitive or obsolete. To compete
successfully, we must develop or acquire new products and
improve our existing products and processes on a schedule that
keeps pace with technological developments in our industries. We
must also be able to support a range of changing computer
software, hardware platforms and customer preferences. We cannot
guarantee that we will be successful in this effort.
</FONT>

<P align="center"><FONT size="2">10
</FONT>

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<P align="left">
<B><I><FONT size="2">We have experienced varied quarterly
operating results, and our operating results for any
particular</FONT></I></B>

<DIV align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;fiscal
period are affected by the timing of significant orders for our
software products, fluctuations</FONT></I></B>
</DIV>

<DIV align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;in
customer preferences for license types and the timing of
recognition of revenue under those</FONT></I></B>
</DIV>

<DIV align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;license
types.</FONT></I></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have experienced, and may continue to
experience, varied quarterly operating results. In particular,
we have experienced quarterly net losses for three of the past
four quarters, and we may experience net losses in future
periods. In addition, we recorded a net loss for the fiscal year
ended January&nbsp;3, 2004. Various factors affect our quarterly
operating results and some of them are not within our control.
Our quarterly operating results are affected by the timing of
significant orders for our software products because a
significant number of licenses for our software products are in
excess of $5.0&nbsp;million. The failure to complete a license
for one or more orders for our software products in a particular
quarter could seriously harm our operating results for that
quarter.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our operating results are also affected by the
mix of license types executed in any given period. We license
software using three different license types: term, subscription
and perpetual. Product revenue associated with term and
perpetual licenses is generally recognized at the beginning of
the license period, whereas product revenue associated with
subscription licenses is recognized over multiple periods over
the term of the license. Revenue may also be deferred under term
and perpetual licenses until payments become due and payable
from customers with nonlinear payment terms or as cash is
collected from customers with lower credit ratings.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We continue to experience increasing customer
preference for our subscription licenses and requests for more
flexible payment terms. We expect revenue recognized from
backlog to increase as a percentage of product revenue, on an
annual basis, assuming that customers continue to prefer
subscription licenses, or continue to request more flexible
payment terms, both of which cause revenue to be recognized over
time. In addition, revenue is impacted by the timing of license
renewals, changes in the extent to which contracts contain
flexible payment terms and changes in the mix of license types
(i.e., perpetual, term or subscription) for existing customers,
which changes could have the effect of accelerating or delaying
the recognition of revenue from the timing of recognition under
the original contract.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We plan operating expense levels primarily based
on forecasted revenue levels. These expenses and the impact of
long-term commitments are relatively fixed in the short term. A
shortfall in revenue could lead to operating results below
expectations because we may not be able to quickly reduce these
fixed expenses in response to short-term business changes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should not view our historical results of
operations as reliable indicators of our future performance. If
revenue or operating results fall short of the levels expected
by public market analysts and investors, the trading price of
our common stock could decline dramatically.
</FONT>

<P align="left">
<B><I><FONT size="2">Our future revenue is dependent in part
upon our installed customer base continuing to license
additional</FONT></I></B>

<DIV align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;products,
renew maintenance agreements and purchase additional
services.</FONT></I></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our installed customer base has traditionally
generated additional new license, service and maintenance
revenues. In future periods, customers may not necessarily
license additional products or contract for additional services
or maintenance. Maintenance is generally renewable annually at a
customer&#146;s option, and there are no mandatory payment
obligations or obligations to license additional software. If
our customers decide not to renew their maintenance agreements
or license additional products or contract for additional
services, or if they reduce the scope of the maintenance
agreements, our revenue could decrease, which could have an
adverse effect on our results of operations.
</FONT>

<P align="left">
<B><I><FONT size="2">We may not receive significant revenues
from our current research and development efforts for
several</FONT></I></B>

<DIV align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;years,
if at all.</FONT></I></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Internally developing software products and
integrating acquired software products into existing platforms
is expensive, and these investments often require a long time to
generate returns. Our strategy involves
</FONT>

<P align="center"><FONT size="2">11
</FONT>

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<DIV align="left">
<FONT size="2">significant investments in software research and
development and related product opportunities. We believe that
we must continue to dedicate a significant amount of resources
to our research and development efforts to maintain our
competitive position. However, we cannot predict that we will
receive significant revenues from these investments, if at all.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">We have acquired and expect to acquire
other companies and businesses and may not realize the
expected</FONT></I></B>

<DIV align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;benefits
of these acquisitions.</FONT></I></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have acquired and expect to acquire other
companies and businesses in the future. While we expect to
carefully analyze all potential acquisitions before committing
to the transaction, we cannot assure you that our management
will be able to integrate and manage acquired products and
businesses effectively or that the acquisitions will result in
long-term benefits to us or our stockholders. In addition,
acquisitions involve a number of risks. If any of the following
events occurs after we acquire another business, it could
seriously harm our business, operating results and financial
condition:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Difficulties in combining previously separate
    businesses into a single unit;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The substantial diversion of management&#146;s
    attention from day-to-day business when evaluating and
    negotiating these transactions and then integrating an acquired
    business;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The discovery, after completion of the
    acquisition, of liabilities assumed from the acquired business
    or of assets acquired that are not realizable;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The failure to realize anticipated benefits such
    as cost savings and revenue enhancements;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The failure to retain key employees of the
    acquired business;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Difficulties related to assimilating the products
    of an acquired business in, for example, distribution,
    engineering and customer support areas;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Unanticipated costs;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Customer dissatisfaction with existing license
    agreements with Cadence which may preclude access to products
    acquired by Cadence after the effective date of the
    license;&nbsp;and
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Failure to understand and compete effectively in
    markets in which we have limited previous experience.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In a number of our acquisitions, we have agreed
to make future cash or stock payments based on the performance
of the businesses we acquired. The performance goals pursuant to
which these future payments may be made generally relate to
achievement by the acquired business of certain specified
bookings, revenue, product proliferation, product development or
employee retention goals during a specified period following
completion of the applicable acquisition. Future acquisitions
may involve issuances of stock as payment of the purchase price
for the acquired business and also incentive stock or option
grants to employees of the acquired businesses (which may be
dilutive to existing stockholders), expenditure of substantial
cash resources or the incurrence of material amounts of debt.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The specific performance goal levels and amounts
and timing of contingent purchase price payments vary with each
acquisition. In the fiscal year ended January&nbsp;3, 2004, we
paid $2.4&nbsp;million in cash and issued 3.7&nbsp;million
shares, valued at $57.7&nbsp;million, to former stockholders of
acquired companies, as contingent purchase price.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The additional goodwill and deferred stock
compensation relates to the achievement of certain performance
goals related to bookings, product proliferation, product
development or employee retention resulting from acquisitions.
The goodwill is not expected to be deductible for income tax
purposes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with our acquisitions completed
prior to January&nbsp;3, 2004, we may be obligated to pay up to
an aggregate of $39.1&nbsp;million in cash and issue a total of
0.8&nbsp;million shares of our common stock during fiscal 2004.
In addition, we may be required to pay an additional
$76.0&nbsp;million in cash from 2005 through 2007 if certain
performance goals related to bookings, revenues, product
development, product proliferation or employee retention are
achieved in full.
</FONT>

<P align="center"><FONT size="2">12
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Future acquisitions may result in increased
goodwill and other intangible assets, in addition to
acquisition-related charges. These assets may eventually be
written down to the extent they are deemed to be impaired, and
any such write-downs would adversely affect our results.
</FONT>

<P align="left">
<B><I><FONT size="2">Our failure to attract, train, motivate and
retain key employees may make us less competitive in
our</FONT></I></B>

<DIV align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;industries
and therefore harm our results of operations.</FONT></I></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our business depends on the efforts and abilities
of our senior management, our research and development staff,
and a number of other key management, sales, support, technical
and services employees. The high cost of training new employees,
not fully utilizing these employees, or losing trained employees
to competing employers could reduce our gross margins and harm
our business and operating results. Even in the current economic
climate, competition for highly skilled employees can be
intense, particularly in geographic areas recognized as high
technology centers such as the Silicon Valley area, where our
principal offices are located, and the other locations where we
maintain facilities. If economic conditions improve and job
opportunities in the technology industry become more plentiful,
we may experience increased employee attrition and increased
competition for skilled employees. To attract, retain and
motivate individuals with the requisite expertise, we may be
required to grant large numbers of stock options or other
stock-based incentive awards, which may be dilutive to existing
stockholders. We may also be required to pay key employees
significant base salaries and cash bonuses, which could harm our
operating results. Additionally, if certain proposed accounting
standards were adopted we would be required to record a charge
to compensation expense for option grants.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, new regulations have been adopted by
the NYSE that require stockholder approval for new stock option
plans and significant amendments to existing plans, including
increases in options, and that prohibit NYSE member
organizations from giving a proxy to vote on equity compensation
plans unless the beneficial owner of the shares has given voting
instructions. These new regulations could make it more difficult
for us to grant options to employees in the future. To the
extent that new regulations make it more difficult or expensive
to grant options to employees, we may incur increased
compensation costs or find it difficult to attract, retain and
motivate employees, which could materially and adversely affect
our business.
</FONT>

<P align="left">
<B><I><FONT size="2">The competition in our industries is
substantial and we cannot assure you that we will be able to
continue</FONT></I></B>

<DIV align="left">
<B><I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to
successfully compete in our industries.</FONT></I></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The EDA market and the commercial electronics
design and methodology services industries are highly
competitive. If we fail to compete successfully in these
industries, it could seriously harm our business, operating
results and financial condition. To compete in these industries,
we must identify and develop or acquire innovative and cost
competitive EDA products, integrate them into platforms and
market them in a timely manner. We must also gain industry
acceptance for our design and methodology services and offer
better strategic concepts, technical solutions, prices and
response time, or a combination of these factors, than those of
other design companies and the internal design departments of
electronics manufacturers. We cannot assure you that we will be
able to compete successfully in these industries. Factors that
could affect our ability to succeed include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The development by others of competitive EDA
    products or platforms and design and methodology services could
    result in a shift of customer preferences away from our products
    and services and significantly decrease revenue;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Decisions by electronics manufacturers to perform
    design and methodology services internally, rather than purchase
    these services from outside vendors due to budget constraints or
    excess engineering capacity;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The challenges of developing (or acquiring
    externally-developed) technology solutions which are adequate
    and competitive in meeting the requirements of next-generation
    design challenges;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The significant number of current and potential
    competitors in the EDA industry and the low cost of entry;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Intense competition to attract acquisition
    targets, which may make it more difficult for us to acquire
    companies at an acceptable price or at all;&nbsp;and
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">13
</FONT>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The combination of or collaboration among many
    EDA companies to deliver more comprehensive offerings than they
    could individually.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We currently compete in the EDA market primarily
with Synopsys,&nbsp;Inc., Mentor Graphics Corporation and Magma
Design Automation,&nbsp;Inc. In 2002 and 2003,
Synopsys,&nbsp;Inc. acquired two significant companies, Avant!
Corporation and Numerical Technologies,&nbsp;Inc., and the
combined companies offer a broader product range than any of
them did before the mergers. We also compete with numerous
smaller EDA companies, with manufacturers of electronic devices
that have developed or have the capability to develop their own
EDA products, and with numerous electronics design and
consulting companies. Manufacturers of electronic devices may be
reluctant to purchase services from independent vendors such as
us because they wish to promote their own internal design
departments.
</FONT>

<P align="left">
<B><I><FONT size="2">We may need to change our pricing models to
compete successfully.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The intensely competitive markets in which we
compete can put pressure on us to reduce our prices. If our
competitors offer deep discounts on certain products in an
effort to recapture or gain market share or to sell other
software or hardware products, we may then need to lower prices
or offer other favorable terms to compete successfully. Any such
changes would be likely to reduce margins and can adversely
affect operating results. Any broadly-based changes to our
prices and pricing policies could cause sales and software
license revenues to decline or be delayed as our sales force
implements and our customers adjust to the new pricing policies.
Some of our competitors may bundle products for promotional
purposes or as a long-term pricing strategy or provide
guarantees of prices and product implementations. These
practices could, over time, significantly constrain the prices
that we can charge for our products. If we cannot offset price
reductions with a corresponding increase in the number of sales
or with lower spending, then the reduced license revenues
resulting from lower prices could have an adverse affect on our
results of operations.
</FONT>

<P align="left">
<B><I><FONT size="2">We rely on our proprietary technology as
well as software and other intellectual property rights licensed
to</FONT></I></B>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <B><I><FONT size="2">us by third parties, and we cannot assure
    you that the precautions taken to protect our rights will be
    adequate or that we will continue to be able to adequately
    secure such intellectual property rights from third
    parties.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our success depends, in part, upon our
proprietary technology. We generally rely on patents,
copyrights, trademarks, trade secret laws, licenses and
restrictive agreements to establish and protect our proprietary
rights in technology and products. Despite precautions we may
take to protect our intellectual property, we cannot assure you
that third parties will not try to challenge, invalidate or
circumvent these safeguards. We also cannot assure you that the
rights granted under our patents or attendant to our other
intellectual property will provide us with any competitive
advantages, or that patents will be issued on any of our pending
applications, or that future patents will be sufficiently broad
to protect our technology. Furthermore, the laws of foreign
countries may not protect our proprietary rights in those
countries to the same extent as applicable law protects these
rights in the United States. Many of our products include
software or other intellectual property licensed from third
parties. We may have to seek new or renew existing licenses for
such software and other intellectual property in the future. Our
design services business holds licenses to certain software and
other intellectual property owned by third parties. Our failure
to obtain, for our use, software or other intellectual property
licenses or other intellectual property rights on favorable
terms, or the need to engage in litigation over these licenses
or rights, could seriously harm our business, operating results
and financial condition.
</FONT>

<P align="left">
<B><I><FONT size="2">Intellectual property infringement by or
against us could result in our loss of key
technology.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There are numerous patents in the EDA industry
and new patents are being issued at a rapid rate. It is not
always practicable to determine in advance whether a product or
any of its components infringes the patent rights of others. As
a result, from time to time, we may be forced to respond to or
prosecute intellectual property infringement claims to protect
our rights or defend a customer&#146;s rights. These claims,
regardless of merit, could consume valuable management time,
result in costly litigation, or cause product shipment delays,
all of which could seriously harm our business, operating
results and financial condition. In settling these
</FONT>

<P align="center"><FONT size="2">14
</FONT>

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<DIV align="left">
<FONT size="2">claims, we may be required to enter into royalty
or licensing agreements with the third parties claiming
infringement. These royalty or licensing agreements, if
available, may not have terms favorable to us. Being forced to
enter into a license agreement with unfavorable terms could
seriously harm our business, operating results and financial
condition. Any potential intellectual property litigation could
force us to do one or more of the following:
</FONT>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Pay damages, license fees or royalties to the
    party claiming infringement;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Stop licensing products or providing services
    that use the challenged intellectual property;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Obtain a license from the owner of the infringed
    intellectual property to sell or use the relevant technology,
    which license may not be available on reasonable terms, or at
    all;&nbsp;or
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Redesign the challenged technology, which could
    be time-consuming and costly.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If we were forced to take any of these actions,
our business and results of operations may suffer.
</FONT>

<P align="left">
<B><I><FONT size="2">We may not be able to effectively implement
our restructuring activities, and our restructuring
activities</FONT></I></B>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <B><I><FONT size="2">may not result in the expected benefits,
    which would negatively impact our future results of
    operations.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The EDA market and the commercial electronics
design and methodology services industries are highly
competitive and change quickly. We have responded to increased
competition and changes in the industries in which we compete by
restructuring our operations and reducing the size of our
workforce. Despite our restructuring efforts over the last few
years, we cannot assure you that we will achieve all of the
operating expense reductions and improvements in operating
margins and cash flows currently anticipated from these
restructuring activities in the periods contemplated, or at all.
Our inability to realize these benefits, and our failure to
appropriately structure our business to meet market conditions,
could negatively impact our results of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As part of our recent restructuring activities,
we have reduced the workforce in certain revenue-generating
portions of our business, particularly in our services business.
This reduction in staffing levels could require us to forego
certain future strategic opportunities due to limited resources,
which could negatively affect our long-term revenues.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, these workforce reductions could
result in a lack of focus and reduced productivity by remaining
employees due to changes in responsibilities or concern about
future prospects, which in turn may negatively affect our future
revenues. Further, we believe our future success depends, in
large part, on our ability to attract and retain highly skilled
personnel. Our restructuring activities could negatively affect
our ability to attract such personnel as a result of perceived
risk of future workforce reductions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We also cannot assure you that we will not be
required to implement further restructuring activities or
reductions in our workforce based on changes in the markets and
industries in which we compete or that any future restructuring
efforts will be successful.
</FONT>

<P align="left">
<B><I><FONT size="2">The lengthy sales cycle of our products and
services makes the timing of our revenue difficult to predict
and</FONT></I></B>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <B><I><FONT size="2">may cause our operating results to
    fluctuate unexpectedly.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have a lengthy sales cycle that generally
extends at least three to six months. The length of the sales
cycle may cause our revenue and operating results to vary
unexpectedly from quarter to quarter. The complexity and expense
associated with our business generally requires a lengthy
customer education, evaluation and approval process.
Consequently, we may incur substantial expenses and devote
significant management effort and expense to develop potential
relationships that do not result in agreements or revenue and
may prevent us from pursuing other opportunities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, sales of our products and services
may be delayed if customers delay approval or commencement of
projects because of:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The timing of customers&#146; competitive
    evaluation processes;&nbsp;or
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Customers&#146; budgetary constraints and budget
    cycles.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">15
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Lengthy sales cycles for acceleration and
emulation hardware products subject us to a number of
significant risks over which we have limited control, including
insufficient, excess or obsolete inventory, variations in
inventory valuation and fluctuations in quarterly operating
results.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Also, because of the timing of large orders and
our customers&#146; buying patterns, we may not learn of
bookings shortfalls, revenue shortfalls, earnings shortfalls or
other failures to meet market expectations until late in a
fiscal quarter, which could cause even more immediate and
serious harm to the trading price of our common stock.
</FONT>

<P align="left">
<B><I><FONT size="2">The profitability of our services business
depends on factors that are difficult to control, such as the
high</FONT></I></B>

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    <TD width="94%"></TD>
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<TR valign="top">
    <TD></TD>
    <TD align="left">
    <B><I><FONT size="2">cost of our services employees, our cost of
    performing our fixed-price services contracts and the success of
    our design services business, which has historically suffered
    losses.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To be successful in our services business, we
must overcome several factors that are difficult to control,
including the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">Our cost of services employees is high and
    reduces our gross margin.</FONT></I><FONT size="2"> Gross margin
    represents the difference between the amount of revenue from the
    sale of services and our cost of providing those services. We
    must pay high salaries to attract and retain professional
    services employees. This results in a lower gross margin than
    the gross margin in our software business. In addition, the high
    cost of training new services employees or not fully utilizing
    these employees can significantly lower gross margin. It is
    difficult to adjust staffing levels quickly to reflect customer
    demand for services; therefore, the services business has in the
    past and could continue to experience losses.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">A portion of services contracts consists of
    fixed-price contracts.</FONT></I><FONT size="2"> Some of our
    customers pay a fixed price for services provided, regardless of
    the cost we must incur to perform the contract. If our cost in
    performing the services were to exceed the amount the customer
    has agreed to pay, we would experience a loss on the contract,
    which could harm our business, operating results and financial
    condition.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <I><FONT size="2">We have historically suffered losses in our
    design services business.</FONT></I><FONT size="2"> The market
    for electronics design services is sensitive to customer
    budgetary constraints and engineering capacity. Our design
    services business has historically suffered losses. If our
    design services business fails to increase its revenue to offset
    its expenses, the design services business will continue to
    experience losses. Our failure to succeed in the design services
    business may harm our business, operating results and financial
    condition.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><I><FONT size="2">Our international operations may seriously
harm our financial condition because of the effect of
foreign</FONT></I></B>

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<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <B><I><FONT size="2">exchange rate fluctuations and other risks
    to our international business.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have significant operations outside the United
States. Our revenue from international operations as a
percentage of total revenue was approximately 44% in 2003, 45%
in 2002 and 45% in 2001. We expect that revenue from our
international operations will continue to account for a
significant portion of our total revenue. We also transact
business in various foreign currencies. Recent economic and
political uncertainty and the volatility of foreign currencies
in certain regions, most notably the Japanese yen and the
European Union euro, have had, and may continue to have, a
seriously harmful effect on our revenue and operating results.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Fluctuations in the rate of exchange between the
U.S.&nbsp;dollar and the currencies of other countries in which
we conduct business could seriously harm our business, operating
results and financial condition. For example, if there is an
increase in the rate at which a foreign currency exchanges into
U.S.&nbsp;dollars, it will take more of the foreign currency to
equal the same amount of U.S.&nbsp;dollars than before the rate
increase. If we price our products and services in the foreign
currency, we will receive fewer U.S.&nbsp;dollars than we did
before the rate increase went into effect. If we price our
products and services in U.S.&nbsp;dollars, an increase in the
exchange rate will result in an increase in the price for our
products and services compared to those products of our
competitors that are priced in local currency. This could result
in our prices being uncompetitive in markets where business is
transacted in the local currency.
</FONT>

<P align="center"><FONT size="2">16
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Exposure to foreign currency transaction risk can
arise when transactions are conducted in a currency different
from the functional currency of one of our subsidiaries. A
subsidiary&#146;s functional currency is the currency in which
it primarily conducts its operations, including product pricing,
expenses and borrowings. Although we attempt to reduce the
impact of foreign currency fluctuations, significant exchange
rate movements may hurt our results of operations as expressed
in U.S.&nbsp;dollars.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our international operations may also be subject
to other risks, including:
</FONT>
<P>

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<TR>
    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">The adoption and expansion of government trade
    restrictions;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Limitations on repatriation of earnings;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Limitations on the conversion of foreign
    currencies;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reduced protection of intellectual property
    rights in some countries;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Recessions in foreign economies;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Longer collection periods for receivables and
    greater difficulty in collecting accounts receivable;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Difficulties in managing foreign operations;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Political and economic instability;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Unexpected changes in regulatory requirements;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Tariffs and other trade barriers;&nbsp;and
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">U.S.&nbsp;government licensing requirements for
    exports which may lengthen the sales cycle or restrict or
    prohibit the sale or licensing of certain products.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have offices throughout the world, including
key research facilities outside of the United States. Our
operations are dependent upon the connectivity of our operations
throughout the world. Activities that interfere with our
international connectivity, such as computer &#147;hacking&#148;
or the introduction of a virus into our computer systems, could
significantly interfere with our business operations.
</FONT>

<P align="left">
<B><I><FONT size="2">Our operating results could be adversely
affected as a result of changes in our effective tax
rates.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our future effective tax rates could be adversely
affected by the following:
</FONT>
<P>

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    <TD width="3%"></TD>
    <TD width="3%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Earnings being lower than anticipated in
    countries where we are taxed at lower statutory rates as
    compared to the U.S.&nbsp;tax rate;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">An increase in expenses not deductible for tax
    purposes, including write-offs of acquired in-process technology
    and impairment of goodwill;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Changes in the valuation of our deferred tax
    assets and liabilities;&nbsp;or
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Changes in tax laws or the interpretation of such
    tax laws.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Any significant change in our future effective
tax rates could adversely impact our results of operations for
future periods.
</FONT>

<P align="left">
<B><I><FONT size="2">We have received an examination report from
the Internal Revenue Service proposing a tax deficiency
in</FONT></I></B>

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    <TD width="94%"></TD>
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<TR valign="top">
    <TD></TD>
    <TD align="left">
    <B><I><FONT size="2">certain of our tax returns, and the outcome
    of the examination or any future examinations involving similar
    claims may have a material adverse effect on our results of
    operations and cash flows.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The IRS and other tax authorities regularly
examine our income tax returns. The IRS recently completed its
field examination of our federal income tax returns for the
fiscal years 1997 through 1999 and has issued a Revenue
Agent&#146;s Report, referred to as the RAR, in which the IRS
proposes to assess an aggregate tax deficiency for the
three-year period of approximately $143&nbsp;million, plus
interest, which interest will accrue until the matter is
resolved. This interest is compounded daily at rates published
by the IRS, which rates have been between four and nine percent
since 1997, and adjusts quarterly. The IRS may also make similar
claims for years subsequent to 1999 in future examinations. The
RAR is not a final Statutory Notice of Deficiency, and we have
filed a protest to certain of the proposed adjustments with the
IRS.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The most significant of the disputed adjustments
relates to transfer pricing arrangements that we have with a
foreign subsidiary. We believe that the proposed IRS adjustments
are inconsistent with the applicable tax laws, and that we have
meritorious defenses to the proposed adjustments. We are
challenging these proposed adjustments vigorously.
</FONT>

<P align="center"><FONT size="2">17
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Significant judgment is required in determining
our provision for income taxes. In determining the adequacy of
our provision for income taxes, we regularly assess the
likelihood of adverse outcomes resulting from these
examinations, including the current IRS assessments. However,
the ultimate outcome of tax examinations cannot be predicted
with certainty, including the total amount payable or the timing
of any such payments upon resolution of these issues. In
addition, we cannot assure you that such amount will not be
materially different than that which is reflected in our
historical income tax provisions and accruals. Should the IRS or
other tax authorities assess additional taxes as a result of a
current or a future examination, we may be required to record
charges to operations in future periods that could have a
material impact on the results of operations, financial position
or cash flows in the applicable period or periods recorded.
</FONT>

<P align="left">
<B><I><FONT size="2">Failure to obtain export licenses could
harm our business by rendering us unable to ship products and
transfer</FONT></I></B>

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    <TD></TD>
    <TD align="left">
    <B><I><FONT size="2">our technology outside of the United
    States.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We must comply with U.S.&nbsp;Department of
Commerce regulations in shipping our software products and
transferring our technology outside the United States and to
foreign nationals. Although we have not had any significant
difficulty complying with these regulations so far, any
significant future difficulty in complying could harm our
business, operating results and financial condition.
</FONT>

<P align="left">
<B><I><FONT size="2">Proposed regulations related to equity
compensation could cause us to recognize an additional expense,
which</FONT></I></B>

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<TR valign="top">
    <TD></TD>
    <TD align="left">
    <B><I><FONT size="2">would result in a reduction in our net
    income.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On March&nbsp;31, 2004, the Financial Accounting
Standards Board, or FASB, consistent with recent actions of
other accounting agencies and entities, issued a proposed
Statement &#147;Share Based Payment, an Amendment of FASB
Statements No.&nbsp;123 and&nbsp;95&#148; relating to the
accounting for equity-based compensation. This Statement
proposes changes to U.S.&nbsp;Generally Accepted Accounting
Principles, or GAAP, that, if implemented, would require us to
record a charge to compensation expense for stock option grants.
We currently account for stock options under Statement of
Financial Accounting Standards, or SFAS, No.&nbsp;123,
&#147;Accounting for Stock-Based Compensation&#148;. As
permitted by SFAS&nbsp;No.&nbsp;123, we have elected to use the
intrinsic value method prescribed by Accounting Principles Board
Opinion No.&nbsp;25, or APB Opinion No.&nbsp;25,
&#147;Accounting for Stock Issued to Employees,&#148; to measure
compensation expense for stock-based awards granted to
employees, under which the granting of stock options is not
considered compensation, if the option exercise price is not
less than the fair market value of the common stock at the grant
date. The FASB&#146;s proposal would eliminate our ability,
starting in 2005, to account for stock-based awards using the
intrinsic value method prescribed by APB Opinion No.&nbsp;25 and
would instead require that such awards be accounted for using a
fair-value based method, which would require us to measure the
compensation expense for all such awards, including stock
options, at fair-value at the grant date. We cannot predict
whether the proposed regulations will be adopted, but if adopted
they would have an adverse affect on our results of operations.
</FONT>

<P align="left">
<B><I><FONT size="2">Errors or defects in our products and
services could expose us to liability and harm our
reputation.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our customers use our products and services in
designing and developing products that involve a high degree of
technological complexity, each of which has its own
specifications. Because of the complexity of the systems and
products with which we work, some of our products and designs
can be adequately tested only when put to full use in the
marketplace. As a result, our customers or their end users may
discover errors or defects in our software or the systems we
design, or the products or systems incorporating our design and
intellectual property may not operate as expected. Errors or
defects could result in:
</FONT>
<P>

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<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Loss of current customers and loss of or delay in
    revenue and loss of market share;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Failure to attract new customers or achieve
    market acceptance;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Diversion of development resources to resolve the
    problem;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Increased service costs;&nbsp;and
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Liability for damages.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">18
</FONT>
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<P align="left">
<B><I><FONT size="2">If we become subject to unfair hiring
claims, we could be prevented from hiring needed employees,
incur</FONT></I></B>

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    <TD></TD>
    <TD align="left">
    <B><I><FONT size="2">liability for damages and incur substantial
    costs in defending ourselves.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Companies in our industry whose employees accept
positions with competitors frequently claim that these
competitors have engaged in unfair hiring practices or that the
employment of these persons would involve the disclosure or use
of trade secrets. These claims could prevent us from hiring
employees or cause us to incur liability for damages. We could
also incur substantial costs in defending ourselves or our
employees against these claims, regardless of their merits.
Defending ourselves from these claims could also divert the
attention of our management from our operations.
</FONT>

<P align="left">
<B><I><FONT size="2">Our business is subject to the risk of
earthquakes, floods and other natural catastrophic
events.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our corporate headquarters, including certain of
our research and development operations, and certain of our
distribution facilities, are located in the Silicon Valley area
of Northern California, which is a region known to experience
seismic activity. In addition, several of our facilities,
including our corporate headquarters, certain of our research
and development operations, and certain of our distribution
operations, are in areas of San&nbsp;Jose, California that have
been identified by the Director of the Federal Emergency
Management Agency, or FEMA, as being located in a special flood
area. The areas at risk are identified as being in a one hundred
year flood plain, using FEMA&#146;s Flood Hazard Boundary Map or
the Flood Insurance Rate Map. If significant seismic or flooding
activity were to occur, our operations may be interrupted, which
would adversely impact our business and results of operations.
</FONT>

<P align="left">
<B><I><FONT size="2">We maintain research and other facilities
in parts of the world that are not as politically stable as
the</FONT></I></B>

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<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <B><I><FONT size="2">United States, and as a result we may face
    a higher risk of business interruption from acts of war or
    terrorism than other businesses located only or primarily in the
    United States.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We maintain international research and other
facilities, some of which are in parts of the world that are not
as politically stable as the United States. Consequently, we may
face a greater risk of business interruption as a result of
terrorist acts or military conflicts than businesses located
domestically. Furthermore, this potential harm is exacerbated
given that damage to or disruptions at our international
research and development facilities could have an adverse effect
on our ability to develop new or improve existing products as
compared to other businesses which may only have sales offices
or other less critical operations abroad. We are uninsured for
losses or interruptions caused by acts of war or terrorism.
</FONT>

<P align="left">
<B><FONT size="2">Risks Related to Our Securities</FONT></B>

<P align="left">
<B><I><FONT size="2">Our debt obligations expose us to risks
that could adversely affect our business, operating results
and</FONT></I></B>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <B><I><FONT size="2">financial condition, and could prevent us
    from fulfilling our obligations under such
    indebtedness.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have a substantial level of debt. As of
January&nbsp;3, 2004, we had $420.5&nbsp;million of outstanding
indebtedness, including $420.0&nbsp;million of our Zero Coupon
Zero Yield Senior Convertible Notes, or the Notes, that we
issued in August 2003. The level of our indebtedness, among
other things, could:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">make it difficult for us to satisfy our payment
    obligations on our debt as described below;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">make it difficult for us to incur additional debt
    or obtain any necessary financing in the future for working
    capital, capital expenditures, debt service, acquisitions or
    general corporate purposes;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">limit our flexibility in planning for or reacting
    to changes in our business;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">reduce funds available for use in our operations;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">make us more vulnerable in the event of a
    downturn in our business;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">make us more vulnerable in the event of an
    increase in interest rates if we must incur new debt to satisfy
    our obligations under the Notes;&nbsp;or
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">place us at a possible competitive disadvantage
    relative to less leveraged competitors and competitors that have
    greater access to capital resources.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If we experience a decline in revenue due to any
of the factors described in this section entitled &#147;Factors
That May Affect Future Results&#148; or otherwise, we could have
difficulty paying amounts due on our
</FONT>

<P align="center"><FONT size="2">19
</FONT>
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<DIV align="left">
<FONT size="2">indebtedness. In the case of the Notes, although
the Notes mature in 2023, the holders of the Notes may require
us to repurchase their notes at an additional premium in 2008,
which makes it probable that we will be required to repurchase
the Notes in 2008 if the Notes are not otherwise converted into
our common stock. If we are unable to generate sufficient cash
flow or otherwise obtain funds necessary to make required
payments, or if we fail to comply with the various requirements
of our indebtedness, including the Notes, we would be in
default, which would permit the holders of our indebtedness to
accelerate the maturity of the indebtedness and could cause
defaults under our other indebtedness. Any default under our
indebtedness could have a material adverse effect on our
business, operating results and financial condition.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are not restricted under our outstanding
indebtedness from incurring additional debt, including other
senior indebtedness or secured indebtedness. In addition, our
outstanding indebtedness does not restrict our ability to pay
dividends, issue or repurchase stock or other securities or
require us to achieve or maintain any minimum financial results
relating to our financial position or results of operations. Our
ability to recapitalize, incur additional debt and take a number
of other actions that are not limited by the terms of our
outstanding indebtedness could have the effect of diminishing
our ability to make payments on such indebtedness when due.
Although our outstanding indebtedness does not contain such
financial and other restrictive covenants, future indebtedness
could include such covenants. If we incur additional
indebtedness or other liabilities, our ability to pay our
obligations on our outstanding indebtedness could be adversely
affected.
</FONT>

<P align="left">
<B><I><FONT size="2">We may be unable to adequately service our
indebtedness, which may result in defaults and other
costs&nbsp;to&nbsp;us.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may not have sufficient funds or may be unable
to arrange for additional financing to pay the outstanding
obligations due on our indebtedness. Any future borrowing
arrangements or debt agreements to which we become a party may
contain restrictions on or prohibitions against our repayment on
our outstanding indebtedness. With respect to the Notes, at
maturity, the entire outstanding principal amount of the Notes
will become due and payable. Holders may require us to
repurchase for cash all or any portion of the Notes on
August&nbsp;15, 2008 for 100.25% of the principal amount,
August&nbsp;15, 2013 for 100.00% of the principal amount and
August&nbsp;15, 2018 for 100.00% of the principal amount. As a
result, although the Notes mature in 2023, the holders may
require us to repurchase the Notes at an additional premium in
2008, which makes it probable that we will be required to
repurchase the Notes in 2008 if the Notes are not otherwise
converted into our common stock. If we are prohibited from
paying our outstanding indebtedness, we could try to obtain the
consent of lenders under those arrangements, or we could attempt
to refinance the borrowings that contain the restrictions. If we
do not obtain the necessary consents or refinance the
borrowings, we may be unable to satisfy our outstanding
indebtedness. Any such failure would constitute an event of
default under our indebtedness, which could, in turn, constitute
a default under the terms of any other indebtedness then
outstanding.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, a material default on our
indebtedness could suspend our eligibility to register
securities using certain registration statement forms under SEC
guidelines which incorporate by reference substantial
information regarding us rather than requiring quarterly and
other revision and updating, which could potentially hinder our
ability to raise capital through the issuance of our securities
and will increase the costs of such registration to us.
</FONT>

<P align="left">
<B><I><FONT size="2">The price of our common stock may fluctuate
significantly, which may make it difficult for stockholders
to</FONT></I></B>

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    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <B><I><FONT size="2">sell our common stock when desired or at
    attractive prices.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The market price of our common stock is subject
to significant fluctuations in response to the factors set forth
in this section entitled &#147;Factors That May Affect Future
Results&#148; and other factors, many of which are beyond our
control. Such fluctuations, as well as economic conditions
generally, may adversely affect the market price of our common
stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, the stock markets in recent years
have experienced extreme price and trading volume fluctuations
that often have been unrelated or disproportionate to the
operating performance of individual companies. These broad
market fluctuations may adversely affect the price of our common
stock, regardless of our operating performance.
</FONT>

<P align="center"><FONT size="2">20
</FONT>

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<P align="left">
<B><I><FONT size="2">Conversion of the Notes will dilute the
ownership interests of existing stockholders.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The terms of the Notes permit the holders to
convert the Notes into shares of our common stock. The Notes are
convertible into our common stock initially at a conversion
price of $15.65&nbsp;per share, which would result in an
aggregate of approximately 26.8&nbsp;million shares of our
common stock issued upon conversion, subject to adjustment upon
the occurrence of specified events. The conversion of some or
all of the Notes will dilute the ownership interest of our
existing stockholders. Any sales in the public market of the
common stock issuable upon conversion could adversely affect
prevailing market prices of our common stock. Prior to the
conversion of the Notes, if the trading price of our common
stock exceeds the conversion price of the Notes by 145% or more
over specified periods, earnings per share will be diluted if
and to the extent the convertible notes hedge instruments are
not exercised. We may redeem for cash all or any part of the
Notes on or after August&nbsp;15, 2008 for 100.00% of the
principal amount. The holders may require us to repurchase for
cash all or any portion of their notes on August&nbsp;15, 2008
for 100.25% of the principal amount, on August&nbsp;15, 2013 for
100.00% of the principal amount, or on August&nbsp;15, 2018 for
100.00% of the principal amount.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each $1,000 of principal of the Notes is
initially convertible into 63.8790&nbsp;shares of our common
stock, subject to adjustment upon the occurrence of specified
events. Holders of the Notes may convert their Notes prior to
maturity only if: (1)&nbsp;the price of our common stock reaches
$22.69 during periods of time specified by the Notes,
(2)&nbsp;specified corporate transactions occur, (3)&nbsp;the
Notes have been called for redemption or (4)&nbsp;the trading
price of the Notes falls below a certain threshold. As a result,
although the Notes mature in 2023, the holders may require us to
repurchase their notes at an additional premium in 2008, which
makes it probable that we will be required to repurchase the
Notes in 2008 if the Notes are not otherwise converted into our
common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Although the conversion price is currently
$15.65&nbsp;per share, the convertible notes hedge and warrant
transactions that we entered into in connection with the
issuance of the Notes effectively increased the conversion price
of the Notes until 2008 to approximately $23.08&nbsp;per share,
which would result in an aggregate issuance upon conversion
prior to August&nbsp;15, 2008 of approximately 18.2&nbsp;million
shares of our common stock. We have entered into convertible
notes hedge and warrant transactions to reduce the potential
dilution from the conversion of the Notes, however we cannot
guarantee that such convertible notes hedge and warrant
instruments will fully mitigate the dilution. In addition, the
existence of the Notes may encourage short selling by market
participants because the conversion of the Notes could depress
the price of our common stock.
</FONT>

<P align="left">
<B><I><FONT size="2">We may, at the option of the noteholders
and only in certain circumstances, be required to repurchase
the</FONT></I></B>

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    <TD width="94%"></TD>
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    <TD></TD>
    <TD align="left">
    <B><I><FONT size="2">Notes in shares of our common stock upon a
    significant change in our corporate ownership or structure, and
    issuance of shares to repurchase the notes would result in
    dilution to our&nbsp;existing&nbsp;stockholders.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the terms of the Notes, we may be required
to repurchase the Notes following a significant change in our
corporate ownership or structure, such as a change of control,
prior to maturity of the Notes. Following a significant change
in our corporate ownership or structure, in certain
circumstances, we may choose to pay the repurchase price of the
Notes in cash, shares of our common stock or a combination of
cash and shares of our common stock. In the event we choose to
pay all or any part of the repurchase price of notes in shares
of our common stock, this would result in dilution to the
holders of our common stock.
</FONT>

<P align="left">
<B><I><FONT size="2">Convertible notes hedge and warrant
transactions entered into in connection with the issuance of the
Notes</FONT></I></B>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    <B><I><FONT size="2">may affect the value of our common
    stock.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We entered into convertible notes hedge
transactions with JP&nbsp;Morgan Chase Bank, an affiliate of one
of the initial purchasers of the Notes, at the time of issuance
of the Notes, with the objective of reducing the potential
dilutive effect of issuing our common stock upon conversion of
the Notes. We also entered into warrant transactions. In
connection with our convertible notes hedge and warrant
transactions, JP&nbsp;Morgan Chase Bank, or its affiliates
purchased our common stock in secondary market transactions and
entered into various over-the-counter derivative transactions
with respect to our common stock. This entity or its affiliates
is likely to modify its hedge positions from time to time prior
to conversion or maturity of the Notes by
</FONT>

<P align="center"><FONT size="2">21
</FONT>

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<DIV align="left">
<FONT size="2">purchasing and selling shares of our common
stock, other of our securities or other instruments it may wish
to use in connection with such hedging. The effect, if any, of
any of these transactions and activities on the market price of
our common stock or the Notes could adversely affect the value
of our common stock and, as a result, the number of shares and
the value of the common stock holders will receive upon
conversion of the Notes. In addition, subject to movement in the
trading price of our common stock, if the convertible notes
hedge transactions settle in our favor, we could be exposed to
credit risk related to the other party.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">Rating agencies may provide unsolicited
ratings on the Notes that could reduce the market value
or</FONT></I></B>

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    <TD></TD>
    <TD align="left">
    <B><I><FONT size="2">liquidity of our common
    stock.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have not requested a rating of the Notes from
any rating agency and we do not anticipate that the Notes will
be rated. However, if one or more rating agencies independently
elects to rate the Notes and assigns the Notes a rating lower
than the rating expected by investors, or reduces their rating
in the future, the market price or liquidity of the Notes and
our common stock could be harmed. A resulting decline in the
market price of the Notes as compared to the price of our common
stock may require us to repurchase the Notes.
</FONT>

<P align="left">
<B><I><FONT size="2">Anti-takeover defenses in our governing
documents and certain provisions under Delaware law
could</FONT></I></B>

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    <TD></TD>
    <TD align="left">
    <B><I><FONT size="2">prevent an acquisition of our company or
    limit the price that investors might be willing to pay for our
    common stock.</FONT></I></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our governing documents and certain provisions of
the Delaware General Corporation Law that apply to us could make
it difficult for another company to acquire control of our
company. For example:
</FONT>
<P>

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    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Our certificate of incorporation allows our board
    of directors to issue, at any time and without stockholder
    approval, preferred stock with such terms as it may determine.
    No shares of preferred stock are currently outstanding. However,
    the rights of holders of any of our preferred stock that may be
    issued in the future may be superior to the rights of holders of
    our common stock.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">We have a rights plan, commonly known as a
    &#147;poison pill,&#148; which would make it difficult for
    someone to acquire our company without the approval of our board
    of directors.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Section&nbsp;203 of the Delaware General
    Corporation Law generally prohibits a Delaware corporation from
    engaging in any business combination with a person owning 15% or
    more of its voting stock, or who is affiliated with the
    corporation and owned 15% or more of its voting stock at any
    time within three years prior to the proposed business
    combination, for a period of three years from the date the
    person became a 15% owner, unless specified conditions are met.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All or any one of these factors could limit the
price that certain investors would be willing to pay for shares
of our common stock and could delay, prevent or allow our board
of directors to resist an acquisition of our company, even if
the proposed transaction were favored by a majority of our
independent stockholders.
</FONT>

<DIV align="left">
<A name='103'></A>
</DIV>

<!-- link1 "Item 2. Properties" -->

<P align="left">
<B><U><FONT size="2">Item&nbsp;2.&nbsp;Properties</FONT></U></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our headquarters are located in San&nbsp;Jose,
California, and we own the related land and buildings.
Additionally, we own buildings in India and land and buildings
in Scotland. The total square footage of our owned buildings is
approximately 979,000.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We lease additional facilities for our sales
offices in the United States and various foreign countries, and
our research and development and design services facilities
worldwide. We sublease certain of these facilities where space
is not fully utilized or has been involved in restructuring
activities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe that these facilities and the
undeveloped land we own adjacent to our current headquarters are
adequate for our current needs and that suitable additional or
substitute space will be available as needed to accommodate any
expansion of our operations.
</FONT>

<DIV align="left">
<A name='104'></A>
</DIV>

<!-- link1 "Item 3. Legal Proceedings" -->

<P align="left">
<B><U><FONT size="2">Item&nbsp;3.&nbsp;Legal
Proceedings</FONT></U></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From time to time, we are involved in various
disputes and litigation matters that arise in the ordinary
course of business. These include disputes and lawsuits related
to intellectual property, mergers and
</FONT>

<P align="center"><FONT size="2">22
</FONT>

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<DIV align="left">
<FONT size="2">acquisitions, licensing, contract law,
distribution arrangements and employee relations matters.
Periodically, we review the status of each significant matter
and assess its potential financial exposure. If the potential
loss from any claim or legal proceeding is considered probable
and the amount can be estimated, we accrue a liability for the
estimated loss at the low end of the range. Legal proceedings
are subject to uncertainties, and the outcomes are difficult to
predict. Because of such uncertainties, accruals are based only
on the best information available at the time. As additional
information becomes available, we reassess the potential
liability related to pending claims and litigation and may
revise estimates.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">While the outcome of any disputes and litigation
matters cannot be predicted with any certainty, management does
not believe that the outcome of any current matters will have a
material adverse effect on our consolidated financial position
or results of operations.
</FONT>

<DIV align="left">
<A name='105'></A>
</DIV>

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<P align="left">
<B><U><FONT size="2">Item&nbsp;4.&nbsp;Submission of Matters to
a Vote of Security Holders</FONT></U></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">None.
</FONT>

<P align="left">
<B><U><FONT size="2">Executive Officers of Cadence</FONT></U></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The executive officers of the registrant are as
follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="35%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="54%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><FONT size="1">Name</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Age</FONT></TD>
    <TD></TD>
    <TD align="left" nowrap><FONT size="1">Positions and Offices</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">H. Raymond Bingham
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">President, Chief Executive Officer and Director
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Kevin Bushby
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Executive Vice President, Worldwide Field
    Operations
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Lavi A. Lev
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Executive Vice President,&nbsp;IC Solutions
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">R.L. Smith McKeithen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Senior Vice President, General Counsel and
    Secretary
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">William Porter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="bottom">
    <FONT size="2">Senior Vice President and Chief Financial Officer
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Executive officers are appointed by the Board of
Directors and serve at the discretion of the Board.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">H.&nbsp;RAYMOND BINGHAM has served as President
and Chief Executive Officer of Cadence since April 1999.
Mr.&nbsp;Bingham has been a director of the Cadence Board of
Directors since November 1997. From 1993 to April 1999,
Mr.&nbsp;Bingham served as Executive Vice President and Chief
Financial Officer of Cadence. Prior to joining Cadence,
Mr.&nbsp;Bingham was Executive Vice President and Chief
Financial Officer of Red Lion Hotels,&nbsp;Inc. for eight years.
Mr.&nbsp;Bingham is a director of Onyx Software Corporation,
Oracle Corporation and KLA-Tencor Corporation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">KEVIN BUSHBY has served as Executive Vice
President, Worldwide Field Operations of Cadence since 2001.
From 1995 to 2001, Mr.&nbsp;Bushby served as Vice President and
General Manager, European Operations of Cadence. Prior to
joining Cadence, from 1990 to 1995, Mr.&nbsp;Bushby held several
positions with Unisys Corporation, most recently as Vice
President Sales and Marketing, Client Server Systems Division.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">LAVI A. LEV has served as Executive Vice
President,&nbsp;Implementation Division since July 2003. From
July 2002 to July 2003, Mr.&nbsp;Lev served as Executive Vice
President,&nbsp;IC Solutions. From February 2001 to June 2002,
Mr.&nbsp;Lev served as Senior Vice President and General Manager
of the IC Solutions Group. Prior to joining Cadence,
Mr.&nbsp;Lev was Senior Vice President of Engineering at MIPS
Technologies,&nbsp;Inc. Mr.&nbsp;Lev has more than 20&nbsp;years
of experience in the semiconductor industry.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">R.L. SMITH MCKEITHEN has served as Senior Vice
President, General Counsel and Secretary since 1998. From 1996
to 1998, Mr.&nbsp;McKeithen served as Vice President, General
Counsel and Secretary of Cadence. Prior to joining Cadence, from
1994 to 1996, Mr.&nbsp;McKeithen served as Vice President,
General Counsel and Secretary of Strategic Mapping,&nbsp;Inc., a
software company. From 1988 to 1994, Mr.&nbsp;McKeithen served
as Vice President, General Counsel and Secretary of Silicon
Graphics,&nbsp;Inc.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">WILLIAM PORTER has served as Senior Vice
President and Chief Financial Officer of Cadence since May 1999.
From 1994 to 1999, Mr.&nbsp;Porter served as Vice President,
Corporate Controller and Assistant Secretary of Cadence. Prior
to joining Cadence, Mr.&nbsp;Porter served as Technical
Accounting and Reporting Manager and, most recently, as
Controller of Cupertino Operations with Apple Computer,&nbsp;Inc.
</FONT>

<P align="center"><FONT size="2">23
</FONT>

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<DIV align="left">
<A name='106'></A>
</DIV>

<!-- link1 "PART II." -->

<P align="center">
<B><FONT size="2">PART&nbsp;II.</FONT></B>

<DIV align="left">
<A name='107'></A>
</DIV>

<!-- link1 "Item 5. Market for Registrant&#146;s Common Equity and Related Stockholder Matters" -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;5.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Market for Registrant&#146;s Common Equity and
    Related Stockholder Matters</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left">
<HR size="1" width="100%" align="left" noshade>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our common stock is traded on the New&nbsp;York
Stock Exchange under the symbol CDN. We have never declared or
paid any cash dividends on our common stock in the past, and we
do not plan to pay cash dividends in the foreseeable future. As
of March&nbsp;6, 2004, we had approximately 1,498 registered
stockholders and approximately 22,600 beneficial owners of our
common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth the high and low
sales price for Cadence common stock for each calendar quarter
in the two-year period ended January&nbsp;3, 2004:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="74%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">High</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Low</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">First Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Second Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.75</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Third Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.90</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fourth Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">First Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24.39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Second Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Third Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fourth Quarter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.65</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">24
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2"> <A name='108'></A>
</FONT>
</DIV>

<!-- link1 "Item 6. Selected Financial Data" -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item 6.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Selected Financial Data</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left">
<HR size="1" width="42%" align="left" noshade>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following selected consolidated financial
data should be read in conjunction with our Consolidated
Financial Statements and the Notes thereto and the information
contained in Item&nbsp;7, &#147;Management&#146;s Discussion and
Analysis of Financial Condition and Results of Operation.&#148;
Historical results are not necessarily indicative of future
results.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="35%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><FONT size="1">Five fiscal years ended January&nbsp;3, 2004</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="left" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2000</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">1999</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><FONT size="1">(In thousands, except per share amounts)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,119,484</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,287,943</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,430,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,279,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,093,303</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,964</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">160,579</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">240,451</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,878</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,750</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (loss), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,599</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,756</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">890</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)*
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,566</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">141,287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,676</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,341</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss) per share&nbsp;&#151; assuming
    dilution*
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,817,902</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,426,623</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,730,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,469,671</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,455,310</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term portion of capital lease obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,024</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Convertible notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">420,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; equity*
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,572,281</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,644,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,121,347</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">901,815</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">981,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Beginning in our fiscal year 2002, Statement of
    Financial Accounting Standards, or SFAS, No.&nbsp;142,
    &#147;Goodwill and Other Intangible Assets&#148; was adopted
    and, as a result, we have ceased to amortize approximately
    $178.8&nbsp;million of goodwill, net of accumulated
    amortization, including workforce intangibles that were subsumed
    into goodwill upon adoption of SFAS&nbsp;No.&nbsp;142. The 1999
    to 2001 consolidated financial data include amortization of
    goodwill and workforce intangibles totaling $50.8&nbsp;million
    for 2001, $36.5&nbsp;million for 2000 and $16.5&nbsp;million for
    1999.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As more fully described in Note&nbsp;4 to our
Consolidated Financial Statements, in 2003, we determined that
certain investments previously accounted for under the cost
method during the fiscal years prior to 2003 should have been
accounted for under the equity method of accounting. In
addition, certain other errors were identified that occurred in
the Consolidated Financial Statements for 2000 through 2002. As
a result of these determinations, the following adjustments to
amounts previously reported have been reflected in the selected
financial data above before the effect of income taxes:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><FONT size="1">Four fiscal years ended December&nbsp;28, 2002</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap><FONT size="1">Income (Expense)</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2000</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">1999</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">230</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,964</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,776</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,505</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,124</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(537</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Internally developed software
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,547</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total adjustments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,946</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,501</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,776</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because the Consolidated Financial Statements for
2001 were not materially affected by the change in accounting
for investments, deferred stock compensation, revenue and
internally developed software and the Consolidated Financial
Statements for that year were audited by a firm that is no
longer in existence, no adjustments have been made to the 2001
Consolidated Financial Statements. However, as described in
Note&nbsp;2 to the Consolidated Financial Statements, the 2001
Consolidated Financial Statements were restated to correct
certain classification errors. These reclassifications had no
effect on previously reported Revenue, Income from operations,
Other income, Net income, Total assets or Shareholders&#146;
equity. In order for the 2002 and 2003 Consolidated Financial
Statements to be correct as of the end of each of those years,
we have
</FONT>

<P align="center"><FONT size="2">25
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">recorded the cumulative effect of
$11.9&nbsp;million for all years prior to fiscal 2002 as an
adjustment to the opening retained earnings balance for fiscal
2002 as follows:
</FONT>
</DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Years Prior</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap><FONT size="1">Income (Expense)</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2000</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">1999</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">to 1999</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,700</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,964</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,776</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,472</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(933</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(404</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(537</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Internally developed software
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(94</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Tax effect of restatement adjustments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,851</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,510</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,389</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total adjustments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,280</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,301</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,266</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,083</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The adjustments to amounts previously presented
in selected financial data are summarized as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="57%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">As Previously</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Reported</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Adjustment</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">As Restated</FONT></TD>
</TR>

<TR>
    <TD align="left" nowrap><FONT size="1">2002:</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In thousands, except per share amounts)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,293,067</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,124</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,287,943</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">174,755</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,176</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">160,579</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (loss), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,986</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">230</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,756</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">71,949</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,610</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss) per share&nbsp;&#151; assuming
    dilution
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.27</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.04</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,438,261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,638</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,426,623</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,659,305</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,275</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,644,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="57%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">As Previously</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Reported</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Adjustment</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">As Restated</FONT></TD>
</TR>

<TR>
    <TD align="left" nowrap><FONT size="1">2000:</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In thousands, except per share amounts)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,279,550</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(537</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,279,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,415</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(537</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,878</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (loss), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,979</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,964</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,977</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,301</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,676</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss) per share&nbsp;&#151; assuming
    dilution
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.01</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,477,321</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,650</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,469,671</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">909,465</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,650</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">901,815</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="57%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">As Previously</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Reported</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Adjustment</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">As Restated</FONT></TD>
</TR>

<TR>
    <TD align="left" nowrap><FONT size="1">1999:</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In thousands, except per share amounts)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,093,303</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,093,303</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,750</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,750</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (loss), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,666</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,776</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">890</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,075</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,266</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,341</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss) per share&nbsp;&#151; assuming
    dilution
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.06</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.01</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,459,659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,349</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,455,310</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">986,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,349</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">981,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The decrease in total assets for fiscal 2002 of
$11.6&nbsp;million consists of a decrease in Property, plant and
equipment of $2.6 million, an increase in Goodwill of
$0.8&nbsp;million and a decrease in Other assets of
$9.8&nbsp;million. The decrease in total assets of
$7.7&nbsp;million for fiscal 2000 consists of a decrease in
Accounts receivable of $0.6&nbsp;million and a decrease in Other
assets of $7.1&nbsp;million. The decrease in total assets of
$4.3&nbsp;million for fiscal 1999 relates entirely to a decrease
in Other assets.
</FONT>

<P align="center"><FONT size="2">26
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='109'></A>
</DIV>

<!-- link1 "Item 7. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations" -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">Item&nbsp;7.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Management&#146;s Discussion and Analysis of
    Financial Condition and Results of Operations</FONT></B></TD>
</TR>

</TABLE>

<DIV align="left">
<HR size="1" width="100%" align="left" noshade>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">The following discussion should be read in
conjunction with the Consolidated Financial Statements and notes
thereto included elsewhere in this Annual Report on
Form&nbsp;10-K. Certain of such statements, including, without
limitation, statements regarding the extent and timing of future
revenues and expenses and customer demand, statements regarding
the deployment of our products, statements regarding our
reliance on third parties and other statements using words such
as &#147;anticipates,&#148; &#147;believes,&#148;
&#147;could,&#148; &#147;estimates,&#148; &#147;expects,&#148;
&#147;intends,&#148; &#147;may,&#148; &#147;plans,&#148;
&#147;should,&#148; &#147;will&#148; and &#147;would,&#148; and
words of similar import and the negatives thereof, constitute
forward-looking statements. These statements are predictions
based upon our current expectations about future events. Actual
results could vary materially as a result of certain factors,
including but not limited to, those expressed in these
statements. We refer you to the &#147;Risk Factors&#148;
&#147;Competition,&#148; &#147;Proprietary Technology,&#148;
&#147;Factors That May Affect Future Results,&#148;
&#147;Results of Operations,&#148; &#147;Disclosures About
Market Risk,&#148; and &#147;Liquidity and Capital
Resources&#148; sections contained in this Annual Report and the
risks discussed in our other SEC filings, which identify
important risks and uncertainties that could cause actual
results to differ materially from those contained in the
forward-looking statements.</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">We urge you to consider these factors
carefully in evaluating the forward-looking statements contained
in this Annual Report. All subsequent written or oral
forward-looking statements attributable to our company or
persons acting on our behalf are expressly qualified in their
entirety by these cautionary statements. The forward-looking
statements included in this Annual Report are made only as of
the date of this Annual Report. We do not intend, and undertake
no obligation, to update these forward-looking
statements.</FONT></I>

<P align="left">
<B><FONT size="2">Overview</FONT></B>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We license electronic design automation, or EDA,
software, sell or lease hardware technology and provide design
and methodology services throughout the world to help accelerate
and manage customers&#146; electronic product development
processes. Our broad range of products and services are used by
the world&#146;s leading electronics companies to design and
develop complex ICs and personal and commercial electronic
systems. For a detailed discussion of the challenges and
opportunities of the EDA industry and our products and services,
see Item&nbsp;1. Business above.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As part of our strategy, we have acquired
companies, businesses and third party intellectual property to
acquire technology and key personnel, and we expect to continue
making acquisitions in the future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">After experiencing a downturn in demand and
production in the last several years which resulted in reduced
research and development spending by many of our
customers,&nbsp;IC manufacturers and electronics companies
appear to have experienced a gradual recovery in the second half
of 2003, but have continued their focus on cost containment. In
response to the downturn in the economy, and in the electronics
industry in particular, we have initiated significant
restructuring activities over the past several years to better
align our cost structure with expected demand and revenues.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have identified certain items that management
uses as performance indicators to manage Cadence&#146;s
business, including revenue, certain elements of operating
expenses and cash flow from operations, and we describe these
items more fully in the &#147;Results of Operations&#148; below.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003, we experienced a continued customer
preference for renewable license types and expect the timing of
license renewals to continue to impact our results of
operations. Product revenue recognized from backlog comprised
approximately 60% of total product revenue in 2003, 45% in 2002
and 30% in 2001. This trend is primarily due to, and may
continue as a result of, increasing customer preference for
subscription licenses and customer requirements for more
flexible payment terms.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restatement</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2003, we restated our Consolidated
Financial Statements as of and for the fiscal year ended
December&nbsp;28, 2002 as discussed in more detail in
Note&nbsp;4 to our Consolidated Financial Statements. While
</FONT>

<P align="center"><FONT size="2">27
</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">certain adjustments impacting our Consolidated
Financial Statements for periods prior to fiscal 2002 were also
identified, the Consolidated Financial Statements for fiscal
2001 were not materially affected by the adjustments, and a firm
that is no longer in existence audited the Consolidated
Financial Statements for that year. Accordingly, no adjustments
have been made to our fiscal 2001 Consolidated Financial
Statements. However, for the Consolidated Balance Sheet as of
December&nbsp;28, 2002 to be properly stated, we have recorded
the cumulative effect of adjustments for all years prior to
fiscal 2002 of $11.9&nbsp;million to opening retained earnings
for fiscal 2002. The following discussion in this
Management&#146;s Discussion and Analysis of Financial Condition
and Results of Operations reflects the effects of the
Restatements.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquisitions</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have acquired companies, businesses and third
party technology, some of which are described below, and we
expect to acquire other companies, businesses and third party
technology in the future. We undertake these acquisitions as
part of our overall business strategy, and specifically, to
acquire key personnel, technology and customer relationships of
the acquired business. For each of these acquisitions the
results of operations and the estimated fair value of the assets
acquired and liabilities assumed have been included in our
Consolidated Financial Statements from the date of the
acquisition. These acquisitions are described in more detail
below in Note&nbsp;5 to our Consolidated Financial Statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Comparative pro forma financial information was
not presented for the 2003 or 2002 acquisitions because these
acquisitions were not material to our Consolidated Financial
Statements, either individually or in the aggregate. For
additional information regarding our 2003 acquisitions, see
&#147;Liquidity and Capital Resources&#148;, &#147;Results of
Operations&#148; and &#147;General and Administrative&#148;
found below in this Item&nbsp;7, &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of
Operations&#148;, and the Notes to our Consolidated Financial
Statements included in this Annual Report on Form&nbsp;10-K.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A summary of certain information regarding
acquisitions completed by Cadence in fiscal 2003 and 2002,
including the aggregate initial purchase price paid, is as
follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="45%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Date of</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Acquisition</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Consideration</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><FONT size="1">(In millions)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Verplex (A)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">August 2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Cash</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Innotech distribution rights (B)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">June 2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">78.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Cash</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Get2Chip (C)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">April 2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Cash</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Celestry (D)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">January 2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Cash</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">IBM TDA (E)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">September 2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Cash</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Simplex (F)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">June 2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">329.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Stock</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other 2003 acquisitions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Various</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Cash</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other 2002 acquisitions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Various</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom" nowrap><FONT size="2">Cash&nbsp;&#38; Stock</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total initial aggregate purchase price
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">331.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">461.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The businesses or assets acquired include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(A)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Verification technology.
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(B)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Distribution rights to certain customers, certain
    assets and key personnel of this Japan-based developer and
    distributor of software, electronic devices and semiconductor
    manufacturing equipment.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(C)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Nanometer-scale synthesis.
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(D)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Silicon modeling products and full-chip circuit
    simulation.
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(E)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Test design automation.
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(F)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Design and verification.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The purchase prices of our acquisitions generally
consist of one or more of the following: cash payments, shares
of our common stock, the fair value of assumed options, if any,
and acquisition costs. Other than the
</FONT>

<P align="center"><FONT size="2">28
</FONT>

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<DIV align="left">
<FONT size="2">Simplex, Innotech and IBM&#146;s TDA
acquisitions, the purchase price and goodwill associated with
companies acquired (but not asset acquisitions) will increase
above the initial purchase price paid if certain performance
goals related to revenue, bookings, product proliferation,
product development or employee retention, which are measured
over periods of up to four years following the acquisitions, are
achieved.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Concurrent with the Innotech acquisition, we also
modified our distributor agreement with Innotech. Prior to this
acquisition, we licensed most of our software products in Japan
through Innotech, of which we were, and continue to be, a 15%
stockholder. We now directly license our software products to
certain customers for which we acquired the distribution rights
from Innotech.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For most of our acquisitions of private
companies, a portion of the purchase price is payable after the
acquired business group&#146;s achievement of certain
performance goals, which generally relate to one or more of
bookings, revenue, product development, product proliferation or
employee retention. The specific performance goal levels and
amounts and timing of contingent purchase price payments vary
with each acquisition. In connection with some acquisitions,
Cadence may grant stock options with either time-based or
performance-based vesting, or a combination of both, to
employees of the acquired business as performance incentives. As
a result, the amount of cash consideration or shares of our
common stock issued to former stockholders of the acquired
entity will increase as performance goals are achieved,
generally over a period of up to four years following the
completion of the respective acquisition. Accordingly, goodwill
and deferred stock compensation expense will increase upon the
attainment of such goals.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2003, we paid $2.4&nbsp;million in cash
and recorded an additional 3.7&nbsp;million shares valued at
$57.7&nbsp;million related to acquisition earnouts. We recorded
$52.3&nbsp;million in additional goodwill consisting of
$2.4&nbsp;million in cash and $49.9&nbsp;million representing
3.2&nbsp;million shares. We also recorded additional deferred
stock compensation of $7.8&nbsp;million representing
0.4&nbsp;million shares for earnouts achieved during 2003. In
addition, we recorded $0.5&nbsp;million in deferred stock
compensation for estimated future earnouts in accordance with
FASB Interpretation No.&nbsp;28, &#147;Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award
Plans.&#148; The additional goodwill and deferred stock
compensation related to the achievement of certain performance
goals associated with one or more of the following criteria:
revenue, bookings, product proliferation, product development
and employee retention.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2002, we recorded an additional
12.8&nbsp;million shares, valued at $204.7&nbsp;million. We
recorded $181.2&nbsp;million of the $204.7&nbsp;million as
additional goodwill representing 11.3&nbsp;million of the
12.8&nbsp;million shares. We also recorded deferred stock
compensation of $23.5&nbsp;million of the $204.7&nbsp;million,
representing 1.5&nbsp;million of the 12.8&nbsp;million shares
for earnouts achieved during 2002. In addition, we recorded
$4.6&nbsp;million in deferred stock compensation for estimated
future earnouts in accordance with FASB Interpretation
No.&nbsp;28, &#147;Accounting for Stock Appreciation Rights and
Other Variable Stock Option or Award Plans.&#148; The additional
goodwill and deferred stock compensation related to the
achievement of certain performance goals associated with one or
more of the following criteria: bookings, product proliferation,
product development and/or employee retention resulting from
acquisitions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with our acquisitions completed
prior to January&nbsp;3, 2004, we may be obligated to pay up to
an aggregate of $39.1&nbsp;million in cash and issue a total of
0.8&nbsp;million shares of our common stock during fiscal 2004.
In addition, we may be required to pay an additional
$76.0&nbsp;million in cash from 2005 through 2007 if certain
performance goals related to bookings, revenues, product
development, product proliferation or employee retention are
achieved in full.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The goodwill recorded in connection with the
above-described contingent earnouts for acquisitions is not
expected to be deductible for income tax purposes.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Legal
Settlements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In September&nbsp;2003, we entered into a
settlement with Mentor Graphics Corporation, pursuant to which
Cadence, Mentor and their respective affiliated parties settled
all outstanding litigation between the companies and such
affiliated parties relating to emulation and acceleration
systems. The companies also agreed that, for a period of seven
years, neither will sue the other over patented emulation and
acceleration technology.
</FONT>

<P align="center"><FONT size="2">29
</FONT>

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<DIV align="left">
<FONT size="2">Mentor also paid us $18.0&nbsp;million in cash as
part of the settlement. Net of related legal costs, we recorded
$14.5&nbsp;million during the year ended January&nbsp;3, 2004
for the settlement.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November&nbsp;2002, we announced the
settlement of civil litigation filed against Avant! seeking
damages related to theft of our intellectual property, including
software code, as well as other trade secrets. The settlement
with Avant!, its parent corporation Synopsys, Inc. and several
individuals included an agreement to dismiss all pending claims
and counterclaims in the litigation and required the payment to
us of $265.0&nbsp;million, which was received in the fourth
fiscal quarter of 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July&nbsp;2001, Avant! was ordered to pay us
$195.4&nbsp;million in criminal restitution after Avant! entered
a plea of no contest and was found guilty by the Superior Court
of the State of California of conspiracy to take and use our
trade secrets. This conspiracy included the theft by Avant! and
certain individuals of our intellectual property, including
software code, as well as other trade secrets. As of
December&nbsp;29, 2001, approximately $196.0&nbsp;million,
consisting of all of the restitution award plus interest was
received.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Critical Accounting Estimates</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In preparing our Consolidated Financial
Statements, we make assumptions, judgments and estimates that
can have a significant impact on our revenue, operating income
and net income, as well as on the value of certain assets and
liabilities on our Consolidated Balance Sheets. We base our
assumptions, judgments and estimates on historical experience
and various other factors that we believe to be reasonable under
the circumstances. Actual results could differ materially from
these estimates under different assumptions or conditions. On a
regular basis, we evaluate our assumptions, judgments and
estimates and make changes accordingly. We believe that the
assumptions, judgments and estimates involved in the accounting
for revenue recognition, accounting for income taxes, valuation
of long-lived and intangible assets and goodwill, and
restructuring charges have the greatest potential impact on our
Consolidated Financial Statements, so we consider these to be
our critical accounting estimates. Historically, our
assumptions, judgments and estimates relative to our critical
accounting estimates have not differed materially from actual
results. For further information on our significant accounting
policies, see Note&nbsp;2 to our Consolidated Financial
Statements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our critical accounting estimates are as follows:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">revenue recognition;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">accounting for income taxes;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">valuation of long-lived and intangible assets and
    goodwill;&nbsp;and
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">restructuring charges.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Revenue recognition</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We apply the provisions of Statement of Position,
or SOP, 97-2, &#147;Software Revenue Recognition,&#148; as
amended by Statement of Position&nbsp;98-9 &#147;Modification of
SOP&nbsp;97-2, Software Revenue Recognition, With Respect to
Certain Transactions,&#148; to all product revenue transactions
where the software is not incidental. We also apply the
provisions of SFAS, No.&nbsp;13, &#147;Accounting for
Leases,&#148; to all hardware lease transactions. We recognize
revenue when persuasive evidence of an arrangement exists, the
product has been delivered, the fee is fixed or determinable,
collection of the resulting receivable is probable, and
vendor-specific objective evidence of fair value, or VSOE,
exists.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Fee is fixed or
determinable</FONT></I><FONT size="2">&nbsp;&#151; We assess
whether a fee is fixed or determinable at the outset of the
arrangement, primarily based on the payment terms associated
with the transaction. We generally use installment contracts for
term and subscription licenses and we have established a history
of collecting under the original contract without providing
concessions on payments, products or services. Our installment
contracts generally have payment periods that are equal to or
less than the term of the licenses, the payments are generally
collected quarterly, and periodic payments are generally made in
equal or nearly equal installments. Significant judgment is
involved in this determination, including determining whether a
contract amendment constitutes a concession. Our experience has
been that we are able to determine whether a fee is fixed or
determinable. While we do not expect that experience to change,
if we no longer had a history of
</FONT>

<P align="center"><FONT size="2">30
</FONT>

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<DIV align="left">
<FONT size="2">collecting under the original contract without
providing concessions on term licenses, revenue from term
licenses would be required to be recognized when payments under
the installment contract become due and payable. These changes
would have a material impact on our results of operations.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Collection is
probable</FONT></I><FONT size="2">&nbsp;&#151; We assess
collectibility at the outset of the arrangement based on a
number of factors, including the customer&#146;s past payment
history and its current creditworthiness. If in our judgment
collection of a fee is not probable, we defer the revenue until
the uncertainty is removed, which generally means revenue is
recognized upon receipt of cash payment. Our experience has been
that we are able to estimate that collection is probable. While
we do not expect that experience to change, if we were to
determine that collection is not probable for any license
arrangement with installment payment terms, revenue from this
license would be recognized generally upon the receipt of cash
payment. These changes could have a material impact on our
results of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Vendor-Specific Objective
Evidence</FONT></I><FONT size="2">&nbsp;&#151; Our VSOE for
certain product elements of an arrangement is based upon the
pricing for comparable transactions when the element is sold
separately. VSOE for maintenance is generally based upon the
customer&#146;s stated annual renewal rates. VSOE for services
is generally based on the price charged when the services are
sold separately. For multiple element arrangements, VSOE must
exist to allocate the total fee among all delivered and
undelivered elements in the arrangement. If VSOE does not exist
for all elements to support the allocation of the total fee
among all delivered and undelivered elements of the arrangement,
revenue is deferred until such evidence does exist for the
undelivered elements, or until all elements are delivered,
whichever is earlier. If VSOE of all undelivered elements exists
but VSOE does not exist for one or more delivered elements,
revenue is recognized using the residual method. Under the
residual method, the VSOE of the undelivered elements is
deferred, and the remaining portion of the arrangement fee is
recognized as revenue. Our experience has been that we are able
to estimate VSOE. While we do not expect that experience to
change, if we could no longer support VSOE for undelivered
elements of multiple element arrangements, revenue would be
deferred until we have VSOE for the undelivered elements or all
elements are delivered, whichever is earlier. This change could
have a material impact on our results of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Services
revenue</FONT></I><FONT size="2">&nbsp;&#151; Services revenue
consists primarily of revenue received for performing
methodology and design services. Revenue from service contracts
is recognized either on the time and materials method, as work
is performed, or on the percentage-of-completion method. For
contracts with fixed or not-to-exceed fees on a monthly basis,
we estimate the percentage-of-completion, which is based on the
completion of milestones relating to the arrangement. We have a
history of accurately estimating project status and the costs
necessary to complete projects. A number of internal and
external factors can affect our estimates, including labor
rates, utilization and efficiency variances and specification
and testing requirement changes. If different conditions were to
prevail such that accurate estimates could not be made, then the
use of the completed contract method would be required and the
recognition of all revenue and costs would be deferred until the
project was completed. This change could have a material impact
on our results of operations.
</FONT>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounting for
income taxes</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We provide for the effect of income taxes on our
Consolidated Financial Statements in accordance with
SFAS&nbsp;No.&nbsp;109, &#147;Accounting for Income Taxes.&#148;
Under SFAS&nbsp;No.&nbsp;109, income tax expense is recognized
for the amount of taxes payable or refundable for the current
year and for deferred tax liabilities and assets for tax
consequences of events that have been recognized in an
entity&#146;s financial statements or tax returns. Our
assumptions, judgments and estimates relative to the value of
our net deferred tax assets take into account predictions of the
amount and category of future taxable income from potential
sources including tax planning strategies that would, if
necessary, be implemented to prevent a loss carryforward or tax
credit carryforward from expiring unused. Actual operating
results and the underlying amount and category of income in
future years could render our current assumptions, judgments and
estimates of recoverable net deferred taxes inaccurate, thus
materially impacting our results of operations and financial
position. Management must make significant assumptions,
judgments and estimates to determine our current provision for
income taxes and also our deferred tax assets and liabilities
and any valuation allowance to be recorded against our deferred
tax assets. Our judgments, assumptions and estimates relative to
the current provision for income taxes take into
</FONT>

<P align="center"><FONT size="2">31
</FONT>

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<DIV align="left">
<FONT size="2">account current tax laws, our interpretation of
current tax laws and possible outcomes of current and future
audits conducted by foreign and domestic tax authorities.
Changes in tax law or our interpretation of tax laws and the
resolution of current and future tax audits could significantly
impact the amounts provided for income taxes in our results of
operations, financial position or cash flows. See the risk
factor affecting future results titled <I>&#147;We have received
an examination report from the Internal Revenue Service
proposing a tax deficiency in certain of our tax returns, and
the outcome of the examination or any future examinations
involving similar claims may have a material adverse effect on
our results of operations and cash flows.&#148;</I>
</FONT>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Valuation of long-lived and intangible assets,
    including goodwill</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At least annually we review for impairment of
goodwill resulting from business combinations in accordance with
SFAS&nbsp;No.&nbsp;142, &#147;Goodwill and Other Intangible
Assets.&#148; We completed our annual impairment review during
the third quarter of 2003. We did not identify any impairment to
our goodwill as a result of this review. We review long-lived
assets, including certain identifiable intangibles, for
impairment whenever events or changes in circumstances indicate
that we will not be able to recover the asset&#146;s carrying
amount in accordance with SFAS&nbsp;No.&nbsp;144,
&#147;Accounting for the Impairment or Disposal of Long-Lived
Assets.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For long-lived assets to be held and used,
including acquired intangibles, we initiate our review whenever
events or changes in circumstances indicate that the carrying
amount of a long-lived asset may not be recoverable.
Recoverability of an asset is measured by comparing its carrying
amount to the expected future undiscounted cash flows expected
to result from the use and eventual disposition of that asset,
excluding future interest costs that would be recognized as an
expense when incurred. Any impairment to be recognized is
measured by the amount by which the carrying amount of the asset
exceeds its fair market value. Significant management judgment
is required in:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">identifying a triggering event that arises from a
    change in circumstances;
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">forecasting future operating results;&nbsp;and
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">estimating the proceeds from the disposition of
    long-lived or intangible assets.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Material impairment charges could be necessary
should different conditions prevail or different judgments be
made.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Restructuring charges</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We account for restructuring charges in
accordance with SEC Staff Accounting Bulletin No.&nbsp;100
&#147;Restructuring and Impairment Charges.&#148; Since 2001 we
have undertaken significant restructuring initiatives. All
restructuring activities initiated prior to fiscal year 2003
were accounted for in accordance with EITF No.&nbsp;94-3,
&#147;Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)&#148; and EITF No.&nbsp;88-10
&#147;Costs Associated with Lease Modifications or
Terminations.&#148; For restructuring activities initiated after
fiscal year 2002, we accounted for the facilities and
asset-related portions of this restructuring in accordance with
SFAS&nbsp;No.&nbsp;146 &#147;Accounting for Costs Associated
with Exit or Disposal Activities.&#148; The severance and
benefits charges were accounted for in accordance with
SFAS&nbsp;No.&nbsp;112 &#147;Employers&#146; Accounting for
Postemployment Benefits&nbsp;&#151; An Amendment of FASB
Statements No.&nbsp;5 and 43.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These restructuring initiatives have required us
to make a number of estimates and assumptions related to losses
on excess facilities vacated or consolidated, particularly the
timing of subleases and sublease terms. Closure and space
reduction costs included in our restructuring charges include
payments required under leases, less any applicable estimated
sublease income after the facilities are abandoned, lease buyout
costs and costs to maintain facilities during the period after
abandonment.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we have recorded estimated
provisions for termination benefits and outplacement costs,
long-term asset write-downs, and other restructuring costs. We
regularly evaluate the adequacy of our restructuring accrual,
and adjust the balance based on changes in estimates and
assumptions. We may incur future charges for new restructuring
activities as well as changes in estimates to amounts previously
recorded.
</FONT>

<P align="center"><FONT size="2">32
</FONT>

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<P align="left">
<B><FONT size="2">Results of Operations</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We primarily generate revenue from licensing EDA
software and selling or leasing hardware technology, providing
maintenance for the software and hardware and providing design
and methodology services. We principally utilize three license
types which provide a customer flexibility with several
alternatives to the rights it has to utilize our products,
including (i)&nbsp;the right to access to new technology;
(ii)&nbsp;the duration of the license&nbsp;&#151; for a fixed
term, generally two to three years, or on a perpetual basis; and
(iii)&nbsp;payment terms. Customer decisions for these aspects
of license transactions determine the license type, timing of
revenue recognition and potential future business activity. For
example, if a customer chooses a fixed term of use, then this
will result in either a subscription or term license. A business
implication of that decision is that at the expiration of the
license period the customer must decide if it wants to continue
using the technology and therefore renew the license agreement.
Because larger customers generally use products from two or more
of our five product groups, rarely will a large customer
completely terminate its relationship with Cadence at expiration
of the license. See Critical Accounting Estimates for additional
discussion of licenses types and timing of revenue recognition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To the extent the customer obtains rights to
remix to new technology or more flexible payment terms, the
revenue is recognized over the life of the agreement. This
distinction is critical. For example, a $3.0&nbsp;million 3-year
subscription would result in $1.0&nbsp;million of revenue per
year, or $250,000&nbsp;per quarter. Whereas, a
$3.0&nbsp;million, 3-year term license, assuming equal or near
equal payments and exclusive of the maintenance element, would
result in $3.0&nbsp;million of product revenue upon delivery,
which is generally in the first quarter of the arrangement and
no product revenue in succeeding quarters.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">An increasing proportion of our product business
consists of subscription licenses, which give customers limited
access to new technology, and licenses with more flexible
payment terms. These changes have the effect of deferring the
timing of revenue recognition to future periods. The result has
been a decline in product revenue in 2003 compared to 2002, and
2002 compared to 2001, as the proportion of product licenses
under which revenue is deferred continued to increase.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">With each succeeding quarter in which the amount
of product licenses where revenue is deferred increases, our
revenue from backlog also increases. Product revenue recognized
from backlog comprised approximately 60% of total product
revenue in 2003, 45% in 2002 and 30% in 2001. As long as
customers continue to prefer subscription licenses, we expect
that revenue from backlog will increase and our revenue will be
less susceptible to short-term fluctuations in volume. Because
of our model under which we recognize revenue over multiple
periods, we do not believe that pricing volatility is a material
component of the change in our product revenues from period to
period and we do not analyze changes in pricing from one period
to the next.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The amount of product revenue in future periods
will depend, among other things, on the terms and timing of our
contract renewals or additional product sales with existing
customers, the size of such transactions or renewals, and sales
to new customers. Product revenue in any period is also affected
by the extent to which customers prefer subscription, term or
perpetual licenses, and the extent to which contracts contain
flexible payment terms. Revenue is also affected by changes in
the extent to which existing contracts contain flexible payment
terms and changes in license types (e.g., subscription to term)
for existing customers. Contract renewals, and consequently
product revenues, are also affected by the competitiveness of
our products.
</FONT>

<P align="center"><FONT size="2">33
</FONT>
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<P align="left">
<B><I><FONT size="2">Revenue</FONT></I></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="35%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><FONT size="1">% Change</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003 vs. 2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002 vs. 2001</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In millions)</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">663.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">806.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">830.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(18</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">131.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">149.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">263.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(43</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">324.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">331.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">336.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,119.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,287.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,430.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><I><FONT size="2">Revenue Mix by Product Group</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We analyze our business by product groups,
combining revenues for both product and maintenance because of
their interrelationship. We introduced our first platform in
September 2002. The data for product groups before the
introduction of a corresponding platform aggregates the revenues
for the individual products associated with a platform. On this
basis, the following table shows the percentage of product and
maintenance revenue contributed by each of the five product
groups, and services, for 2003, 2002 and 2001.
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="70%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Functional Verification
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Digital IC Design
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Custom IC Design
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Design for Manufacturing
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">System Interconnect
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003 and, to a lesser extent, 2002, revenue
for all platforms was negatively affected by the shift to more
ratable licenses and lower sales volume. The following
discussion analyzes revenue by product group from 2001 to 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Functional Verification: Our Incisive Functional
Verification Platform, introduced in February 2003, supports a
unified methodology, from design of the total system to
design-in of particular ICs to design of specific systems, for
all design domains. The revenue contribution for this platform
remained constant on a relative basis in 2003. Increased revenue
from our new Incisive simulators, our Conformal product, and
strong demand for our new Palladium hardware in-circuit
emulation option was offset by a decline in revenue from our
older simulators and legacy emulation products. The relative
revenue contribution declined from 2001 to 2002 as customers
tended to forego purchases of verification products during the
semiconductor downturn in favor of more critical products in the
digital IC area.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Digital IC Design: Our Encounter Digital IC
Design Platform, introduced in September 2002, leverages a
unified architecture for full digital implementation of
nanometer-scale designs. The revenue contribution from this area
increased on a relative basis from 2002 to 2003 due to
increasing revenue for newer products in the Encounter platform
which are focused on nanometer scale designs offset by declining
sales of our older digital design products which were less
competitive. The relative revenue contribution also increased
from 2001 to 2002, driven by demand for new technology to meet
the design needs of smaller semiconductor process geometries,
and revenue from new products, primarily First Encounter.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Custom IC Design: The Virtuoso Custom IC Design
Platform, introduced in September 2003, enables development of
silicon-accurate analog, custom digital, radio frequency and
mixed-signal designs. The percentage of revenue from the
Virtuoso platform increased from 2002 to 2003 due to incremental
revenue from new products as well as the growing importance of
mixed-signal chip designs, a factor which also contributed to
the increase from 2001 to 2002.
</FONT>

<P align="center"><FONT size="2">34
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Design for Manufacturing: Our products in the
design for manufacturing area include Fire&nbsp;&#38; Ice QX,
SignalStorm, VoltageStorm, ElectronStorm and our Assura design
rule checking products. The percentage of revenue from this area
remained relatively constant from 2001 to 2003, as increasing
revenue from newer products such as Fire&nbsp;&#38; Ice QX and
our Assura group was offset by declining revenue from our older
products which are less competitive for the newer semiconductor
processes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">System Interconnect: Our Allegro System
Interconnect Design Platform, introduced in March 2004, enables
collaborative design of high-performance interconnect across the
domains of IC, package and PCB, reducing cost and time to
market. Our system interconnect products have underperformed our
integrated circuit design products over the 2001 to 2003 period
because this product group is more exposed to systems companies
in the data communications and computer systems sectors, which
suffered relatively larger declines in business than other
sectors in the electronics industry downturn, and because there
has been less technological change in the design of printed
circuit boards and system interconnect, there has been less
demand for new design products.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Services revenue decreased $18.6&nbsp;million in
2003 compared to 2002, and decreased $113.5&nbsp;million in 2002
compared to 2001, due to a decrease in customer spending for
design service as a result of the economic downturn experienced
in the electronics industry.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Additional financial information about segments
can be found in Note&nbsp;19 to our Consolidated Financial
Statements.
</FONT>

<P align="left">
<B><I><FONT size="2">Revenue by Geography</FONT></I></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="32%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><FONT size="1">% Change</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003 vs. 2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002 vs. 2001</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In millions)</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Domestic
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">623.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">710.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">785.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">International
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">495.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">577.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">645.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,119.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,287.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,430.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><I><FONT size="2">Revenue by Geography as a Percent of Total
Revenue</FONT></I></B>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="67%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Domestic
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">International
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">International revenue decreased
$82.1&nbsp;million in 2003 compared to 2002, primarily due to a
$59.3&nbsp;million decrease in product revenue in Europe and a
$13.4&nbsp;million decrease in services revenue in Europe. The
decrease in product revenue in Europe was primarily due to the
timing of license renewals for existing customers.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">International revenue decreased
$67.1&nbsp;million in 2002 compared to 2001, due a
$34.0&nbsp;million decrease in international services revenue
and a $47.5&nbsp;million decrease in product revenue in Europe,
slightly offset by a $14.8&nbsp;million increase in product
revenue in Japan. Revenue in Japan accounted for 33% of total
international revenue in 2002 compared to 28% in 2001. The
slight increase in product revenue in Japan was due to the
timing of license renewals for existing customers and was
partially offset by a decrease in services revenue.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The rate of revenue change varies geographically
due to differences in the timing and extent of term license
renewals for existing customers in those regions. In addition,
both our domestic and international businesses have been
affected by the revenue trends discussed above in this section
entitled &#147;Results of Operations.&#148;
</FONT>

<P align="center"><FONT size="2">35
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">With respect to foreign currency exchange rates,
revenue increased by $18.8&nbsp;million in 2003 as compared to
2002, primarily due to strengthening of the Japanese yen in
relation to the U.S.&nbsp;dollar. Revenue decreased by
$8.4&nbsp;million in 2002 as compared to 2001, primarily due to
the weakening of the Japanese yen in relation to the
U.S.&nbsp;dollar. Additional information about revenue and other
financial information by geography can be found in Note&nbsp;19
to our Consolidated Financial Statements.
</FONT>

<P align="left">
<B><I><FONT size="2">Cost of Revenue</FONT></I></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="39%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">% Change</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003 vs. 2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002 vs. 2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">118.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(32</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">192.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(19</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(40</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<B><I><FONT size="2">Cost of Revenue as a Percent of Related
Revenue</FONT></I></B>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="67%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">71%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">77%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">73%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cost of product revenue includes costs associated
with the sale or lease of our hardware and licensing of our
software products. Cost of product revenue primarily includes
the cost of employee salary and benefits, amortization of
intangible assets directly related to Cadence products,
documentation and royalties payable to third party vendors. Cost
of product revenue associated with our Cadence Verification
Acceleration, or CVA, hardware products also includes materials,
assembly labor and overhead. These additional manufacturing
costs make our cost of hardware product higher, as a percentage
of revenue, than our cost of software product.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A summary of Cost of product is as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="63%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In millions)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Product related costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">79.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventory write-off
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Cost of product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">118.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cost of product revenue decreased
$31.3&nbsp;million in 2003 compared to 2002, primarily due to an
$18.9&nbsp;million reduction in amortized software costs, an
$8.3&nbsp;million decrease in royalties, a $9.3&nbsp;million
decrease in Inventory write-offs, and a $2.2&nbsp;million
decrease in acquisition-related write-offs. The decreases were
partially offset by an increase in amortization of acquired
intangibles of $13.8&nbsp;million during 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cost of product revenue decreased
$20.2&nbsp;million in 2002 compared to 2001, due to a decrease
in salary and benefits costs of $10.6&nbsp;million, a decrease
of $9.6&nbsp;million in the amount of inventory write-offs and a
$6.0&nbsp;million decrease in cost of sales of CVA products,
partially offset by a $6.4&nbsp;million increase in royalty
costs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2003, we began reporting amortization
expense related to certain intangible assets acquired in
business combinations in Cost of product. We previously recorded
all amortization expense related to these intangibles in
Amortization of acquired intangibles. Accordingly, we have
reclassified amortization expense related to these intangibles
of $25.2&nbsp;million in 2002 and $20.3&nbsp;million in 2001.
</FONT>

<P align="center"><FONT size="2">36
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2002, we recognized a charge of
$9.3&nbsp;million, which is included in cost of product revenue,
for excess inventory from decreased sales forecasts. In 2001, we
recorded an $18.9&nbsp;million write-off for excess inventory in
cost of product revenue. Of the $18.9&nbsp;million,
$15.2&nbsp;million of the write-off was related to excess
inventory from decreased sales forecasts and $3.7&nbsp;million
related to two product lines that were discontinued as part of
our restructuring. The excess inventory charges of
$9.3&nbsp;million in 2002 and $15.2&nbsp;million in 2001 were
due to significant decreases in forecasted revenue for emulation
products and were calculated in accordance with our practice,
which is based on reserving for inventory in excess of estimated
12-month demand. Inventory purchases and commitments are based
on future sales forecasts. We typically buy and build inventory
levels for certain key components to mitigate component supply
constraints. Based on our current 12-month demand forecast, we
do not anticipate that the excess inventory will be used at a
later date. We have determined that inventory levels at
January&nbsp;3, 2004 were within forecasted usage for the
succeeding 12-month period.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cost of services revenue primarily includes
employee salary and benefits, costs to maintain the
infrastructure necessary to manage a services organization, and
provisions for contract losses, if any. Cost of services revenue
decreased $21.5&nbsp;million in 2003 compared to 2002 primarily
due to decreases in employee salary and benefit costs resulting
from our reduction of services professionals in connection with
our restructuring actions initiated in 2002 and 2003. Cost of
services revenue decreased $77.9&nbsp;million in 2002 compared
to 2001, primarily due to decreases in employee salary and
benefit costs resulting from our reduction of services
professionals in connection with our restructuring actions
initiated in 2001 and 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cost of maintenance revenue includes the cost of
customer services, such as hot-line and on-site support,
production employees and documentation of maintenance updates.
Cost of maintenance revenue decreased $8.6&nbsp;million in 2003
compared to 2002 primarily due to a decrease in employee salary
and benefit costs resulting from a decrease in employee
headcount. Cost of maintenance revenue decreased
$0.2&nbsp;million in 2002 compared to 2001, primarily due to a
decrease in employee salary and benefit costs resulting from a
decrease in employee headcount.
</FONT>

<P align="left">
<B><I><FONT size="2">Operating Expenses</FONT></I></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="35%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><FONT size="1">% Change</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003 vs. 2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002 vs. 2001</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In millions)</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketing and sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">326.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">402.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">393.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(19</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Research and development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">340.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">326.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">297.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">119.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(29</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total operating expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">749.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">844.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">810.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><I><FONT size="2">Operating Expenses as a Percent of Total
Revenue</FONT></I></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="65%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketing and sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Research and development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">Marketing and Sales</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Marketing and sales expenses decreased
$75.5&nbsp;million during 2003 compared to 2002 primarily due to
a $27.8&nbsp;million decrease in employee salary and benefit
costs resulting from our restructuring activities, a
$16.1&nbsp;million decrease in commission costs, a
$12.6&nbsp;million decrease in outside services, and a
$4.1&nbsp;million decrease in marketing program costs. Salary,
benefits and commission costs declined due to reduced headcount
in the sales and marketing organizations. Outside services costs
declined due to decreased
</FONT>

<P align="center"><FONT size="2">37
</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">commission payments to Innotech as a result of
our acquisition of distribution rights to certain customers from
Innotech, and due to a reduction in costs incurred for outside
contractors and consultants.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Marketing and sales expenses increased
$8.5&nbsp;million in 2002 compared to 2001, primarily due to a
$22.6&nbsp;million increase in employee salary and benefit costs
primarily related to acquisitions of other businesses and an
$8.0&nbsp;million increase in commission costs. These increases
were partially offset by decreases of $20.3&nbsp;million in
sales program costs and $3.1&nbsp;million in marketing program
costs.
</FONT>

<P align="left">
<B><FONT size="2">Research and Development</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The increase in Research and development expense
of $13.7&nbsp;million for 2003 compared to 2002 was primarily
due to a $14.1&nbsp;million increase in salary, benefits and
associated costs resulting from an increase in employees due to
business acquisitions and an $18.9&nbsp;million reduction in
capitalized development costs, partially offset by an
$11.5&nbsp;million reduction in costs related to outsourced
services and research and development projects as a result of
the restructuring activities, and a $5.6&nbsp;million decrease
in expenses related to other outside services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The increase in Research and development expense
of $29.1&nbsp;million for 2002 compared to 2001, was primarily
due to a $23.3&nbsp;million increase in employee salary and
benefit costs resulting from an increase in employees, primarily
due to business acquisitions.
</FONT>

<P align="left">
<B><FONT size="2">General and Administrative</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">General and administrative expense decreased
$33.2&nbsp;million in 2003 compared to 2002, primarily due to a
$16.6&nbsp;million decrease in legal expense, a
$9.3&nbsp;million decrease in salary and benefit costs in
connection with our restructuring activities and a
$2.2&nbsp;million decrease in bad debt expense. Bad debt expense
continues to decline as collection experience in our services
business continues to improve. The allowance for doubtful
accounts as a percentage of total receivables declined in 2003
as compared to 2002 because write-offs continued to decline and
because of additional reductions in the percentage of
receivables past due. There were no significant changes in our
collection policies or payment terms from 2002 to 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">General and administrative expense decreased
$3.6&nbsp;million in 2002 compared to 2001, primarily due to an
increase of $11.1&nbsp;million in legal expense, partially
offset by a $4.1&nbsp;million decrease in employee salary and
benefits and an $8.0&nbsp;million decrease in bad debt expense,
primarily related to the design services business. The design
services business was particularly affected by the economic
downturn during 2001 and 2002 because some customers in
financial distress failed to meet their payment obligations
under their services contracts with us, often because they
failed to obtain expected additional rounds of financing. The
allowance for doubtful accounts as a percentage of total
receivables declined in 2002 compared to 2001 because of the
write-offs in 2002 of specific reserves recorded in 2001 and
because of a reduction in the percentage of receivables past
due. There were no significant changes in our collection
policies or payment terms from 2001 to 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Foreign currency exchange rates increased
operating expenses by $11.3&nbsp;million in 2003, compared to
2002, primarily due to the strengthening of the euro and British
pound in relation to the U.S. dollar. Foreign currency exchange
rates increased operating expenses by $1.2&nbsp;million in 2002,
compared to 2001, primarily due to the strengthening of the euro
and British pound in relation to the U.S. dollar.
</FONT>

<P align="left">
<B><FONT size="2">Operating Expenses</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Operating expenses declined $95.0&nbsp;million
from 2002 to 2003 as a result of the cost reductions from our
2003 and 2002 restructuring activities described more fully
below in &#147;Restructuring and Other Charges&#148; and
continued cost containment by our customers. We expect our
operating expenses to be flat to up slightly in 2004 as we
continue to realize cost reductions from our 2003 restructuring,
offset by increased expenses from research and development and
selected sales and marketing programs.
</FONT>

<P align="center"><FONT size="2">38
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">
<B><I><FONT size="2">Amortization of Acquired
Intangibles</FONT></I></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="66%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In millions)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Amortization of acquired intangibles increased
$8.8&nbsp;million in 2003 compared to 2002, primarily due to a
$10.8&nbsp;million increase in amortization of intangibles
acquired from Simplex,&nbsp;IBM&#146;s TDA, Celestry, Get2Chip,
Verplex and Innotech. Amortization of acquired intangibles
decreased $17.0&nbsp;million in 2002 compared to 2001, primarily
due to a $24.9 decrease attributable to the effects of
implementing SFAS, No.&nbsp;142, &#147;Goodwill and Other
Intangible Assets&#148; which requires that goodwill no longer
be amortized. This reduction was partially offset by a
$3.8&nbsp;million increase in amortization of intangibles
acquired from Simplex and a $2.7&nbsp;million increase in
amortization of intangibles acquired from Silicon Perspective
Corporation, or SPC.
</FONT>

<P align="left">
<B><I><FONT size="2">Amortization of Deferred Stock
Compensation</FONT></I></B>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="66%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We amortize deferred stock compensation related
to fixed awards to expense using the straight-line method over
the period that the stock options and restricted stock vest. We
recognize stock compensation expense related to variable awards
using an accelerated method over the period that the stock
options and restricted stock are earned. Amortization of
deferred stock compensation decreased $2.9&nbsp;million in 2003
compared to 2002, primarily due to a $14.8&nbsp;million decrease
in the amortization of deferred stock compensation related to
SPC and Tality (the former name of our design services
business). This decrease was partially offset by a
$4.3&nbsp;million increase in the amortization of deferred stock
compensation related to Verplex, and a $2.2&nbsp;million
increase in the amortization of deferred stock compensation
related to the mark-to-market of options granted to consultants.
Amortization of deferred stock compensation increased
$26.1&nbsp;million in 2002 compared to 2001, primarily due to a
$28.5&nbsp;million increase in the amortization of deferred
stock compensation related to SPC. This increase was partially
offset by a $4.7&nbsp;million decrease in the amortization of
deferred stock compensation related to Tality.
</FONT>

<P align="left">
<B><I><FONT size="2">Restructuring and Other
Charges</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We initiated separate plans of restructuring in
each of the past three years, in an effort to improve our
revenue per employee, reduce operating expenses and improve
operating margins and cash flows.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The first of these plans of restructuring, which
was announced in 2001, or the 2001 Restructuring, was intended
to reduce costs by eliminating excess personnel and
consolidating facilities and resources. The restructuring was in
response to the severe economic downturn in the electronics
industry. The restructuring was primarily aimed at reducing
excess personnel and capacity costs within our design services
business (formerly Tality) throughout the world, to align the
cost structure of our design services business with its expected
revenues. The 2001 restructuring was substantially completed
within 12&nbsp;months after commitment to the plan, except for
remaining facilities-related charges from vacated facilities
included in the plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2002, we commenced a new plan of
restructuring, or the 2002 Restructuring, intended to further
reduce costs by eliminating excess personnel and consolidating
facilities and resources due to the continued economic downturn
in the electronics industry. The 2002 Restructuring costs
resulted from involuntary terminations and the abandonment of
long-lived assets and vacated facilities. These costs primarily
related to our design services business and certain other
business/infrastructure groups.
</FONT>

<P align="center"><FONT size="2">39
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July 2003, we announced an additional plan of
restructuring, or the 2003 Restructuring, intended to reduce
costs and realize efficiencies by eliminating excess personnel
and consolidating facilities and resources throughout the
company to align our cost structure with expected revenues.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A summary of restructuring and other charges by
plan of restructuring for fiscal years 2003, 2002 and 2001 is as
follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="19%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Severance</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Asset-</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Excess</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Benefits</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Related</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Facilities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restructuring</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2002 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2001 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total 2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2002:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2002 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">119.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2001 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">134.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2001:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2001 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Frequently, asset write-downs are based on
significant estimates and assumptions, particularly regarding
remaining useful life and utilization rates. We may incur other
charges in the future if management determines that the useful
life or utilization of certain long-lived assets has been
reduced.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Closure and space reduction costs included
payments required under leases less any applicable estimated
sublease income after the properties were abandoned, lease
buyout costs, and costs to maintain facilities during the period
after abandonment. To determine the lease loss, which is the
loss after our cost recovery efforts from subleasing a building,
certain assumptions were made related to the: (1)&nbsp;time
period over which the relevant building would remain vacant,
(2)&nbsp;sublease terms, and (3)&nbsp;sublease rates, including
common area charges.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of January&nbsp;3, 2004, we have accrued the
low end of the lease loss range related to all worldwide
restructuring activities initiated since 2001, which is
estimated to be $23.2&nbsp;million. This amount will be adjusted
in the future based upon changes in the assumptions used to
estimate the lease loss. As of January&nbsp;3, 2004, we have
estimated that the high end of the lease loss range could be as
much as $47.8&nbsp;million if sublease rental rates decrease in
applicable markets or if it takes longer than currently expected
to find a suitable tenant to sublease the facilities. Since
2001, we have recorded facilities consolidation charges under
the 2001, 2002 and 2003 Restructurings of $83.0&nbsp;million
related to reducing space or the closing of 32 sites, of which
22 have been vacated and ten have been downsized.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because the restructuring charges and related
benefits are derived from our management estimates made during
the formulation of the restructurings, based on then-currently
available information, our restructuring activities may not
achieve the benefits anticipated on the timetable or at the
level contemplated. The demands for our products and services
and, ultimately, our future financial performance, are difficult
to predict with any degree of certainty. Accordingly, additional
actions, including further restructuring of our operations, may
be required in the future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is further discussion of each
restructuring plan:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">2003
Restructuring</FONT></I><FONT size="2">&nbsp;&#151; The 2003
Restructuring will result in the termination of approximately
635&nbsp;employees. Costs resulting from this restructuring
included severance payments, severance-related benefits and
</FONT>

<P align="center"><FONT size="2">40
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">outplacement services. All terminations and
termination benefits associated with this restructuring were
communicated to the affected employees prior to January&nbsp;3,
2004, with all termination benefits expected to be paid by
January&nbsp;1, 2005.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect to incur an additional $4&nbsp;million
to $6&nbsp;million of future costs in connection with the 2003
Restructuring, primarily for facilities-related charges, which
will be expensed as incurred. We expect annualized cost
reductions resulting from the 2003 Restructuring of
approximately $62&nbsp;million in employee salary and benefits
costs, related to the reduction in workforce and approximately
$4&nbsp;million in facility costs related to facilities
consolidated or closed, which amounts could vary based on
changes in estimates. These workforce reductions occurred
throughout the company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Of the $25.7&nbsp;million of asset-related costs
we incurred in conjunction with the 2003 Restructuring,
$11.2&nbsp;million was directly related to restructuring and
$14.5&nbsp;million was for other charges. The $11.2&nbsp;million
of asset-related restructuring charges primarily related to a
fee owed to a third party due to a reduction in headcount,
write-off of leasehold improvements for facilities, disposal of
excess equipment and contract termination costs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The $14.5&nbsp;million of other charges was
primarily related to the write-downs of internally developed and
purchased software. As a result of the restructuring efforts, we
eliminated budgeted expenditures for certain internally
developed software projects. As such, we determined that it was
no longer probable that the computer software being developed
for internal purposes would be completed and placed into
service. During the year, we also determined that we would not
integrate certain technology relating to purchased software,
that had been previously capitalized, into any of our future
products. Accordingly, we recognized a charge to reduce the
value of the internally developed software and purchased
software to zero.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The $10.9&nbsp;million of net facilities charges
we incurred under the 2003 Restructuring primarily related to
space reductions at six sites and closure of five sites, along
with further consolidation of two previously downsized sites. We
accrued facilities charges as part of the 2003 Restructuring at
the time we ceased use of the vacated space.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">2002
Restructuring</FONT></I><FONT size="2">&nbsp;&#151; The 2002
Restructuring resulted in the termination of employment for
approximately 1,370&nbsp;employees. While such terminations were
across various business functions, operating units and
geographic regions, the communications-related areas within the
design services business were the most affected. Costs resulting
from the restructuring included severance benefits, notice pay
and outplacement services. All terminations and termination
benefits were communicated to the affected employees prior to
December&nbsp;28, 2002. During 2003, we incurred an additional
$0.8&nbsp;million in severance and benefits related to
terminations included in the 2002 Restructuring. As of
January&nbsp;3, 2004, $1.4&nbsp;million of severance and
benefits associated with the 2002 restructuring activities
remain to be paid, which are expected to be paid by
June&nbsp;30, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Asset-related and other restructuring charges of
$35.3&nbsp;million incurred during 2002 under the 2002
Restructuring were connected with the abandonment of leasehold
improvements for facilities, impairments resulting from
abandonment of other fixed assets, including software licenses
and contract termination costs. During 2003, we incurred
$0.4&nbsp;million of additional asset-related charges under the
2002 Restructuring for contract termination costs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2003, we recorded $1.5&nbsp;million of
additional facilities charges under the 2002 Restructuring,
primarily associated with changes to lease loss estimates
related to sites included in the plan. Facilities consolidation
charges of $32.4&nbsp;million recorded during 2002 under the
2002 Restructuring were primarily connected with the further
downsizing of four previously downsized sites and the downsizing
and closing of 16&nbsp;additional sites.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">2001
Restructuring</FONT></I><FONT size="2">&nbsp;&#151;
Facilities-related charges recorded under the 2001 Restructuring
were $1.8&nbsp;million in 2003 and $14.5&nbsp;million during
2002, primarily connected with changes in lease loss estimates,
due to reductions in estimated sublease income caused by
deterioration in local real estate markets where facilities
included in the plan are located.
</FONT>

<P align="center"><FONT size="2">41
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">
<B><I><FONT size="2">Write-off of Acquired in-Process
Technology</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon consummation of an acquisition, we
immediately charge to expense any acquired in-process technology
that has not yet reached technological feasibility and has no
alternative future use. The value assigned to acquired
in-process technology is determined by identifying research
projects in areas for which technological feasibility has not
been established. The values are determined by estimating costs
to develop the acquired in-process technology into commercially
viable products, estimating the resulting net cash flows from
such projects and discounting the net cash flows back to their
present value. The discount rates utilized include a factor that
reflects the uncertainty surrounding successful development of
the acquired in-process technology.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Described below are the write-offs of acquired
in-process technology charges in 2003, 2002 and 2001.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="62%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(In millions)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Get2Chip
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Verplex
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Celestry
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Simplex
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">IBM TDA
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CadMOS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">SPC
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total in process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Described below is a summary of in-process
technology acquired during 2003, 2002 and 2001 as of
January&nbsp;3, 2004:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="41%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Estimated</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Expenditures</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Remaining</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Incurred to</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Expenditures</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Complete</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">To Complete</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Discount</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Commercial</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">In-Process</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">In-Process</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Rates</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Feasibility</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Technology</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Technology</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><FONT size="1">(In millions)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Get2Chip
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">June 2004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Verplex
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">September 2004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Celestry
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">March 2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Simplex
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">April 2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">IBM TDA
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">October 2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CadMOS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">September 2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">SPC
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">March 2002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Expenditures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><I><FONT size="2">Impairment of Goodwill</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to the adoption of SFAS&nbsp;No.&nbsp;142,
discussed in Note&nbsp;2 to our Consolidated Financial
Statements, we evaluated goodwill for impairment whenever events
or circumstances indicated that the carrying amount of goodwill
may not be recoverable. We recorded a charge of
$25.8&nbsp;million in 2001 related to the impairment of goodwill
and acquired intangibles associated with the acquisition of
Diablo. This impairment was due to the decline in business
conditions generally and the wireless communications industry in
particular. Key factors in
</FONT>

<P align="center"><FONT size="2">42
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">determining this impairment were significant
downsizing or reassignment of personnel directly related to
these assets and abandonment of most of Diablo&#146;s lines of
business. The impairment was calculated as the difference
between the carrying value of the intangible assets associated
with Diablo&#146;s acquisition and the fair value of those
assets.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">Other Income (loss), net</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other income (loss), net, for each of 2003, 2002
and 2001 is as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="62%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In millions)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gain (loss) on foreign exchange
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.3</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity in loss from investments, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.2</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10.4</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total other income (loss), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13.8</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003, the Other loss of $10.4 million is
comprised of $4.8 million impairment on investments, $5.0
million loss on sales of accounts receivable and $0.6 million of
Other loss, net. In 2002, the Other loss of $8.7 million is
comprised of $14.1&nbsp;million of impairment of investments,
$15.1&nbsp;million of loss on sales of accounts receivable,
$24.9&nbsp;million gain on sale of investments and
$4.4&nbsp;million of Other loss, net. In 2001, the Other loss of
$1.5&nbsp;million is comprised of $21.8&nbsp;million of loss on
sales of accounts receivable, $6.0&nbsp;million of impairment of
investments, $23.6&nbsp;million gain on sale of investments and
$2.7&nbsp;million of Other income, net.
</FONT>

<P align="left">
<B><I><FONT size="2">Provision for Income Taxes</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The provision for income taxes and the effective
tax rates for 2003, 2002 and 2001 are as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="65%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(Dollars in millions)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision (benefit) for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effective tax rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The loss before provision for income taxes
resulted in a benefit for income taxes in 2003 compared to a
provision for income taxes in 2002. The 2003 benefit has a
greater detriment from non-deductible amortization of stock
compensation expense partially offset by a greater benefit from
foreign income that is taxed at a lower rate than the federal
statutory rate in comparison to 2002. The effective tax rate
increased in 2002 from 2001, primarily due to the 2002
restructuring activities that resulted in foreign income being
taxed at a higher rate than the federal statutory rate and an
increase in non-deductible amortization of stock compensation
expense.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect to have a provision for income taxes in
2004 and expect the effective tax rate to be approximately 20%.
The 2004 provision is expected to have a smaller detriment from
certain non-deductible expenses including the amortization of
stock compensation and the write-off of in-process technology
when compared to 2003. We also estimate that the 2004 provision
will have a larger benefit from foreign income that is taxed at
a lower rate than the federal statutory rate when compared to
2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of January&nbsp;3, 2004, we had total net
deferred tax assets of approximately $89.5&nbsp;million.
Realization of the deferred tax assets will depend on generating
sufficient taxable income of the appropriate character prior to
the expiration of certain net operating loss, capital loss and
tax credit carryforwards. Although realization is not assured,
we believe it is more likely than not that the net deferred tax
assets will be realized. The amount of the net deferred tax
assets, however, could be reduced or increased in the near term
if actual facts, including the estimate of future taxable
income, differ from those estimated.
</FONT>

<P align="center"><FONT size="2">43
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The IRS and other tax authorities regularly
examine our income tax returns. The IRS recently completed its
field examination of our federal income tax returns for the
fiscal years ended 1997 through 1999 and has issued a Revenue
Agent&#146;s Report, referred to as the RAR, in which the IRS
proposes to assess an aggregate tax deficiency for the
three-year period of approximately $143&nbsp;million, plus
interest, which interest will accrue until the matter is
resolved. This interest is compounded daily at rates published
by the IRS, which rates have been between four and nine percent
since 1997, and adjusts quarterly. The IRS may also make similar
claims for years subsequent to 1999 in future examinations. The
RAR is not a final Statutory Notice of Deficiency, and we have
protested certain of the proposed adjustments with the IRS.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The most significant of the disputed adjustments
relates to transfer pricing arrangements that we have with a
foreign subsidiary. We believe that the proposed IRS adjustments
are inconsistent with the applicable tax laws, and that we have
meritorious defenses to the proposed adjustments. We intend to
challenge these proposed adjustments vigorously. However, the
ultimate outcome of tax examinations cannot be predicted with
certainty, including the total amount payable or the timing of
any such payments upon resolution of these issues. In addition,
we cannot assure you that such amount will not be materially
different than that which is reflected in our historical income
tax provisions and accruals. Should the IRS or other tax
authorities assess additional taxes as a result of a current or
a future examination, we may be required to record charges to
operations in future periods that could have a material impact
on the results of operations, financial position or cash flows
in the period or periods resolved.
</FONT>

<P align="left">
<B><FONT size="2">Disclosures About Market Risk</FONT></B>

<P align="left">
<I><FONT size="2">Interest Rate Risk</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our exposure to market risk for changes in
interest rates relates primarily to our short-term investment
portfolio. While we are exposed to interest rate fluctuations in
many of the world&#146;s leading industrialized countries, our
interest income and expense is most sensitive to fluctuations in
the general level of U.S.&nbsp;interest rates. In this regard,
changes in U.S.&nbsp;interest rates affect the interest earned
on our cash and cash equivalents, short-term and long-term
investments and costs associated with foreign currency hedges.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We invest in high quality credit issuers and, by
policy, limit the amount of our credit exposure to any one
issuer. As part of our policy, our priority is to reduce the
risk of principal loss. Consequently, we seek to preserve our
invested funds by limiting default risk, market risk and
reinvestment risk. We mitigate default risk by investing in only
high quality credit securities that we believe to have low
credit risk and by positioning our portfolio to respond
appropriately to a significant reduction in a credit rating of
any investment issuer or guarantor. The short-term
interest-bearing portfolio includes only marketable securities
with active secondary or resale markets to ensure portfolio
liquidity.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On August&nbsp;15, 2003, we terminated our two
syndicated, senior unsecured credit facilities that allowed us
to borrow up to $375.0&nbsp;million.
</FONT>

<P align="center"><FONT size="2">44
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The table below presents the carrying value and
related weighted average interest rates for our interest-bearing
instruments. All highly liquid investments with an original
maturity of three months or less at the date of purchase are
considered to be cash equivalents; investments with original
maturities between three and 12&nbsp;months are considered to be
short-term investments. Investments with original maturities
greater than 12&nbsp;months are considered long-term
investments. The carrying value of our interest-bearing
instruments approximated fair value at January&nbsp;3, 2004.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="56%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Carrying</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Average</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Value</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Interest Rate</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">(In millions)</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest Bearing Instruments:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash equivalents&nbsp;&#151; variable rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">128.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.43</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Commercial paper&nbsp;&#151; fixed rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">103.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.14</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash&nbsp;&#151; variable rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">89.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.52</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total interest bearing instruments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">322.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.08</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total non-interest bearing cash
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">384.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<I><FONT size="2">Foreign Currency Risk</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our operations include transactions in foreign
currencies and, therefore, we benefit from a weaker dollar, and
we are adversely affected by a stronger dollar relative to major
currencies worldwide. The primary effect of foreign currency
transactions on our results of operations from a weakening
U.S.&nbsp;dollar is an increase in revenue offset by a smaller
increase in expenses. Conversely, the primary effect of foreign
currency transactions on our results of operations from a
strengthening U.S.&nbsp;dollar is a reduction in revenue offset
by a smaller reduction in expenses.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We enter into foreign currency forward exchange
contracts with financial institutions to protect against
currency exchange risks associated with existing assets and
liabilities. A foreign currency forward exchange contract acts
as a hedge by increasing in value when underlying asset
exposures decrease in value or underlying liability exposures
increase in value. Conversely, a foreign currency forward
exchange contract decreases in value when underlying asset
exposures increase in value or underlying liability exposures
decrease in value. Forward contracts are not accounted for as
hedges and, therefore, the unrealized gains and losses are
recognized in Other income (loss), net in advance of the actual
foreign currency cash flows with the fair value of these forward
contracts being recorded as accrued liabilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We do not use forward contracts for trading
purposes. Our ultimate realized gain or loss with respect to
currency fluctuations will depend on the currency exchange rates
in effect as the forward contracts mature.
</FONT>

<P align="center"><FONT size="2">45
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The table below provides information as of
January&nbsp;3, 2004 about Cadence&#146;s forward foreign
currency contracts. The information is provided in
U.S.&nbsp;dollar equivalent amounts. The table presents the
notional amounts, at contract exchange rates, and the weighted
average contractual foreign currency exchange rates expressed as
units of the foreign currency per U.S.&nbsp;dollar. These
forward contracts mature prior to January&nbsp;16, 2004.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="62%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Weighted</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Average</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Notional</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Contract</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Principal</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Rate</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">(In millions)</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Forward Contracts:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Japanese yen
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">107.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Euro
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.82</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">British pound sterling
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Hong Kong dollars
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.76</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Canadian dollars
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Swedish krona
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Singapore dollars
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">122.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Estimated fair value
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">While we actively and continually manage our
foreign currency risks, there can be no assurance that our
foreign currency hedging activities will substantially offset
the impact of fluctuations in currency exchange rates on our
results of operations, cash flows and financial position.
</FONT>

<P align="left">
<I><FONT size="2">Equity Price Risk</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2003, we issued $420.0&nbsp;million
principal amount of Zero Coupon Zero Yield Senior Convertible
Notes due 2023, to two initial purchasers in a private offering
for resale to qualified institutional buyers pursuant to SEC
Rule&nbsp;144A, for which we received net proceeds of
approximately $408.5&nbsp;million after transaction fees of
approximately $11.5&nbsp;million. The Notes are convertible into
our common stock initially at a conversion price of
$15.65&nbsp;per share, which would result in an aggregate of
26.8&nbsp;million shares issued upon conversion, subject to
adjustment upon the occurrence of specified events.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each $1,000 of principal of the Notes will
initially be convertible into 63.8790&nbsp;shares of our common
stock, subject to adjustment upon the occurrence of specified
events. Holders of the Notes may convert their Notes prior to
maturity only if: (1)&nbsp;the price of our common stock reaches
$22.69 during periods of time specified by the Notes,
(2)&nbsp;specified corporate transactions occur, (3)&nbsp;the
Notes have been called for redemption or (4)&nbsp;the trading
price of the Notes falls below a certain threshold.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, in the event of a significant change
in our corporate ownership or structure, the holders may require
us to repurchase all or any portion of their Notes for 100% of
the principal amount.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Concurrently with the issuance of the Notes, we
entered into convertible notes hedge transactions with
JP&nbsp;Morgan Chase Bank, whereby we have the option to
purchase up to 26.8&nbsp;million shares of our common stock at a
price of $15.65&nbsp;per share. These options expire on
August&nbsp;15, 2008 and must be settled in net shares. The cost
of the convertible notes hedge transactions to us was
approximately $134.6&nbsp;million. As of January&nbsp;3, 2004,
the estimated fair value of the convertible notes hedge
transactions was $215.1&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we sold to JP Morgan Chase Bank
warrants to purchase up to 26.8&nbsp;million shares of our
common stock at a price of $23.08&nbsp;per share. The warrants
expire on various dates from February 2008 through May 2008 and
must be settled in net shares. We received approximately
$56.4&nbsp;million in cash proceeds for the sales of these
warrants. As of January&nbsp;3, 2004, the estimated fair value
of the sold warrants was $116.2&nbsp;million.
</FONT>

<P align="center"><FONT size="2">46
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For additional discussion of the Notes see
&#147;Liquidity and Capital Resources&#148; below.
</FONT>

<P align="left">
<B><FONT size="2">Liquidity and Capital Resources</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At January&nbsp;3, 2004, our principal sources of
liquidity consisted of $418.4&nbsp;million of Cash and cash
equivalents and Short-term investments, compared to
$395.6&nbsp;million at December&nbsp;28, 2002. The primary
sources of our cash are receipts from software licenses and the
sale or lease of our hardware, proceeds from the issuance of
convertible notes, proceeds from the sale of receivables and
from the exercise of stock options and common stock purchases
under our employee stock purchase plans. In 2003, our primary
uses of cash consisted of payroll costs, costs of acquisitions,
product and services, general and administrative expenses, cash
used to hedge convertible notes to manage equity dilution and
funds used in our share repurchase program.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At January&nbsp;3, 2004, we had net working
capital of $360.3&nbsp;million, as compared with
$254.3&nbsp;million at December&nbsp;28, 2002. The increase in
net working capital was primarily due to a decrease in Accounts
payable and accrued liabilities of $51.9&nbsp;million, an
increase in Receivables, net, of $34.7&nbsp;million, and an
increase in Cash and cash equivalents and Short-term investments
of $22.8&nbsp;million, partially offset by an increase in
Deferred revenue of $30.8&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net cash provided by operating activities
decreased by $176.7&nbsp;million, to $171.0&nbsp;million, during
2003 when compared to $347.7&nbsp;million net cash provided by
operating activities during 2002. The decrease from 2002 to 2003
is primarily due to a reduction in income of $77.9&nbsp;million,
a decrease in deferred income taxes of $35.9&nbsp;million and a
$26.5&nbsp;million reduction in write-off of acquired in-process
technology.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have entered into agreements whereby we may
transfer qualifying accounts receivable to certain financing
institutions on a non-recourse basis. These transfers are
recorded as sales and accounted for in accordance with
SFAS&nbsp;No.&nbsp;140, &#147;Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities.&#148; During 2003, we transferred accounts
receivable totaling $87.4&nbsp;million, which approximated fair
value, to financing institutions on a non-recourse basis, as
compared to $182.0&nbsp;million transferred during 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Provision for sales returns is accounted for as a
reduction of revenue. Provision for sales returns increased
$1.2&nbsp;million in 2003 compared to 2002 due to continued
customer preference for more flexible subscription license
arrangements. The sales return reserve as of year-end 2003
increased modestly in absolute dollars from year-end 2002, but
remained at approximately 3% of net accounts receivable due to a
slight increase in total receivables during 2002. Provision for
sales returns decreased $24.0&nbsp;million in 2002 compared to
2001 primarily in response to improved customer satisfaction
with more flexible license arrangements, and to a lesser extent,
an improving economic environment. The sales return reserve
decreased $29.9&nbsp;million in 2002 from 2001 due to write-offs
of specific customer returns allowances recorded in 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our primary investing activities consisted of
business combinations and acquired intangibles, purchases of
property, plant and equipment, purchases of software licenses
and venture capital partnership and equity investments, which
combined represented $338.4&nbsp;million of cash used for
investing activities in 2003, as compared to $175.4&nbsp;million
in 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As part of our overall investment strategy, we
are a limited partner in two venture capital funds, Telos&nbsp;I
and Telos&nbsp;II (referred to together as Telos). We and
certain of our deferred compensation trusts are the sole limited
partners of Telos&nbsp;I and we are the sole limited partner of
Telos&nbsp;II. The partnership agreements governing Telos&nbsp;I
and Telos&nbsp;II, which are substantially the same, require
Cadence to meet capital calls principally for the purpose of
funding investments that are recommended by the applicable Telos
general partner, and approved by the Telos advisory committee as
being consistent with the partnership&#146;s limitations and
stated purposes. The Telos general partner, which is not
affiliated with Cadence, manages the partnerships and may be
removed by Cadence without cause. For both partnerships, the
advisory committee is comprised solely of our Chief Executive
Officer and our Chairman of the Board of Directors. As of
January&nbsp;3, 2004, we had contributed $83.0&nbsp;million to
these partnerships and are contractually committed to contribute
to them up to an additional $44.0&nbsp;million. Our commitments
expire concurrently with the termination date of each
partnership, which, in the case of Telos&nbsp;I is
December&nbsp;31, 2005 and, in the case of Telos&nbsp;II, is
July&nbsp;3, 2012.
</FONT>

<P align="center"><FONT size="2">47
</FONT>

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<DIV align="left">
<FONT size="2">Our investments in the Telos partnerships are
recorded in Other assets in the accompanying Consolidated
Balance Sheets.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2003, we received $9.1&nbsp;million in
cash from the sale-leaseback of certain equipment. We will make
aggregate payments under the resulting operating leases of
$9.1&nbsp;million over the three to five year life of the
operating leases.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Net cash provided by financing activities for
2003, of $149.2&nbsp;million increased by $203.3&nbsp;million
from 2002. In 2003, our primary source of cash from financing
activities was the issuance of $420.0&nbsp;million of
convertible notes and the sale of common stock warrants as
discussed further below. The primary use of cash from financing
activities was the repurchase of $213.8&nbsp;million of treasury
stock and the purchase of convertible notes hedges for
$134.6&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2003, we issued $86.6&nbsp;million of
stock upon exercise of employee options and stock purchase
rights.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect to continue our financing activity and
use cash reserves to repurchase stock under our stock repurchase
program. We may also consider additional hedging transactions if
opportunities become available.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As compared to December&nbsp;28, 2002, Other
long-term liabilities increased $112.9&nbsp;million to
$327.3&nbsp;million at January&nbsp;3, 2004. The increase was
primarily attributable to indemnity holdbacks from purchase
price payments relating to three recent business acquisitions
and an increase in deferred payments relating to another recent
acquisition. The primary components of Other long-term
liabilities are $45.3&nbsp;million of deferred compensation,
$34.8&nbsp;million of accrued restructuring charges and
$247.2&nbsp;million relating to indemnity holdbacks from
acquisitions, deferred payments relating to acquisitions and
deferred tax liabilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We provide for U.S.&nbsp;income taxes on the
earnings of our foreign subsidiaries unless these earnings are
considered permanently invested outside of the United States. If
some or all of these foreign earnings were to be distributed to
any of our U.S.&nbsp;subsidiaries, we would be required to
provide for additional U.S.&nbsp;income taxes. At
January&nbsp;3, 2004, the cumulative amount of earnings upon
which U.S.&nbsp;income taxes have not been provided was
approximately $450&nbsp;million. At January&nbsp;3, 2004, the
unrecognized deferred tax liability for these earnings was
approximately $80&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We recently received a revenue agent report
(referred to as an RAR) from the IRS in which the IRS proposes
to assess an aggregate tax deficiency for the tax years from
1997 to 1999 of approximately $143&nbsp;million, plus interest,
which interest will accrue until the matter is resolved. The RAR
is not a final Statutory Notice of Deficiency, and we have filed
a protest with the IRS to certain of the proposed adjustments.
We are challenging these proposed adjustments vigorously. The
IRS may also make similar claims for tax returns filed for years
subsequent to 1999. While we are protesting certain of the
proposed adjustments, we can not predict with certainty the
ultimate outcome of the tax examination including the amount
payable, or timing of such payments, which may materially impact
our cash flows in the period or periods resolved.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect to incur an additional $4&nbsp;million
to $6&nbsp;million of future costs in connection with the 2003
Restructuring, primarily for facilities-related charges which
will be expensed as incurred. We expect annualized cost
reductions resulting from the 2003 Restructuring of
approximately $62&nbsp;million in employee salary and benefits
costs, related to the reduction in workforce and approximately
$4&nbsp;million in facility costs related to facilities
consolidated or closed, which amounts could vary based on
changes in estimates.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2003, we issued $420.0&nbsp;million
principal amount of Zero Coupon Zero Yield Senior Convertible
Notes due 2023, or the Notes, to two initial purchasers in a
private offering for resale to qualified institutional buyers
pursuant to SEC Rule&nbsp;144A. We received net proceeds of
approximately $408.5&nbsp;million after transaction fees of
approximately $11.5&nbsp;million that have been recorded in
Other long-term assets and are being amortized to interest
expense using the straight-line method over five years, which is
the duration of the first redemption period. We issued the Notes
at par and the Notes bear no interest. The Notes are convertible
into our common stock initially at a conversion price of
$15.65&nbsp;per share, which would result in an aggregate of
26.8&nbsp;million shares issued upon conversion, subject to
adjustment upon the occurrence of
</FONT>

<P align="center"><FONT size="2">48
</FONT>

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<DIV align="left">
<FONT size="2">specified events. We may redeem for cash all or
any part of the Notes on or after August&nbsp;15, 2008 for
100.00% of the principal amount. The holders may require us to
repurchase for cash all or any portion of their Notes on
August&nbsp;15, 2008 for 100.25% of the principal amount, on
August&nbsp;15, 2013 for 100.00% of the principal amount or on
August&nbsp;15, 2018 for 100.00% of the principal amount. As a
result, although the Notes mature in 2023, the holders of the
Notes may require us to repurchase their Notes at an additional
premium in 2008, which makes it probable that we will be
required to repurchase the Notes in 2008 if the Notes are not
otherwise converted into our common stock. The Notes do not
contain restrictive financial covenants.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, in the event of a significant change
in our corporate ownership or structure, the holders may require
us to repurchase all or any portion of their Notes for 100% of
the principal amount. Upon a significant change in our corporate
ownership or structure, in certain circumstances, we may choose
to pay the repurchase price in cash, shares of our common stock
or a combination of cash and shares of our common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have agreed to file a shelf registration
statement with respect to the resale of the Notes and the common
stock issuable upon the conversion of the Notes with the SEC
within 90&nbsp;days from the initial issuance of the Notes. In
the event we do not file a shelf registration statement with the
SEC within such time or the shelf registration statement is not
declared effective by the SEC within 180&nbsp;days from the
initial issuance of the Notes or, after effectiveness, we
suspend its use beyond certain permitted periods, we are
obligated to pay liquidated damages to the holders of the Notes.
In November 2003, we filed with the SEC a resale registration
statement with respect to the Notes. This registration statement
was not declared effective by the SEC within the 180-day period,
and has not been declared effective as of the date of the filing
of this Annual Report on Form&nbsp;10-K. As a result, on
February&nbsp;12, 2004, we began to incur liquidated damages at
a penalty rate of approximately $2,900&nbsp;per day for the
first 90&nbsp;days, accruing daily. After the first
90&nbsp;days, the penalty rate doubles until it ceases to accrue
upon the date the registration statement becomes effective or is
no longer suspended from use. As of the date of filing this
Annual Report on Form&nbsp;10-K, the registration statement has
not become effective.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Concurrently with the issuance of the Notes, we
entered into convertible notes hedge transactions whereby we
have the option to purchase up to 26.8&nbsp;million shares of
our common stock at a price of $15.65&nbsp;per share. These
options expire on August&nbsp;15, 2008 and must be settled in
net shares. The cost of the convertible notes hedge transactions
to us was approximately $134.6&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we sold warrants to purchase up to
26.8&nbsp;million shares of our common stock at a price of
$23.08&nbsp;per share. The warrants expire on various dates from
February 2008 through May 2008 and must be settled in net
shares. We received approximately $56.4&nbsp;million in cash
proceeds for the sales of these warrants.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The costs incurred in connection with the
convertible notes hedge transactions and the proceeds from the
sale of the warrants are included as a net reduction in common
stock and capital in excess of par in the accompanying
Consolidated Balance Sheets as of January&nbsp;3, 2004, in
accordance with the guidance in EITF Issue No.&nbsp;00-19,
&#147;Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company&#146;s Own
Stock.&#148; Subsequent changes in the fair value of these
convertible notes hedge and warrant transactions will not be
recognized as long as the instruments remain classified in
equity.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to conversion, the Notes have no impact on
the calculation of basic or dilutive earnings per share, or EPS,
unless the price of our common stock reaches $22.69, or the
contingent conversion price, during certain quarterly conversion
periods until August 2018, and then at any time thereafter until
maturity or earlier redemption or repurchase. For any quarterly
conversion period through August 2018 or any time after August
2018 in which the price of our common stock reaches the
contingent conversion price, we will use the &#147;as if
converted&#148; method to calculate the effect on diluted EPS,
which will have the effect of increasing the number of
outstanding shares by 26.8&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because we entered into the Notes hedge
transactions and the sale of the warrants, upon conversion of
the Notes there is no impact on basic or dilutive EPS, except as
described above under the &#147;as if converted&#148; method,
unless the price of our common stock exceeds the warrant strike
price of $23.08&nbsp;per share. Up to $23.08&nbsp;per share, in
connection with any conversion, the operation of the Notes hedge
transactions and sale of the warrants would effectively result
in no impact on basic or dilutive EPS. In the event our common
stock
</FONT>

<P align="center"><FONT size="2">49
</FONT>

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<DIV align="left">
<FONT size="2">exceeds $23.08&nbsp;per share, for the first
$1.00 the price exceeds $23.08, there would be dilution of
approximately 1.1&nbsp;million shares and the impact on the
calculation of EPS will vary depending on when during the
quarter the $23.08&nbsp;per share price is reached. As this
share price continues to increase, dilution would continue to
occur but at a declining rate. If these transactions settle in
our favor, we could be exposed to credit risk related to the
other party to the transactions.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">After our issuance of the Notes, we terminated
our senior credit facilities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A summary of contractual obligations follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="21%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><FONT size="1">Payments Due by Period</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Less Than</FONT></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Total</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">1&nbsp;Year</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">1-3&nbsp;Years</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">3-5&nbsp;Years</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Thereafter</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><FONT size="1">(In millions)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Capital lease obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating lease obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">157.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchase obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Convertible notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">420.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">420.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">292.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">144.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">131.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">874.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">189.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">582.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition to the summary of contractual
obligations detailed above, in connection with our acquisitions
completed prior to January&nbsp;3, 2004, we may be obligated to
pay up to an aggregate of $39.1&nbsp;million during fiscal 2004.
In addition, we may be required to pay an additional
$76.0&nbsp;million in cash from 2005 through 2007 if certain
performance goals related to revenue, bookings, product
development, product proliferation, and employee retention are
achieved in full.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We expect that current cash and short-term
investment balances and cash flow from operations will be
sufficient to meet our working capital and other capital
requirements for at least the next 12&nbsp;months. Also, while
we have no committed lines of credit, we believe our good credit
and strong banking relationships will provide us with access to
bank debt and opportunities to raise debt in the public markets
if additional liquidity is needed.
</FONT>

<P align="left">
<B><FONT size="2">New Accounting Standards</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2003, the Financial Accounting
Standards Board, or FASB, issued FASB Interpretation
No.&nbsp;46, or FIN&nbsp;46, &#147;Consolidation of Variable
Interest Entities&nbsp;&#151; An Interpretation of ARB
No.&nbsp;51.&#148; FIN&nbsp;46 requires companies to include in
their consolidated financial statements the assets, liabilities
and results of activities of variable interest entities if the
company holds a majority of the variable interests. The
consolidation requirements of FIN&nbsp;46 are effective for
variable interest entities created after January&nbsp;31, 2003
or for entities in which an interest is acquired after
January&nbsp;31, 2003. In October 2003, the FASB deferred the
implementation date for the consolidation requirements of
FIN&nbsp;46 as it relates to variable interest entities that
existed before February&nbsp;1, 2003. In December 2003, the FASB
revised FIN&nbsp;46. The consolidation requirements of the
revised FIN&nbsp;46 will apply to variable interest entities
that existed prior to February&nbsp;1, 2003 in financial
statements issued for periods ending after December&nbsp;15,
2003. The revised FIN&nbsp;46 also requires companies that
expect to consolidate a variable interest entity they acquired
before February&nbsp;1, 2003 to disclose the entity&#146;s
nature, size, activities, and the company&#146;s maximum
exposure to loss in financial statements issued after
December&nbsp;31, 2003. We have determined the adoption of the
required provisions of the revised FIN&nbsp;46 did not have a
material effect on our consolidated financial position, results
of operations or cash flows.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In May 2003, the FASB issued
SFAS&nbsp;No.&nbsp;150, &#147;Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and
Equity.&#148; SFAS&nbsp;No.&nbsp;150 requires companies to
classify and measure certain financial instruments with
characteristics of both liabilities and equity. It requires that
an issuer classify
</FONT>

<P align="center"><FONT size="2">50
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">a financial instrument that requires a transfer
of assets and that meets the definition of liabilities in
Concepts Statement 6 and other recognition criteria in
SFAS&nbsp;No.&nbsp;5, &#147;Recognition and Measurement in
Financial Statements of Business Enterprises,&#148; be reported
as a liability. SFAS&nbsp;No.&nbsp;150 also requires that
certain obligations that could be settled by issuance of an
entity&#146;s equity but lack other characteristics of equity be
reported as liabilities even though the obligation does not meet
the definition of liabilities in Concepts Statement No.&nbsp;6.
SFAS&nbsp;No.&nbsp;150 is effective for financial instruments
entered into or modified after May&nbsp;31, 2003, and otherwise
is effective beginning after June&nbsp;15, 2003. The adoption of
SFAS&nbsp;No. 150 did not have a material effect on our
consolidated financial position, results of operations or cash
flows.
</FONT>
</DIV>

<DIV align="left">
<A name='110'></A>
</DIV>

<!-- link1 "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" -->

<P align="left">
<B><U><FONT size="2">Item&nbsp;7A.&nbsp;Quantitative and
Qualitative Disclosures About Market Risk</FONT></U></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The information required by Item&nbsp;7A is
incorporated by reference from the section entitled
&#147;Disclosures About Market Risk&#148; found in Item&nbsp;7
&#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations.&#148;
</FONT>

<DIV align="left">
<A name='111'></A>
</DIV>

<!-- link1 "Item 8. Financial Statements and Supplementary Data" -->

<P align="left">
<B><U><FONT size="2">Item&nbsp;8.&nbsp;Financial Statements and
Supplementary Data</FONT></U></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The financial statements required by Item&nbsp;8
are submitted as a separate section of this Annual Report on
Form&nbsp;10-K. See Item&nbsp;15.
</FONT>

<P align="left">
<B><FONT size="2">Summary Quarterly Data&nbsp;&#151;
Unaudited</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following summary quarterly data is described
in more detail in Note&nbsp;20 to our Consolidated Financial
Statements:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="27%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><FONT size="1">2002</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">4th</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">3rd</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2nd</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">1st</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">4th</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">3rd</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2nd</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">1st</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="31"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="31" align="center" nowrap><FONT size="1">(In thousands, except per share amounts)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Revenue as reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">311,091</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">268,476</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">276,437</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">255,876</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">276,297</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">327,236</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">344,820</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">344,714</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Restatement Adjustments (A)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6,064</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(2,606</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,211</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(869</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(438</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Reclassification Adjustments (B)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">284</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">144</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,112</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Revenue as restated
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">311,091</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">268,760</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">276,581</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">263,052</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">273,691</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">326,025</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">343,951</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">344,276</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Cost of revenue as reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">52,058</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">39,929</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">44,919</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">46,913</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">48,090</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">58,715</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">75,946</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">67,294</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Reclassification Adjustments (C)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">11,433</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">10,951</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">10,446</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">8,334</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">7,501</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6,273</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5,915</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Cost of revenue as restated
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">52,058</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">51,362</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">55,870</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">57,359</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">56,424</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">66,216</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">82,219</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">73,209</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net income (loss) as reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">15,232</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(14,995</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(7,853</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(19,116</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">88,694</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">8,231</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(46,321</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">21,345</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Restatement Adjustments (D)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">539</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2,549</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6,078</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,310</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4,014</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(9,603</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(4,711</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net income (loss) as restated
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">15,232</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(14,456</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(5,304</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(13,038</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">87,384</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">12,245</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(55,924</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">16,634</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net income (loss) per share&nbsp;&#151; basic as
    reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.06</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.06</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.03</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.33</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.03</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.18</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.09</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Restatement Adjustments (D)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.01</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.01</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.02</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.02</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.04</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net income (loss) per share&nbsp;&#151; basic as
    restated
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.06</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.05</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.05</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.33</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.05</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.22</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.07</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net income (loss) per share&nbsp;&#151; diluted
    as reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.06</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.06</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.03</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.33</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.03</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.18</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.08</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Restatement Adjustments (D)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.01</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.01</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.02</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.01</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.02</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.04</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net income (loss) per share&nbsp;&#151; diluted
    as restated
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.06</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.05</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.05</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.32</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.05</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.22</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.06</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(A)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Revenue adjustments.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(B)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Reclassification of losses on sale of receivables
    to Other income (loss), net.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(C)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Reclassification of amortization of intangible
    assets to conform to the 2003 presentation.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">51
</FONT>

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<P><HR noshade><P>
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<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">(D)
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Aggregate of revenue adjustments, internally
    developed software adjustments, deferred compensation
    adjustments, equity investment adjustments, foreign currency
    adjustments and tax effect of restatement adjustments.
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left">
<A name='112'></A>
</DIV>

<!-- link1 "Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure" -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B><U><FONT size="2">Item&nbsp;9.&nbsp;</FONT></U></B></TD>
    <TD>
    <B><U><FONT size="2">Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure</FONT></U></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">None.
</FONT>

<DIV align="left">
<A name='113'></A>
</DIV>

<!-- link1 "Item 9A. Controls and Procedures" -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B><U><FONT size="2">Item&nbsp;9A.&nbsp;</FONT></U></B></TD>
    <TD>
    <B><U><FONT size="2">Controls and Procedures</FONT></U></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence carried out an evaluation required by
Rule&nbsp;13a-15 of the Securities Exchange Act of 1934 under
the supervision and with the participation of Cadence&#146;s
management, including the Chief Executive Officer, or CEO, and
the Chief Financial Officer, or CFO, of the effectiveness of the
design and operation of our disclosure controls and procedures
as of January&nbsp;3, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Disclosure controls and procedures are designed
with the objective of ensuring that (i)&nbsp;information
required to be disclosed in Cadence&#146;s reports filed under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
SEC&#146;s rules and forms; and (ii)&nbsp;information is
accumulated and communicated to management, including the CEO
and CFO, as appropriate to allow timely decisions regarding
required disclosure. Internal controls are procedures designed
with the objective of providing reasonable assurance regarding
the reliability of financial reporting and permitting the
preparation of Cadence&#146;s financial statements in conformity
with generally accepted accounting principles, including that
its (A)&nbsp;transactions are properly authorized, recorded and
reported and (B)&nbsp;assets are safeguarded against
unauthorized or improper use.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The evaluation of Cadence&#146;s disclosure
controls and procedures and internal controls included a review
of its processes and implementation and the effect on the
information generated for use in this Annual Report on
Form&nbsp;10-K. In the course of this evaluation, Cadence sought
to identify any significant deficiencies or material weaknesses
in its controls, to determine whether it had identified any acts
of fraud involving personnel who have a significant role in its
internal controls, and to confirm that any necessary corrective
action, including process improvements, were being undertaken.
This type of evaluation is done every fiscal quarter so that
Cadence&#146;s conclusions concerning the effectiveness of these
controls can be reported in its periodic reports filed with the
SEC. Cadence&#146;s internal controls are also evaluated on an
ongoing basis by its internal auditors and by other personnel in
its Finance organization. The overall goals of these evaluation
activities are to monitor Cadence&#146;s disclosure and internal
controls and to make modifications as necessary. Cadence intends
to maintain these controls, modifying them as circumstances
warrant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The evaluation has allowed Cadence to make
conclusions, as set forth below, regarding the state of its
disclosure controls and procedures as of January&nbsp;3, 2004.
In connection with this evaluation, to improve the quality and
timeliness of information available to management, Cadence made
certain changes in its internal controls over financial
reporting in 2003, as reflected below.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As more fully described in Note&nbsp;4 to
Cadence&#146;s Consolidated Financial Statements, Cadence has
restated its Consolidated Balance Sheet as of December&nbsp;28,
2002 and the Consolidated Statements of Operations for 2002 and
the first three quarters of 2003 to properly reflect the equity
method of accounting for certain equity investments and for
certain other adjustments.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence&#146;s independent auditors have issued a
letter to our Audit Committee related to the audit of
Cadence&#146;s Consolidated Financial Statements for the year
ended January&nbsp;3, 2004 in which they noted certain matters
involving Cadence&#146;s internal control and operation that
they consider to be &#147;reportable conditions&#148;, as
defined under standards established by the American Institute of
Certified Public Accountants. Reportable conditions are matters
coming to the attention of our independent auditors that, in
their judgment, relate to significant deficiencies in the design
or operation of internal control and could adversely affect
Cadence&#146;s ability to record, process, summarize and report
financial data consistent with the assertions of management in
the financial statements. The reportable conditions, which are
less serious findings than a finding of material weaknesses,
were: the absence of appropriate controls relating to
investments in non-marketable securities and
</FONT>

<P align="center"><FONT size="2">52
</FONT>

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<DIV align="left">
<FONT size="2">the absence of appropriate documentation, review
and approval of significant non-revenue related transactions,
and the corresponding accounting entries originating from
departments other than corporate accounting. As a result of
these findings, Cadence&#146;s Audit Committee has authorized
and directed management to fully implement actions to address
these deficiencies and to enhance the reliability and
effectiveness of Cadence&#146;s control procedures.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To address the insufficiency of appropriate
controls relating to investments in non-marketable securities,
Cadence initiated changes to its internal controls regarding
reporting by Telos and its Mergers, Acquisitions and Alliances,
or MA&#38;A, group to Cadence&#146;s corporate accounting group
regarding Cadence and Telos investments, which changes have been
fully implemented. These changes include the implementation of
written reporting and review policies to ensure that
Cadence&#146;s corporate accounting group receives and validates
as complete and accurate on a quarterly basis all pertinent
information relating to investments held directly by Cadence as
well as Telos, so that Cadence can properly account for its
investments in non-marketable securities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To address the absence of appropriate
documentation, reviews and approvals of transactions, and
accounting entries originating from departments other than
corporate accounting, Cadence has already taken actions designed
to enhance its internal controls, including the implementation
of formal written policies and procedures to ensure appropriate
communication between Cadence&#146;s corporate accounting group
and other departments, including MA&#38;A, Tax, Stock
Administration and foreign locations, to facilitate the timely
identification, documentation, review and approval of, and to
ensure proper accounting for, significant non-revenue related
and non-routine transactions. Cadence will fully implement these
policies before the end of its second fiscal quarter of 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence believes that these efforts have
addressed the significant deficiencies that affected or could
have affected its internal controls in 2003, 2002 and 2001.
Based upon the foregoing, Cadence&#146;s CEO and CFO have
concluded that Cadence&#146;s controls and procedures, after
implementing the aforementioned actions, are effective in
meeting the above-stated objectives. Cadence continues to
improve and refine its internal controls. This process is
ongoing, and Cadence seeks to foster an exemplary internal
control environment. Cadence&#146;s management, including its
CEO and CFO, has concluded that, except for the deficiencies
described above, and taking into account the efforts to address
those deficiencies described above, as of January&nbsp;3, 2004,
its disclosure controls and procedures are designed, and are
effective, to give reasonable assurance that information it must
disclose in reports filed with the SEC is properly recorded,
processed and summarized, and then reported within the time
periods specified in the rules and forms of the SEC.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other than as summarized above, there have been
no changes in Cadence&#146;s internal controls over financial
reporting or in other factors that have materially affected, or
are reasonably likely to materially affect, its internal
controls.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Despite management&#146;s conclusions regarding
the effectiveness of Cadence&#146;s controls and procedures, a
control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Cadence&#146;s
management, including its CEO and CFO, necessarily applied its
judgment in assessing the benefits of controls relative to their
costs. In particular, Cadence has investments in certain
unconsolidated entities, which investments are accounted for
using either the cost basis or equity method of accounting.
Because Cadence does not control or manage these entities, its
disclosure controls and procedures with respect to information
it receives from such entities are often more limited than those
it maintains with respect to its consolidated subsidiaries.
Further, because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if
any, have been detected. The design of any system of controls is
based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote. Because of the
inherent limitations in a control system, misstatements due to
error or fraud may occur and may not be detected.
</FONT>

<P align="center"><FONT size="2">53
</FONT>

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<P><HR noshade><P>
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<DIV align="left">
<A name='114'></A>
</DIV>

<!-- link1 "PART III." -->

<P align="center">
<B><U><FONT size="2">PART&nbsp;III.</FONT></U></B>

<DIV align="left">
<A name='115'></A>
</DIV>

<!-- link1 "Item 10. Directors and Executive Officers of the Registrant" -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B><U><FONT size="2">Item&nbsp;10.&nbsp;</FONT></U></B></TD>
    <TD>
    <B><U><FONT size="2">Directors and Executive Officers of the
    Registrant</FONT></U></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The information required by Item&nbsp;10 as to
directors is incorporated by reference from the sections
entitled &#147;Election of Directors&#148; and
&#147;Section&nbsp;16(a) Beneficial Ownership Reporting
Compliance&#148; in Cadence&#146;s definitive proxy statement
for its 2004 annual stockholders&#146; meeting.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The executive officers of Cadence are listed at
the end of Part&nbsp;I of this Annual Report on Form&nbsp;10-K.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The information required by item&nbsp;10 as to
Cadence&#146;s code of ethics is incorporated by reference from
the section entitled &#147;Corporate Governance&nbsp;&#151; Code
of Business Conduct&#148; in Cadence&#146;s definitive proxy
statement for its 2004 annual stockholders&#146; meeting.
</FONT>

<DIV align="left">
<A name='116'></A>
</DIV>

<!-- link1 "Item 11. Executive Compensation" -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B><U><FONT size="2">Item&nbsp;11.&nbsp;</FONT></U></B></TD>
    <TD>
    <B><U><FONT size="2">Executive Compensation</FONT></U></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The information required by Item&nbsp;11 is
incorporated by reference from the sections entitled
&#147;Compensation of Directors&#148; and &#147;Compensation of
Executive Officers&#148; in Cadence&#146;s definitive Proxy
Statement for its 2004 annual stockholders&#146; meeting.
</FONT>

<DIV align="left">
<A name='117'></A>
</DIV>

<!-- link1 "Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B><U><FONT size="2">Item&nbsp;12.&nbsp;</FONT></U></B></TD>
    <TD>
    <B><U><FONT size="2">Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters</FONT></U></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The information required by Item&nbsp;12 is
incorporated by reference from the section entitled
&#147;Security Ownership of Certain Beneficial Owners and
Management&#148; and &#147;Equity Compensation Plan
Information&#148; in Cadence&#146;s definitive proxy statement
for its 2004 annual stockholders&#146; meeting.
</FONT>

<DIV align="left">
<A name='118'></A>
</DIV>

<!-- link1 "Item 13. Certain Relationships and Related Transactions" -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B><U><FONT size="2">Item&nbsp;13.&nbsp;</FONT></U></B></TD>
    <TD>
    <B><U><FONT size="2">Certain Relationships and Related
    Transactions</FONT></U></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The information required by Item&nbsp;13 is
incorporated by reference from the section entitled
&#147;Certain Transactions&#148; in Cadence&#146;s definitive
proxy statement for its 2004 annual stockholders&#146; meeting.
</FONT>

<DIV align="left">
<A name='119'></A>
</DIV>

<!-- link1 "Item 14. Principal Accountant Fees and Services" -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B><U><FONT size="2">Item&nbsp;14.&nbsp;</FONT></U></B></TD>
    <TD>
    <B><U><FONT size="2">Principal Accountant Fees and
    Services</FONT></U></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The information required by Item&nbsp;14 is
incorporated by reference from the section entitled &#147;Fees
Billed to Cadence by KPMG&nbsp;LLP During Fiscal 2003 and
2002&#148; in Cadence&#146;s definitive proxy statement for its
2004 annual stockholders&#146; meeting.
</FONT>

<P align="center"><FONT size="2">54
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='120'></A>
</DIV>

<!-- link1 "PART IV." -->

<P align="center">
<B><U><FONT size="2">PART&nbsp;IV.</FONT></U></B>

<DIV align="left">
<A name='121'></A>
</DIV>

<!-- link1 "Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K" -->

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B><U><FONT size="2">Item&nbsp;15.&nbsp;</FONT></U></B></TD>
    <TD>
    <B><U><FONT size="2">Exhibits, Financial Statement Schedules and
    Reports on Form&nbsp;8-K</FONT></U></B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="86%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">(a)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">1.&nbsp;Financial Statements:
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Independent
    Auditors&#146; Report
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Report of
    Independent Public Accountants
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated
    Balance Sheets at January&nbsp;3, 2004 and December&nbsp;28, 2002
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated
    Statements of Operations for the three fiscal years ended
    January&nbsp;3,&nbsp;2004
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated
    Statements of Stockholders&#146; Equity for the three fiscal
    years ended January&nbsp;3, 2004
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated
    Statements of Cash Flows for the three fiscal years ended
    January&nbsp;3,&nbsp;2004
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notes to
    Consolidated Financial Statements
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">(a)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">2.&nbsp;Financial Statement Schedules:
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">II.&nbsp;&nbsp;Valuation and Qualifying Accounts
    and Reserves
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">120</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">All other schedules are omitted because they are
    not required or the required information is shown in the
    financial statements or notes thereto.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="88%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">(a)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">3.&nbsp;Exhibits:
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="7"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The following exhibits are filed with this Annual
    Report on Form&nbsp;10-K:
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">55
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Agreement of Limited
    Partnership of Tality, LP, dated as of October&nbsp;4, 2000
    between Tality Corporation and Cadence Holdings,&nbsp;Inc.
    (Incorporated by reference to Exhibit&nbsp;2.01 to the
    Registrant&#146;s Form&nbsp;10-Q for the quarter ended
    September&nbsp;30, 2000 (the &#147;2000 Third Quarter
    Form&nbsp;10-Q&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Master Separation Agreement,
    dated as of October&nbsp;4, 2000 by and among Tality
    Corporation, the Registrant, Cadence Holdings,&nbsp;Inc. and
    Tality, LP (Incorporated by reference to Exhibit&nbsp;2.02 to
    the 2000 Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">General Assignment and Assumption Agreement,
    dated as of October&nbsp;4, 2000 by and among Tality
    Corporation, the Registrant, Cadence Holdings,&nbsp;Inc. and
    Tality, LP (Incorporated by reference to Exhibit&nbsp;2.03 to
    the 2000 Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Master Intellectual Property Ownership and
    License Agreement, dated as of October&nbsp;4, 2000 by and among
    Tality Corporation, the Registrant, Cadence Holdings,&nbsp;Inc.
    and Tality, LP (Incorporated by reference to Exhibit&nbsp;2.04
    to the 2000 Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employee Matters Agreement, dated as of
    October&nbsp;4, 2000 by and among Tality Corporation, the
    Registrant, Cadence Holdings,&nbsp;Inc. and Tality, LP
    (Incorporated by reference to Exhibit&nbsp;2.05 to the 2000
    Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Master Corporate Services Agreement, dated as of
    October&nbsp;4, 2000 by and among Tality Corporation, the
    Registrant, Cadence Holdings,&nbsp;Inc. and Tality, LP
    (Incorporated by reference to Exhibit&nbsp;2.06 to the 2000
    Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Real Estate Matters Agreement, dated as of
    October&nbsp;4, 2000 by and among Tality Corporation, the
    Registrant, Cadence Holdings,&nbsp;Inc. and Tality, LP
    (Incorporated by reference to Exhibit&nbsp;2.07 to the 2000
    Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Master Confidentiality Agreement, dated as of
    October&nbsp;4, 2000 by and among Tality Corporation, the
    Registrant, Cadence Holdings,&nbsp;Inc. and Tality, LP
    (Incorporated by reference to Exhibit&nbsp;2.08 to the 2000
    Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Indemnification and Insurance Matters Agreement,
    dated as of October&nbsp;4, 2000 by and among Tality
    Corporation, the Registrant, Cadence Holdings,&nbsp;Inc. and
    Tality, LP (Incorporated by reference to Exhibit&nbsp;2.09 to
    the 2000 Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Asset Purchase Agreement, dated as of
    October&nbsp;4, 2000 by and among the Registrant, Cadence Design
    Systems (Canada) Limited and Tality Canada Corporation
    (Incorporated by reference to Exhibit&nbsp;2.10 to the 2000
    Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Asset Purchase Agreement, dated as of
    October&nbsp;3, 2000 by and among Symbionics Limited, the
    Registrant and Cadence Design Systems Limited (Incorporated by
    reference to Exhibit&nbsp;2.11 to the 2000 Third Quarter
    Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Fixed Term License Agreement, dated as of
    October&nbsp;4, 2000 between the Registrant and Tality, LP
    (Incorporated by reference to Exhibit&nbsp;2.12 to the 2000
    Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Joint Technology Development and Support
    Agreement, dated as of October&nbsp;4, 2000 by and among Tality
    Corporation, the Registrant, Cadence Holdings,&nbsp;Inc. and
    Tality, LP (Incorporated by reference to Exhibit&nbsp;2.13 to
    the 2000 Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">General Assignment and Assumption Agreement,
    dated as of June&nbsp;2, 2001 between Tality Corporation and
    Tality, LP (Incorporated by reference to Exhibit&nbsp;2.17 to
    the Registrant&#146;s Form&nbsp;10-Q for the quarter ended
    June&nbsp;30, 2001 (the &#147;2001 Second Quarter
    Form&nbsp;10-Q&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">56
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Master Amendment and Consent, effective as of
    June&nbsp;2, 2001 by and among the Registrant, Tality
    Corporation, Tality Transition Corporation, Tality, LP and
    Cadence Holdings,&nbsp;Inc. (Incorporated by reference to
    Exhibit&nbsp;2.18 to the 2001 Second Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">(a) The Registrant&#146;s Certificate of
    Ownership and Merger as filed with the Secretary of State of the
    State of Delaware on June&nbsp;1, 1988 (Incorporated by
    reference to Exhibit&nbsp;3.02(c) to the Registrant&#146;s
    Form&nbsp;S-1 Registration Statement (No.&nbsp;33-23107) filed
    on July&nbsp;18, 1988).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">(b)&nbsp;The Registrant&#146;s Certificate of
    Designation of Series&nbsp;A Junior Participating Preferred
    Stock, as amended on February&nbsp;1, 2000, as filed with the
    Secretary of State of the State of Delaware on June&nbsp;8, 1989
    (Incorporated by reference to Exhibit&nbsp;3A to the
    Registrant&#146;s Current Report on Form&nbsp;8-K
    (No.&nbsp;0-15867) filed on June&nbsp;12, 1989 and amended by
    Exhibit&nbsp;4.02 to the Registrant&#146;s Form&nbsp;10-K for
    the fiscal year ended January&nbsp;1, 2000 (the &#147;1999
    Form&nbsp;10-K&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">(c) The Registrant&#146;s Certificate of
    Designation of Series&nbsp;A Convertible Preferred Stock as
    filed with the Secretary of State of the State of Delaware on
    December&nbsp;30, 1991 (Incorporated by reference to
    Exhibit&nbsp;3.01(f) to the Registrant&#146;s Form&nbsp;10-K for
    the fiscal year ended December&nbsp;31, 1991).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">(d) The Registrant&#146;s Certificate of
    Amendment of Certificate of Incorporation as filed with the
    Secretary of State of the State of Delaware on May&nbsp;13, 1998
    (Incorporated by reference to Exhibit&nbsp;3.01(i) to the
    Registrant&#146;s Form&nbsp;10-Q for the quarter ended
    July&nbsp;4, 1998 (the &#147;1998 Second Quarter
    Form&nbsp;10-Q&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">(e) The Registrant&#146;s Restated Certificate of
    Incorporation as filed with the Secretary of State of the State
    of Delaware on May&nbsp;13, 1998 (Incorporated by reference to
    Exhibit&nbsp;3.01(j) to the 1998 Second Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s Amended and Restated
    Bylaws, as currently in effect (Incorporated by reference to
    Exhibit&nbsp;3.02 to the Registrant&#146;s Form&nbsp;10-Q for
    the quarter ended March&nbsp;29, 2003 (the &#147;2003 First
    Quarter Form&nbsp;10-Q&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Specimen Certificate of the Registrant&#146;s
    Common Stock (Incorporated by reference to Exhibit&nbsp;4.01 to
    the Registrant&#146;s Form&nbsp;S-4 Registration Statement
    (No.&nbsp;33-43400) filed on October&nbsp;17, 1991).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Rights Agreement, dated as
    of February&nbsp;1, 2000 between the Registrant and ChaseMellon
    Shareholder Services, L.L.C., which includes as exhibits thereto
    the Certificate of Designations for the Series&nbsp;A Junior
    Participating Preferred Stock, the form of Right Certificate and
    the Summary of Rights to Purchase Shares of Preferred Stock
    (Incorporated by reference to Exhibit&nbsp;4.02 to the 1999
    Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Indenture dated as of August&nbsp;15, 2003 by and
    between the Registrant and J.P.&nbsp;Morgan Trust Company,
    National Association as Trustee, including form of Zero Coupon
    Zero Yield Senior Convertible Notes due 2023 (Incorporated by
    reference to Exhibit&nbsp;4.1 to the Registrant&#146;s
    Form&nbsp;10-Q for the quarter ended September&nbsp;27, 2003
    (the &#147;2003 Third Quarter Form&nbsp;10-Q&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4.04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Registration Rights Agreement dated as of
    August&nbsp;15, 2003 by and among the Registrant and
    J.P.&nbsp;Morgan Securities Inc. and SG Cowen Securities
    Corporation as Initial Purchasers (Incorporated by reference to
    Exhibit&nbsp;4.2 to the 2003 Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 1987 Stock Option Plan, as
    amended, (Incorporated by reference to the Registrant&#146;s
    Definitive Proxy Statement filed on March&nbsp;31, 1998).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">57
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Stock Option Agreement and Form of Stock
    Option Exercise Request, as currently in effect under the
    Registrant&#146;s 1987 Stock Option Plan, as amended
    (Incorporated by reference to Exhibit&nbsp;4.01 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;33-22652) filed on June&nbsp;20, 1988).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">JTA Research Inc. 1998 Stock Option Plan
    (Incorporated by reference to Exhibit&nbsp;99.1 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-85080) filed on March&nbsp;28, 2002).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 1993&nbsp;Directors Stock
    Option Plan (Incorporated by reference to Exhibit&nbsp;4.04 to
    the Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;033-53913) filed on May&nbsp;31, 1994).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 1995&nbsp;Directors Stock
    Option Plan, as amended, (Incorporated by reference to
    Exhibit&nbsp;10.05 to the Registrant&#146;s Form&nbsp;10-Q for
    the quarter ended June&nbsp;28, 2003 (the &#147;2003 Second
    Quarter From 10-Q&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s Amended and Restated
    Employee Stock Purchase Plan (Incorporated by reference to
    Exhibit&nbsp;10.06 to the Registrant&#146;s Form&nbsp;10-K for
    the fiscal year ended December&nbsp;28, 2002 (the &#147;2002
    Form&nbsp;10-K&#148;).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s Senior Executive Bonus Plan
    (previously the Chief Executive Officer Bonus Plan for 1996), as
    amended and restated, effective January&nbsp;1, 2001
    (Incorporated by reference to Exhibit&nbsp;A to the
    Registrant&#146;s Definitive Proxy Statement filed on
    April&nbsp;12, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 1994 Deferred Compensation
    Plan, as amended and restated effective November&nbsp;1, 2002
    (Incorporated by reference to Exhibit&nbsp;10.08 to the 2002
    Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 1996 Deferred Compensation
    Venture Investment Plan, as amended and restated effective
    January&nbsp;1, 2001 (Incorporated by reference to
    Exhibit&nbsp;10.09 to the 2001 Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 1993 Non-Statutory Stock
    Incentive Plan (Incorporated by reference to Exhibit&nbsp;10.10
    to the 2003 First Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 401(k) Plan, as amended and
    restated effective July&nbsp;1, 1995 (Incorporated by reference
    to Exhibit&nbsp;10.29 to the Registrant&#146;s Form&nbsp;10-Q
    for the quarter ended March&nbsp;30, 1996).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Offer Letter, dated as of December&nbsp;15, 2000
    and Promissory Note, dated as of February&nbsp;6, 2001 between
    the Registrant and Lavi A. Lev (Incorporated by reference to
    Exhibit&nbsp;10.12 to the 2002 Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Plato Design Systems Incorporated 2002
    Supplemental Stock Option Plan (Incorporated by reference to
    Exhibit&nbsp;99.1 to the Registrant&#146;s Form&nbsp;S-8
    Registration Statement (No.&nbsp;333-87674) filed on May&nbsp;7,
    2002).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Distribution Agreement, dated as of
    April&nbsp;28, 1997 by and among Cadence Design Systems
    (Ireland) Ltd., Cadence Design Systems K.K. and Cadence Design
    Systems (Japan) B.V. (Incorporated by reference to
    Exhibit&nbsp;10.48 to the Registrant&#146;s Form&nbsp;10-Q for
    the quarter ended June&nbsp;28, 1997).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Cooper&nbsp;&#38; Chyan Technology,&nbsp;Inc.
    1993 Equity Incentive Plan, as amended and restated effective
    August&nbsp;16, 1995 (Incorporated by reference to
    Exhibit&nbsp;10.49 to the Registrant&#146;s Form&nbsp;S-4
    Registration Statement (No.&nbsp;333-16779) filed on
    November&nbsp;26, 1996).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Residential Lease and Option to Purchase, dated
    as of March&nbsp;1, 2003, between 849 College Avenue,&nbsp;Inc.,
    a subsidiary of the Registrant, and Kevin Bushby (Incorporated
    by reference to Exhibit&nbsp;10.16 to the 2002 Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">58
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Verplex Systems,&nbsp;Inc. 1998 Stock Plan
    (Incorporated by reference to Exhibit&nbsp;99.1 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-108251) filed on August&nbsp;27, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Executive Severance Agreement
    (Incorporated by reference to Exhibit&nbsp;10.43 to the
    Registrant&#146;s Form&nbsp;10-K for the fiscal year ended
    January&nbsp;3, 1998).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Get2Chip.Com,&nbsp;Inc. 1997 Stock Option Plan
    (Incorporated by reference to Exhibit&nbsp;99.1 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-104720) filed on April&nbsp;24, 2003 (the
    &#147;April 2003 Form&nbsp;S-8&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Get2Chip.Com,&nbsp;Inc. 2001 Stock Plan
    (Incorporated by reference to Exhibit&nbsp;99.2 to the April
    2003 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Separation and Release Agreement,
    dated as of December&nbsp;24, 2003 between the Registrant and
    Penelope A. Herscher.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">QDA,&nbsp;Inc. 2003 Stock Option/ Stock Issuance
    Plan.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">UniCAD Inc. Stock Option Plan (Incorporated by
    reference to Exhibit&nbsp;10.51 to the Registrant&#146;s
    Form&nbsp;S-4 Registration Statement (No. 333-16779) filed on
    November&nbsp;26, 1996).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">High Level Design Systems 1993 Stock Option Plan
    (Incorporated by reference to Exhibit&nbsp;10.25 to the
    Registrant&#146;s Form&nbsp;S-4 Registration Statement
    (No.&nbsp;333-15771) filed on November&nbsp;7, 1996).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement, dated as of April&nbsp;26,
    1999 between the Registrant and H. Raymond Bingham (Incorporated
    by reference to Exhibit&nbsp;10.51 to the Registrant&#146;s
    Form&nbsp;10-Q for the quarter ended October&nbsp;2, 1999 (the
    &#147;1999 Third Quarter Form&nbsp;10-Q&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.27</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consulting Agreement, dated as of July 1999
    between the Registrant and Alberto Sangiovanni-Vincentelli
    (Incorporated by reference to Exhibit&nbsp;10.52 to the 1999
    Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Design Acceleration,&nbsp;Inc. 1994 Stock Plan
    (Incorporated by reference to Exhibit&nbsp;99 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-71717) filed on February&nbsp;3, 1999).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Quickturn Design Systems,&nbsp;Inc. 1988 Stock
    Option Plan, as amended (Incorporated by reference to
    Exhibit&nbsp;99.1 to the Registrant&#146;s Form&nbsp;S-8
    Registration Statement (No.&nbsp;333-69589) filed on
    June&nbsp;7, 1999 (the &#147;June 1999 Form&nbsp;S-8&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Ambit Design Systems,&nbsp;Inc. 1994 Incentive
    Stock Option Plan.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Ambit Design Systems,&nbsp;Inc. 1996 Incentive
    Stock Option Plan.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 2002 Deferred Compensation
    Venture Investment Plan.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Quickturn Design Systems,&nbsp;Inc. 1996
    Supplemental Stock Plan (Incorporated by reference to
    Exhibit&nbsp;99.5 to the June 1999 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Quickturn Design Systems,&nbsp;Inc. 1997 Stock
    Option Plan (Incorporated by reference to Exhibit&nbsp;99.6 to
    the June 1999 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.36</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">SpeedSim,&nbsp;Inc. 1995 Incentive and
    Nonqualified Stock Option Plan (Incorporated by reference to
    Exhibit&nbsp;99.8 to the June 1999 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">OrCAD,&nbsp;Inc. 1995 Stock Option Plan
    (Incorporated by reference to Exhibit&nbsp;99.2 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-85591) filed on August&nbsp;19, 1999).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Executive Retention Agreement between the
    Registrant and Key Executives of the Registrant (Incorporated by
    reference to Exhibit&nbsp;10.57 to the 1999 Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">59
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Diablo Research Company LLC 1997 Stock Option
    Plan (Incorporated by reference to Exhibit&nbsp;99.1 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-93609) filed on December&nbsp;27, 1999 (the
    &#147;December 1999 Form&nbsp;S-8&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Diablo Research Company LLC 1999 Stock Option
    Plan (Incorporated by reference to Exhibit&nbsp;99.2 to the
    December 1999 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 2000 Nonstatutory Equity
    Incentive Plan, as amended (Incorporated by reference to
    Exhibit&nbsp;10.43 to the Registrant&#146;s 2003 First Quarter
    Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Indemnity Agreement between the
    Registrant and its directors and executive officers
    (Incorporated by reference to Exhibit&nbsp;10.01 to the 2000
    Second Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Multi-Year Credit Agreement, dated as of
    September&nbsp;27, 2002 between the Registrant, the lenders from
    time to time as parties thereto and Fleet National Bank as
    administrative agent (Incorporated by reference to
    Exhibit&nbsp;10.45 to the Registrant&#146;s Form&nbsp;10-Q for
    the quarter ended September&nbsp;28, 2002 (the &#147;2002 Third
    Quarter Form&nbsp;10-Q&#148;)) as amended by First Amendment
    dated as of June&nbsp;24, 2003 (Incorporated by reference to
    Exhibit&nbsp;10.45 to the Registrant&#146;s 2003 Second Quarter
    Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">364-Day Credit Agreement, dated as of
    September&nbsp;27, 2002 between the Registrant, the lenders from
    time to time as parties thereto and Fleet National Bank as
    administrative agent (Incorporated by reference to
    Exhibit&nbsp;10.46 to the 2002 Third Quarter Form&nbsp;10-Q) as
    amended by First Amendment dated as of June&nbsp;24, 2003
    (Incorporated by reference to Exhibit&nbsp;10.46 to the
    Registrant&#146;s 2003 Second Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 1997 Nonstatutory Stock
    Incentive Plan, as amended (Incorporated by reference to
    Exhibit&nbsp;10.47 to the 2003 First Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Simplex Solutions,&nbsp;Inc. 1995 Stock Plan, as
    amended (Incorporated by reference to Exhibit&nbsp;99.1 to the
    Registrant&#146;s Post-Effective Amendment No.&nbsp;1 on
    Form&nbsp;S-8 to Form&nbsp;S-4 Registration Statement (No.
    333-88390) filed on July&nbsp;3, 2002 (the &#147;July 2002
    Form&nbsp;S-8&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Simplex Solutions,&nbsp;Inc. 2001 Incentive Stock
    Plan (Incorporated by reference to Exhibit&nbsp;99.2 to the July
    2002 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Simplex Solutions,&nbsp;Inc. 2002 Nonstatutory
    Stock Option Plan (Incorporated by reference to
    Exhibit&nbsp;99.3 to the July 2002 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Altius Solutions,&nbsp;Inc. 1999 Stock Plan
    (Incorporated by reference to Exhibit&nbsp;99.4 to the July 2002
    Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Description of the Registrant&#146;s Stock
    Purchase Program (Incorporated by reference to
    Exhibit&nbsp;10.53 to the Registrant&#146;s Form&nbsp;10-K for
    the fiscal year ended December&nbsp;30, 2000).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 2001 Non-Qualified Employee
    Stock Purchase Plan, effective July&nbsp;13, 2001 (Incorporated
    by reference to Exhibit&nbsp;10.58 to the 2001 Second Quarter
    Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.61</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">CadMOS Design Technology,&nbsp;Inc. 1997 Stock
    Option Plan (Incorporated by reference to Exhibit&nbsp;99.1 to
    the Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-56898) filed on March&nbsp;12, 2001 (the
    &#147;March 2001 Form&nbsp;S-8&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.62</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">CadMOS Design Technology,&nbsp;Inc. Supplemental
    2001 Stock Option Plan (Incorporated by reference to
    Exhibit&nbsp;99.2 to the March 2001 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.63</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">DSM Technologies,&nbsp;Inc. 2000 Stock Option
    Plan (Incorporated by reference to Exhibit&nbsp;99.1 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-82044) filed on February&nbsp;4, 2002).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">60
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.64</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Silicon Perspective Corporation 1997 Stock Option
    Plan (Incorporated by reference to Exhibit&nbsp;99.1 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-75874) filed on December&nbsp;21, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.65</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s SPC Plan, effective
    December&nbsp;20, 2001 (Incorporated by reference to
    Exhibit&nbsp;10.65 to the 2001 Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.66</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Executive Separation, Release and Consulting
    Agreement, dated as of December&nbsp;3, 2001 between the
    Registrant and Ronald R. Barris (Incorporated by reference to
    Exhibit&nbsp;10.66 to the 2001 Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment to Executive Separation, Release and
    Consulting Agreement, dated as of August&nbsp;23, 2002 between
    the Registrant and Ronald R. Barris (Incorporated by reference
    to Exhibit&nbsp;10.67 to the 2002 Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.68</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">BTA Technology,&nbsp;Inc. 1995 Stock Option Plan
    (Incorporated by reference to Exhibit&nbsp;99.1 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-102648) filed on January&nbsp;22, 2003 (the
    &#147;January 2003 Form&nbsp;S-8&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.69</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">BTA-Ultima,&nbsp;Inc. 1995 Stock Option Plan
    (Incorporated by reference to Exhibit&nbsp;99.2 to the January
    2003 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.70</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">BTA Technology,&nbsp;Inc. 1999 Stock Option Plan
    (Incorporated by reference to Exhibit&nbsp;99.3 to the January
    2003 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Celestry Design Technologies,&nbsp;Inc. 2001
    Stock Option Plan (Incorporated by reference to
    Exhibit&nbsp;99.4 to the January 2003 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.72</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Celestry Design Technologies,&nbsp;Inc. 2001
    Executive Stock Plan (Incorporated by reference to
    Exhibit&nbsp;99.5 to the January 2003 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.73</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Hedge Side Letter, dated as of August&nbsp;10,
    2003, by and between the Registrant and J.P.&nbsp;Morgan
    Securities Inc., as agent for JPMorgan Chase Bank.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.74</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warrant Transaction Confirmation, dated
    August&nbsp;11, 2003, between the Registrant and
    J.P.&nbsp;Morgan Securities Inc., as agent for JPMorgan Chase
    Bank.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.75</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Call Option Transaction Confirmation, dated
    August&nbsp;11, 2003, between the Registrant and
    J.P.&nbsp;Morgan Securities Inc., as agent for JPMorgan Chase
    Bank.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.76</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warrant Transaction Confirmation, dated
    August&nbsp;27, 2003, between the Registrant and
    J.P.&nbsp;Morgan Securities Inc., as agent for JPMorgan Chase
    Bank.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.77</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Call Option Transaction Confirmation, dated
    August&nbsp;27, 2003, between the Registrant and
    J.P.&nbsp;Morgan Securities Inc., as agent for JPMorgan Chase
    Bank.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">21.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Subsidiaries of the Registrant.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of KPMG LLP.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Information Regarding Consent of Arthur Andersen
    LLP.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">61
</FONT>

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<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">31.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of the Registrant&#146;s Chief
    Executive Officer, H. Raymond Bingham, pursuant to
    Rule&nbsp;13a-14 of the Securities Exchange Act of 1934.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">31.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of the Registrant&#146;s Chief
    Financial Officer, William Porter, pursuant to Rule&nbsp;13a-14
    of the Securities Exchange Act of 1934.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">32.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of the Registrant&#146;s Chief
    Executive Officer, H. Raymond Bingham, pursuant to
    18&nbsp;U.S.C. Section&nbsp;1350, as adopted pursuant to
    Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">32.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of the Registrant&#146;s Chief
    Financial Officer, William Porter, pursuant to 18&nbsp;U.S.C.
    Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of
    the Sarbanes-Oxley Act of 2002.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">*&nbsp;Management contract or compensatory plan
or arrangement covering executive officers or directors of the
Registrant.
</FONT>

<P align="left">
<FONT size="2">(b)&nbsp;<I>Reports on Form&nbsp;8-K:</I>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On October&nbsp;15, 2003, a current report on
Form&nbsp;8-K was furnished to the SEC to report that Cadence
issued a press release and conducted a conference call
announcing its financial results for the third quarter of 2003.
</FONT>

<P align="left">
<FONT size="2">(c)&nbsp;<I>Exhibits:</I>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence hereby files as part of this
Form&nbsp;10-K the Exhibits listed in Item&nbsp;15. (a)&nbsp;3
above.
</FONT>

<P align="left">
<FONT size="2">(d)&nbsp;<I>Financial Statement Schedule:</I>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">See Item&nbsp;15.(a)2 of this Form&nbsp;10-K.
</FONT>

<P align="center"><FONT size="2">62
</FONT>

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<P align="center">
<B><FONT size="2">INDEPENDENT AUDITORS&#146; REPORT</FONT></B>

<P align="left">
<FONT size="2">The Stockholders and Board of Directors <BR>
 Cadence Design Systems, Inc.:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have audited the accompanying consolidated
balance sheets of Cadence Design Systems, Inc. and subsidiaries
as of January&nbsp;3, 2004 and December&nbsp;28, 2002 and the
related consolidated statements of operations,
stockholders&#146; equity and comprehensive income and cash
flows for the years then ended. In connection with our audits of
the consolidated financial statements for the years ended
January&nbsp;3, 2004 and December&nbsp;28, 2002, we also have
audited the financial statement schedule listed in
Item&nbsp;15.(a)2. These consolidated financial statements and
financial statement schedules are the responsibility of the
Company&#146;s management. Our responsibility is to express an
opinion on these consolidated financial statements and financial
statement schedule based on our audits. The accompanying
consolidated financial statements and financial statement
schedule for the year ended December&nbsp;29, 2001 of Cadence
Design Systems, Inc. were audited by other auditors who have
ceased operations. Those auditors expressed an unqualified
opinion on those consolidated financial statements and the
related financial statement schedule, before the revisions
described in Note&nbsp;2 to the consolidated financial
statements, in their report dated March&nbsp;11, 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Cadence Design
Systems,&nbsp;Inc. and subsidiaries as of January&nbsp;3, 2004
and December&nbsp;28, 2002, and the results of their operations
and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As discussed in Note&nbsp;4 to the accompanying
consolidated financial statements, the consolidated balance
sheet as of December&nbsp;28, 2002 and the related consolidated
statements of operations, stockholders&#146; equity and cash
flows for the year then ended have been restated.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As discussed above, the consolidated financial
statements of Cadence Design Systems,&nbsp;Inc. for the year
ended December&nbsp;29, 2001 were audited by other auditors who
have ceased operations. As described in Note&nbsp;2, the
consolidated statement of operations has been restated to
include amortization of acquired intangibles as a component of
cost of revenues and the consolidated statement of cash flows
has been restated to include proceeds from the sale of
receivables as a component of cash flows from operating
activities rather than as a component of cash flows from
financing activities. We audited the adjustments described in
Note&nbsp;2 that were applied to restate the 2001 consolidated
statements of operations and cash flows. In our opinion, such
adjustments are appropriate and have been properly applied. As
also described in Note&nbsp;2, the consolidated financial
statements have been revised to include the transitional
disclosures required by Statement of Financial Accounting
Standards No.&nbsp;142, &#147;Goodwill and Other Intangible
Assets&#148; (SFAS&nbsp;No.&nbsp;142), which was adopted by the
Company as of December&nbsp;30, 2001 (the beginning of the
Company&#146;s fiscal year 2002). In our opinion, the
disclosures for 2001 related to the adoption of
SFAS&nbsp;No.&nbsp;142 in Note&nbsp;2 are appropriate. However,
we were not engaged to audit, review, or apply any procedures to
the 2001 consolidated financial statements of Cadence Design
Systems, Inc. other than with respect to such adjustments and
disclosures and, accordingly, we do not express an opinion or
any other form of assurance on the 2001 consolidated financial
statements taken as a whole.
</FONT>

<P align="left">
<FONT size="2">/s/ KPMG LLP
</FONT>

<P align="left">
<FONT size="2">Mountain View, California
</FONT>

<DIV align="left">
<FONT size="2">March&nbsp;24, 2004
</FONT>
</DIV>

<P align="center"><FONT size="2">63
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following is a copy of the audit report
previously issued by Arthur Andersen LLP in connection with
Cadence Design Systems,&nbsp;Inc.&#146;s filing on
Form&nbsp;10-K for the fiscal year ended December&nbsp;29, 2001.
This audit report has not been reissued by Arthur Andersen LLP
in connection with this filing on Form&nbsp;10-K. For further
discussion, see Exhibit&nbsp;23.02. The financial statements to
which this report relate have been revised as discussed in
Note&nbsp;2 to our Consolidated Financial Statements. These
revisions are not covered by the copy of the report of Arthur
Andersen LLP and were audited by KPMG LLP as described in their
report. In addition, the Financial Statements underlying the
&#147;Selected Financial Data&#148; presented in Item&nbsp;6 of
this Form&nbsp;10-K for the years ended January&nbsp;1, 2000 and
December&nbsp;30, 2000 have been revised. These revisions are
not covered by the copy of the report of Arthur Andersen LLP.
</FONT>

<P align="center">
<B><FONT size="2">REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS</FONT></B>

<P align="left">
<FONT size="2">To the Stockholders and Board of Directors of
Cadence Design Systems, Inc.:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have audited the accompanying consolidated
balance sheets of Cadence Design Systems, Inc. (a Delaware
corporation) and subsidiaries as of December&nbsp;29, 2001 and
December&nbsp;30, 2000, and the related consolidated statements
of operations, stockholders&#146; equity and cash flows for each
of the three fiscal years in the period ended December&nbsp;29,
2001. These financial statements and the schedule referred to
below are the responsibility of Cadence&#146;s management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Cadence Design Systems, Inc.
and subsidiaries as of December&nbsp;29, 2001 and
December&nbsp;30, 2000, and the results of their operations and
their cash flows for each of the three fiscal years in the
period ended December&nbsp;29, 2001, in conformity with
accounting principles generally accepted in the United States of
America.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our audits were made for the purpose of forming
an opinion on the basic financial statements taken as a whole.
The schedule listed in Item&nbsp;14.(a)2. is presented for
purposes of complying with the Securities and Exchange
Commission&#146;s rules and is not part of the basic
consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the
basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data
required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
</FONT>

<P align="left">
<FONT size="2">/s/ ARTHUR ANDERSEN LLP
</FONT>

<P align="left">
<FONT size="2">ARTHUR ANDERSEN LLP
</FONT>

<P align="left">
<FONT size="2">San Jose, California
</FONT>

<DIV align="left">
<FONT size="2">March&nbsp;11, 2002
</FONT>
</DIV>

<P align="center"><FONT size="2">64
</FONT>
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<P align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS, INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED BALANCE SHEETS</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004 and December&nbsp;28,
2002</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(In thousands, except per share
amounts)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">ASSETS</FONT></B>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="59%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current Assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">384,525</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">371,327</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Short-term investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,898</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Receivables, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">348,680</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">313,968</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,926</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,614</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,448</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">842,241</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">758,643</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">403,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">431,846</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">922,797</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">664,026</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Acquired intangibles, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">237,508</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">219,203</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Installment contract receivables, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121,627</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">113,185</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">289,882</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">239,720</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,817,902</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,426,623</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="12" align="center" valign="top">
    <B><FONT size="2">LIABILITIES AND STOCKHOLDERS&#146;
    EQUITY</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current Liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current portion of capital lease obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">388</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,609</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable and accrued liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">243,062</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">294,973</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current portion of deferred revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">238,478</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">207,738</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">481,928</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">504,320</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-Term Liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term portion of capital lease obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term portion of deferred revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Convertible notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">420,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">327,345</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">214,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">763,693</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">278,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; Equity:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock&nbsp;&#151; $0.01&nbsp;par value;
    authorized 400&nbsp;shares, none issued or outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common stock&nbsp;&#151; $0.01&nbsp;par value;
    authorized 600,000&nbsp;shares; issued and outstanding shares:
    268,442, excluding 5,867&nbsp;shares held in treasury at
    January&nbsp;3, 2004; 269,688 excluding 693&nbsp;shares held in
    treasury at December&nbsp;28, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,034,190</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,103,167</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(48,856</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(38,948</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retained earnings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">566,354</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">583,920</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated other comprehensive income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,593</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,109</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,572,281</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,644,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Liabilities and Stockholders&#146; Equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,817,902</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,426,623</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these consolidated financial statements.
</FONT>

<P align="center"><FONT size="2">65
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF
OPERATIONS</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">For the three fiscal years ended
January&nbsp;3, 2004</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(In thousands, except per share
amounts)</FONT></B>
</DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="55%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">663,513</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">806,786</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">830,490</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">131,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">149,810</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">263,355</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">324,822</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">331,347</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">336,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,119,484</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,287,943</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,430,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Costs and Expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,036</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98,291</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">118,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93,153</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,688</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">192,648</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,460</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,089</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,299</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketing and sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">326,579</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">402,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">393,614</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Research and development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">340,121</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">326,414</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">297,329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82,566</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,767</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">119,350</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,573</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,752</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,785</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of deferred stock compensation (A)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,911</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Legal settlements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(261,090</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(194,558</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,836</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">134,296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,619</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of acquired in-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairment of goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,834</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total costs and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,129,448</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,127,364</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,189,989</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,964</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">160,579</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">240,451</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,002</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,803</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,632</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (loss), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,599</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,756</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before provision (benefit) for
    income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,565</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">144,020</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">242,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision (benefit) for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,999</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,681</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,861</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,566</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">141,287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic Net Income (Loss) Per Share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.57</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted Net Income (Loss) Per Share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">266,794</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">259,870</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">245,839</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average common and potential common
    shares outstanding&nbsp;&#151; assuming dilution
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">266,794</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">257,660</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">(A)&nbsp;Amortization of deferred stock
    compensation would be further classified as follows:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,080</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,618</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,037</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketing and sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,199</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,221</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,049</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Research and development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,086</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,845</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,195</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,084</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,980</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,911</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these consolidated financial statements.
</FONT>

<P align="center"><FONT size="2">66
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF STOCKHOLDERS&#146;
EQUITY AND COMPREHENSIVE INCOME</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">For the three fiscal years ended
January&nbsp;3, 2004</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(In thousands)</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="13%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><FONT size="1">Stock</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Par Value</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Accumulated</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">And Capital</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Deferred</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Other</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Total</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Comprehensive</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Outstanding</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">in Excess</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Stock</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Retained</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Comprehensive</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Stockholders&#146;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Income</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Shares</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">of Par</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Compensation</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Earnings</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Income (Loss)</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Equity</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">BALANCE,<BR>
    DECEMBER&nbsp;30, 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">243,662</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">590,839</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(60,978</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">394,224</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(14,620</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">909,465</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Purchase of stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(12,846</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(299,036</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(299,036</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">8,976</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">99,874</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">99,874</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Tax benefits from employee stock transactions
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2,009</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">2,009</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Stock issued in connection with acquisitions
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">10,112</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">259,222</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">259,222</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Deferred stock compensation, net of forfeitures
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(24,820</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(12,566</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(37,386</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Amortization of deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">609</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">17,303</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">17,912</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">141,287</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">141,287</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">141,287</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Unrealized holding gain on marketable securities,
    net
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">28,943</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">28,943</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">28,943</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Foreign currency translation loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(943</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(943</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(943</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">169,287</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">BALANCE, DECEMBER&nbsp;29, 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">249,904</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">628,697</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(56,241</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">535,511</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">13,380</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,121,347</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Cumulative effect of prior period adjustments
    (see Note&nbsp;4)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">930</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(11,930</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(11,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Purchase of stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(12,756</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(185,171</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(185,171</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6,710</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">77,228</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">77,228</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Tax benefits from employee stock transactions
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">31,815</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">31,815</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Stock issued in connection with acquisitions
    (restated)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">25,830</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">522,952</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">522,952</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Deferred stock compensation, net of forfeitures
    (restated)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">28,743</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(28,781</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(38</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Amortization of deferred stock compensation
    (restated)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,097</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">45,144</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">44,047</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net income (restated)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">60,339</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">60,339</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">60,339</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Unrealized holding loss on marketable securities,
    net
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(24,629</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(24,629</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(24,629</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Foreign currency translation gain
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">7,140</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">7,140</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">7,140</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">42,850</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">BALANCE, DECEMBER&nbsp;28, 2002 (RESTATED)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">269,688</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,103,167</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(38,948</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">583,920</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(4,109</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,644,030</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Purchase of stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(17,386</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(213,832</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(213,832</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">11,040</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">86,567</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">86,567</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Tax benefits from employee stock transactions
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">14,875</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">14,875</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Stock issued in connection with acquisitions
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5,100</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">70,577</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">70,577</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Purchase of call options
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(134,637</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(134,637</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Issuance of warrants
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">56,441</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">56,441</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Deferred stock compensation, net of forfeitures
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">46,740</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(46,740</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Amortization of deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">4,292</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">36,832</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">41,124</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(17,566</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(17,566</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(17,566</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Unrealized holding gain on marketable securities,
    net
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5,750</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5,750</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5,750</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Foreign currency translation gain
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18,952</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18,952</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18,952</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">7,136</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">BALANCE, JANUARY&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">268,442</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,034,190</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(48,856</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">566,354</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">20,593</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,572,281</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these consolidated financial statements.
</FONT>

<P align="center"><FONT size="2">67
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">CONSOLIDATED STATEMENTS OF CASH
FLOWS</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">For the three fiscal years ended
January&nbsp;3, 2004</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(In thousands)</FONT></B>
</DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and Cash Equivalents at Beginning of Year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">371,327</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">206,311</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,220</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash Flows From Operating Activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,566</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">141,287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjustments to reconcile net income (loss) to net
    cash provided by operating activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">191,608</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">203,906</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">213,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,303</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity in loss from investments, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,875</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,395</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,244</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gain on sale of investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(24,889</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,662</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of long-term investment securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,785</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,087</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of acquired in-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairment of goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,834</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of inventory
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,338</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,915</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash restructuring and other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,438</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,904</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,031</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Tax benefits from employee stock transactions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,875</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,815</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(60,048</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(24,157</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,187</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provisions for losses on trade accounts
    receivable and sales returns
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,428</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,257</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,809</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other non-cash items
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,678</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,459</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,350</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Changes in operating assets and liabilities, net
    of effect of acquired and disposed businesses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Receivables
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,326</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(33,551</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,453</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from the sale of receivables
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,355</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">182,049</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">235,806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,312</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(801</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,516</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,820</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,580</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,337</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Installment contract receivables
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(107,929</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(261,350</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(299,275</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,941</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(40,916</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(75,946</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable and accrued liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(106,687</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,751</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,502</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,642</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,539</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,044</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,469</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">73,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by operating activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">171,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">347,653</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">410,773</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash Flows From Investing Activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from sale and maturities of short-term
    investments&nbsp;&#151; available-for-sale
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,370</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">124,737</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchases of short-term investments&nbsp;&#151;
    available-for-sale
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,051</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(40,478</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from the sale of long-term investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,274</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from sale of equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,147</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchases of property, plant and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(82,881</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(125,159</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(154,311</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchases of software licenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(33,507</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,750</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,747</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Investment in venture capital partnership and
    equity investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(39,761</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,818</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,492</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash (paid)&nbsp;acquired in business
    combinations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(182,247</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(34,682</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,912</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from the sale of put warrants
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,934</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchase of call options
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,934</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used for investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(325,975</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(136,090</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(85,379</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash Flows From Financing Activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from credit facility
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">232,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">222,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Principal payments on credit facility and capital
    leases
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(98,856</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(181,831</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(225,203</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from issuance of convertible notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">420,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payment of convertible notes issuance costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,463</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from sale of common stock warrants
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,441</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchase of call options
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(134,637</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from repayment of notes receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Repurchase of minority interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,958</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Proceeds from issuance of common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86,567</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">77,228</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">99,874</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchases of treasury stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(213,832</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(181,797</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(299,036</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by (used for) financing
    activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">149,220</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(54,100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(202,900</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect of exchange rate changes on cash
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,403</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase in cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">165,016</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">121,091</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and Cash Equivalents at End of Year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">384,525</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">371,327</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">206,311</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">The accompanying notes are an integral part of
these consolidated financial statements.
</FONT>

<P align="center"><FONT size="2">68
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">NOTE&nbsp;1.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">CADENCE</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence Design Systems,&nbsp;Inc. licenses
electronic design automation, or EDA, software, sells or leases
hardware technology and provides design and methodology services
throughout the world to help accelerate and manage
customer&#146;s electronic product development processes.
Cadence&#146;s broad range of products and services are used by
the world&#146;s leading electronics companies to design and
develop complex ICs, and personal and commercial electronic
systems.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restatement</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2003, Cadence restated its Consolidated
Financial Statements as of and for the fiscal year ended
December&nbsp;28, 2002 as discussed in more detail in
Note&nbsp;4. While certain adjustments impacting Cadence&#146;s
Consolidated Financial Statements for periods prior to fiscal
2002 were also identified, the Consolidated Financial Statements
for fiscal 2001 were not materially affected by the adjustments
discussed below, and a firm that is no longer in existence
audited the Consolidated Financial Statements for that year.
Accordingly, no adjustments have been made to Cadence&#146;s
fiscal 2001 Consolidated Financial Statements for these items.
However, in order for the Consolidated Balance Sheet as of
December&nbsp;28, 2002 to be properly stated, Cadence has
recorded the cumulative effect of adjustments of
$11.9&nbsp;million for all years prior to fiscal 2002 to opening
retained earnings for fiscal 2002. The cumulative effect of the
$11.9&nbsp;million is net of the related tax effects and
consists of $4.3&nbsp;million in 2001, $3.3&nbsp;million in
2000, $2.3&nbsp;million in 1999 and $2.0&nbsp;million prior to
1999.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">NOTE&nbsp;2.&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Principles
of Consolidation and Basis of Presentation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence&#146;s fiscal year end is the Saturday
closest to December&nbsp;31. Fiscal 2003 was a 53-week year.
Fiscal 2002 and 2001 were 52-week years. Fiscal 2004 will be a
52-week year ending January&nbsp;1, 2005.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The consolidated financial statements include the
accounts of Cadence and its subsidiaries after elimination of
intercompany accounts and transactions. Investments in companies
in which voting interests range from 20% to 50%, or for which
Cadence has the ability to exercise significant influence, are
accounted for using the equity method of accounting.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reclassifications</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2003, Cadence began reporting amortization
expense related to certain intangible assets acquired in
business combinations in Cost of product, Cost of services and
Cost of maintenance in its Consolidated Statements of
Operations. Cadence previously recorded all amortization expense
related to these intangibles in Amortization of acquired
intangibles. Accordingly, Cadence has restated the following
amounts to correct these errors in 2002 and 2001 in the
accompanying Consolidated Statements of Operations:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="66%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,154</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,281</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,264</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">868</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,023</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21,545</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total effect on Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These restatements had no effect on earnings or
loss in any year. See Note&nbsp;4, Restatements, for additional
information about other adjustments.
</FONT>

<P align="center"><FONT size="2">69
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the fourth quarter of 2003, Cadence also
reclassified goodwill of $663.2&nbsp;million as of
December&nbsp;28, 2002 from Acquired intangibles, net on its
Consolidated Balance Sheets and reclassified $0.9&nbsp;million
of purchased software technology as of December&nbsp;28, 2002
from Acquired intangibles, net to Other assets in the
accompanying Consolidated Balance Sheets to correct these errors
and conform to the January&nbsp;3, 2004 presentation.
Additionally, Cadence reclassified $11.2&nbsp;million of
deferred revenue from Deferred revenue&nbsp;&#151; current to
Deferred revenue&nbsp;&#151; Long-term to correct these errors
and conform to the January&nbsp;3, 2004 presentation. See
Note&nbsp;4, Restatements for additional information.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the year ended December&nbsp;28, 2002,
Cadence has restated its Statement of Cash Flows for the effects
of the restatement adjustments discussed in Note&nbsp;4
resulting in a decrease to Net cash provided by operating
activities of $2.5&nbsp;million and a decrease to Net cash used
by investing activities of $2.5&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the year ended December&nbsp;29, 2001,
Cadence has restated its Statements of Cash Flows to include
proceeds from the sale of receivables of $235.8&nbsp;million as
a component of cash flows from operating activities rather than
as a component of cash flows from financing activities, which is
consistent with the guidance of Statement of Financial
Accounting Standards, or SFAS, No.&nbsp;95, &#147;Statement of
Cash Flows.&#148;
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Use
of Estimates</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash,
Cash Equivalents and Short-Term Investments</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence considers all highly liquid debt
instruments, including commercial paper, euro time deposits,
repurchase agreements and certificates of deposit with remaining
maturities of three months or less at the time of purchase to be
cash equivalents. Investments with maturities greater than three
months and less than one year are classified as short-term
investments.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreign
Currency Translation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence transacts business in various foreign
currencies. In general, the functional currency of a foreign
operation is the local country&#146;s currency except for
Cadence&#146;s principal Irish and Hungarian subsidiaries, whose
functional currency is the U.S.&nbsp;dollar. Non-functional
currency monetary balances are remeasured into the functional
currency of the subsidiary with any related gain or loss
recorded in earnings. Assets and liabilities of operations
outside the United States, for which the functional currency is
the local currency, are translated into U.S.&nbsp;dollars using
fiscal year-end exchange rates. Revenue and expenses are
translated at the exchange rates in effect at the end of each
fiscal month during the year. The effects of foreign currency
translation adjustments are included in Stockholders&#146;
Equity as a component of Accumulated other comprehensive income
in the accompanying Consolidated Balance Sheets.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Derivative
Financial Instruments</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence enters into foreign currency forward
exchange contracts with financial institutions to protect
against currency exchange risks associated with existing assets
and liabilities. A foreign currency forward exchange contract
acts as an economic hedge by increasing in value when underlying
asset exposures decrease in value or underlying liability
exposures increase in value. Conversely, a foreign currency
forward exchange contract decreases in value when underlying
asset exposures increase in value or underlying liability
exposures decrease in value. Forward contracts are not accounted
for as hedges and, therefore, the unrealized gains and
</FONT>

<P align="center"><FONT size="2">70
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<FONT size="2">losses are recognized in Other income (loss), net
included in the accompanying Consolidated Statements of
Operations in advance of the actual foreign currency cash flows
with the fair value of these forward contracts being recorded as
accrued liabilities or other assets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence does not use forward contracts for
trading or hedging purposes. Cadence&#146;s ultimate realized
gain or loss with respect to currency fluctuations will depend
on the currency exchange rates in effect as the forward
contracts mature.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Allowance
for Doubtful Accounts</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence makes judgments as to its ability to
collect outstanding receivables and provide allowances for the
portion of receivables when collection becomes doubtful.
Provisions are made based upon a specific review of all
significant outstanding invoices and are recorded in operating
expenses. For those invoices not specifically reviewed,
provisions are provided at differing rates, based upon the age
of the receivable. In determining these percentages, Cadence
analyzes its historical collection experience and current
economic trends. If the historical data Cadence uses to
calculate the allowance provided for doubtful accounts does not
reflect the future ability to collect outstanding receivables,
additional provisions may be needed and the future results of
operations could be materially affected.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Allowance
for Sales Returns</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Provisions for sales returns primarily result
from amendments to product, maintenance and service arrangements
and are recorded as a reduction to revenue. These provisions are
made based on historical experience and changes in customer
preferences.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Inventories are stated at the lower of cost
(using the first-in, first-out method) or market value.
Cadence&#146;s inventories include high technology parts and
components for complex computer systems that emulate the
performance and operation of computer IC and electronic systems.
These parts and components may be specialized in nature or
subject to rapid technological obsolescence. While Cadence has
programs to minimize the required inventories on hand and
considers technological obsolescence when estimating required
reserves to reduce recorded amounts to market values, it is
reasonably possible that such estimates could change in the near
term. Cadence&#146;s practice is to reserve for inventory in
excess of 12-month demand.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the year ended January&nbsp;3, 2004, Cadence
recorded no write-off for excess inventory. In the year ended
December&nbsp;28, 2002, Cadence recorded a $9.3&nbsp;million
write-off for excess inventory in cost of product revenue, for
excess inventory from decreased sales forecasts. In the year
ended December&nbsp;29, 2001, Cadence recorded an
$18.9&nbsp;million write-off for excess inventory in cost of
product revenue. Of the $18.9&nbsp;million write-off,
$15.2&nbsp;million was related to excess inventory from
decreased sales forecasts and $3.7&nbsp;million related to two
product lines that were discontinued as part of Cadence&#146;s
restructuring. The excess inventory charges of $9.3&nbsp;million
in 2002 and $15.2&nbsp;million in 2001 were due to significant
decreases in forecasted revenue for emulation products.
</FONT>

<P align="center"><FONT size="2">71
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property,
Plant and Equipment</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Property, plant and equipment is stated at
historical cost. Depreciation and amortization are generally
provided over the estimated useful lives, using the
straight-line method, as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="67%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="30%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Computer equipment and related software
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">3-8&nbsp;years
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Buildings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">10-32&nbsp;years
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leasehold and building improvements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">Shorter of the lease term or the estimated useful
    life
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Furniture and fixtures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">3-5&nbsp;years
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">3-5&nbsp;years
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence capitalizes the costs of software
developed for internal use in compliance with Statement of
Position, or SOP, 98-1 &#147;Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use&#148;
and with Emerging Issues Task Force, or EITF, Issue&nbsp;00-2
&#147;Accounting for Web Site Development Costs.&#148;
Capitalization of software developed for internal use and web
site development costs begins at the application development
phase of the project. Cadence capitalized $21.0&nbsp;million in
2003, $48.1&nbsp;million in 2002, and $68.0&nbsp;million in
2001, of costs relating to purchased software, internal
development and other consulting services from third parties for
software that is used, or intended to be used, internally.
Amortization of software developed for internal use and web site
development costs begins when the computer software is ready for
its intended use, and is computed on a straight-line basis over
the estimated useful life of the product.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence recorded depreciation expense of
property, plant and equipment for the fiscal years 2003, 2002,
and 2001 in the amount of $81.9&nbsp;million,
$100.1&nbsp;million, and $83.2&nbsp;million, respectively.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Software
Development Costs</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence accounts for software development costs
in accordance with SFAS&nbsp;No.&nbsp;86, &#147;Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed.&#148; Software development costs are capitalized
beginning when a product&#146;s technological feasibility has
been established by completion of a working model of the product
and ending when a product is available for general release to
customers. The period between the achievement of technological
feasibility and the general release of Cadence&#146;s products
has been of short duration. Internally-generated and purchased
capitalizable software development costs have not been material.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence capitalized $33.5&nbsp;million of
purchased software during 2003 and $8.8&nbsp;million during
2002. Cadence has deemed the purchased software to have an
alternative future use. Cadence begins amortization of purchased
software, on a straight-line basis, when the technology is
available for general release to customers. Amortization expense
related to purchased software was $0.5&nbsp;million during 2003,
$1.9&nbsp;million during 2002 and $3.3&nbsp;million during 2001.
In addition, Cadence reported an impairment charge of
$10.2&nbsp;million in 2002 in connection with purchased software
included in Restructuring and other charges in the Consolidated
Statements of Operations.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquired
Intangibles, including Goodwill</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Acquired intangibles, which include purchased
technology and other intangible assets, are stated at cost less
accumulated amortization and are reviewed for impairment
whenever events or circumstances indicate that an impairment may
exist. In accordance with SFAS&nbsp;No.&nbsp;142, &#147;Goodwill
and Other Intangible Assets&#148; which was adopted on
December&nbsp;30, 2001 (the beginning of Cadence&#146;s fiscal
year 2002), goodwill and purchased intangibles with indefinite
useful lives are no longer amortized but are reviewed
periodically for impairment. Accordingly, beginning in 2002
Cadence has ceased to amortize approximately $178.8&nbsp;million
of goodwill, net of amortization, including workforce
intangibles that were subsumed into goodwill upon adoption
</FONT>

<P align="center"><FONT size="2">72
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<FONT size="2">of SFAS&nbsp;No.&nbsp;142. Acquired intangibles
with definite lives are amortized on a straight-line basis over
the remaining estimated economic life of the underlying products
and technologies (original lives assigned are one to ten years).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the third quarters of 2003 and 2002,
Cadence completed its annual impairment analysis of goodwill.
Based on the results of the impairment review, Cadence has
determined that no indicators of impairment existed for its
three reporting units. No impairment charge has been recognized
during 2003 or 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The pro forma effects of the adoption of
SFAS&nbsp;No.&nbsp;142 are as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="55%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Years Ended</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">January&nbsp;03,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;28,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">December&nbsp;29,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(In thousands, except per share amounts)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reported net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,566</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">141,287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill/ Workforce amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,326</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjusted net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,566</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">178,613</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic earnings per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reported net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.57</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill/ Workforce amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjusted net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.73</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted earnings per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reported net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill/ Workforce amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjusted net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.69</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-lived
Assets</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence&#146;s long-lived assets consist of
property, plant and equipment and other acquired intangibles,
excluding goodwill. Cadence reviews its long-lived assets for
impairment in accordance with SFAS&nbsp;No.&nbsp;144
&#147;Accounting for the Impairment or Disposal of Long-Lived
Assets.&#148; For assets to be held and used, Cadence initiates
its review whenever events or changes in circumstances indicate
that the carrying amount of a long-lived asset may not be
recoverable. Recoverability of an asset is measured by
comparison of its carrying amount to the expected future
undiscounted cash flows (without interest charges) that the
asset is expected to generate. If it is determined that an asset
is not recoverable, an impairment loss is recorded in the amount
by which the carrying amount of the asset exceeds its fair
value. No impairments were recorded for long-lived assets during
2003 or 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Assets to be disposed of and for which management
has committed to a plan to dispose of the assets, whether
through sale or abandonment, are reported at the lower of
carrying amount or fair value less cost to sell. Management has
no assets that are deemed held for sale as of January&nbsp;3,
2004.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marketable
and Non-Marketable Securities</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <U><FONT size="2">Marketable Securities</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Management considers all of its investments in
marketable securities as available-for-sale. Marketable
securities are stated at fair value, with the unrealized gains
and losses reported as a component of stockholders&#146;
</FONT>

<P align="center"><FONT size="2">73
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<FONT size="2">equity until realized. The cost of securities
sold is determined using the specific identification method when
computing realized gains and losses.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <U><FONT size="2">Non-Marketable Securities</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence&#146;s non-marketable securities include
investments in privately-held companies that Cadence makes
either directly, or indirectly through venture capital limited
partnerships. Cadence owns limited partnership interest in two
venture capital limited partnerships, Telos Venture Partners,
L.P., or Telos&nbsp;I, and Telos Venture Partners&nbsp;II, L.P.,
or Telos&nbsp;II, and together with Telos&nbsp;I referred to as
Telos, that invest in early stage companies with innovative
technologies. Cadence and certain of its deferred compensation
trusts are the sole limited partners of Telos&nbsp;I and Cadence
is the sole limited partner of Telos&nbsp;II. The partnership
agreements governing Telos, which are substantially the same,
require Cadence to meet capital calls principally for the
purpose of funding investments that are recommended by the
applicable Telos general partner, and approved by the Telos
advisory committee as being consistent with the
partnership&#146;s limitations and stated purposes. The Telos
general partner, which is not affiliated with Cadence, manages
the partnerships and may be removed by Cadence without cause.
For both partnerships, the advisory committee is comprised
solely of Cadence&#146;s Chief Executive Officer and
Cadence&#146;s Chairman of the Board of Directors. As of
January&nbsp;3, 2004, Cadence had contributed $83.0&nbsp;million
to these Telos partnerships and is contractually committed to
contribute to these partnerships up to an additional
$44.0&nbsp;million. Cadence&#146;s commitments expire
concurrently with the termination date of each partnership,
which, in the case of Telos&nbsp;I is December&nbsp;31, 2005
and, in the case of Telos&nbsp;II, is July&nbsp;3, 2012.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The investments made by Telos and directly by
Cadence are accounted for using either the cost or equity method
of accounting. Cadence accounts for investments made by Telos as
if Cadence had directly made the investment and accordingly, all
investments recorded on the equity method of accounting are
adjusted to reflect Cadence&#146;s share of the investee&#146;s
income (loss).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence&#146;s non-marketable securities held by
Telos, or Cadence directly, are not publicly-traded and,
therefore, there is no established market for these securities.
To determine the fair market value of these investments, Cadence
uses the most recent round of financing involving new
non-strategic investors or estimates of current market value. It
is Cadence&#146;s policy to review the fair value of these
investments held by Telos, as well as its direct investments, on
a regular basis to determine whether the carrying value of the
investments in these companies are other-than-temporarily
impaired. This evaluation includes, but is not limited to,
reviewing each company&#146;s cash position, financing needs,
earnings/revenue outlook, operational performance,
management/ownership changes and competition. In the case of
privately-held companies, this evaluation is based on
information that Cadence requests from these companies. This
information is not subject to the same disclosure regulations as
U.S.&nbsp;publicly-traded companies and as such, the basis for
these evaluations is subject to the timing and the accuracy of
the data received from these companies. If Cadence believes the
carrying value of a company is in excess of fair value, and this
difference is other-than-temporary, it is Cadence&#146;s policy
to write-down the investments to reduce its carrying value to
fair value.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Equity Method Investments</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">All investments accounted for by Cadence under
the equity method of accounting are held in the form of voting
preferred stock or convertible debt of privately-held companies.
Cadence&#146;s application of the equity method of accounting is
in accordance with Emerging Issues Task Force, or EITF, Issue
No.&nbsp;99-10, &#147;Percentage Used to Determine the Amount of
Equity Method Losses&#148;, approach&nbsp;(a). Accordingly, the
portion of equity method loss or income recorded by Cadence is
based on its&#146; percentage ownership of each investee&#146;s
preferred stock or convertible debt available to absorb losses
or with contractual rights to income. Its level of participation
in future financings of its equity method investees may impact
Cadence&#146;s proportional share in future income or losses.
Cadence records its interest in equity method gains and losses
in the quarter
</FONT>

<P align="center"><FONT size="2">74
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<FONT size="2">following incurrence because it is not
practicable to obtain investee financial statements prior to the
issuance of Cadence&#146;s Consolidated Financial Statements.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Cost Method Investments</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Investments accounted for by Cadence under the
cost method of accounting are carried at historical cost and
Cadence periodically evaluates the fair value of each investment
to determine if an other-than-temporary decline in value has
occurred.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred
Revenue</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Deferred revenue arises when customers are billed
for products and/or services in advance of delivery and
completion of the earnings process. Cadence&#146;s deferred
revenue consists primarily of unearned revenue on maintenance
and product licenses for which revenue is recognized in
installments over the duration of the license. Maintenance on
perpetual licenses is generally renewed annually, billed in full
in advance, and earned over multiple periods over the ensuing
12-month maintenance term. Product licenses recognized as
revenue over multiple periods and maintenance on term licenses
are generally billed quarterly in advance and earned over
multiple periods over the ensuing license period.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-Based
Compensation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At January&nbsp;3, 2004, Cadence has six
stock-based employee compensation plans (excluding director
plans). Cadence accounts for these plans under the recognition
and measurement principles of Accounting Principles Board, or
APB, Opinion No.&nbsp;25 &#147;Accounting for Stock Issued to
Employees&#148;, and related interpretations. Under APB Opinion
No.&nbsp;25, compensation expense is recognized if an
option&#146;s exercise price on the measurement date is below
the fair value of the Company&#146;s common stock. The
compensation, if any, is amortized to expense over the vesting
period.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The pro forma information illustration of the
financial results of operations as if Cadence had accounted for
its grants of employee stock options under the fair value method
of SFAS&nbsp;No.&nbsp;123, &#147;Accounting for Stock-Based
Compensation&#148;, was estimated at the date of grant using the
Black-Scholes option pricing model. Cadence used expected
volatility, as well as other economic data, to estimate the
volatility for fiscal 2003 option grants because management
believes the amount yielded by this method is more
representative of prospective trends. In prior periods, Cadence
used historical trading volatility. Cadence determined the
estimated fair values of its options granted and shares
purchased under its employee stock purchase plans, or ESPPs, for
the years ended January&nbsp;3, 2004, December&nbsp;28, 2002,
and December&nbsp;29, 2001 using the following weighted average
assumptions assuming a dividend yield of zero for all periods:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="68%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">Stock Options</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Risk-free interest rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.36%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.81%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.53%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Volatility factors of the expected market price
    of Cadence&#146;s common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average expected life of an option
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5&nbsp; Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5&nbsp; Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5&nbsp; Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">Employee Stock Purchase Plan</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Risk-free interest rate, based on weighted average
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.10%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.43%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.60%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Volatility factors of the expected market price
    of Cadence&#146;s common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average expected life of ESPP shares
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5&nbsp; Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5&nbsp; Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.5&nbsp; Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">75
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table illustrates the effect on net
income (loss) and income (loss) per share if Cadence had applied
the fair value recognition provisions of SFAS&nbsp;No.&nbsp;123
&#147;Accounting for Stock-Based Compensation&#148; to
stock-based compensation:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="55%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In thousands, except per share amounts)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">As reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,566</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">141,287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Add: Stock-based employee compensation expense
    included in reported net income, net of related tax effects
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,657</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deduct: Stock-based employee compensation expense
    determined under fair-value method for all awards, net of
    related tax effects
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(102,867</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(112,403</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(140,973</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(96,776</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(33,624</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,756</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic net income (loss) per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">As reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.57</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.36</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.13</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted net income (loss) per share:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">As reported
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Pro forma
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.36</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.13</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Comprehensive
Income</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other comprehensive income includes foreign
currency translation gains and losses and unrealized gains and
losses on marketable securities that are available-for-sale that
have been excluded from net income and reflected instead in
stockholders&#146; equity. Cadence has reported the components
of comprehensive income on its Consolidated Statements of
Stockholders&#146; Equity.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue
Recognition</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence classifies revenue by the three sources
from which it is earned: Product; Maintenance; and Services.
Product revenue includes fees associated with the licensing of
Cadence&#146;s software and sale or lease of its hardware
products. Maintenance revenue includes fees associated with
providing technical support for Cadence&#146;s products.
Services revenue includes fees received for performing
methodology and design services.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence applies the provisions of SOP&nbsp;97-2,
&#147;Software Revenue Recognition,&#148; as amended by
SOP&nbsp;98-9, &#147;Modification of SOP&nbsp;97-2, Software
Revenue Recognition, With Respect to Certain Transactions,&#148;
to all product revenue transactions where the software is not
incidental. Cadence also applies the provisions of
SFAS,&nbsp;No.&nbsp;13, &#147;Accounting for Leases,&#148; to
all hardware lease transactions. While these statements govern
the basis for revenue recognition, Cadence exercises significant
judgment and uses estimates in connection with the determination
of the amount of product, service and maintenance revenue and
deferred revenue to be recognized in each accounting period.
Material differences may result in the amount and timing of
Cadence&#146;s revenue for any period if its management made
different judgments or utilized different estimates.
</FONT>

<P align="center"><FONT size="2">76
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <U><FONT size="2">Product revenue</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The timing of product revenue recognition will
differ depending on the license types and the individual terms
and conditions associated with each particular license
agreement. Cadence licenses software using three different
license types:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="6%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Subscription licenses&nbsp;&#151; software
    licensed for a specific time period, generally two to three
    years, with no contractual rights to return and limited rights
    to remix within the licensed software and to unspecified future
    technology. In general, revenue associated with subscription
    licenses is recognized over multiple periods over the term of
    the license commencing upon the effective date of the license
    and initial delivery of the licensed product.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Term licenses&nbsp;&#151; software licensed for a
    specific time period, generally two to three years, with no
    contractual rights to return and, generally, limited rights to
    remix within the licensed software but no right to remix the
    licensed software for unspecified future technology. In general,
    revenue associated with term licenses is recognized upon the
    effective date of the license, determination that the fee is
    fixed or determinable and other revenue recognition criteria
    have been met.
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;</FONT></TD>
    <TD align="left">
    <FONT size="2">Perpetual licenses&nbsp;&#151; software licensed
    on a perpetual basis with no contractual right to return,
    exchange or remix the licensed software. In general, revenue
    associated with perpetual licenses is recognized upon the
    effective date of the license, when collection is determined to
    be probable and other revenue recognition criteria have been met.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Occasionally, customers may request and Cadence
may agree to modify the terms of an existing arrangement for
which revenue is being recognized over multiple periods. The
modifications to the arrangement may include changes in access
to technology, payment terms or other license terms. In these
situations, Cadence accounts for the modified arrangement as a
new transaction and recognizes revenue when all other revenue
recognition criteria have been met.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <U><FONT size="2">Maintenance revenue</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Maintenance revenue consists of fees for
providing technical support and software updates on a
when-and-if available basis. Cadence recognizes all maintenance
revenue over multiple periods over the maintenance term under
each software license agreement. For subscription licenses,
Cadence allocates a portion of the revenue to maintenance
revenue based on the estimated fair value of the maintenance.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <U><FONT size="2">Services revenue</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Services revenue consists primarily of revenue
received for performing methodology and design services. Service
arrangements include time and material, defined level of effort
and fixed bid. Revenue from service contracts is recognized
either on the time and materials method as work is performed or
on the percentage-of-completion method. For contracts with fixed
or not-to-exceed fees on a monthly basis, Cadence estimates the
percentage-of-completion, which is based on the completion of
milestones relating to the arrangement. Cadence has a history of
accurately estimating project status and the costs necessary to
complete projects. If different conditions were to prevail such
that accurate estimates could not be made, then the use of the
completed contract method would be required and the recognition
of all revenue and costs would be deferred until the project was
completed. This change could have a material impact on
Cadence&#146;s results of operations. For small fixed-price
projects, such as training classes and small, standard
methodology service engagements of approximately $10,000 or
less, revenue is recognized when the work is completed.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <U><FONT size="2">Revenue Recognition Criteria</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence recognizes revenue when persuasive
evidence of an arrangement exists, the element has been
delivered, the fee is fixed or determinable, collection of the
resulting receivable is probable, and vendor-
</FONT>

<P align="center"><FONT size="2">77
</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<FONT size="2">specific objective evidence of fair value, or
VSOE, exists. A discussion about these revenue recognition
criteria and their applicability to Cadence&#146;s transactions
follows:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Persuasive evidence of an
arrangement</FONT></I><FONT size="2">&nbsp;&#151; For
subscription and term licenses and hardware leases, Cadence uses
the signed contract as evidence of an arrangement. For perpetual
licenses, hardware sales, maintenance renewals and small
fixed-price service projects, such as training classes and
small, standard methodology service engagements of approximately
$10,000 or less, Cadence uses a purchase order as evidence of an
arrangement. For all other service engagements, Cadence uses a
signed professional services agreement and a statement of work
to evidence an arrangement. Sales through Cadence&#146;s
Japanese distributor,&nbsp;Innotech, are evidenced by a master
agreement governing the relationship, together with binding
purchase orders from the distributor on a
transaction-by-transaction basis.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Product
delivery</FONT></I><FONT size="2">&nbsp;&#151; Software and the
corresponding keys are generally delivered to customers
electronically. Occasionally, Cadence will deliver the software
on a CD-ROM with standard transfer terms of FOB shipping point.
Cadence&#146;s software license agreements generally do not
contain acceptance provisions. With respect to hardware,
delivery of an entire system is deemed to occur upon
installation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Fee is fixed or
determinable</FONT></I><FONT size="2">&nbsp;&#151; Cadence
assesses whether a fee is fixed or determinable at the outset of
the arrangement, primarily based on the payment terms associated
with the transaction. Cadence&#146;s payment terms for perpetual
licenses is generally net 30&nbsp;days; however, payment terms
may vary based on the country in which the agreement is
executed. Cadence generally uses installment contracts for term
and subscription licenses for customers for which it has
established a history of collecting under the original contract
without providing concessions on payments, products or services.
Cadence&#146;s installment contracts have payment periods that
are equal to or less than the time period of the licenses, the
payments are generally collected quarterly, and periodic
payments are generally made in equal or nearly equal
installments. When the periodic payments are less than equal or
near equal, then revenue under such license arrangements is
recognized when payments under the contract become due and
payable. If Cadence no longer had a history of collecting under
the original contract without providing concessions on term
licenses, revenue from term licenses would be required to be
recognized when payments under the installment contract become
due and payable. These changes could have a material impact on
Cadence&#146;s results of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Collection is
probable</FONT></I><FONT size="2">&nbsp;&#151; Cadence assesses
collectibility at the outset of the arrangement based on a
number of factors, including the customer&#146;s past payment
history and its current creditworthiness. If in Cadence&#146;s
judgment collection of a fee is not probable, Cadence defers the
revenue until the uncertainty is removed, which generally means
revenue is recognized upon receipt of cash payment.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Vendor-Specific Objective
Evidence</FONT></I><FONT size="2">&nbsp;&#151; Cadence&#146;s
VSOE for certain product elements of an arrangement is based
upon the pricing for comparable transactions when the element is
sold separately. VSOE for maintenance is generally based upon
the customer&#146;s stated annual renewal rates. VSOE for
services is generally based on the price charged when the
services are sold separately. For multiple element arrangements,
VSOE must exist to allocate the total fee among all delivered
and undelivered elements in the arrangement. If VSOE does not
exist for all elements to support the allocation of the total
fee among all delivered and undelivered elements of the
arrangement, revenue is deferred until such evidence does exist
for the undelivered elements, or until all elements are
delivered, whichever is earlier. If VSOE of all undelivered
elements exists but VSOE does not exist for one or more
delivered elements, revenue is recognized using the residual
method. Under the residual method, the VSOE of the undelivered
elements is deferred, and the remaining portion of the
arrangement fee is recognized as revenue.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In September&nbsp;2002, Cadence acquired
IBM&#146;s Test Design Automation, or TDA, business. Concurrent
with the acquisition, Cadence licensed software to IBM and
entered into an agreement to provide services. In connection
with these transactions, Cadence considered
SFAS&nbsp;No.&nbsp;141, &#147;Business Combination&#148;, and
EITF Issue No.&nbsp;98-3, &#147;Determining Whether a
Nonmonetary Transaction Involves Receipt of Productive Assets of
</FONT>

<P align="center"><FONT size="2">78
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<FONT size="2">a Business&#148;, to determine whether the
acquisition of the TDA business qualified for accounting as a
purchase business combination. In addition, Cadence considered
APB Opinion No.&nbsp;29, &#147;Accounting for Nonmonetary
Transactions&#148; and EITF Issue No.&nbsp;01-02,
&#147;Interpretation of APB Opinion No.&nbsp;29&#148; to
determine whether the concurrent transactions were appropriately
recorded at their respective fair values. In concluding that the
fair values were reasonably determinable, Cadence considered its
recent history of cash sales for similar products or services in
similar sized transactions with similar terms. Approximately 3%
of revenue recognized in 2002 resulted from this concurrent
transaction.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In September&nbsp;2003, Cadence entered into a
license to use and resell certain technology from IBM. During
December&nbsp;2003 and January&nbsp;2004, Cadence sold hardware,
services and licensed software to IBM. These transactions were
separately negotiated, settled in cash, recorded at terms
Cadence considers to be arms-length and were not deemed to be
concurrent. Cadence recognized revenue, arising from these
transactions, totaling approximately 4% of total revenue in 2003.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales
of Installment Contract Receivables</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence transfers installment contract
receivables on a non-recourse basis to third party financing
institutions. These transfers are recorded as sales and
accounted for in accordance with SFAS&nbsp;No.&nbsp;140,
&#147;Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities.&#148; Cadence transferred
accounts receivable totaling $87.4&nbsp;million in 2003,
$182.0&nbsp;million in 2002 and $235.8&nbsp;million in 2001, to
financing institutions on a non-recourse basis. Cadence recorded
losses on the sale of receivables in Other income (loss), net,
in the accompanying Consolidated Statements of Operations of
$5.0&nbsp;million in 2003, $18.8&nbsp;million in 2002 and
$20.9&nbsp;million in 2001. When Cadence sells receivables, it
retains the servicing rights to the underlying accounts
receivable. The fair value of the retained servicing rights has
not been material. For 2001, Cadence has restated its
Consolidated Statement of Cash Flows to include proceeds from
the sale of receivables as a component of cash flows from
operating activities rather than as a component of cash flows
from financing activities, which is consistent with the guidance
of SFAS&nbsp;No.&nbsp;95, &#147;Statement of Cash Flows.&#148;
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounting
for Income Taxes</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence uses the asset and liability method to
account for income taxes. Cadence is required to estimate its
income taxes in each of the jurisdictions in which it operates.
This process involves estimating actual current tax liabilities
together with assessing temporary differences resulting from
differing treatment of items, such as deferred revenue, for tax
and accounting purposes. These differences result in deferred
tax assets and liabilities, which are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date. Cadence then assesses the
likelihood that deferred tax assets will be recovered from
future taxable income, and to the extent it believes that
recovery is not likely, Cadence must establish a valuation
allowance. To the extent Cadence establishes a valuation
allowance for deferred tax assets or increases this allowance in
a period, Cadence may need to include an expense within the tax
provision in its Consolidated Statements of Operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Significant management judgment is required in
determining the provision for income taxes, deferred tax assets
and liabilities and any valuation allowance recorded against net
deferred tax assets. The valuation allowance is based on
estimates of taxable income for each jurisdiction in which
Cadence operates and the period over which deferred tax assets
will be recoverable. In the event that actual results differ
from these estimates or Cadence adjusts these estimates in
future periods, Cadence may need to establish an additional
valuation allowance, which could materially affect its financial
position and results of operations.
</FONT>

<P align="center"><FONT size="2">79
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restructuring
Charges</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence accounts for restructuring charges in
accordance with SEC Staff Accounting Bulletin No.&nbsp;100,
&#147;Restructuring and Impairment Charges.&#148; Since 2001,
Cadence has undertaken significant restructuring initiatives.
The individual components of the restructuring activities
initiated prior to fiscal year 2003 were accounted for in
accordance with EITF&nbsp;No.&nbsp;94-3, &#147;Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)&#148;, and EITF&nbsp;No.&nbsp;88-10 &#147;Costs
Associated with Lease Modifications or Terminations.&#148; For
restructuring activities initiated after fiscal year 2002,
Cadence accounted for the facilities and asset-related portions
of this restructuring in accordance with SFAS&nbsp;No.&nbsp;146
&#147;Accounting for Costs Associated with Exit or Disposal
Activities.&#148; The severance and benefits charges were
accounted for in accordance with SFAS&nbsp;No.&nbsp;112
&#147;Employers&#146; Accounting for Postemployment
Benefits&nbsp;&#151; An Amendment of FASB Statements No.&nbsp;5
and 43.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These restructuring initiatives have required
Cadence to make a number of estimates and assumptions related to
losses on excess facilities vacated or consolidated,
particularly the timing of subleases and sublease terms. Closure
and space reduction costs included in the restructuring charges
include payments required under leases less any applicable
estimated sublease income after the facilities are abandoned,
lease buyout costs and costs to maintain facilities during the
period after abandonment.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, Cadence has recorded estimated
provisions for termination benefits and outplacement costs,
long-term asset write-downs, and other restructuring costs.
Cadence regularly evaluates the adequacy of its restructuring
accrual, and adjusts the balance based on changes in estimates
and assumptions. Cadence may incur future charges for new
restructuring activities as well as for changes in estimates to
amounts previously recorded.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Concentrations
of Credit Risk</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Financial instruments, including derivative
financial instruments, that may potentially subject Cadence to
concentrations of credit risk, consist principally of cash, cash
equivalents, short-term investments, long-term investments,
accounts receivable and forward contracts. Concentration of
credit risk related to accounts receivable is limited, due to
the varied customers comprising Cadence&#146;s customer base and
their dispersion across geographies. Credit exposure related to
the forward contracts is limited to the realized and unrealized
gains on these contracts. As noted in Note&nbsp;8, Cadence
issued options and warrants to hedge potential dilution of the
convertible notes. Changes in the fair value of these
convertible notes hedge and warrant transactions will not be
recognized as long as the instruments remain classified in
equity. All financial instruments are executed with financial
institutions with strong credit ratings, which minimizes risk of
loss due to nonpayment.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair
Value of Financial Instruments</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The fair value of Cadence&#146;s cash and cash
equivalents, short-term and long-term investments, receivables,
accounts payable, accrued liabilities, and deferred revenue
approximate their carrying value due to the short-term nature of
these instruments. The fair market values of Cadence&#146;s
convertible notes and capital lease obligations and installment
contract receivables approximate their carrying values based
upon current market rates of interest.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Advertising</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence expenses the production costs of
advertising as incurred. Advertising expense was approximately
$10.5&nbsp;million, $13.4&nbsp;million and $19.3&nbsp;million
for the fiscal years ended 2003, 2002 and 2001, respectively,
and is included in Marketing and sales in the accompanying
Consolidated Statements of Operations.
</FONT>

<P align="center"><FONT size="2">80
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<B><FONT size="2">NOTE 3.&nbsp;BALANCE SHEET
COMPONENTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A summary of balance sheet components as of
January&nbsp;3, 2004 and December&nbsp;28, 2002 follows:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="62%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Receivables:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="11"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">201,360</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">168,547</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Installment contract receivables&nbsp;&#151;
    current
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">169,913</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">162,857</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Receivables
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">371,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">331,404</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Allowances
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(22,593</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,436</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Receivables, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">348,680</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">313,968</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid Expenses and Other:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,710</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,502</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,439</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,448</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, Plant and Equipment:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Computer equipment and related software
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">481,795</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">432,669</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Buildings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">120,817</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">111,580</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Land
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74,788</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74,677</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leasehold and building improvements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,482</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">72,653</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Furniture and fixtures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,835</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Construction in progress and internally developed
    software
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,891</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total cost
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">897,623</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">868,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Accumulated depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(493,776</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(436,516</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">403,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">431,846</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Acquired Intangibles:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">605,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">486,930</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Accumulated amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(368,129</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(267,727</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Acquired intangibles, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">237,508</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">219,203</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other Assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,971</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,691</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid tax on inter-company royalties
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,058</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-marketable securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-qualified deferred compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,358</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,449</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchased software technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">77,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42,716</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Accumulated amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(44,309</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(41,777</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Purchased software technology, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,765</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">939</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other long-term assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,692</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76,472</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other Assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">289,882</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">239,720</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts Payable and Accrued Liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Payroll and payroll-related accruals
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97,228</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">145,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,547</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,398</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income taxes payable&nbsp;&#151; current
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,093</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued restructuring expenses&nbsp;&#151; current
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,268</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other accrued liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82,095</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74,829</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable and accrued liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">243,062</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">294,973</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">81
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="62%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other Long-term Liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income taxes payable&nbsp;&#151; long-term
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">163,317</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">145,536</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term acquisition-related holdbacks and
    payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,893</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68,871</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">327,345</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">214,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">NOTE 4.&nbsp;RESTATEMENT</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2003, Cadence restated its Consolidated
Financial Statements as of and for the fiscal year ended
December&nbsp;28, 2002 as discussed in more detail below. While
certain adjustments impacting Cadence&#146;s Consolidated
Financial Statements for periods prior to fiscal 2002 were also
identified, the Consolidated Financial Statements for fiscal
2001 were not materially affected by the adjustments discussed
below, and a firm that is no longer in existence audited the
Consolidated Financial Statements for that year. Accordingly, no
adjustments have been made to Cadence&#146;s fiscal 2001
Consolidated Financial Statements for these items. However, as
described in Note&nbsp;2, the 2001 Consolidated Financial
Statements were restated to correct certain classification
errors. In order for the Consolidated Balance Sheet as of
December&nbsp;28, 2002 to be properly stated, Cadence has
recorded the cumulative effect of $11.9&nbsp;million for all
years prior to fiscal 2002 to opening retained earnings for
fiscal 2002 as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Years Prior</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap><FONT size="1">Income (Expense)</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">1999</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to 1999</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,700</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,964</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,776</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,472</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(933</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(404</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(537</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Internally developed software
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(94</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Tax effect of restatement adjustments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,851</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,510</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,389</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total adjustments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,280</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,301</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,266</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,083</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Restated fiscal 2002 Consolidated Financial
Statements reflect the following adjustments as well as the
related decrease to the provision for income taxes of
approximately $2.3&nbsp;million:
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equity
Investments</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence reviewed equity investments made directly
by Cadence or through its venture capital investment
partnerships and determined that it had the ability to exercise
significant influence over certain investee companies because
Cadence held more than 20% of an entity&#146;s voting shares.
For certain investments in which Cadence held less than 20% of
the voting shares, Cadence determined it had the ability to
exercise significant influence because of its board
representation, or commercial or technology relationships
material to the investee company. Based on these facts, Cadence
determined that the equity method of accounting should have been
previously applied to certain investments rather than the cost
method. Other income reflected in Cadence&#146;s restated
consolidated financial statements for fiscal 2002, before the
effects of income taxes, has been increased by approximately
$0.2&nbsp;million for this item, other assets have decreased by
$17.7&nbsp;million and retained earnings has decreased by
$17.9&nbsp;million as of and for the year ended
December&nbsp;28, 2002.
</FONT>

<P align="center"><FONT size="2">82
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred
Compensation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence determined that stock awards made to
employees acquired in two business combinations were variable
awards. Cadence had previously accounted for these employee
stock-based awards as fixed awards. Cadence also determined that
forfeitures relating to certain stock option awards were not
accounted for in the correct periods. To correct these errors,
Cadence reduced deferred stock compensation by
$5.4&nbsp;million, increased additional paid-in-capital by
$2.8&nbsp;million, increased goodwill by $0.8&nbsp;million,
increased stock-based compensation expense by $6.5&nbsp;million
and decreased retained earnings by $0.9&nbsp;million, before the
effects of income taxes, as of and for the year ended
December&nbsp;28, 2002.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence identified errors for a number of revenue
transactions relating to recurring automated entries that
resulted in revenue being recognized in excess of customer
deposits and from a terminated license agreement that had not
been appropriately removed from the system, resulting in a
reduction of revenue for the year ended December&nbsp;28, 2002,
totaling approximately $5.1&nbsp;million, an increase in
deferred revenue of approximately $6.0&nbsp;million and a
decrease in retained earnings of $0.9&nbsp;million, before the
effects of income taxes, as of December&nbsp;28, 2002.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Internally
Developed Software</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence determined that it improperly capitalized
certain costs related to internally developed software. The
effect of this adjustment increased operating expenses by
$2.5&nbsp;million for the year ended December&nbsp;28, 2002 and
reduced property, plant and equipment, net by approximately
$2.6&nbsp;million and decreased retained earnings by
$0.1&nbsp;million, before the effects of income taxes, as of
December&nbsp;28, 2002.
</FONT>

<P align="center"><FONT size="2">83
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restated
Financial Statements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table outlines the effects of the
restatement adjustments previously discussed and
reclassifications that are discussed in Note&nbsp;2, on
Cadence&#146;s Consolidated Statement of Operations for the
fiscal year ended December&nbsp;28, 2002:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="19%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><FONT size="1">Year Ended December&nbsp;28, 2002</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">As Previously</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restatement</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Reclassification</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">As Restated</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Reported</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Adjustments</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Adjustments</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">and Reclassified</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><FONT size="1">(In thousands, except per share amounts)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">811,910</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,124</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(A)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">806,786</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">149,810</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">149,810</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">331,347</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">331,347</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,293,067</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,124</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,287,943</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Costs and Expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">73,137</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,154</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(F)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98,291</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">112,687</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,001</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(F)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,688</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,221</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">868</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(F)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,089</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketing and sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">399,601</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,547</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(B)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">402,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Research and development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">326,414</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">326,414</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,767</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">115,767</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,775</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,023</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(F)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,752</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,504</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,505</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(C)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Legal settlements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(261,090</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(261,090</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">134,296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">134,296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of acquired in-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total costs and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,118,312</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,127,364</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">174,755</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,176</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">160,579</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,803</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,803</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (loss), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,986</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">230</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(D)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,756</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income before provision for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">157,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,946</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">144,020</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86,017</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,336</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(E)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,681</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">71,949</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,610</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">84
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="25%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><FONT size="1">Year Ended December&nbsp;28, 2002</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">As Previously</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restatement</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Reclassification</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">As Restated</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Reported</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Adjustments</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Adjustments</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">and Reclassified</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><FONT size="1">(In thousands, except per share amounts)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic net income per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.27</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted net income per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">259,870</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">259,870</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average common and potential common
    shares outstanding&nbsp;&#151; assuming dilution
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Notes:
</FONT>

<P align="left">
<FONT size="2">(A)&nbsp;Revenue adjustments
</FONT>

<DIV align="left">
<FONT size="2">(B)&nbsp;&nbsp;Internally developed software
adjustments
</FONT>
</DIV>

<DIV align="left">
<FONT size="2">(C)&nbsp;Deferred compensation adjustments
</FONT>
</DIV>

<DIV align="left">
<FONT size="2">(D)&nbsp;Equity investment adjustments
</FONT>
</DIV>

<DIV align="left">
<FONT size="2">(E)&nbsp;&nbsp;Tax effect of restatement
adjustments
</FONT>
</DIV>

<DIV align="left">
<FONT size="2">(F)&nbsp;&nbsp;Reclassification of amortization
of intangible assets
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table outlines the effect of the
restatement adjustments and reclassifications on Cadence&#146;s
Consolidated Statement of Cash Flows for the fiscal year ended
December&nbsp;28, 2002:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="51%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Year Ended December&nbsp;28, 2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Impact of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As Previously</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restatement</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Reported</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjustments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As Restated</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash provided by operating activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">350,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,547</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(G)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">347,653</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net cash used in investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(138,637</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,547</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(G)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(136,090</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">(G)&nbsp;Internally developed software adjustments
</FONT>

<P align="center"><FONT size="2">85
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table outlines the effect of the
restatement adjustments and reclassifications on Cadence&#146;s
Consolidated Balance Sheet as of December&nbsp;28, 2002:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="21%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">As of December&nbsp;28, 2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As Previously</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restatement</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Reclassification</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As Restated and</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Reported</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjustments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjustments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Reclassified</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="19" align="center" valign="top">
    <FONT size="2">ASSETS
    </FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current Assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">371,327</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">371,327</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Short-term investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Receivables, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">313,968</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">313,968</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inventories
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,614</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,614</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid expenses and other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,448</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,448</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">758,643</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">758,643</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">434,491</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,645</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(H)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">431,846</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">829</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">&nbsp;(L)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">663,197</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">&nbsp;(N)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">664,026</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Acquired intangibles, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">883,339</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(664,136</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(N),(O)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">219,203</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Installment contract receivables, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">113,185</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">113,185</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">248,603</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,822</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(I),(J)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">939</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">&nbsp;(O)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">239,720</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,438,261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,638</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,426,623</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="19"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="19" align="center" valign="top">
    <FONT size="2">LIABILITIES AND STOCKHOLDERS&#146; EQUITY
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="19"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <FONT size="2">Current Liabilities:
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current portion of capital lease obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,609</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,609</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable and accrued liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">297,399</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,426</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(J)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">294,973</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current portion of deferred revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">212,882</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,063</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">&nbsp;(K)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,207</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(P)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">207,738</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">511,890</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,207</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">504,320</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <FONT size="2">Long-Term Liabilities:
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term portion of capital lease obligations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term portion of deferred revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,207</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">&nbsp;(P)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">214,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">214,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">278,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">86
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="21%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">As of December&nbsp;28, 2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As Previously</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restatement</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Reclassification</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As Restated and</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Reported</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjustments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Adjustments</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Reclassified</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; Equity:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common stock and capital in excess of par value
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,100,380</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,787</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">&nbsp;(L)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,103,167</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(44,426</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,478</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">&nbsp;(L)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(38,948</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Retained earnings
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">607,460</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,540</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)(M)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">583,920</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated other comprehensive income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,109</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,109</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,659,305</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,275</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,644,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Liabilities and Stockholders&#146; Equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,438,261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,638</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,426,623</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Notes:
</FONT>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(H)&nbsp;Internally
developed software adjustments
</FONT>

<DIV align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(I)&nbsp;&nbsp;Equity
investment adjustments totaling $(17.7)&nbsp;million
</FONT>
</DIV>

<DIV align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(J)&nbsp;&nbsp;Tax
effect of restatement adjustments totaling $7.9&nbsp;million
</FONT>
</DIV>

<DIV align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(K)&nbsp;Revenue
adjustments
</FONT>
</DIV>

<DIV align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(L)&nbsp;&nbsp;Deferred
compensation adjustments
</FONT>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="10%"></TD>
    <TD width="90%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(M)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Net impact of restatement adjustments on retained
    earnings. Of the total $(23.5)&nbsp;million reduction in
    retained earnings, $(11.9)&nbsp;million relates to fiscal
    periods before 2002, while the remaining $(11.6)&nbsp;million
    relates to the fiscal year ended December&nbsp;28, 2002
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(N)&nbsp;Separate
Goodwill from Acquired intangibles, net
</FONT>
</DIV>

<DIV align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(O)&nbsp;Reclassify
purchased software technology from Acquired intangibles, net to
Other assets
</FONT>
</DIV>

<DIV align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(P)&nbsp;&nbsp;Reclassify
long-term portion of deferred revenue from Current liabilities
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">NOTE&nbsp;5. ACQUISITIONS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For each of the acquisitions described below, the
results of operations and the estimated fair value of the assets
acquired and liabilities assumed have been included in
Cadence&#146;s Consolidated Financial Statements from the date
of the acquisition.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2003
Acquisitions</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <U><FONT size="2">Verplex Systems,&nbsp;Inc.</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August&nbsp;2003, Cadence acquired Verplex
Systems,&nbsp;Inc., or Verplex, a privately-held developer of
verification technology. Cadence purchased Verplex to acquire
key personnel and technology. The aggregate initial purchase
price was $87.6&nbsp;million, which included the payment of
cash, the fair value of assumed options and acquisition costs.
The purchase price and goodwill will increase if certain
performance goals related to bookings and product development
are achieved over a period of approximately three years
following the acquisition.
</FONT>

<P align="center"><FONT size="2">87
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes the preliminary
allocation of the purchase price for Verplex and the estimated
amortization period for the acquired intangibles:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="68%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,092</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">495</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">387</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Acquired intangibles:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Existing technology (five-year weighted-average
    useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Backlog (three-year weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Patents (five-year weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">In-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-compete agreements (three-year
    weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trademarks (five-year weighted-average useful
    life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">106,032</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities assumed
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,474</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net assets acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,558</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The $56.5&nbsp;million of goodwill was assigned
to the Product segment. The goodwill is not expected to be
deductible for income tax purposes.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <U><FONT size="2">Distribution Rights of Innotech
    Corporation</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In June 2003, Cadence acquired distribution
rights to certain customers, certain assets and key personnel
from Innotech Corporation, or Innotech, a publicly-traded
developer and distributor of software, electronic devices and
semiconductor manufacturing equipment in Japan. Concurrent with
this acquisition, Cadence also modified its distributor
agreement with Innotech. Prior to the acquisition, Cadence
licensed most of its software products in Japan through
Innotech, of which Cadence was, and continues to be, a 15%
stockholder. Cadence now directly licenses its software products
to customers for which Cadence acquired the distribution rights
from Innotech.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence considered SFAS No.&nbsp;141,
&#147;Business Combinations,&#148; and EITF Issue No.&nbsp;98-3,
&#147;Determining Whether a Nonmonetary Transaction Involves
Receipt of Productive Assets or of a Business,&#148; in
concluding that a business was acquired in this transaction.
Cadence also determined that the modification to the distributor
arrangement and the agreement to acquire a portion of
Innotech&#146;s business should be combined for the purposes of
determining the total initial purchase price, as both of these
agreements with Innotech were entered into concurrently.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The aggregate purchase price of this acquisition
was $78.7&nbsp;million, which includes cash and acquisition
costs. The estimated fair values of the assets acquired and
liabilities assumed have been determined through established
valuation techniques and included in Cadence&#146;s Consolidated
Financial Statements from the date of acquisition.
</FONT>

<P align="center"><FONT size="2">88
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes the preliminary
allocation of the purchase price for the Innotech distribution
rights and assets and the estimated amortization period for the
acquired intangibles:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Receivables, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,409</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Acquired intangibles:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Distribution rights (ten-year weighted-average
    useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Customer contracts and related relationships
    (ten-year weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-compete agreements (four-year
    weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36,104</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">104,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,276</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities assumed
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,276</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net assets acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">78,737</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The $36.1&nbsp;million of goodwill was assigned
to the Product segment. The goodwill is expected to be
deductible for income tax purposes.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <U><FONT size="2">Get2Chip.com, Inc.</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In April 2003, Cadence acquired Get2Chip.com,
Inc., or Get2Chip, a privately-held developer of nanometer-scale
synthesis technology. Cadence purchased Get2Chip to acquire key
personnel and technology. The aggregate initial purchase price
was $80.5&nbsp;million, which included the payment of cash, the
fair value of assumed options and acquisition costs. The
purchase price and goodwill will increase if certain performance
goals related to bookings are achieved over a period of
approximately three years following the acquisition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes the preliminary
allocation of the purchase price for Get2Chip and the estimated
amortization period for the acquired intangibles:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,795</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">270</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Acquired intangibles:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Existing technology (six-year weighted-average
    useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">In-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Patents (six-year weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-compete agreements (three-year
    weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other intangibles (one-year weighted-average
    useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,665</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,025</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,515</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities assumed
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,515</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net assets acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,510</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The $58.7&nbsp;million of goodwill was assigned
to the Product segment. The goodwill is not expected to be
deductible for income tax purposes.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <U><FONT size="2">Celestry Design Technologies, Inc.</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2003, Cadence acquired Celestry Design
Technologies, Inc., or Celestry, a privately-held developer of
silicon modeling products and full-chip circuit simulation
technology. Cadence purchased
</FONT>

<P align="center"><FONT size="2">89
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<FONT size="2">Celestry to acquire key personnel and technology.
The aggregate initial purchase price was $65.7&nbsp;million,
which included the payment of cash, the fair value of assumed
options and acquisition costs. The purchase price and goodwill
will increase if certain performance goals related to bookings
and product development are achieved over a period of
approximately two years following the acquisition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes the preliminary
allocation of the purchase price for Celestry and the estimated
amortization period for the acquired intangibles:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,253</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">871</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Acquired intangibles:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Existing technology (four-year weighted-average
    useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Maintenance agreements (four-year
    weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Patents (four-year weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">In-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Trademarks (one-year weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,592</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84,416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,269</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other long-term liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,434</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities assumed
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,703</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net assets acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,713</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The $40.6&nbsp;million of goodwill was assigned
to the Product segment. The goodwill is not expected to be
deductible for income tax purposes.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <U><FONT size="2">Other 2003 Acquisitions</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the year ended January&nbsp;3, 2004, Cadence
also acquired two other companies for an initial aggregate
purchase price of $18.9&nbsp;million, which included the payment
of cash and acquisition costs. The purchase price and goodwill
will increase if certain performance goals related to revenue,
product proliferation, product development and/or employee
retention are achieved over a period of approximately three or
four years following the acquisition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Goodwill of $9.6&nbsp;million recorded in
connection with these acquisitions was assigned to the Product
segment and is not expected to be deductible for income tax
purposes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Comparative pro forma financial information for
acquisitions completed in 2003 has not been presented because
the results of operations were not material to Cadence&#146;s
Consolidated Financial Statements.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <U><FONT size="2">2003 Acquisition-Related Earnouts</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the year ended January&nbsp;3, 2004, Cadence
paid $2.4&nbsp;million in cash and recorded an additional
3.7&nbsp;million shares valued at $57.7&nbsp;million related to
acquisition earnouts. Cadence recorded $52.3&nbsp;million in
additional goodwill consisting of $2.4&nbsp;million in cash and
$49.9&nbsp;million representing 3.2&nbsp;million shares. Cadence
also recorded additional deferred stock compensation of $7.8
million representing 0.4&nbsp;million shares for earnouts
achieved during 2003. In addition, Cadence recorded
$0.5&nbsp;million in deferred stock compensation for estimated
future earnouts. The additional goodwill and deferred stock
compensation related to the achievement of certain performance
goals related to one or more of the following criteria: revenue,
bookings, product proliferation, product development and
employee retention. The goodwill is not expected to be
deductible for income tax purposes.
</FONT>

<P align="center"><FONT size="2">90
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">2002 Acquisitions</FONT></B></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <U><FONT size="2">IBM TDA</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In September 2002, Cadence acquired IBM&#146;s
Test Design Automation, or TDA, business and paid a total cash
purchase price of approximately $70.0&nbsp;million. Concurrent
with the acquisition, Cadence licensed software to IBM under
subscription and term licenses, and entered into an agreement to
provide services. Payments for these arrangements are to be paid
over the duration of the respective contracts under
Cadence&#146;s standard payment terms. Cash expected to be paid
by IBM will be significantly in excess of the cash paid by
Cadence for the TDA business. The software licenses and services
transactions were determined to have fair value based upon
pricing for comparable transactions. Cadence purchased
IBM&#146;s TDA business to acquire key technology and personnel.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes the allocation of
the purchase price of the TDA business and the estimated
amortization period for the acquired intangibles:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">448</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Acquired intangibles:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">In-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Existing technology (five-year weighted-average
    useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Patents (five-year weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service agreements (five-year weighted-average
    useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,851</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other non-current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,480</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">71,179</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current liabilities assumed
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,184</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net assets acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,995</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The $38.9&nbsp;million of goodwill was assigned
to the Product segment. For tax purposes, $19.9&nbsp;million of
the goodwill is expected to be deductible.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <U><FONT size="2">Simplex Solutions, Inc.</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In June 2002, Cadence acquired 100% of the
outstanding common stock of Simplex Solutions, Inc., a
publicly-traded company that provides software and services for
the design and verification of ICs. The aggregate purchase price
was $329.7&nbsp;million, which included the issuance of
approximately 14.6&nbsp;million shares of Cadence common stock,
valued at $267.3&nbsp;million, 4.5&nbsp;million shares of
Cadence common stock issuable on the exercise of assumed
options, with a fair value of $46.4&nbsp;million, and
acquisition costs of $16.0&nbsp;million. The value of the common
stock issued was determined based on the average market price of
Cadence&#146;s common stock for the five day trading period
including two trading days before and after June&nbsp;3, 2002 as
a result of a pricing collar in the merger agreement. The collar
provided that if the 10-day average of Cadence&#146;s common
stock as of the second trading day prior to Simplex&#146;s
stockholders meeting fell below $19.47, then, for purposes of
the exchange ratio, the Cadence stock price would be fixed at
such threshold amount. June&nbsp;3, 2002 was the first day on
which the 10-day average fell below the threshold, which average
continued to decline until Simplex&#146;s stockholders meeting,
and thus was the date the number of shares of Cadence common
stock to be issued in the merger became fixed. Cadence purchased
Simplex to acquire key personnel and technology.
</FONT>

<P align="center"><FONT size="2">91
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table summarizes the allocation of
the purchase price for Simplex and the estimated amortization
period for the acquired intangibles:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="12%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="11%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,589</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Property, plant and equipment, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Acquired intangibles:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">In-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Existing technology (four-year weighted-average
    useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Employee agreements (three-year weighted-average
    useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Patents (four-year weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Maintenance agreements (four-year
    weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Order backlog, trademarks and other assets
    (one-year weighted-average useful life)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">225,214</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other non-current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">354,995</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,155</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other non-current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities assumed
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,317</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net assets acquired
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">329,678</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The $225.2&nbsp;million of goodwill was assigned
to the Product and Services segments in the amounts of
$115.1&nbsp;million and $110.1&nbsp;million, respectively. None
of the goodwill is expected to be deductible for tax purposes.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <U><FONT size="2">Other 2002 Acquisitions</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the year ended December&nbsp;28, 2002,
Cadence also acquired: (i)&nbsp;four companies;
(ii)&nbsp;substantially all of the assets of one company; and
(iii)&nbsp;the assets of one division of another company. The
initial aggregate purchase price for these acquisitions was
$61.6&nbsp;million, of which $33.5&nbsp;million was cash and the
remainder related to the issuance of shares of Cadence common
stock with a fair value of $28.1&nbsp;million. Certain of these
acquisitions also include contingent earnouts for which the
amounts earned have not yet been determined.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Goodwill recognized in these transactions was
$39.3&nbsp;million, all of which was assigned to the Product
segment. Of the total goodwill, $8.5&nbsp;million is expected to
be deductible for tax purposes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Comparative pro forma financial information for
all 2002 acquisitions has not been presented because the results
of operations were not material to Cadence&#146;s Consolidated
Financial Statements.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <U><FONT size="2">2002 Acquisition-Related Earnouts</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For the year ended December&nbsp;28, 2002,
Cadence recorded an additional 12.8 million shares, valued at
$204.7&nbsp;million related to acquisition earnouts. Cadence
recorded $181.2&nbsp;million in additional goodwill representing
11.3 million shares. Cadence also recorded additional deferred
stock compensation of $23.5&nbsp;million representing
1.5&nbsp;million shares for earnouts achieved during 2002. In
addition, Cadence recorded $4.6&nbsp;million in deferred stock
compensation for estimated future earnouts. The additional
goodwill and deferred stock compensation related to the
achievement of certain performance goals related to one or more
of the following criteria: bookings, product proliferation,
product development and employee retention resulting from
acquisitions. The goodwill is not expected to be deductible for
income tax purposes.
</FONT>

<P align="center"><FONT size="2">92
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">2001 Acquisition</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2001, Cadence acquired Silicon
Perspective Corporation, or SPC, a privately-held design
technology firm, for approximately 5.4&nbsp;million shares of
Cadence common stock, valued at $129.4&nbsp;million,
0.8&nbsp;million shares of stock issuable upon the exercise of
assumed options with a fair value of $2.0 million, and
acquisition costs of $3.3&nbsp;million, for a total initial
purchase price of $134.7&nbsp;million<B>. </B>In addition,
Cadence recorded $27.4&nbsp;million in deferred stock
compensation representing 1.4&nbsp;million shares of Cadence
common stock to be issued to former SPC employee shareholders.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B></TD>
    <TD>
    <B><FONT size="2">Write-off of Acquired In-Process
    Technology</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Acquired in-process technology charges represent
in-process technology that had not reached technological
feasibility at the time of acquisition and had no probable
alternative future use.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For acquisitions completed during 2003, 2002 and
2001 the purchase price allocated to acquired in-process
technology was determined through established valuation
techniques. The acquired in-process technology was immediately
expensed because technological feasibility had not been
established, and no future alternative use exists. The write-off
of acquired in-process technology is a component of operating
expenses in the Consolidated Statements of Operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Described below are the write-offs of acquired
in-process technology charges in 2003, 2002 and 2001.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="62%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Get2Chip
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Verplex
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Celestry
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Simplex
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">IBM
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">CadMOS
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">SPC
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total in-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">NOTE 6. GOODWILL AND ACQUIRED
INTANGIBLES</FONT></B>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The changes in the carrying amount of goodwill
for the years ended December&nbsp;28, 2002 and January&nbsp;3,
2004 are as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="58%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Product</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Services</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Segment</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Segment</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance as of December&nbsp;29, 2001.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">166,933</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,827</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">178,760</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill resulting from acquisitions during the
    year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">196,562</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">110,355</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">306,917</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Additions due to contingent earnout
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">170,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,855</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">177,605</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">446</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">744</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance as of December&nbsp;28, 2002.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">534,691</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">129,335</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">664,026</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Goodwill resulting from acquisitions during the
    year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">208,657</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">208,657</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Additions due to contingent earnout
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,006</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,315</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,321</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,698</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(509</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,207</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance as of January&nbsp;3, 2004.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">792,656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">130,141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">922,797</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">93
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the year ended January&nbsp;3, 2004,
Cadence recorded other adjustments of $2.2&nbsp;million in the
carrying amount of goodwill primarily as a result of an
$8.9&nbsp;million reduction from previous estimates to
contingent earnout relating to acquisitions offset by
adjustments to the initial purchase price relating to certain
acquisitions made during 2003 totaling $6.7&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2001, Cadence recorded a charge of
$25.8&nbsp;million related to the impairment of goodwill and
acquired intangibles associated with the acquisition of Diablo
Research Company LLC, or Diablo. This impairment was due to the
decline in business conditions generally and the wireless
communications industry in particular. The impairment was
calculated as the difference between the carrying value of the
intangible assets associated with Diablo&#146;s acquisition and
the fair value of those assets.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquired
Intangibles, net</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Acquired intangibles with finite lives as of
January&nbsp;3, 2004 and December 28, 2002 are classified as
follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="30%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">As of January 3, 2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">As of December 28, 2002</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Remaining</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Remaining</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Carrying</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Useful</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amortization</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Life</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amortization</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Life</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Existing technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">514,391</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(345,325</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.0 Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">453,261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(258,185</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.9 Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Agreements and relationships
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,046</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,139</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.9 Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,170</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.2 Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Distribution rights
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,505</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.3 Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Tradenames/trademarks/patents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,634</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,758</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.3 Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(547</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.3 Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,466</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,402</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.6 Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,869</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,825</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.5 Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">605,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(368,129</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3.9 Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">486,930</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(267,727</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2.9 Years</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="81%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Aggregate amortization expense for the fiscal
    years (in thousands):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,402</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2002.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,092</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2001.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54,797</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Estimated amortization expense for the fiscal
    years (in thousands):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,719</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,848</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,034</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,219</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2008.
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,115</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Thereafter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,573</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total estimated amortization expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">237,508</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Amortization of costs from existing technology is
included in Cost of product and Cost of services. Amortization
of costs from acquired maintenance contracts is included in Cost
of maintenance.
</FONT>

<P align="center"><FONT size="2">94
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<B><FONT size="2">NOTE 7. FINANCIAL INSTRUMENTS</FONT></B>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following tables summarize Cadence&#146;s
investment activities as of January&nbsp;3, 2004 and
December&nbsp;28, 2002 (restated):
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="47%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unrealized</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unrealized</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Cost</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gains</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Losses</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><FONT size="1">January 3, 2004</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Time Deposits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">277</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">277</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketable Securities&nbsp;&#151;
    available-for-sale
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,848</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">760</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,621</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-Marketable Securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">760</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reported as:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Short-term investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,898</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term investments in Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="47%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gross</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unrealized</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unrealized</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fair</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Cost</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Gains</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Losses</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><FONT size="1">December 28, 2002 (restated)</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Time Deposits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">238</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">238</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketable Securities&nbsp;&#151;
    available-for-sale
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,848</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,577</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,377</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,048</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-Marketable Securities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,197</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,577</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,377</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,397</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Reported as:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Short-term investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term investments in Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,397</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marketable
Securities</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">There were no net recognized gains or losses on
marketable securities during the year ended January&nbsp;3,
2004. Net recognized gains on marketable securities were
$9.2&nbsp;million for the year ended December&nbsp;28, 2002 and
$17.7&nbsp;million for the year ended December&nbsp;29, 2001.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-Marketable
Securities</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence uses either the cost or equity method of
accounting to account for its long-term, non-marketable
investment securities which are included in Other assets in the
Consolidated Balance Sheets. There were no realized gains or
losses on the sale of non-marketable investments during the year
ended January&nbsp;3, 2004. Cadence recorded investment gains of
$15.7&nbsp;million during the year ended December&nbsp;28, 2002.
There were no realized gains or losses on the sale of
non-marketable investments during the year ended
December&nbsp;29, 2001. If Cadence determines that an
other-than-temporary decline exists in a non-marketable equity
security, Cadence writes down the investment to its fair value
and records the related write-down as an investment loss in its
Consolidated Statements of Operations.
</FONT>

<P align="center"><FONT size="2">95
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table illustrates the carrying
value of Cadence&#146;s non-marketable securities made directly
by Cadence or indirectly through Telos:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="70%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-Marketable Securities&nbsp;&#151; Application
    of Cost Method
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,756</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,234</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-Marketable Securities&nbsp;&#151; Application
    of Equity Method
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,526</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,877</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B><U><FONT size="2">Cost
Method Investments</FONT></U>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence recorded write-downs due to
other-than-temporary declines in value of non-marketable
securities carried on the cost basis of $4.8&nbsp;million during
the year ended January&nbsp;3, 2004, $14.1&nbsp;million during
the year ended December 28, 2002 and $6.0&nbsp;million during
the year ended December&nbsp;29, 2001.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B><U><FONT size="2">Equity
Method Investments</FONT></U>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2003 and 2002, Cadence&#146;s voting
interest ranged from approximately 10% to 25% of the following
privately-held companies: CoWare, Inc., Neolinear, Inc., Fyre
Storm, Inc., Ammocore Technology, Inc., Theta Microelectronics,
Inc., Hierarchical Design, Inc., iReady Corporation and
Coventor, Inc.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents
(unaudited)&nbsp;summary financial data of our equity method
investments:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="78%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(In thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">As of January&nbsp;3, 2004:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,293</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,039</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,996</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Redeemable preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92,933</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">64,575</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">For the 12-months ended January&nbsp;3, 2004:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,982</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Costs and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(82,321</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(50,339</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(50,891</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In accordance with the equity method of
accounting, Cadence records its proportional share of the
investee gains or losses in Other income (loss). Cadence&#146;s
proportional share of net losses were $10.9&nbsp;million in
2003, $9.4&nbsp;million in 2002 and $1.2&nbsp;million in 2001.
Cadence&#146;s proportional share of net losses for 2001 does
not include losses for equity investments in connection with the
restatement described in Note 4. As of January&nbsp;3, 2004, the
difference between the carrying value of Cadence&#146;s
investment in the investee and Cadence&#146;s share of the
underlying net assets of the investee are immaterial.
</FONT>

<P align="left">
<B><FONT size="2">NOTE 8. CONVERTIBLE NOTES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2003, Cadence issued
$420.0&nbsp;million principal amount of Zero Coupon Zero Yield
Senior Convertible Notes due 2023, or the Notes, to two initial
purchasers in a private offering for resale to qualified
institutional buyers pursuant to SEC Rule&nbsp;144A. Cadence
received net proceeds of approximately $408.5&nbsp;mil-
</FONT>

<P align="center"><FONT size="2">96
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<FONT size="2">lion after transaction fees of approximately
$11.5&nbsp;million that have been recorded in other long-term
assets and are being amortized to interest expense using the
straight-line method over five&nbsp;years, which is the duration
of the first redemption period. The Notes were issued by Cadence
at par and bear no interest. The Notes are convertible into
Cadence common stock initially at a conversion price of $15.65
per share, which would result in an aggregate of
26.8&nbsp;million shares issued upon conversion, subject to
adjustment upon the occurrence of specified events. Cadence may
redeem for cash all or any part of the Notes on or after
August&nbsp;15, 2008 for 100.00% of the principal amount. The
holders may require Cadence to repurchase for cash all or any
portion of their Notes on August&nbsp;15, 2008 for 100.25% of
the principal amount, on August&nbsp;15, 2013 for 100.00% of the
principal amount or on August&nbsp;15, 2018 for 100.00% of the
principal amount. The Notes do not contain restrictive financial
covenants.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Each $1,000 of principal of the Notes will
initially be convertible into 63.8790 shares of Cadence common
stock, subject to adjustment upon the occurrence of specified
events. Holders of the Notes may convert their Notes prior to
maturity only if: (1)&nbsp;the price of Cadence&#146;s common
stock reaches $22.69 during periods of time specified by the
Notes, (2)&nbsp;specified corporate transactions occur,
(3)&nbsp;the Notes have been called for redemption or
(4)&nbsp;the trading price of the Notes falls below a certain
threshold. As this fourth conversion feature is linked to the
trading price of the Notes, which are traded in an observable
market that differs from the one in which Cadence&#146;s common
stock is traded, the conversion feature meets the definition of
a derivative that must be accounted for separately at fair
value. The fair value of this conversion feature was not
material at inception of the Notes or at January&nbsp;3, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, in the event of a significant change
in Cadence&#146;s corporate ownership or structure, the holders
may require Cadence to repurchase all or any portion of their
Notes for 100% of the principal amount. Upon a significant
change in Cadence&#146;s corporate ownership or structure, in
certain circumstances, Cadence may choose to pay the repurchase
price in cash, shares of Cadence&#146;s common stock or a
combination of cash and shares of Cadence&#146;s common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence has agreed to file a shelf registration
statement with respect to the resale of the Notes and the common
stock issuable upon the conversion of the Notes with the SEC
within 90&nbsp;days from the initial issuance of the Notes. In
the event Cadence does not file a shelf registration statement
with the SEC within such time or the shelf registration
statement is not declared effective by the SEC within
180&nbsp;days from the initial issuance of the Notes or, after
effectiveness, Cadence suspends its use beyond certain permitted
periods, Cadence is obligated to pay liquidated damages to the
holders of the Notes. In November 2003, Cadence filed with the
SEC a resale registration statement with respect to the Notes.
This registration statement was not declared effective by the
SEC within the 180-day period, and has not yet been declared
effective as of the date of the filing of this Annual Report on
Form&nbsp;10-K. As a result, on February&nbsp;12, 2004, Cadence
began to incur liquidated damages at a penalty rate of
approximately $2,900 per day for the first 90&nbsp;days,
accruing daily. After the first 90&nbsp;days, the penalty rate
doubles until it ceases to accrue upon the date the registration
statement becomes effective or is no longer suspended from use.
As of the date of filing this Annual Report on Form&nbsp;10-K,
the registration statement had not become effective.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Concurrently with the issuance of the Notes,
Cadence entered into convertible notes hedge transactions with
JP&nbsp;Morgan Chase Bank whereby Cadence has the option to
purchase up to 26.8&nbsp;million shares of Cadence&#146;s common
stock at a price of $15.65 per share. These options expire on
August&nbsp;15, 2008 and must be settled in net shares. The cost
of the convertible notes hedge transactions to Cadence was
approximately $134.6&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, Cadence sold warrants to JP Morgan
Chase Bank for the purchase of up to 26.8&nbsp;million shares of
Cadence&#146;s common stock at a price of $23.08 per share. The
warrants expire on various dates from February 2008 through May
2008 and must be settled in net shares. Cadence received
approximately $56.4&nbsp;million in cash proceeds for the sales
of these warrants.
</FONT>

<P align="center"><FONT size="2">97
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The costs incurred in connection with the
convertible notes hedge transactions and the proceeds from the
sale of the warrants are included as a net reduction in common
stock and capital in excess of par in the accompanying
Consolidated Balance Sheet as of January&nbsp;3, 2004, in
accordance with the guidance in EITF Issue No.&nbsp;00-19,
&#147;Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company&#146;s Own
Stock.&#148; Subsequent changes in the fair value of these
convertible notes hedge and warrant transactions will not be
recognized as long as the instruments remain classified in
equity.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Prior to conversion, the Notes have no impact on
the calculation of basic or dilutive earnings per share, or EPS,
unless the price of Cadence&#146;s common stock reaches $22.69,
or the contingent conversion price, during certain quarterly
conversion periods until August 2018, and then at any time
thereafter until maturity or earlier redemption or repurchase.
For any quarterly conversion period through August 2018 or any
time after August 2018 in which the price of Cadence&#146;s
common stock reaches the contingent conversion price, Cadence
will use the &#147;as if converted&#148; method to calculate the
effect on diluted EPS, which will have the effect of increasing
the number of outstanding shares by 26.8&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because Cadence entered into the Notes hedge
transactions and the sale of the warrants, upon conversion of
the Notes there is no impact on basic or dilutive EPS, except as
described above under the &#147;as if converted&#148; method,
unless the price of Cadence&#146;s common stock exceeds the
warrant strike price of $23.08 per share. Up to $23.08 per
share, in connection with any conversion, the operation of the
Notes hedge transactions and sale of the warrants would
effectively result in no impact on basic or dilutive EPS. In the
event Cadence&#146;s common stock exceeds $23.08 per share, for
the first $1.00 the price exceeds $23.08, there would be
dilution of approximately 1.1&nbsp;million shares and the impact
on the calculation of EPS will vary depending on when during the
quarter the $23.08&nbsp;per share price is reached. As this
share price continues to increase, dilution would continue to
occur but at a declining rate. If these transactions settle in
Cadence&#146;s favor, Cadence could be exposed to credit risk
related to the other party to the transactions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subsequent to the issuance of the Notes, Cadence
terminated its senior credit facilities.
</FONT>

<P align="left">
<B><FONT size="2">NOTE 9.&nbsp;CREDIT FACILITIES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence was party to two syndicated, senior
unsecured credit facilities, referred to as the Credit
Facilities. The first Credit Facility was a $187.5&nbsp;million,
three-year revolving credit facility. The other Credit Facility
was a $187.5&nbsp;million 364-day revolving credit facility.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At December&nbsp;28, 2002, Cadence was in
compliance with the covenants in the Credit Facilities and had
outstanding borrowings of $52.0&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Subsequent to the issuance of the Convertible
Notes, Cadence terminated the Credit Facilities.
</FONT>

<P align="left">
<B><FONT size="2">NOTE 10.&nbsp;LEASE COMMITMENTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Equipment and facilities are leased under various
capital and operating leases expiring at various dates through
the year 2025. Certain of these leases contain renewal options.
Rental expense was $23.3&nbsp;million for 2003,
$23.3&nbsp;million for 2002 and $25.6&nbsp;million for 2001.
</FONT>

<P align="center"><FONT size="2">98
</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At January&nbsp;3, 2004, future minimum lease
payments under non-cancelable capital and operating leases and
the present value of the capital lease payments were as follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="48%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Net</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Capital</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Operating</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Sub-lease</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Operating</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Leases</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Leases</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Income</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Leases</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">For the fiscal years:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">399</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,297</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,313</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,984</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,634</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,851</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,783</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,223</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,698</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,525</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,906</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,645</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2008
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,721</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,481</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,240</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2009 and after
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total lease payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">461</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">157,366</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,188</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">147,178</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Amount representing interest (average
    interest rate of 3.08%)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Present value of lease payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less: Current portion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">388</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term portion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Of the $147.2&nbsp;million in net operating lease
payments, $23.2&nbsp;million was accrued in restructuring
expense prior to January&nbsp;3, 2004 and will be charged
against the restructuring accrual as paid.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The cost of equipment under capital leases
included in the Consolidated Balance Sheets as property, plant
and equipment was $6.6&nbsp;million at January&nbsp;3, 2004 and
$6.3&nbsp;million at December&nbsp;28, 2002. Accumulated
amortization of the leased equipment was $6.2&nbsp;million at
January&nbsp;3, 2004 and $4.7&nbsp;million at December&nbsp;28,
2002.
</FONT>

<P align="left">
<B><FONT size="2">NOTE 11.&nbsp;CONTINGENCIES</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Legal Proceedings</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From time to time, Cadence is involved in various
disputes and litigation matters that arise in the ordinary
course of business. These include disputes and lawsuits related
to intellectual property, mergers and acquisitions, licensing,
contract law, distribution arrangements and employee relations
matters. Periodically, Cadence reviews the status of each
significant matter and assesses its potential financial
exposure. If the potential loss from any claim or legal
proceeding is considered probable and the amount can be
estimated, Cadence accrues a liability for the estimated loss at
the low end of the range. Legal proceedings are subject to
uncertainties, and the outcomes are difficult to predict.
Because of such uncertainties, accruals are based only on the
best information available at the time. As additional
information becomes available, Cadence reassesses the potential
liability related to pending claims and litigation and may
revise estimates.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">While the outcome of any disputes and litigation
matters cannot be predicted with any certainty, management does
not believe that the outcome of any current matters will have a
material adverse effect on Cadence&#146;s consolidated financial
position or results of operations.
</FONT>

<P align="center"><FONT size="2">99
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Other Contingencies</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence provides its customers with a warranty on
sales of hardware products for a 90-day period. Such warranties
are accounted for in accordance with SFAS No.&nbsp;5,
&#147;Accounting for Contingencies.&#148; To date, Cadence has
not incurred any significant costs related to warranty
obligations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence&#146;s product license and services
agreements include a limited indemnification provision for
claims from third parties relating to Cadence&#146;s
intellectual property. Such indemnification provisions are
accounted for in accordance with SFAS No.&nbsp;5. The
indemnification is generally limited to the amount paid by the
customer. To date, claims under such indemnification provisions
have not been significant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">From time to time, Cadence has, and may in the
future, provide guarantees to third parties on behalf of a
foreign subsidiary. These guarantees are generally related to
maintaining operations in a certain locality or to secure leases
or other operating obligations of a subsidiary. The maximum
exposure on these guarantees is not significant, either
individually or in the aggregate.
</FONT>

<P align="left">
<B><FONT size="2">NOTE 12.&nbsp;STOCKHOLDERS&#146;
EQUITY</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Net Income per Share</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Basic net income (loss) per share is computed by
dividing net income (loss), the numerator, by the weighted
average number of shares of common stock outstanding, the
denominator, during the period. Diluted net income per share
gives effect to equity instruments considered to be potential
common shares, if dilutive, computed using the treasury stock
method of accounting.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents the calculation for
the number of shares used in the basic and diluted net income
(loss) per share computations for the fiscal years 2003, 2002
and 2001:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="61%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average common shares used to calculate
    basic net income (loss) per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">266,794</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">259,870</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">245,839</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Options
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,446</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Puts
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">132</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">576</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Warrants and other potential common shares
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">244</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average common and potential common
    shares used to calculate diluted net income (loss)&nbsp;per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">266,794</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">257,660</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">100
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents the potential common
shares outstanding during the fiscal years 2003, 2002 and 2001,
which were not included in the computation of diluted net income
(loss)&nbsp;per share because their effect would be antidilutive:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="65%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Options to purchase shares of common stock
    (various expiration dates through 2013)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68,349</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,724</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,134</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Warrants to purchase shares of common stock
    (various expiration dates through 2008)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,829</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Potential common shares in connection with
    convertible notes (through 2018)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,837</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Puts (expired in 2002)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">463</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,898</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted stock awards
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,161</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total potential common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">124,176</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,187</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,032</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Stock Compensation Plans</FONT></B></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Stock
Option Plans</U>
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence&#146;s 2000 Non-Statutory Equity
Incentive Plan, referred to as the 2000 Plan, provides for the
issuance of non-qualified options, stock bonuses and rights to
acquire restricted stock to its employees and consultants who
are not executive officers, directors or beneficial owners of
10% or more of Cadence common stock. The number of shares
available for issuance under the 2000 Plan is
50,000,000&nbsp;shares. Options granted under the 2000 Plan have
an exercise price not less than the fair market value of the
stock on the date of grant and become exercisable over period of
up to four years, generally with one-fourth of the shares
vesting one year from the vesting commencement date with respect
to the initial grants, and the remaining shares vesting in 36
equal monthly installments thereafter. Options under the 2000
Plan generally expire ten years from the date of grant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence&#146;s 1997 Non-Statutory Stock Option
Plan, referred to as the 1997 Plan, provides for the issuance of
non-qualified options to its employees to purchase up to
30,000,000&nbsp;shares of common stock at an exercise price not
less than the fair market value of the stock on the date of
grant. Options granted under the 1997 Plan become exercisable
over periods up to five years, with, generally, one-fifth of the
shares vesting one year from the vesting commencement date with
respect to initial grants, and the remaining shares vesting in
48 equal monthly installments. Options under the 1997 Plan
generally expire ten years from the date of grant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence&#146;s 1993 Non-Statutory Stock Option
Plan, referred to as the 1993 Non-Statutory Plan, provides for
the issuance of non-qualified options and incentive stock to
Cadence employees and consultants who are not executive
officers, directors or beneficial owners of 10% or more of
Cadence&#146;s common stock to purchase up to
24,750,000&nbsp;shares of common stock at an exercise price not
less than the fair market value of the stock on the date of
grant. Options granted under the 1993 Non-Statutory Plan
generally become exercisable over a four year period, with
one-fourth of the shares vesting one year from the vesting
commencement date, and the remaining shares vesting in 36 equal
monthly installments. Options under the 1993 Non-Statutory Plan
generally expire ten years from the date of grant. Awards of
incentive stock granted under the 1993 Non-Statutory Stock
Option Plan vest at times and installments approved by the Board
of Directors, on the basis of continued employment, passage of
time and/or performance criteria.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence&#146;s 1987 Employee Stock Option Plan,
referred to as the 1987 Plan, provides for the issuance of
either incentive or non-qualified options to purchase up to
71,370,100&nbsp;shares of common stock at an exercise
</FONT>

<P align="center"><FONT size="2">101
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<FONT size="2">price not less than fair market value of the
stock on the date of grant. Options granted under the 1987 Plan
become exercisable over periods of up to five years and
generally expire five to ten years from the date of grant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the 1995 and 1993 Directors&#146; Stock
Option Plans, referred to as the Directors&#146; Plans, Cadence
may grant non-qualified options to its non-employee directors
for up to 3,032,502 shares of common stock at an exercise price
not less than the fair market value of the stock on the date of
grant. Options granted under the Directors&#146; Plans have
terms of up to ten years. Certain of the option grants vest one
year from the date of grant, and other option grants vest
one-third on the date which is one year from the date of grant
and two-thirds ratably over the subsequent two years.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence has assumed certain options granted to
employees of acquired companies, referred to as Acquired
Options. The Acquired Options were assumed by Cadence outside of
its stock option plans, and each option is administered under
the terms of the respective original plan of the acquired
entity. All of the Acquired Options have been adjusted to
effectuate the price conversion under the terms of the
acquisition agreement between Cadence and the relevant acquired
company. The Acquired Options generally become exercisable over
a four or five year period and generally expire between five and
ten years from the date of grant. No additional options will be
granted under any of the acquired companies&#146; plans.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A summary of the status of all of Cadence&#146;s
stock option plans as of and during the years ended
January&nbsp;3, 2004, December&nbsp;28, 2002, and
December&nbsp;29, 2001 is as follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="30%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Weighted</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Weighted</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Weighted</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Average</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Average</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Average</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Exercise</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Exercise</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Exercise</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Shares</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Price</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Shares</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Price</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Shares</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Price</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Outstanding at beginning of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,169,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,134,826</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,000,159</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15.53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Assumption of acquired companies options
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,549,937</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.88</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,794,969</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,250,896</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Granted
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,635,944</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,176,268</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,831,575</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20.33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Exercised
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,808,359</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.63</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,161,398</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,959,943</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Forfeited
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,197,629</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.90</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,775,516</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18.89</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,997,861</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19.86</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Outstanding at end of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68,349,042</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.87</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,169,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,124,826</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Options exercisable at year end
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,696,811</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,396,212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,189,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Options available for future grant
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,431,031</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,110,077</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,833,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average fair value of options granted
    during the year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.99</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">102
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A summary of the status of all of Cadence&#146;s
stock option plans at January&nbsp;3, 2004 follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="16%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Options Outstanding</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Options Exercisable</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><FONT size="1">Range of</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Remaining</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Outstanding</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Contractual</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercisable</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Average</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Prices</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">At 1/3/2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Life</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">At 1/3/2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise Price</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$&nbsp;0.02&nbsp;-&nbsp;$&nbsp;5.00
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,993,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.56</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,454,515</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$&nbsp;5.01&nbsp;-&nbsp;$10.00
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,944,967</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.90</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,871,171</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$10.01&nbsp;-&nbsp;$15.00
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,036,686</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12.66</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,256,845</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$15.01&nbsp;-&nbsp;$20.00
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,543,717</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17.73</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,933,779</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17.88</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$20.01&nbsp;-&nbsp;$25.00
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,287,607</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6.88</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,961,808</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22.22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$25.01&nbsp;-&nbsp;$30.00
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,312,250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5.95</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25.77</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,995,564</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25.83</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$30.01&nbsp;-&nbsp;$35.00
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.59</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33.67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">193,129</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33.65</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">$35.01&nbsp;-&nbsp;$35.06
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.27</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68,349,042</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.87</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,696,811</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <U><FONT size="2">Stock Repurchase Plan</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On August&nbsp;1, 2001, Cadence authorized a
share repurchase program under which repurchased shares with a
value of up to $500.0&nbsp;million are used for general
corporate purposes, including the share issuance requirements of
Cadence&#146;s employee stock option and purchase plans and
acquisitions. Under this program, Cadence spent
$213.8&nbsp;million to repurchase 17.4&nbsp;million shares
during the year ended January&nbsp;3, 2004. As of
January&nbsp;3, 2004, the remaining repurchase authorization
under this program totaled $217.0&nbsp;million.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <U><FONT size="2">Employee Stock Purchase Plans</FONT></U></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On July&nbsp;1, 2001, Cadence adopted two
employee stock purchase plans to allow employees of Tality, the
former name of Cadence&#146;s design services subsidiary, to
participate in Cadence&#146;s employee stock purchase program.
The two plans included the 2001 Employee Stock Purchase Plan,
which was a qualified employee stock purchase plan under the
Internal Revenue Code terminated in January 2003, and the 2001
Non-Qualified Employee Stock Purchase Plan, referred to the 2001
Non-Qualified ESPP, which is an employee stock purchase plan not
qualified under the Internal Revenue Code and primarily used for
Tality employees located outside the United States. Tality, now
Cadence Design Foundry, employees, including officers and
employee directors of Tality, but excluding 5% or greater
stockholders, are eligible to participate if they are regular
employees who work 20&nbsp;hours or more per week. Under
Cadence&#146;s 2001 Non-Qualified ESPP, eligible employees,
which are generally Cadence&#146;s non-U.S.&nbsp;Design Foundry
employees, may purchase shares of Cadence common stock during
offering periods (not to exceed 27&nbsp;months) and on purchase
dates as determined by the Board. The purchase price of such
shares is equal to 85% of the lower of the fair market value of
Cadence common stock on (i)&nbsp;the first day of the offering
period, or (ii)&nbsp;the last day of the applicable purchase
period. The total shares authorized under the 2001 Non-Qualified
ESPP are 750,000 and as of the end of fiscal year 2003,
588,298&nbsp;shares remained available for issuance.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 1998, the Board of Directors adopted,
and the stockholders subsequently approved, Cadence&#146;s
Amended and Restated Employee Stock Purchase Plan, which amended
and restated the 1990 Employee Stock Purchase Plan, referred to
as the Employee Plan. Subsequent amendments approved by the
Board of Directors and stockholders increased the number of
shares of common stock authorized for issuance under the
Employee Plan to 29,500,000&nbsp;shares. On October&nbsp;29,
2003, the Board approved amendments to the Employee Plan to
increase the number of shares of common stock authorized for
issuance under the Employee Plan by 9,000,000&nbsp;shares for a
total of 38,500,000&nbsp;shares, subject to stockholder approval
at the 2004 Annual Meeting of Stockholders.
</FONT>

<P align="center"><FONT size="2">103
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the terms of the Employee Plan, employees
can choose to have up to 12% of their annual base earnings plus
bonuses withheld to purchase Cadence common stock. The purchase
price of the stock is 85% of the lower of the fair market value
of Cadence common stock as of the (i)&nbsp;first day of the
offering period or (ii)&nbsp;last day of the applicable purchase
period. The offering periods provide for concurrent
24&nbsp;month offering periods with a new 24&nbsp;month offering
period starting every six months. Each offering period will be
divided into four consecutive six-month purchase periods.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents the common shares
issued under Cadence&#146;s employee stock purchase plans:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="61%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cadence shares issued under the employee stock
    purchase plans (in thousands)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,137</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,549</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,026</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average purchase price
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13.68</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10.64</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average fair value
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11.72</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16.57</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25.95</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Reserved for Future Issuance</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At January&nbsp;3, 2004, Cadence had reserved the
following shares of authorized but unissued common stock for
future issuance:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="79%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Shares</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Employee equity incentive plans*
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">97,382,073</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Shares reserved for convertible notes conversion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,837,061</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Warrants
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,829,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">ESPPs**
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,282,062</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Directors stock option plans
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,398,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Shares reserved for acquisition consideration
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">780,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">167,508,376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">*&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes both shares reserved for
    (i)&nbsp;issuance upon exercise of future option grants and
    (ii)&nbsp;outstanding but unexercised options to purchase common
    stock.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">**&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 9.0&nbsp;million shares reserved for
    issuance by the Board of Directors subject to stockholder
    approval.
    </FONT></TD>
</TR>

</TABLE>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Stockholder Rights Plan</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence has a stockholder rights plan to protect
its stockholders&#146; rights in the event of a proposed or
actual acquisition of 15% or more of the outstanding shares of
Cadence common stock. As amended in February 2000, each share of
Cadence common stock carries a right to purchase one
one-thousandth (1/1000) of a share of Series&nbsp;A Junior
Participating Preferred Stock, par value $0.01&nbsp;per share,
of Cadence at a price of $240.00&nbsp;per one one-thousandth of
a share, subject to adjustment. The rights are subject to
redemption at the option of the Board of Directors at a price of
$0.01&nbsp;per right until the occurrence of certain events. The
rights expire on February&nbsp;20, 2006.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Deferred Stock Compensation</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003, Cadence recorded deferred stock
compensation resulting from Cadence&#146;s acquisition of
CadMOS, Silicon Perspective Corporation, or SPC, Plato Design
Systems Incorporated, or Plato, Simplex,
</FONT>

<P align="center"><FONT size="2">104
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<FONT size="2">Celestry, Get2Chip, Verplex and QDA,&nbsp;Inc.
Deferred stock compensation resulting from these acquisitions
represents the intrinsic value of the stock option grants to
employees of the acquired companies multiplied by the percentage
of the remaining vesting period divided by the total vesting
period. Cadence considers certain stock awards to employees of
SPC and Plato to be variable awards. Accordingly, compensation
cost is adjusted each period for increases or decreases in the
intrinsic value of the shares until the final measurement date.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <I><FONT size="2">Restricted Stock</FONT></I></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2003, Cadence issued 1,681,000&nbsp;shares
of restricted stock to certain key employees. The restrictions
on the restricted stock awards granted to key employees lapse
over a period of 36&nbsp;months. The fair value of the
restricted stock awards granted was $25.7&nbsp;million. The fair
value of the restricted stock awards was recorded as a component
of deferred stock compensation and is amortized to stock-based
compensation expense as the restrictions lapse.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence&#146;s SPC Plan provides for the issuance
of restricted shares of Cadence common stock to former employees
of SPC, who are now Cadence employees, upon the satisfaction of
certain performance-based criteria as payment of additional
purchase consideration in connection with Cadence&#146;s
acquisition of SPC. Restricted shares were first issued under
the SPC Plan in February 2003 and 50% of such issued shares
vested immediately. The remaining 50% vested in 12 equal monthly
installments beginning in January 2003 and were fully vested on
December&nbsp;31, 2003. The second issue date was in March 2004,
and such issued shares were fully vested as of December&nbsp;31,
2003. An aggregate of 1.6&nbsp;million shares were issued under
the SPC Plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Additions to deferred compensation included in
the accompanying Statements of Stockholders&#146; Equity
consists of the following for the years ended January&nbsp;3,
2004 and December&nbsp;28, 2002:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="67%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><FONT size="1">Years Ended</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">January&nbsp;3,</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">December&nbsp;28,</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2004</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted stock grants
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,728</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted stock from acquisitions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,689</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Forfeitures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,062</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,908</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred stock compensation, net of forfeitures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,740</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28,781</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For fixed awards Cadence amortizes deferred stock
compensation to expense using the straight-line method over the
period that the stock options and restricted stock vest, which
is generally up to four years. For variable awards stock-based
compensation expense is recognized on an accelerated basis in
accordance with FASB Interpretation No.&nbsp;28,
&#147;Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans&#148;. For the year ended
January&nbsp;3, 2004, December&nbsp;28, 2002 and
December&nbsp;29, 2001 Cadence recorded deferred compensation
expense of $41.1&nbsp;million, $44.0&nbsp;million and
$17.9&nbsp;million, respectively.
</FONT>

<P align="center"><FONT size="2">105
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<B><FONT size="2">NOTE&nbsp;13.&nbsp;INCOME TAXES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The provision for income taxes consisted of the
following components:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="52%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Federal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,843</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,994</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">73,799</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,129</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,082</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,472</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Foreign
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,077</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,762</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,777</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,049</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">107,838</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,048</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Federal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(54,095</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,650</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,614</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,198</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,053</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,472</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Foreign
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,755</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,101</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total deferred
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(60,048</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(24,157</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,187</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total provision (benefit) for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,999</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,681</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,861</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Income before provision for income taxes included
income from Cadence&#146;s foreign subsidiaries of approximately
$39.3&nbsp;million for 2003, $106.3&nbsp;million for 2002 and
$139.2&nbsp;million for 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The provision for income taxes differs from the
amount estimated by applying the statutory federal income tax
rate of 35% to income before provision for income taxes as
follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="59%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision computed at federal statutory rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,698</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84,752</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">State income tax, net of federal tax effect
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,995</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,764</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,440</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,430</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,358</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,438</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of in-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,590</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Research and development tax credit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,099</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,837</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,361</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Foreign income tax at a higher (lower)&nbsp;rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,547</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,254</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,005</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Change in valuation allowance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,156</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,224</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sale of foreign subsidiary
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,799</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-deductible meals and entertainment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">754</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">729</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">742</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">770</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">572</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,021</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision (benefit) for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,999</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,681</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">100,861</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effective tax rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">42.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58.1</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41.7</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">106
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The components of deferred tax assets and
liabilities consisted of the following:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="62%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred Tax Assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,535</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,140</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accruals and reserves
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,277</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,089</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance for doubtful accounts
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,044</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,390</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Tax credits
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,073</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,392</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,253</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,236</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net operating losses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,377</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Compensation expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,762</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,675</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,564</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued restructure
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,276</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,961</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,475</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,207</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total deferred tax assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">181,394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">162,281</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Valuation allowance&nbsp;&#151; provision for
    income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Valuation allowance&nbsp;&#151; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,808</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net deferred tax assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">181,394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">156,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred Tax Liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(80,979</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(74,018</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Unrealized gains on investments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,908</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,080</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,034</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,245</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total deferred tax liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(91,921</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(89,343</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total net deferred tax assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">89,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence provides for U.S.&nbsp;income taxes on
the earnings of foreign subsidiaries unless the earnings are
considered permanently invested outside of the United States. At
January&nbsp;3, 2004, the cumulative amount of earnings upon
which U.S.&nbsp;income taxes have not been provided are
approximately $450&nbsp;million. At January&nbsp;3, 2004, the
unrecognized deferred tax liability for these earnings was
approximately $80&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of January&nbsp;3, 2004, Cadence had total net
deferred tax assets of approximately $89.5&nbsp;million.
Realization of the deferred tax assets will depend on generating
sufficient taxable income of the appropriate character prior to
the expiration of certain net operating loss, capital loss and
tax credit carryforwards. Although realization is not assured,
management believes that it is more likely than not that the net
deferred tax assets will be realized.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The valuation allowance for equity decreased by
$5.8&nbsp;million in 2003 due to Cadence projecting sufficient
taxable income including the deduction of stock option
deductions to utilize certain net operating losses and research
and development tax credits in the future.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of January&nbsp;3, 2004, Cadence has federal
and California net operating loss carryforwards of approximately
$19.1&nbsp;million and $25.1&nbsp;million, respectively,
available to reduce future taxable income. The federal net
operating loss carryforwards will expire at various dates from
2004 through 2023. The California net operating loss
carryforwards will expire at various dates from 2004 through
2013.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of January&nbsp;3, 2004, Cadence has federal
research and experimental tax credits of approximately
$2.7&nbsp;million available to reduce future income taxes, which
will expire, if not utilized, at various dates from the
</FONT>

<P align="center"><FONT size="2">107
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<FONT size="2">year 2012 through 2023. Cadence also has
California research and experimental tax credits of
$1.4&nbsp;million, net of federal benefit, which do not expire
and carry forward indefinitely until utilized.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The IRS and other tax authorities regularly
examine Cadence&#146;s income tax returns. The IRS recently
completed its field examination of Cadence&#146;s federal income
tax returns for the fiscal years ended 1997 through 1999 and has
issued a Revenue Agent&#146;s Report, referred to as the RAR, in
which the IRS proposes to assess an aggregate tax deficiency for
the three-year period of approximately $143&nbsp;million, plus
interest, which interest will accrue until the matter is
resolved. This interest is compounded daily at rates published
by the IRS, which rates have been between four and nine percent
since 1997, and adjusts quarterly. The IRS may also make similar
claims for years subsequent to 1999 in future examinations. The
RAR is not a final Statutory Notice of Deficiency, and Cadence
has protested certain of the proposed adjustments with the IRS.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The most significant of the disputed adjustments
relates to transfer pricing arrangements that Cadence has with a
foreign subsidiary. Cadence believes that the proposed IRS
adjustments are inconsistent with the applicable tax laws, and
that Cadence has meritorious defenses to the proposed
adjustments. Cadence intends to challenge these proposed
adjustments vigorously.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Significant judgment is required in determining
Cadence&#146;s provision for income taxes. In determining the
adequacy of Cadence&#146;s provision for income taxes, Cadence
has assessed the likelihood of adverse outcomes resulting from
these examinations, including the current IRS assessments.
However, the ultimate outcome of tax examinations cannot be
predicted with certainty, including the total amount payable or
the timing of any such payments upon resolution of these issues.
In addition, Cadence cannot be assured that such amount will not
be materially different than that which is reflected in
Cadence&#146;s historical income tax provisions and accruals.
Should the IRS or other tax authorities assess additional taxes
as a result of a current or a future examination, Cadence may be
required to record charges to operations in future periods that
could have a material impact on the results of operations,
financial position or cash flows in the period or periods
recorded.
</FONT>

<P align="left">
<B><FONT size="2">NOTE&nbsp;14.&nbsp;EMPLOYEE AND DIRECTOR
BENEFIT PLANS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence maintains a 401(k) savings plan to
provide retirement benefits through tax-deferred salary
deductions for all of its U.S.&nbsp;employees. Cadence may make
discretionary contributions, as determined by the Board of
Directors, which cannot exceed a specified percentage of the
annual aggregate salaries of those employees eligible to
participate. Cadence made total contributions to the plan of
$5.8&nbsp;million for 2003, $10.4&nbsp;million for 2002 and
$10.5&nbsp;million for 2001.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As part of its overall investment strategy,
Cadence invests in Telos. Cadence and the Cadence 1996 Deferred
Compensation Venture Investment Plan, or the 1996 Plan, are the
sole limited partners of Telos&nbsp;I. Directors may elect to
defer compensation payable to them under Cadence&#146;s 1996
Deferred Compensation Venture Investment Plan and 2002 Deferred
Compensation Venture Investment Plan. Compensation deferred
under the plans is invested in Telos. The Telos general partner
recommends investments by Telos, which investments are subject
to the approval of the advisory committee, comprised of
Cadence&#146;s Chief Executive Officer and Cadence&#146;s
Chairman of the Board of Directors.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Executive Officers and Directors may also elect
to defer compensation payable to them, including income realized
upon the exercise of non-qualified stock options, under
Cadence&#146;s 1994 Nonqualified Deferred Compensation Plan.
Deferred compensation payments are held in accounts with values
indexed to the performance of selected mutual funds, employee
self-directed accounts or money market accounts.
</FONT>

<P align="center"><FONT size="2">108
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<B><FONT size="2">NOTE&nbsp;15.&nbsp;STATEMENT OF CASH
FLOWS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The supplemental cash flow information for 2003,
2002 and 2001 is as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="58%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash Paid During the Year for:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">917</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,322</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,344</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income taxes (including foreign withholding tax)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,934</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,969</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,267</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-Cash Investing and Financing Activities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common and treasury stock issued for acquisitions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,577</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">522,952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">259,222</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Repurchase of common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Transfer of Non-Qualified Deferred Compensation
    investment to Cadence
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,908</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">NOTE&nbsp;16.&nbsp;LEGAL SETTLEMENTS</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Mentor Graphics Settlement</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In September 2003, Cadence entered into a
settlement with Mentor Graphics Corporation, pursuant to which
Cadence, Mentor and their respective affiliated parties settled
all outstanding litigation between the companies and such
affiliated parties relating to emulation and acceleration
systems. The companies also agreed that, for a period of seven
years, neither will sue the other over patented emulation and
acceleration technology. Mentor also paid Cadence
$18.0&nbsp;million in cash as part of the settlement. Net of
related legal costs, Cadence recorded $14.5&nbsp;million during
the year ended January&nbsp;3, 2004, for the settlement.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Avant! Civil Settlement</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2002, Cadence announced the
settlement of civil litigation filed against Avant! seeking
damages related to theft of Cadence intellectual property,
including software code, as well as other trade secrets. The
settlement with Avant!, its parent corporation
Synopsys,&nbsp;Inc. and several individuals included an
agreement to dismiss all pending claims and counterclaims in the
litigation and required the payment to Cadence of
$265.0&nbsp;million, which was received in the fourth quarter of
2002.
</FONT>

<DIV>&nbsp;</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><FONT size="2">Avant! Criminal Restitution</FONT></B></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July 2001, Avant! was ordered to pay Cadence
$195.4&nbsp;million in criminal restitution after Avant! entered
a plea of no contest and was found guilty by the Superior Court
of the State of California of conspiracy to take and use
Cadence&#146;s trade secrets. This conspiracy included the theft
by Avant! and certain individuals of Cadence intellectual
property, including software code, as well as other trade
secrets. As of December&nbsp;29, 2001, approximately
$196.0&nbsp;million, consisting of all of the restitution award
plus interest was received.
</FONT>

<P align="left">
<B><FONT size="2">NOTE&nbsp;17.&nbsp;RESTRUCTURING AND OTHER
CHARGES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence initiated separate plans of restructuring
in each of the past three years, in an effort to improve its
revenue per employee, reduce operating expenses and improve
operating margins and cash flows.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The first of these plans of restructuring, which
was announced in 2001, or the 2001 Restructuring, was intended
to reduce costs by eliminating excess personnel and
consolidating facilities and resources. The
</FONT>

<P align="center"><FONT size="2">109
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<FONT size="2">restructuring activities were in response to the
severe economic downturn in the electronics industry. The
restructuring was primarily aimed at reducing excess personnel
and capacity costs within the design services portion of
Cadence&#146;s business (formerly Tality) throughout the world.
The 2001 Restructuring was substantially completed within
12&nbsp;months after Cadence&#146;s commitment to the plan,
except for remaining facilities-related charges from facilities
vacated pursuant to the plan.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2002 Cadence commenced a new plan of
restructuring, or the 2002 Restructuring, intended to further
reduce costs by eliminating excess personnel and consolidating
facilities and resources due to the continued economic downturn
in the electronics industry, to align the cost structure of
Cadence&#146;s design services business with its expected
revenues. The 2002 Restructuring costs resulted from involuntary
terminations, the abandonment of long-lived assets and vacated
facilities. These costs primarily related to Cadence&#146;s
design services business and certain other
business/infrastructure groups.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence accounted for all restructuring charges
incurred through 2002 in accordance with SEC Staff Accounting
Bulletin No.&nbsp;100 and EITF No.&nbsp;94-3. All 2002 and 2003
asset impairments or abandonments were accounted for in
accordance with SFAS&nbsp;No.&nbsp;144, &#147;Accounting for the
Impairment or Disposal of Long-Lived Assets&#148;, while 2001
asset abandonments were accounted for in accordance with
SFAS&nbsp;No.&nbsp;121, &#147;Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
of.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003, Cadence announced an additional plan of
restructuring, or the 2003 Restructuring, intended to reduce
costs and realize efficiencies by eliminating excess personnel
and consolidating facilities and resources throughout the
company to align Cadence&#146;s cost structure with expected
revenues. The facilities and asset-related portions of this
restructuring were accounted for in accordance with
SFAS&nbsp;No.&nbsp;146 &#147;Accounting for Costs Associated
with Exit or Disposal Activities.&#148; The severance and
benefits charges were accounted for in accordance with
SFAS&nbsp;No.&nbsp;112 &#147;Employers&#146; Accounting for
Postemployment Benefits&nbsp;&#151; An Amendment of FASB
Statements No.&nbsp;5 and 43.&#148;
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Closure and space reduction costs included in
restructuring were comprised of payments required under leases
less any applicable estimated sublease income after the
properties were abandoned, lease buyout costs and costs to
maintain facilities during the period after abandonment. To
estimate the lease loss, which is the loss after Cadence&#146;s
cost recovery efforts from subleasing a building, certain
assumptions were made related to the: (1)&nbsp;time period over
which the relevant building would remain vacant,
(2)&nbsp;sublease terms, and (3)&nbsp;sublease rates, including
common area charges.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Since 2001, Cadence has recorded facilities
consolidation charges related to space reductions or closures of
32 sites, of $83.0&nbsp;million. As of January&nbsp;3, 2004, 22
of these sites had been vacated and space reductions occurred at
the remaining ten sites.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of January&nbsp;3, 2004, Cadence has accrued
the low end of the lease loss range related to all worldwide
restructuring activities initiated since 2001, which is
estimated to be $23.2&nbsp;million. This amount will be adjusted
in the future based upon changes in the assumptions used to
estimate the lease loss. As of January&nbsp;3, 2004, Cadence has
estimated that the high end of the lease loss range could be as
much as $47.8&nbsp;million if sublease rental rates decrease in
applicable markets or if it takes longer than currently expected
to find a suitable tenant to sublease the facilities.
</FONT>

<P align="center"><FONT size="2">110
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Restructuring and other charges incurred by plan
of restructuring for fiscal years 2003, 2002 and 2001 are as
follows:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="37%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Severance</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">and</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Asset-</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Excess</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Benefits</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Related</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Facilities</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Other</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Total</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,746</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,693</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,905</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,344</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2002 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">833</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,543</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,738</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2001 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,754</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,754</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total 2003 Charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,579</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,055</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,202</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,836</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2002 (Restated):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2002 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,152</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,167</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,084</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">119,779</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2001 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,517</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,517</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total 2002 Charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,152</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,167</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,893</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,084</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">134,296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2001 (Restated):
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2001 Plan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,647</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,616</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,619</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total 2001 Charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,647</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,616</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,619</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Total restructuring and other costs accrued as of
January&nbsp;3, 2004 were $59.6&nbsp;million, consisting of
$24.8&nbsp;million in Accounts payable and accrued liabilities
and $34.8&nbsp;million in Other long-term liabilities in the
Consolidated Balance Sheets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The components of the 2003 and 2002 charges to
each plan of restructuring are discussed below.
</FONT>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2003
Restructuring</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The 2003 Restructuring will result in the
termination of employment for approximately 635 employees. Costs
resulting from this restructuring included severance payments,
severance-related benefits and outplacement services. All
terminations and termination benefits associated with this
restructuring were communicated to the affected employees prior
to January&nbsp;3, 2004, with all termination benefits expected
to be paid by January&nbsp;1, 2005.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Of the $25.7&nbsp;million of asset-related costs
incurred in conjunction with the 2003 Restructuring,
$11.2&nbsp;million was directly related to restructuring and
$14.5&nbsp;million was for other charges. The $11.2&nbsp;million
of asset-related restructuring charges primarily related to a
fee owed to a government agency due to a reduction in headcount
at a foreign facility, write-off of leasehold improvements for
facilities, disposal of excess equipment and contract
termination costs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The $14.5&nbsp;million of other charges was
primarily related to the write-downs of internally developed and
purchased software. As a result of the restructuring efforts,
Cadence eliminated budgeted expenditures for certain internally
developed software projects. As such, Cadence determined that it
was no longer probable that the computer software being
developed for internal purposes would be completed and placed
into service. During the year, Cadence also determined that it
would not integrate certain technology relating to purchased
software, that had been previously capitalized, into any of our
future products. Accordingly, Cadence recognized a charge to
reduce the value of the internally developed software and
purchased software to zero.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The $10.9&nbsp;million of net facilities charges
incurred under the 2003 Restructuring primarily related to space
reductions at six sites and closure of five sites, along with
further consolidation of two previously
</FONT>

<P align="center"><FONT size="2">111
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<FONT size="2">downsized sites. Cadence accrued facilities
charges as part of the 2003 Restructuring at the time it ceased
use of the vacated space.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents the activity
associated with restructuring and other charges related to the
2003 Restructuring for the fiscal year ended January&nbsp;3,
2004:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="47%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Severance</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">and</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Asset-</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Excess</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Benefits</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Related</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Facilities</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Total</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, December&nbsp;28, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,746</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,693</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,905</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,344</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,300</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,300</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21,173</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,387</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,273</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,833</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, January&nbsp;3, 2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,573</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,006</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,632</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,211</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B><I><FONT size="2">2002
Restructuring</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The 2002 Restructuring resulted in the
termination of employment for approximately 1,370 employees.
While such terminations were across various business functions,
operating units and geographic regions, the
communications-related areas within the design services business
were most affected. Costs resulting from the restructuring
included severance benefits, notice pay and outplacement
services. All terminations and termination benefits were
communicated to the affected employees prior to
December&nbsp;28, 2002. During 2003, Cadence incurred an
additional $0.8&nbsp;million in severance and benefits related
to terminations under the 2002 Restructuring.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2003, Cadence incurred $0.4&nbsp;million
of additional asset-related charges under the 2002 Restructuring
for contract termination costs. Asset-related and other
restructuring charges of $35.2&nbsp;million incurred during 2002
under the 2002 Restructuring were connected with leasehold
improvements for facilities, and the abandonment of long-lived
fixed assets, including software licenses and contract
termination costs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2003, Cadence recorded $1.5&nbsp;million
of additional facilities charges under the 2002 Restructuring,
primarily associated with changes to lease loss estimates
related to sites included in the plan. Facilities consolidation
charges of $32.4&nbsp;million recorded during 2002 under the
2002 Restructuring were primarily connected with the further
downsizing of four previously downsized sites and the downsizing
and closing of 16 additional sites.
</FONT>

<P align="center"><FONT size="2">112
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents activity associated
with restructuring and other charges related to the 2002
Restructuring for the fiscal years 2003 and 2002:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="31%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Severance</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Asset-</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Excess</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Other</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">and Benefits</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Related</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Facilities</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restructuring</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Total</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, December&nbsp;29, 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,152</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,167</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,084</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">119,779</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,740</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,740</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,350</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(721</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,100</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,084</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(32,255</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, December&nbsp;28, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,802</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,706</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,276</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,784</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">833</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,543</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,738</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(102</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,036</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,138</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,172</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(886</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,974</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(41,032</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <FONT size="2">Balance, January&nbsp;3, 2004
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,361</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,146</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,845</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,352</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></B><I><FONT size="2">2001
Restructuring</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Facilities-related charges recorded under the
2001 Restructuring were $1.8&nbsp;million in 2003 and
$14.5&nbsp;million during 2002, primarily connected with changes
in lease loss estimates, due to reductions in estimated sublease
income caused by deterioration in local real estate markets
where facilities included in the plan are located.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents the activity
associated with restructuring and other charges related to the
2001 Restructuring for the fiscal years 2003, 2002 and 2001.
Restructuring activity associated with restructurings initiated
prior to 2001 was immaterial for the years presented, and thus
are not shown separately.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="31%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Severance</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Asset-</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Excess</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Other</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">and Benefits</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Related</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Facilities</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restructuring</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Total</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, December&nbsp;30, 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,319</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">280</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,938</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,537</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,647</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,616</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,619</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,960</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,587</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,556</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(19,774</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(869</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,499</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(29,642</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Excess Facilities Adjustment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">525</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">525</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance, December&nbsp;29, 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,183</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,067</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,233</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,517</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,517</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,164</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,164</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,183</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(454</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,584</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,221</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <FONT size="2">Balance, December&nbsp;28, 2002
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">449</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,166</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,754</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,754</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non-cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(353</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,017</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,370</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <FONT size="2">Balance, January&nbsp;3, 2004
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">96</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,903</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">113
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The excess facilities adjustment of
$0.5&nbsp;million in 2001 relates to an adjustment to the
charges associated with the removal and storage of excess
furniture and equipment from facilities included in the 2001
Restructuring.
</FONT>

<P align="left">
<B><FONT size="2">NOTE&nbsp;18.&nbsp;OTHER INCOME (LOSS),
NET</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Other income (loss), net for each of 2003, 2002
and 2001 is as follows:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="58%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,428</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,627</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,517</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gain (loss) on foreign exchange
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,314</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(282</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">555</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity in loss from investments, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,875</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,395</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,244</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,466</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,706</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,499</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total other income (loss), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,599</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,756</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003, the Other loss of $10.4&nbsp;million is
comprised of $4.8&nbsp;million impairment on investments,
$5.0&nbsp;million loss on sales of accounts receivable and
$0.6&nbsp;million of Other loss, net. In 2002, the Other loss of
$8.7&nbsp;million is comprised of $14.1&nbsp;million of
impairment of investments, $15.1&nbsp;million of loss on sales
of accounts receivable, $24.9&nbsp;million gain on sale of
investments and $4.4&nbsp;million of Other loss, net. In 2001,
the Other loss of $1.5&nbsp;million is comprised of
$21.8&nbsp;million of loss on sales of accounts receivable,
$6.0&nbsp;million of impairment of investments,
$23.6&nbsp;million gain on sale of investments and
$2.7&nbsp;million of Other income, net.
</FONT>

<P align="left">
<B><FONT size="2">NOTE 19.&nbsp;SEGMENT REPORTING</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence&#146;s chief operating decision maker is
its President and Chief Executive Officer, or CEO.
Cadence&#146;s CEO reviews Cadence&#146;s consolidated results
within three segments: Product, Services and Maintenance.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Product segment includes revenue and
associated costs from software licensing, hardware sales and
hardware leases. The Services segment includes revenue and
associated costs to provide methodology and design services
either to assist companies in developing electronic designs or
to assume responsibility for the design effort for customers
that outsource this work. The Maintenance segment includes
revenue and associated costs primarily for a technical support
organization. Maintenance agreements are offered to customers
either as part of Cadence&#146;s product license agreements or
separately.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Segment income (loss) from operations is defined
as gross margin under generally accepted accounting principles,
less operating expenses (Marketing and sales, Research and
development and General and administrative), Amortization of
deferred stock compensation, Legal settlements, Restructuring
and other charges, Write-off of acquired in-process technology,
Impairment of goodwill, Interest expense and Other income
(loss), net. Profitability information about Cadence&#146;s
segments is available only to the extent of gross margin by
segment and write-off of acquired in-process technology.
Operating expenses, Amortization of deferred stock compensation,
Legal settlements, Restructuring and other charges, Write-off of
acquired in-process technology, Impairment of goodwill, Interest
expense and Other income (loss), net are managed on a functional
basis. Cadence does not identify or allocate Operating expenses,
Amortization of deferred stock compensation, Legal settlements,
Restructuring and other charges, Write-off of in-process
technology, Impairment of goodwill, Interest expense and Other
income (loss), net because the information is not available by
segment and is not reviewed by Cadence&#146;s CEO to make
decisions about resources to be allocated among the segments or
to assess their performance. There are no differences between
the accounting policies
</FONT>

<P align="center"><FONT size="2">114
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<FONT size="2">used to measure profit and loss for segments and
those used on a consolidated basis. Revenue is defined as
revenue from external customers with no inter-segment revenue.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cadence does not identify or allocate its assets,
including capital expenditures, by operating segment.
Accordingly, assets are not being reported by segment because
the information is not available by segment and is not reviewed
by Cadence&#146;s CEO to make decisions about resources to be
allocated among the segments or to assess their performance.
Depreciation and amortization of purchased software is allocated
among the segments to determine each segment&#146;s gross margin.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following tables present information about
reported segments for the years ended January&nbsp;3, 2004,
December&nbsp;28, 2002 and December&nbsp;29, 2001:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="33%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Consolidated</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Product</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Services</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Maintenance</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Other</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Total</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">663,513</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">131,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">324,822</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,119,484</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">67,036</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93,153</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,460</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">216,649</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,507</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,573</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross margin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">537,411</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,489</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">268,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">840,262</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses and amortization of deferred
    stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(790,390</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(790,390</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Legal settlements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(66,836</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(66,836</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of acquired in-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense and Other income (loss), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,601</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,601</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Segment income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">529,911</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,489</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">268,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(863,327</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,565</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">99,642</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,602</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">120,568</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">241,174</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2002&nbsp;&#151; Restated:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">806,786</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">149,810</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">331,347</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,287,943</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">98,291</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,688</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,089</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">278,068</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,828</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,924</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,752</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross margin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">656,667</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">266,258</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">956,123</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses and amortization of deferred
    stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(888,338</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(888,338</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Legal settlements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">261,090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">261,090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(134,296</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(134,296</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of acquired in-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(34,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(34,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense and Other income (loss), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,559</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,559</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Segment income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">622,667</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">266,258</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(778,103</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">144,020</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">106,215</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,482</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">122,727</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">242,543</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">115
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="33%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Consolidated</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Product</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Services</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Maintenance</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Other</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Total</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="19" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2001&nbsp;&#151; Restated:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">830,490</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">263,355</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">336,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,430,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">118,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">192,648</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">65,299</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">376,405</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,236</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,549</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,785</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gross margin
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">651,796</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,158</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">271,296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">983,250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses and amortization of deferred
    stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(828,204</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(828,204</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Legal settlement
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">194,558</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">194,558</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(61,619</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(61,619</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of acquired in-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21,700</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21,700</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Impairment of goodwill
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,834</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,834</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense and Other income (loss), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,697</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,697</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Segment income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">630,096</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,158</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">271,296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(719,402</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">242,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation and amortization
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">114,448</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,252</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,524</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">87,211</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">230,435</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Internationally, Cadence markets and supports its
products and services primarily through its subsidiaries. Until
June&nbsp;28, 2003, Cadence licensed most of its software
products in Japan through Innotech Corporation, of which Cadence
is an approximately 15% stockholder. In June 2003, Cadence
purchased certain assets from Innotech, including distribution
rights for certain customers in Japan. Since June 2003, Cadence
directly licenses its software products to customers for which
Cadence acquired the distribution rights from Innotech.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Revenue is attributed to geography based on the
country in which the customer is domiciled. In 2003, 2002 and
2001, no one customer accounted for more than 10% of total
revenue. Long-lived assets are attributed to geography based on
the country where the assets are located.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents a summary of revenue
by geography for years ended January&nbsp;3, 2004,
December&nbsp;28, 2002, and December&nbsp;29, 2001:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="49%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">North America:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">United States
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">623,763</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">710,084</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">785,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,265</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,237</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,624</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total North America
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">650,028</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">739,321</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">821,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Europe:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">United Kingdom
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,851</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">79,862</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Germany
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,473</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60,377</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76,525</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,557</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">138,277</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">177,234</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Europe
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">187,881</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">257,854</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">333,621</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Japan and Asia:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Japan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">187,860</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">188,736</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">181,263</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Asia
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93,715</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,032</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">94,546</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Japan and Asia
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">281,575</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">290,768</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">275,809</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,119,484</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,287,943</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,430,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">116
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents a summary of
long-lived assets by geography as of January&nbsp;3, 2004,
December&nbsp;28, 2002 and December&nbsp;29, 2001:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="52%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">Restated</FONT></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2003</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2002</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><FONT size="1">2001</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><FONT size="1">(In thousands)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">North America:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">United States
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">351,451</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">380,003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">365,742</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">592</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">903</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,291</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total North America
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">352,043</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">380,906</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">368,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Europe:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">United Kingdom
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,245</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,991</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Germany
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,181</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,402</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,041</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,883</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,357</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Europe
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,551</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,530</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,609</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Japan and Asia:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Japan
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,597</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,542</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Asia
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,868</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,546</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Japan and Asia
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,253</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,410</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,547</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">403,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">431,846</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">417,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">117
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<P align="left">
<B><FONT size="2">NOTE 20. SUPPLEMENTARY QUARTERLY DATA
(UNAUDITED)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">See Note&nbsp;4 for a description of the nature
of the adjustments.
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="23%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="27"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="27" align="center" nowrap><B><FONT size="1">Fiscal Year 2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="27" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Quarter Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Quarter Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Quarter Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Quarter</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">September&nbsp;27, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">June&nbsp;28, 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">March&nbsp;29, 2003</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Jan.&nbsp;3,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Reported</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Reported</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Reported</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="27"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="27" align="center" nowrap><B><FONT size="1">(In thousands, except per share amounts)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Revenue:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">202,319</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">151,678</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">151,962</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">160,630</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">160,774</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">141,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">148,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,187</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,773</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,773</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,801</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,801</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,388</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,388</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">78,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,025</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,025</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,006</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">81,006</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82,206</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82,206</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">311,091</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">268,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">268,760</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">276,437</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">276,581</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">255,876</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">263,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Costs and Expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of product
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,373</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,418</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,019</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,881</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,211</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,364</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of services
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21,624</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,192</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,678</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,971</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,456</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,627</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,395</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cost of maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,061</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,662</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,266</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,929</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Marketing and sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">79,586</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,758</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">80,758</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,265</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82,620</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Research and development
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">82,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84,179</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84,179</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">88,376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,122</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,122</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,968</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,107</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,107</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,677</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,677</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,310</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,790</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,357</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,017</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,566</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">12,548</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,626</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,517</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,851</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,620</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,081</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Legal settlements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restructuring and other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,610</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,874</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">62,874</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,352</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,352</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Write-off of acquired in-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total costs and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">265,542</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">314,392</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">313,470</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">279,353</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">275,042</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">278,933</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">275,394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">45,549</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(45,916</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(44,710</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,916</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,539</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23,057</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(12,342</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,296</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,392</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,392</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(640</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(640</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(674</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(674</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other income (loss), net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,400</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,208</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,192</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,898</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">908</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,509</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Income (loss) before provision (benefit) for
    income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,853</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(46,013</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(45,894</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,748</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,999</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(22,823</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,525</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provision (benefit) for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,621</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,018</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,438</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,895</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,695</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,707</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,487</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,232</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,995</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(14,456</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,853</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,304</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(19,116</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,038</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Basic net income (loss) per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.06</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.05</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.03</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.05</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Diluted net income (loss) per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.06</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.05</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.03</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.02</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.07</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(0.05</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">264,178</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">266,755</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">266,755</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,887</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,887</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">268,358</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">268,358</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average common and potential common
    shares outstanding&nbsp;&#151; assuming dilution
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">274,366</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">266,755</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">266,755</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,887</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">267,887</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">268,358</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">268,358</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">118
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">NOTES TO CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS (Continued)</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">January&nbsp;3, 2004</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="21%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="1">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="31"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="31" align="center" nowrap><B><FONT size="1">Fiscal Year 2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="31" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Quarter Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Quarter Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Quarter Ended</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Quarter Ended</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;28, 2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">September&nbsp;28, 2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">June&nbsp;29, 2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">March&nbsp;30, 2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">As</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Reported</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Reported</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Reported</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Reported</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restated</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="31"></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="31" align="center" nowrap><B><FONT size="1">(In thousands, except per share amounts)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Revenue:
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Product
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">156,511</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">153,905</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">210,286</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">209,075</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">226,064</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">225,195</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">219,049</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">218,611</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Services
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">35,526</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">35,526</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">33,992</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">33,992</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">37,026</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">37,026</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">43,266</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">43,266</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">84,260</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">84,260</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">82,958</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">82,958</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">81,730</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">81,730</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">82,399</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">82,399</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Total revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">276,297</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">273,691</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">327,236</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">326,025</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">344,820</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">343,951</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">344,714</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">344,276</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Costs and Expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Cost of product
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">10,585</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">17,764</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">14,630</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">21,161</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">29,822</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">35,710</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18,100</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">23,656</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Cost of services
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">23,059</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">23,844</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">28,078</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">28,679</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">28,784</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">29,099</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">32,766</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">33,066</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Cost of maintenance
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">14,446</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">14,816</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">16,007</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">16,376</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">17,340</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">17,410</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">16,428</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">16,487</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Marketing and sales
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">103,434</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">104,068</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">103,216</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">104,088</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">96,170</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">96,535</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">96,781</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">97,457</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Research and development
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">85,322</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">85,322</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">84,647</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">84,647</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">78,255</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">78,255</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">78,190</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">78,190</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">General and administrative
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">26,418</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">26,418</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">26,267</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">26,267</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">25,552</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">25,552</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">37,530</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">37,530</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Amortization of acquired intangibles
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">22,044</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">13,710</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">22,034</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">14,533</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">19,048</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">12,775</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18,649</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">12,734</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Amortization of deferred stock compensation
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">16,092</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">12,733</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">10,465</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6,921</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">7,454</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">15,124</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">3,493</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">9,231</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Legal settlements
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(261,090</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(261,090</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Restructuring and other charges
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">61,065</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">61,065</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">55,523</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">55,523</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">17,708</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">17,708</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Write-off of acquired in-process technology
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6,600</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6,600</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">27,400</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">27,400</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">&#151;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Total costs and expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">101,375</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">98,650</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">311,944</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">309,272</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">385,348</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">393,383</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">319,645</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">326,059</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Income (loss) from operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">174,922</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">175,041</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">15,292</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">16,753</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(40,528</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(49,432</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">25,069</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">18,217</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Interest expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,240</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(1,240</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(663</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(663</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(421</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(421</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(479</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(479</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Other income (loss) net
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(10,238</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(11,028</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">171</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">1,750</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(9,401</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(11,835</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5,482</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">7,357</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Income (loss) before provision (benefit) for
    income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">163,444</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">162,773</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">14,800</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">17,840</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(50,350</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(61,688</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">30,072</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">25,095</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Provision (benefit) for income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">74,750</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">75,389</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">6,569</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">5,595</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(4,029</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(5,764</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">8,727</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">8,461</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Net income (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">88,694</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">87,384</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">8,231</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">12,245</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(46,321</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(55,924</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">21,345</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">16,634</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Basic net income (loss) per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.33</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.33</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.03</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.05</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.18</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.22</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.09</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.07</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Diluted net income (loss) per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.33</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.32</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.03</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.05</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.18</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">(0.22</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="1">)</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.08</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="1">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">0.06</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Weighted average common shares outstanding
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">268,702</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">268,702</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">267,300</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">267,300</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">251,250</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">251,250</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">249,720</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">249,720</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="1">Weighted average common and potential common
    shares outstanding&nbsp;&#151; assuming dilution
    </FONT></DIV>
    </TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">272,475</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">272,475</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">271,437</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">271,437</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">251,250</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">251,250</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">260,871</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="1">260,871</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">119
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.</FONT></B>

<DIV align="center">
<B><FONT size="2">VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(In thousands)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">Schedule&nbsp;II</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="27%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Addition</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Balance at</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Charged to</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Charged</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Balance at</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Beginning</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Costs and</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">to Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">End of</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4" align="center" nowrap><FONT size="1">Description</FONT></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">of Period</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Expenses</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accounts(1)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deductions(2)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Period</FONT></B></TD>
</TR>

<TR>
    <TD colspan="4" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deducted from asset accounts:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Provisions for losses on trade accounts
    receivable and sales returns:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Year Ended January&nbsp;3, 2004:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bad debt allowance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,790</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,220</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,788</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,831</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,967</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sales return allowance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,646</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,208</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,228</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,626</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,436</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,220</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">11,996</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(9,059</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,593</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Year Ended December&nbsp;28, 2002:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bad debt allowance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,337</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,199</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,746</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,790</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sales return allowance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,058</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,997</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,646</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,922</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,199</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,058</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(41,743</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,436</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Year Ended December&nbsp;29, 2001:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Bad debt allowance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,521</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,809</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(20,993</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,337</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Sales return allowance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">38,156</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(30,571</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,677</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,809</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(51,564</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">46,922</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="4"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Sales returns offset against revenue and bad debt
    allowance from acquisitions.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Uncollectible accounts written-off, net of
    recoveries and sales returns.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">120
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='122'></A>
</DIV>

<!-- link1 "SIGNATURES" -->

<P align="center">
<B><FONT size="2">SIGNATURES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the requirements of Section&nbsp;13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
</FONT>

<P align="center">
<FONT size="2">CADENCE DESIGN SYSTEMS,&nbsp;INC.
</FONT>

<DIV align="center">
<FONT size="2">/s/ H. RAYMOND BINGHAM
</FONT>
</DIV>

<DIV align="center">
<HR size="1" width="67%" align="center" noshade>
</DIV>

<DIV align="center">
<FONT size="2">H. Raymond Bingham
</FONT>
</DIV>

<DIV align="center">
<I><FONT size="2">President and Chief Executive
Officer</FONT></I>
</DIV>

<DIV align="center">
<FONT size="2">Dated: <U>April&nbsp;2, 2004</U>
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="75%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="22%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" nowrap><B><FONT size="1">NAME/TITLE</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">DATE</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">/s/ H. RAYMOND BINGHAM<BR>
    <HR size="1" noshade>H. Raymond Bingham<BR>
     <I>President, Chief Executive Officer and Director<BR>
    (Principal Executive Officer)</I>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">April&nbsp;2, 2004<BR>
    ----------------
    </FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">/s/ WILLIAM PORTER<BR>
    <HR size="1" noshade>William Porter<BR>
     <I>Senior Vice President and Chief Financial Officer<BR>
    (Principal Financial Officer and Principal Accounting
    Officer)</I>
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">April&nbsp;2, 2004<BR>
    ----------------
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">121
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">POWER OF ATTORNEY</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints
H.&nbsp;Raymond Bingham, William Porter and R.&nbsp;L. Smith
McKeithen, and each of them, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Report
on Form&nbsp;10-K, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as
fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his or
her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated:
</FONT>

<P align="left">
<B><FONT size="2">ADDITIONAL DIRECTORS</FONT></B>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="75%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="22%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">/s/ DONALD L. LUCAS<BR>
    <HR size="1" noshade>Donald L. Lucas
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">April&nbsp;2, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">/s/ SUSAN L. BOSTROM<BR>
    <HR size="1" noshade>Susan L. Bostrom
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">April&nbsp;2, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">/s/ SEAN M. MALONEY<BR>
    <HR size="1" noshade>Sean M. Maloney
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">April&nbsp;2, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">/s/ DR. ALBERTO SANGIOVANNI-VINCENTELLI<BR>
    <HR size="1" noshade>Dr. Alberto Sangiovanni-Vincentelli
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">April&nbsp;2, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">/s/ GEORGE M. SCALISE<BR>
    <HR size="1" noshade>George M. Scalise
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">April&nbsp;2, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">/s/ DR. JOHN B. SHOVEN<BR>
    <HR size="1" noshade>Dr. John B. Shoven
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">April&nbsp;2, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">/s/ ROGER SIBONI<BR>
    <HR size="1" noshade>Roger Siboni
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">April&nbsp;2, 2004
    </FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <FONT size="2">/s/ LIP-BU TAN<BR>
    <HR size="1" noshade>Lip-Bu Tan
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top">
    <FONT size="2">April&nbsp;2, 2004
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">122
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">EXHIBIT INDEX</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Agreement of Limited
    Partnership of Tality, LP, dated as of October&nbsp;4, 2000
    between Tality Corporation and Cadence Holdings,&nbsp;Inc.
    (Incorporated by reference to Exhibit&nbsp;2.01 to the
    Registrant&#146;s Form&nbsp;10-Q for the quarter ended
    September&nbsp;30, 2000 (the &#147;2000 Third Quarter
    Form&nbsp;10-Q&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Master Separation Agreement,
    dated as of October&nbsp;4, 2000 by and among Tality
    Corporation, the Registrant, Cadence Holdings,&nbsp;Inc. and
    Tality, LP (Incorporated by reference to Exhibit&nbsp;2.02 to
    the 2000 Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">General Assignment and Assumption Agreement,
    dated as of October&nbsp;4, 2000 by and among Tality
    Corporation, the Registrant, Cadence Holdings,&nbsp;Inc. and
    Tality, LP (Incorporated by reference to Exhibit&nbsp;2.03 to
    the 2000 Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Master Intellectual Property Ownership and
    License Agreement, dated as of October&nbsp;4, 2000 by and among
    Tality Corporation, the Registrant, Cadence Holdings,&nbsp;Inc.
    and Tality, LP (Incorporated by reference to Exhibit&nbsp;2.04
    to the 2000 Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employee Matters Agreement, dated as of
    October&nbsp;4, 2000 by and among Tality Corporation, the
    Registrant, Cadence Holdings,&nbsp;Inc. and Tality, LP
    (Incorporated by reference to Exhibit&nbsp;2.05 to the 2000
    Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Master Corporate Services Agreement, dated as of
    October&nbsp;4, 2000 by and among Tality Corporation, the
    Registrant, Cadence Holdings,&nbsp;Inc. and Tality, LP
    (Incorporated by reference to Exhibit&nbsp;2.06 to the 2000
    Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Real Estate Matters Agreement, dated as of
    October&nbsp;4, 2000 by and among Tality Corporation, the
    Registrant, Cadence Holdings,&nbsp;Inc. and Tality, LP
    (Incorporated by reference to Exhibit&nbsp;2.07 to the 2000
    Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Master Confidentiality Agreement, dated as of
    October&nbsp;4, 2000 by and among Tality Corporation, the
    Registrant, Cadence Holdings,&nbsp;Inc. and Tality, LP
    (Incorporated by reference to Exhibit&nbsp;2.08 to the 2000
    Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Indemnification and Insurance Matters Agreement,
    dated as of October&nbsp;4, 2000 by and among Tality
    Corporation, the Registrant, Cadence Holdings,&nbsp;Inc. and
    Tality, LP (Incorporated by reference to Exhibit&nbsp;2.09 to
    the 2000 Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Asset Purchase Agreement, dated as of
    October&nbsp;4, 2000 by and among the Registrant, Cadence Design
    Systems (Canada) Limited and Tality Canada Corporation
    (Incorporated by reference to Exhibit&nbsp;2.10 to the 2000
    Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Asset Purchase Agreement, dated as of
    October&nbsp;3, 2000 by and among Symbionics Limited, the
    Registrant and Cadence Design Systems Limited (Incorporated by
    reference to Exhibit&nbsp;2.11 to the 2000 Third Quarter
    Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Fixed Term License Agreement, dated as of
    October&nbsp;4, 2000 between the Registrant and Tality, LP
    (Incorporated by reference to Exhibit&nbsp;2.12 to the 2000
    Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Joint Technology Development and Support
    Agreement, dated as of October&nbsp;4, 2000 by and among Tality
    Corporation, the Registrant, Cadence Holdings,&nbsp;Inc. and
    Tality, LP (Incorporated by reference to Exhibit&nbsp;2.13 to
    the 2000 Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">General Assignment and Assumption Agreement,
    dated as of June&nbsp;2, 2001 between Tality Corporation and
    Tality, LP (Incorporated by reference to Exhibit&nbsp;2.17 to
    the Registrant&#146;s Form&nbsp;10-Q for the quarter ended
    June&nbsp;30, 2001 (the &#147;2001 Second Quarter
    Form&nbsp;10-Q&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Master Amendment and Consent, effective as of
    June&nbsp;2, 2001 by and among the Registrant, Tality
    Corporation, Tality Transition Corporation, Tality, LP and
    Cadence Holdings,&nbsp;Inc. (Incorporated by reference to
    Exhibit&nbsp;2.18 to the 2001 Second Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">(a)&nbsp;The Registrant&#146;s Certificate of
    Ownership and Merger as filed with the Secretary of State of the
    State of Delaware on June&nbsp;1, 1988 (Incorporated by
    reference to Exhibit&nbsp;3.02(c) to the Registrant&#146;s
    Form&nbsp;S-1 Registration Statement (No.&nbsp;33-23107) filed
    on July&nbsp;18, 1988).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">(b)&nbsp;The Registrant&#146;s Certificate of
    Designation of Series&nbsp;A Junior Participating Preferred
    Stock, as amended on February&nbsp;1, 2000, as filed with the
    Secretary of State of the State of Delaware on June&nbsp;8, 1989
    (Incorporated by reference to Exhibit&nbsp;3A to the
    Registrant&#146;s Current Report on Form&nbsp;8-K
    (No.&nbsp;0-15867) filed on June&nbsp;12, 1989 and amended by
    Exhibit&nbsp;4.02 to the Registrant&#146;s Form&nbsp;10-K for
    the fiscal year ended January&nbsp;1, 2000 (the &#147;1999
    Form&nbsp;10-K&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">(c)&nbsp;The Registrant&#146;s Certificate of
    Designation of Series&nbsp;A Convertible Preferred Stock as
    filed with the Secretary of State of the State of Delaware on
    December&nbsp;30, 1991 (Incorporated by reference to
    Exhibit&nbsp;3.01(f) to the Registrant&#146;s Form&nbsp;10-K for
    the fiscal year ended December&nbsp;31, 1991).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">(d)&nbsp;The Registrant&#146;s Certificate of
    Amendment of Certificate of Incorporation as filed with the
    Secretary of State of the State of Delaware on May&nbsp;13, 1998
    (Incorporated by reference to Exhibit&nbsp;3.01(i) to the
    Registrant&#146;s Form&nbsp;10-Q for the quarter ended
    July&nbsp;4, 1998 (the &#147;1998 Second Quarter
    Form&nbsp;10-Q&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">(e)&nbsp;The Registrant&#146;s Restated
    Certificate of Incorporation as filed with the Secretary of
    State of the State of Delaware on May&nbsp;13, 1998
    (Incorporated by reference to Exhibit&nbsp;3.01(j) to the 1998
    Second Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">3.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s Amended and Restated
    Bylaws, as currently in effect (Incorporated by reference to
    Exhibit&nbsp;3.02 to the Registrant&#146;s Form&nbsp;10-Q for
    the quarter ended March&nbsp;29, 2003 (the &#147;2003 First
    Quarter Form&nbsp;10-Q&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Specimen Certificate of the Registrant&#146;s
    Common Stock (Incorporated by reference to Exhibit&nbsp;4.01 to
    the Registrant&#146;s Form&nbsp;S-4 Registration Statement
    (No.&nbsp;33-43400) filed on October&nbsp;17, 1991).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amended and Restated Rights Agreement, dated as
    of February&nbsp;1, 2000 between the Registrant and ChaseMellon
    Shareholder Services, L.L.C., which includes as exhibits thereto
    the Certificate of Designations for the Series&nbsp;A Junior
    Participating Preferred Stock, the form of Right Certificate and
    the Summary of Rights to Purchase Shares of Preferred Stock
    (Incorporated by reference to Exhibit&nbsp;4.02 to the 1999
    Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Indenture dated as of August&nbsp;15, 2003 by and
    between the Registrant and J.P.&nbsp;Morgan Trust Company,
    National Association as Trustee, including form of Zero Coupon
    Zero Yield Senior Convertible Notes due 2023 (Incorporated by
    reference to Exhibit&nbsp;4.1 to the Registrant&#146;s
    Form&nbsp;10-Q for the quarter ended September&nbsp;27, 2003
    (the &#147;2003 Third Quarter Form&nbsp;10-Q&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">4.04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Registration Rights Agreement dated as of
    August&nbsp;15, 2003 by and among the Registrant and
    J.P.&nbsp;Morgan Securities Inc. and SG Cowen Securities
    Corporation as Initial Purchasers (Incorporated by reference to
    Exhibit&nbsp;4.2 to the 2003 Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 1987 Stock Option Plan, as
    amended, (Incorporated by reference to the Registrant&#146;s
    Definitive Proxy Statement filed on March&nbsp;31, 1998).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Stock Option Agreement and Form of Stock
    Option Exercise Request, as currently in effect under the
    Registrant&#146;s 1987 Stock Option Plan, as amended
    (Incorporated by reference to Exhibit&nbsp;4.01 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;33-22652) filed on June&nbsp;20, 1988).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">JTA Research Inc. 1998 Stock Option Plan
    (Incorporated by reference to Exhibit&nbsp;99.1 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-85080) filed on March&nbsp;28, 2002).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 1993&nbsp;Directors Stock
    Option Plan (Incorporated by reference to Exhibit&nbsp;4.04 to
    the Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;033-53913) filed on May&nbsp;31, 1994).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 1995&nbsp;Directors Stock
    Option Plan, as amended, (Incorporated by reference to
    Exhibit&nbsp;10.05 to the Registrant&#146;s Form&nbsp;10-Q for
    the quarter ended June&nbsp;28, 2003 (the &#147;2003 Second
    Quarter From 10-Q&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s Amended and Restated
    Employee Stock Purchase Plan (Incorporated by reference to
    Exhibit&nbsp;10.06 to the Registrant&#146;s Form&nbsp;10-K for
    the fiscal year ended December&nbsp;28, 2002 (the &#147;2002
    Form&nbsp;10-K&#148;).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s Senior Executive Bonus Plan
    (previously the Chief Executive Officer Bonus Plan for 1996), as
    amended and restated, effective January&nbsp;1, 2001
    (Incorporated by reference to Exhibit&nbsp;A to the
    Registrant&#146;s Definitive Proxy Statement filed on
    April&nbsp;12, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 1994 Deferred Compensation
    Plan, as amended and restated effective November&nbsp;1, 2002
    (Incorporated by reference to Exhibit&nbsp;10.08 to the 2002
    Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 1996 Deferred Compensation
    Venture Investment Plan, as amended and restated effective
    January&nbsp;1, 2001 (Incorporated by reference to
    Exhibit&nbsp;10.09 to the 2001 Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 1993 Non-Statutory Stock
    Incentive Plan (Incorporated by reference to Exhibit&nbsp;10.10
    to the 2003 First Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 401(k) Plan, as amended and
    restated effective July&nbsp;1, 1995 (Incorporated by reference
    to Exhibit&nbsp;10.29 to the Registrant&#146;s Form&nbsp;10-Q
    for the quarter ended March&nbsp;30, 1996).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Offer Letter, dated as of December&nbsp;15, 2000
    and Promissory Note, dated as of February&nbsp;6, 2001 between
    the Registrant and Lavi A. Lev (Incorporated by reference to
    Exhibit&nbsp;10.12 to the 2002 Form&nbsp;10-K.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Plato Design Systems Incorporated 2002
    Supplemental Stock Option Plan (Incorporated by reference to
    Exhibit&nbsp;99.1 to the Registrant&#146;s Form&nbsp;S-8
    Registration Statement (No.&nbsp;333-87674) filed on May&nbsp;7,
    2002).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Distribution Agreement, dated as of
    April&nbsp;28, 1997 by and among Cadence Design Systems
    (Ireland) Ltd., Cadence Design Systems K.K. and Cadence Design
    Systems (Japan) B.V. (Incorporated by reference to
    Exhibit&nbsp;10.48 to the Registrant&#146;s Form&nbsp;10-Q for
    the quarter ended June&nbsp;28, 1997).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Cooper&nbsp;&#38; Chyan Technology,&nbsp;Inc.
    1993 Equity Incentive Plan, as amended and restated effective
    August&nbsp;16, 1995 (Incorporated by reference to
    Exhibit&nbsp;10.49 to the Registrant&#146;s Form&nbsp;S-4
    Registration Statement (No.&nbsp;333-16779) filed on
    November&nbsp;26, 1996).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Residential Lease and Option to Purchase, dated
    as of March&nbsp;1, 2003, between 849&nbsp;College
    Avenue,&nbsp;Inc., a subsidiary of the Registrant, and Kevin
    Bushby (Incorporated by reference to Exhibit&nbsp;10.16 to the
    2002 Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Verplex Systems,&nbsp;Inc. 1998 Stock Plan
    (Incorporated by reference to Exhibit&nbsp;99.1 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-108251) filed on August&nbsp;27, 2003).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Executive Severance Agreement
    (Incorporated by reference to Exhibit&nbsp;10.43 to the
    Registrant&#146;s Form&nbsp;10-K for the fiscal year ended
    January&nbsp;3, 1998).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Get2Chip.Com,&nbsp;Inc. 1997 Stock Option Plan
    (Incorporated by reference to Exhibit&nbsp;99.1 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-104720) filed on April&nbsp;24, 2003 (the
    &#147;April 2003 Form&nbsp;S-8&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Get2Chip.Com,&nbsp;Inc. 2001 Stock Plan
    (Incorporated by reference to Exhibit&nbsp;99.2 to the April
    2003 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Separation and Release Agreement,
    dated as of December&nbsp;24, 2003 between the Registrant and
    Penelope A. Herscher.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">QDA,&nbsp;Inc. 2003 Stock Option/ Stock Issuance
    Plan.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">UniCAD Inc. Stock Option Plan (Incorporated by
    reference to Exhibit&nbsp;10.51 to the Registrant&#146;s
    Form&nbsp;S-4 Registration Statement (No. 333-16779) filed on
    November&nbsp;26, 1996).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">High Level Design Systems 1993 Stock Option Plan
    (Incorporated by reference to Exhibit&nbsp;10.25 to the
    Registrant&#146;s Form&nbsp;S-4 Registration Statement
    (No.&nbsp;333-15771) filed on November&nbsp;7, 1996).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Employment Agreement, dated as of April&nbsp;26,
    1999 between the Registrant and H. Raymond Bingham (Incorporated
    by reference to Exhibit&nbsp;10.51 to the Registrant&#146;s
    Form&nbsp;10-Q for the quarter ended October&nbsp;2, 1999 (the
    &#147;1999 Third Quarter Form&nbsp;10-Q&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.27</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consulting Agreement, dated as of July 1999
    between the Registrant and Alberto Sangiovanni-Vincentelli
    (Incorporated by reference to Exhibit&nbsp;10.52 to the 1999
    Third Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Design Acceleration,&nbsp;Inc. 1994 Stock Plan
    (Incorporated by reference to Exhibit&nbsp;99 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-71717) filed on February&nbsp;3, 1999).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Quickturn Design Systems,&nbsp;Inc. 1988 Stock
    Option Plan, as amended (Incorporated by reference to
    Exhibit&nbsp;99.1 to the Registrant&#146;s Form&nbsp;S-8
    Registration Statement (No.&nbsp;333-69589) filed on
    June&nbsp;7, 1999 (the &#147;June 1999 Form&nbsp;S-8&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Ambit Design Systems,&nbsp;Inc. 1994 Incentive
    Stock Option Plan.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Ambit Design Systems,&nbsp;Inc. 1996 Incentive
    Stock Option Plan.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 2002 Deferred Compensation
    Venture Investment Plan.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Quickturn Design Systems,&nbsp;Inc. 1996
    Supplemental Stock Plan (Incorporated by reference to
    Exhibit&nbsp;99.5 to the June 1999 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Quickturn Design Systems,&nbsp;Inc. 1997 Stock
    Option Plan (Incorporated by reference to Exhibit&nbsp;99.6 to
    the June 1999 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.36</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">SpeedSim,&nbsp;Inc. 1995 Incentive and
    Nonqualified Stock Option Plan (Incorporated by reference to
    Exhibit&nbsp;99.8 to the June 1999 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">OrCAD,&nbsp;Inc. 1995 Stock Option Plan
    (Incorporated by reference to Exhibit&nbsp;99.2 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-85591) filed on August&nbsp;19, 1999.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Executive Retention Agreement between the
    Registrant and Key Executives of the Registrant (Incorporated by
    reference to Exhibit&nbsp;10.57 to the 1999 Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Diablo Research Company LLC 1997 Stock Option
    Plan (Incorporated by reference to Exhibit&nbsp;99.1 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-93609) filed on December&nbsp;27, 1999 (the
    &#147;December 1999 Form&nbsp;S-8&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Diablo Research Company LLC 1999 Stock Option
    Plan (Incorporated by reference to Exhibit&nbsp;99.2 to the
    December 1999 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 2000 Nonstatutory Equity
    Incentive Plan, as amended (Incorporated by reference to
    Exhibit&nbsp;10.43 to the Registrant&#146;s 2003 First Quarter
    Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Form of Indemnity Agreement between the
    Registrant and its directors and executive officers
    (Incorporated by reference to Exhibit&nbsp;10.01 to the 2000
    Second Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Multi-Year Credit Agreement, dated as of
    September&nbsp;27, 2002 between the Registrant, the lenders from
    time to time as parties thereto and Fleet National Bank as
    administrative agent (Incorporated by reference to
    Exhibit&nbsp;10.45 to the Registrant&#146;s Form&nbsp;10-Q for
    the quarter ended September&nbsp;28, 2002 (the &#147;2002 Third
    Quarter Form&nbsp;10-Q&#148;)) as amended by First Amendment
    dated as of June&nbsp;24, 2003 (Incorporated by reference to
    Exhibit&nbsp;10.45 to the Registrant&#146;s 2003 Second Quarter
    Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">364-Day Credit Agreement, dated as of
    September&nbsp;27, 2002 between the Registrant, the lenders from
    time to time as parties thereto and Fleet National Bank as
    administrative agent (Incorporated by reference to
    Exhibit&nbsp;10.46 to the 2002 Third Quarter Form&nbsp;10-Q) as
    amended by First Amendment dated as of June&nbsp;24, 2003
    (Incorporated by reference to Exhibit&nbsp;10.46 to the
    Registrant&#146;s 2003 Second Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 1997 Nonstatutory Stock
    Incentive Plan, as amended (Incorporated by reference to
    Exhibit&nbsp;10.47 to the 2003 First Quarter Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Simplex Solutions,&nbsp;Inc. 1995 Stock Plan, as
    amended (Incorporated by reference to Exhibit&nbsp;99.1 to the
    Registrant&#146;s Post-Effective Amendment No.&nbsp;1 on
    Form&nbsp;S-8 to Form&nbsp;S-4 Registration Statement
    (No.&nbsp;333-88390) filed on July&nbsp;3, 2002 (the &#147;July
    2002 Form&nbsp;S-8&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Simplex Solutions,&nbsp;Inc. 2001 Incentive Stock
    Plan (Incorporated by reference to Exhibit&nbsp;99.2 to the July
    2002 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Simplex Solutions,&nbsp;Inc. 2002 Nonstatutory
    Stock Option Plan (Incorporated by reference to
    Exhibit&nbsp;99.3 to the July 2002 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Altius Solutions,&nbsp;Inc. 1999 Stock Plan
    (Incorporated by reference to Exhibit&nbsp;99.4 to the July 2002
    Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Description of the Registrant&#146;s Stock
    Purchase Program (Incorporated by reference to
    Exhibit&nbsp;10.53 to the Registrant&#146;s Form&nbsp;10-K for
    the fiscal year ended December&nbsp;30, 2000).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s 2001 Non-Qualified Employee
    Stock Purchase Plan, effective July&nbsp;13, 2001 (Incorporated
    by reference to Exhibit&nbsp;10.58 to the 2001 Second Quarter
    Form&nbsp;10-Q).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.61</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">CadMOS Design Technology,&nbsp;Inc. 1997 Stock
    Option Plan (Incorporated by reference to Exhibit&nbsp;99.1 to
    the Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-56898) filed on March&nbsp;12, 2001 (the
    &#147;March 2001 Form&nbsp;S-8&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.62</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">CadMOS Design Technology,&nbsp;Inc. Supplemental
    2001 Stock Option Plan (Incorporated by reference to
    Exhibit&nbsp;99.2 to the March 2001 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.63</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">DSM Technologies,&nbsp;Inc. 2000 Stock Option
    Plan (Incorporated by reference to Exhibit&nbsp;99.1 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-82044) filed on February&nbsp;4, 2002).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.64</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Silicon Perspective Corporation 1997 Stock Option
    Plan (Incorporated by reference to Exhibit&nbsp;99.1 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-75874) filed on December&nbsp;21, 2001).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.65</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">The Registrant&#146;s SPC Plan, effective
    December&nbsp;20, 2001 (Incorporated by reference to
    Exhibit&nbsp;10.65 to the 2001 Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.66</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Executive Separation, Release and Consulting
    Agreement, dated as of December&nbsp;3, 2001 between the
    Registrant and Ronald R. Barris (Incorporated by reference to
    Exhibit&nbsp;10.66 to the 2001 Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">*10.67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Amendment to Executive Separation, Release and
    Consulting Agreement, dated as of August&nbsp;23, 2002 between
    the Registrant and Ronald R. Barris (Incorporated by reference
    to Exhibit&nbsp;10.67 to the 2002 Form&nbsp;10-K).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.68</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">BTA Technology,&nbsp;Inc. 1995 Stock Option Plan
    (Incorporated by reference to Exhibit&nbsp;99.1 to the
    Registrant&#146;s Form&nbsp;S-8 Registration Statement
    (No.&nbsp;333-102648) filed on January&nbsp;22, 2003 (the
    &#147;January 2003 Form&nbsp;S-8&#148;)).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.69</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">BTA-Ultima,&nbsp;Inc. 1995 Stock Option Plan
    (Incorporated by reference to Exhibit&nbsp;99.2 to the January
    2003 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.70</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">BTA Technology,&nbsp;Inc. 1999 Stock Option Plan
    (Incorporated by reference to Exhibit&nbsp;99.3 to the January
    2003 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Celestry Design Technologies,&nbsp;Inc. 2001
    Stock Option Plan (Incorporated by reference to
    Exhibit&nbsp;99.4 to the January 2003 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.72</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Celestry Design Technologies,&nbsp;Inc. 2001
    Executive Stock Plan (Incorporated by reference to
    Exhibit&nbsp;99.5 to the January 2003 Form&nbsp;S-8).
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.73</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Hedge Side Letter, dated as of August&nbsp;10,
    2003, by and between the Registrant and J.P.&nbsp;Morgan
    Securities Inc., as agent for JPMorgan Chase Bank.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.74</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warrant Transaction Confirmation, dated
    August&nbsp;11, 2003, between the Registrant and
    J.P.&nbsp;Morgan Securities Inc., as agent for JPMorgan Chase
    Bank.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.75</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Call Option Transaction Confirmation, dated
    August&nbsp;11, 2003, between the Registrant and
    J.P.&nbsp;Morgan Securities Inc., as agent for JPMorgan Chase
    Bank.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.76</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Warrant Transaction Confirmation, dated
    August&nbsp;27, 2003, between the Registrant and
    J.P.&nbsp;Morgan Securities Inc., as agent for JPMorgan Chase
    Bank.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">10.77</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Call Option Transaction Confirmation, dated
    August&nbsp;27, 2003, between the Registrant and
    J.P.&nbsp;Morgan Securities Inc., as agent for JPMorgan Chase
    Bank.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">21.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Subsidiaries of the Registrant.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Consent of KPMG LLP.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">23.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Information Regarding Consent of Arthur Andersen
    LLP.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">31.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of the Registrant&#146;s Chief
    Executive Officer, H. Raymond Bingham, pursuant to
    Rule&nbsp;13a-14 of the Securities Exchange Act of 1934.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">31.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of the Registrant&#146;s Chief
    Financial Officer, William Porter, pursuant to Rule&nbsp;13a-14
    of the Securities Exchange Act of 1934.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">32.01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of the Registrant&#146;s Chief
    Executive Officer, H. Raymond Bingham, pursuant to
    18&nbsp;U.S.C. Section&nbsp;1350, as adopted pursuant to
    Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.
    </FONT></TD>
</TR>

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    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

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    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
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</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exhibit</FONT></B></TD>
    <TD></TD>
    <TD></TD>
</TR>

<TR>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Exhibit Title</FONT></B></TD>
</TR>

<TR>
    <TD colspan="5"></TD>
</TR>

<TR>
    <TD colspan="5" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">32.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Certification of the Registrant&#146;s Chief
    Financial Officer, William Porter, pursuant to 18&nbsp;U.S.C.
    Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of
    the Sarbanes-Oxley Act of 2002.
    </FONT></TD>
</TR>

<TR>
    <TD colspan="5" align="left"><HR size="1" noshade></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<FONT size="2">*&nbsp;Management contract or compensatory plan
or arrangement covering executive officers or directors of the
Registrant.
</FONT>
</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.21
<SEQUENCE>3
<FILENAME>f93607exv10w21.txt
<DESCRIPTION>EXHIBIT 10.21
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.21

                   EMPLOYMENT SEPARATION AND RELEASE AGREEMENT

         This Employment Separation and Release Agreement (the "Agreement") is
entered into between Penelope A. Herscher ("Executive") and Cadence Design
Systems, Inc. ("Cadence", and together with Executive, the "Parties").

         1.       TERMINATION DATE. Executive's employment with Cadence will
terminate at the close of business on January 30, 2004 (the "Termination Date");
provided, however, that Executive will be relieved of her duties effective
January 8, 2004 (the "Relinquish Date") and Executive will no longer report to
work, or otherwise have access to Cadence's computer system, including her
email, and her employment location, following the Relinquish Date.

         2.       SALARY AND BENEFITS THROUGH TERMINATION DATE. For the period
ending on the Termination Date, Executive will be paid all accrued salary, and
will continue to receive all benefits and participate in all benefit programs
for which Executive was eligible prior to the Termination Date. Cadence and
Executive acknowledge that no bonuses will be paid for 2003. Upon the
Termination Date, Executive will be eligible to continue health insurance
coverage pursuant to COBRA. Except as provided by this Agreement, Executive will
not be entitled to any other compensation or benefits following the Termination
Date. Executive's funds invested in Cadence's Non-Qualified Deferred
Compensation Plan, if any, shall be treated in accordance with the terms of that
Plan.

         3.       CONSIDERATION FOR ACCEPTANCE OF AGREEMENT. In consideration of
Executive's acceptance of this Agreement and to resolve disputed issues between
Executive and Cadence, and provided that on the Termination Date Executive
executes a release in substantially the form of Section 4 of this Agreement,
Cadence will provide Executive with the following, to which Executive otherwise
would not be entitled:

                  a.       a separation payment of $515,200.00 (minus gross
                           salary paid from January 8, 2004 through January 30,
                           2004), less payroll deductions and withholdings
                           required by law, and deductions requested by
                           Executive, payable on the Termination Date, provided
                           that the Executive has returned all confidential,
                           proprietary and sensitive information to Tim Burch,
                           Cadence's Senior Vice President, Human Resources and
                           Organizational Development, including, but not
                           limited, to all hard and soft copy Cadence documents,
                           materials and files in Executive's possession.

                  b.       vesting on the Effective Date of all outstanding
                           options and restricted stock held by Executive, as
                           enumerated in the attached schedule at Exhibit A.
                           Executive will have the period of time following her
                           Termination Date that is provided in the applicable
                           stock option agreement(s) (each of which provides for
                           no less than 30 days following the Termination Date;
                           provided however, that in no event shall any option
                           be exercisable following its expiration date) to
                           exercise the vested but unexpired portions. Cadence
                           will cause any affiliate legend to be removed
                           promptly

<PAGE>

                           from the certificates representing shares purchased
                           on exercise of any of Executive's outstanding
                           options.

                  c.       If Executive elects to continue her medical, dental
                           and vision insurance coverage under COBRA, Cadence
                           shall pay Executive's monthly COBRA premium until
                           June 30, 2005.

         4.       MUTUAL RELEASE OF CLAIMS.

                  a.       Except as provided in Section 4(f) below, Executive
irrevocably, fully and finally releases Cadence, its parent, subsidiaries,
predecessors, successors, affiliates, employees, directors, officers, agents and
executives ("Releasees") from all causes of action, claims, suits, demands or
other obligations or liabilities, whether known or unknown, suspected or
unsuspected, that Executive ever had or now has as of the time that Executive
signs this Agreement. Except as provided in Section 4(f) below, the claims
released include, but are not limited to, any claims arising from or related to
Executive's employment with Cadence and with Simplex Solutions, Inc. and the
termination of her employment with Cadence, the acquisition of Simplex
Solutions, Inc. by Cadence and the Executive's compensation, including stock
options and restricted stock Executive received in conjunction with that
acquisition, including, but not limited to, claims arising under Title VII of
the Civil Rights Act of 1964 (as amended), the Civil Rights Act of 1991, the Age
Discrimination in Employment Act of 1967, the Older Worker Benefits Protection
Act, the Americans with Disabilities Act, the Equal Pay Act, the Fair Labor
Standards Act, the California Fair Employment and Housing Act, the California
Labor Code, the Employee Retirement Income and Security Act of 1974 (except for
any vested right Executive has to benefits under an ERISA plan), the state and
federal Worker Adjustment and Retraining Notification Act, and the California
Business and Professions Code, any other local, state, federal, or foreign law
governing employment and the common law of contract and tort.

                  b.       Except as provided in Section 4(f) below, Cadence
irrevocably, fully and finally releases Executive, as well as her heirs and
assigns, from all causes of action, claims, suits, demands or other obligations
or liabilities, whether known or unknown, suspected or unsuspected, that Cadence
ever had or now has as of the time that Cadence signs this Agreement. Except as
provided in Section 4(f) below, the claims released include, but are not limited
to, any claims arising from or related to Executive's employment with Cadence
and with Simplex Solutions, Inc. and the termination of her employment with
Cadence, the acquisition of Simplex Solutions, Inc. by Cadence and the
Executive's compensation, including stock options and restricted stock Executive
received in conjunction with that acquisition, any local, state, federal, or
foreign law governing employment and the common law of contract and tort.

                  c.       The Parties each represent and warrant that neither
has filed any claim, charge or complaint against the each other. Executive
further warrants and represents that Executive has not filed any claim, charge
or complaint against a Releasee. Additionally, except as provided in Section
4(f) below, each Party intends that this release of claims cover all claims,
whether or not known to such Party.

                  d.       Each Party recognizes the risk that, subsequent to
the execution of this Agreement, such Party may incur loss, damage or injury,
which such Party attributes to the

                                       2
<PAGE>

claims encompassed by this release. Each Party expressly assumes this risk by
signing this Agreement and voluntarily and specifically waives any rights
conferred by California Civil Code section 1542 which provides as follows:

         A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
         KNOW OR SUSPECT TO EXIST IN HIS FAVOR WHICH IF KNOWN BY HIM MUST HAVE
         MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

                  e.       Each Party represents and warrants that there has
been no assignment or other transfer of any interest in any claim by such Party
that is covered by this release.

                  f.       Notwithstanding anything in this Agreement to the
contrary, this Section 4 shall not apply to (i) claims Executive may have
against Cadence under the Indemnity Agreement between Executive and Cadence,
which is attached hereto as Exhibit B, (ii) claims Cadence may have against the
Executive under Executive's Noncompetition Agreement dated April 24, 2002 (as
modified by Section 5(d) below) and (iii) claims Cadence may have against
Executive under Executive's Employee Proprietary Information and Inventions
Agreement dated April 22, 2002.

         5.       OBLIGATIONS.

                  a.       On or prior to the Relinquish Date, Executive will
                           have returned all Cadence property pursuant to the
                           Executive's Exit Interview Checklist (such as
                           Executive's computer, Blackberry, cellular phone and
                           badge).

                  b.       Executive specifically acknowledges her continuing
                           obligations under the Noncompetition Agreement, dated
                           April 24, 2002, (as modified by Section 5(d) below)
                           which is attached hereto as Exhibit C, and that
                           except as provided in Section 5(d), this Agreement is
                           not intended to alter or modify those continuing
                           obligations.

                  c.       During Executive's employment, Executive has had
                           access to Cadence's confidential and/or proprietary
                           information, and such information belonging to third
                           parties that Cadence has an obligation to keep
                           confidential. Executive will continue to hold that
                           information in confidence and will not disclose or
                           use such information. Executive represents that
                           Executive has returned to Cadence all copies and
                           records in any form of such information. Executive
                           further affirms that Executive received, read and
                           understood Cadence's Code of Conduct while employed
                           with Cadence, and abided by it. Executive
                           specifically acknowledges her continuing obligations
                           under Executive's Employee Proprietary Information
                           and Inventions Agreement dated April 22, 2002 and her
                           Noncompetition Agreement dated April 24, 2002 (as
                           modified by Section 5(d) below).

                  d.       Cadence acknowledges that Executive's continuing
                           obligations under Section 1 of the Noncompetition
                           Agreement, dated April 24, 2002, which is attached
                           hereto as Exhibit B, shall terminate on December 31,
                           2004.

                                       3
<PAGE>

         6.       CONFIDENTIALITY OF TERMINATION DISCUSSIONS AND AGREEMENT. From
the date termination notice was given to Executive through the Effective Date of
this Agreement shall be called the Notice Period. During the Notice Period,
Executive will keep strictly confidential (both within and outside Cadence) the
discussions concerning her termination from Cadence, including the fact and
terms of this Agreement. During the Notice Period, Executive may only discuss
her termination from Cadence and the fact and terms of this Agreement with her
spouse and legal advisor, as long as Executive instructs those individuals to
maintain the confidentiality of that information and they agree to do so. After
Cadence issues an internal announcement regarding Executive's termination, in
substantially the form attached hereto as Exhibit D, both Parties agree that, to
the extent either Party discusses Executive's termination from Cadence, such
Party will say no more about Executive's termination than what is stated in such
announcement. After the Effective Date of this Agreement, Executive will
continue to keep confidential the fact and terms of this Agreement, including
the consideration to be provided to Executive under it, except that Executive
may disclose that information to (a) Executive's spouse, legal advisor, and tax
advisor, as long as Executive instructs those individuals to maintain the
confidentiality of that information and they agree to do so or (b) the extent
the information is otherwise publicly disclosed in a Securities and Exchange
Commission filing made by the Company. Notwithstanding the preceding, it will
not be a violation of this Section 6 for either Party to discuss Executive's
termination if such Party is required to do so by legal process or required or
requested to do so by an official investigative or judicial proceeding invoked
by a governmental agency, other than disclosures by Executive pursuant to an
investigative or judicial proceeding instigated by the actions of Executive.

         7.       NONDISPARAGEMENT. During the Notice Period, and thereafter,
the Parties agree not to criticize, denigrate, or make statements (whether oral
or written) that would otherwise reflect negatively on the reputation of
Executive, Releasees or Cadence's products, employment practices, compensation
policies and practices or business practices. Additionally, Cadence agrees to
instruct its executive officers and directors to comply with the preceding
sentence. The Parties further agree that neither will aid, assist, advise,
counsel, or testify on behalf of, any other person pursuing any claim, charge,
or complaint adverse to the Executive or Releasees, including, but not limited
to, Cadence and its executives, except to the extent either Party is required to
do so by legal process or required or requested to do so by an official
investigative or judicial proceeding invoked by a governmental agency (except in
the case of Executive, pursuant to an investigative or judicial proceeding
instigated by Executive). Executive and Cadence acknowledge that in the event of
a breach of this paragraph, such breach will cause irreparable harm to the other
Party. Executive warrants and agrees that in the event she breaches her
obligations as enumerated in this paragraph, the $515,200 paid by Cadence to the
Executive pursuant to this Agreement shall be immediately due and repayable by
Executive to Cadence as liquidated damages; provided, however, that factual
statements made by Executive as required by legal process or required or
requested by an official investigative or judicial proceeding invoked by a
governmental agency, other than statements made by Executive pursuant to an
investigative or judicial proceeding instigated by Executive, shall not, in and
of themselves, constitute a violation of this Section 7. Both Parties agree
that, in the event the other Party breaches its obligations under this
paragraph, the non-breaching Party shall be entitled to injunctive relief to
prevent further conduct in violation of this paragraph, and to an award of
judgment in the amount of all attorneys' fees necessarily and reasonably
incurred by such Party to secure such relief.

                                       4
<PAGE>

         8.       CONTINUED COOPERATION. During the Notice Period, and following
the termination of employment, Executive shall fully cooperate with Cadence in
all matters relating to her employment, including, but not limited to, the
winding up of her pending work on behalf of Cadence and the orderly transfer of
any such pending work to other executives of Cadence as may be designated by
Cadence. In addition, Executive shall cooperate with Cadence, as requested by
Ray Bingham, Chief Executive Officer of Cadence (or his successor(s)), Mr.
Bingham's designees (or his successor(s)'s designees) or Cadence's Board of
Directors on matters relating to the work she performed at Cadence, including,
but not limited to, consulting with Cadence on matters related to customers,
marketing, research and development and any legal matters that may arise in the
future about which Executive has knowledge.

         9.       REVIEW OF AGREEMENT; REVOCATION OF ACCEPTANCE. Executive has
21 days in which to review and consider this Agreement, although Executive is
free to accept this Agreement anytime within that 21-day period. Executive is
advised to consult with an attorney about the Agreement. If Executive accepts
this Agreement, Executive will have an additional 7 days from the date that
Executive signs this Agreement to revoke that acceptance, which Executive may
effect by means of a written notice sent to R.L. Smith McKeithen. If this 7-day
period expires without a timely revocation, this Agreement will become final on
the eighth day following the date of Executive's signature, which date will
become the "Effective Date" of this Agreement.

         10.      FULL SATISFACTION OF COMPENSATION OBLIGATIONS; ADEQUATE
CONSIDERATION. Executive agrees that the payments and benefits provided herein
are in full satisfaction of all obligations of Cadence to Executive arising out
of or in connection with Executive's employment through the Termination Date and
in Executive's offer letter, dated April 22, 2002, including, without
limitation, all compensation, salary, bonuses, reimbursement of expenses, and
benefits. Executive further acknowledges that the separation payment and the
vesting and acceleration of stock options and restricted stock grants provided
for in Section 3 of this Agreement constitute adequate consideration for the
covenants and releases given by the Executive in this Agreement.

         11.      ARBITRATION. All claims, disputes, questions, or controversies
arising out of or relating to this Agreement or to Executive's employment and
the termination of that employment with Cadence, including, without limitation,
the construction or application of any of the terms, provisions, or conditions
of this Agreement, will be resolved exclusively in final and binding arbitration
in accordance with the Arbitration Rules and Procedures, or successor rules then
in effect, of Judicial Arbitration & Mediation Services, Inc. ("JAMS"). The
arbitration will be held in the San Jose, California, metropolitan area, and
will be conducted and administered by JAMS. Executive and Cadence will select a
mutually acceptable, neutral arbitrator from among the JAMS panel of arbitrator.
Except as provided by this Agreement, the Federal Arbitration Act will govern
the administration of the arbitration proceedings. The arbitrator will apply the
substantive law (and the law of remedies, if applicable) of the State of
California, or federal law, as applicable, and the arbitrator is without
jurisdiction to apply any different substantive law. Executive and Cadence will
each be allowed to engage in adequate discovery, the scope of which will be
determined by the arbitrator consistent with the nature of the claim(s) in
dispute. The arbitrator will have the authority to entertain a motion to dismiss
and/or a motion for summary judgment by any party and will apply the standards
governing such motions under the Federal Rules of Civil Procedure. The
arbitrator will render a written award and supporting opinion that

                                       5
<PAGE>

will set forth the arbitrator's findings of fact and conclusions of law.
Judgment upon the award may be entered in any court of competent jurisdiction.
Cadence will pay the arbitrator's fees, as well as all administrative fees,
associated with the arbitration. Each party will be responsible for paying their
own attorneys' fees and costs (including expert witness fees and costs, if any).
However, in the event a party prevails at arbitration on a statutory claim that
entitles the prevailing party to reasonable attorneys' fees as part of the
costs, then the arbitrator may award those fees to the prevailing party in
accordance with that statute.

         12.      NO ADMISSION OF LIABILITY. Nothing in this Agreement will
constitute or be construed in any way as an admission of any liability or
wrongdoing whatsoever by Cadence or Executive.

         13.      INTEGRATED AGREEMENT. This Agreement is intended by the
parties to be a complete and final expression of their rights and duties
respecting the subject matter of this Agreement, except that nothing in this
Agreement is intended to negate Executive's continuing obligations under
Cadence's Employee Proprietary Information and Inventions Agreement, dated April
22, 2002, and Executive's Noncompetition Agreement, dated April 24, 2002, (as
modified by Section 5(d)) or any other agreement governing the disclosure and/or
use of proprietary information, which Executive signed while working with
Cadence or its predecessors; nor to waive any of Executive's obligations under
state and federal trade secret laws.

         14.      MODIFICATION. This Agreement may not be modified unless such
modification is embodied in writing, signed by the party against whom the
modification is to be enforced.

         15.      SEVERABILITY. In the event that any part of this Agreement is
found to be void or unenforceable, all other provisions of the Agreement will
remain in full force and effect.

         16.      GOVERNING LAW. This Agreement will be governed and enforced in
accordance with the laws of the State of California without regard to its
conflict of laws provision.

                             EXECUTION OF AGREEMENT

         The parties execute this Agreement to evidence their acceptance of it.

         Dated: 12/24/03                     By:  /s/ Penelope A. Herscher
                                                 -------------------------------

                                                           Penelope A. Herscher

                                             CADENCE DESIGN SYSTEMS, INC.

         Dated:  12/24/03                    By: /s/ R.L. Smith McKeithen
                                                 -------------------------------
                                                   R.L. Smith McKeithen
                                                 Senior Vice President, General
                                                      Counsel and Secretary

                                       6
<PAGE>

                                    EXHIBIT B

                               INDEMNITY AGREEMENT

         This Indemnity Agreement (this "Agreement"), dated as of April 1, 2003,
is made by and between Cadence Design Systems, Inc., a Delaware corporation (the
"Company"), and Penelope Herscher, Executive Vice President of the Company (the
"Indemnitee").

                                    RECITALS

         A.       The Company is aware that competent and experienced persons
are increasingly reluctant to serve as directors or officers of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors and officers;

         B.       The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;

         C.       Plaintiffs often seek damages in such large amounts and the
costs of litigation may be so substantial (whether or not the case is
meritorious), that the defense and/or settlement of such litigation is often
beyond the personal resources of officers and directors;

         D.       The Company believes that it is unfair for its directors and
officers and the directors and officers of its subsidiaries to assume the risk
of large judgments and other expenses that may be incurred in cases in which the
director or officer received no personal profit and in cases where the director
or officer was not culpable;

         E.       The Company recognizes that the issues in controversy in
litigation against a director or officer of a corporation such as the Company or
a subsidiary of the Company are often related to the knowledge, motives and
intent of such director or officer, that the Indemnitee is usually the only
witness with knowledge of the essential facts and exculpating circumstances
regarding such matters and that the long period of time which usually elapses
before the trial or other disposition of such litigation often extends beyond
the time that the director or officer can reasonably recall such matters; and
may extend beyond the normal time for retirement for such director or officer
with the result that the Indemnitee, after retirement or in the event of the
Indemnitee's death, the Indemnitee's spouse, heirs, executors or administrators,
may be faced with limited ability and undue hardship in maintaining an adequate
defense, which may discourage such a director or officer from serving in that
position;

         F.       Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as officers and directors of the
Company and its subsidiaries and to encourage such individuals to take the
business risks necessary for the success of the Company

<PAGE>

and its subsidiaries, it is necessary for the Company to contractually
indemnify its officers and directors and the officers and directors of its
subsidiaries, and to assume for itself maximum liability for claims against such
persons in connection with their service;

         G.       The Company desires and has requested the Indemnitee to serve
or continue to serve as a director or officer of the Company and/or the
subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or the
subsidiaries of the Company; and

         H.       The Indemnitee is willing to serve, or to continue to serve,
the Company and/or the subsidiaries of the Company that the Indemnitee is
furnished the indemnity provided for herein.

                                    AGREEMENT

         NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:

         1.       Definitions.

                  (a)      Covered Person. For purposes of this Agreement, a
"covered person" shall include the Indemnitee and any heir, executor,
administrator or other legal representative of the Indemnitee following the
Indemnitee's death or incapacity.

                  (b)      Expenses. For purposes of this Agreement, "expenses"
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, all attorneys' fees and related disbursements
and other out-of-pocket costs) actually and reasonably incurred by the
Indemnitee in connection with either the investigation, defense or appeal of a
proceeding or establishing or enforcing a right to indemnification under this
Agreement, Section 145 of the Delaware General Corporation Law or otherwise.

                  (c)      Proceeding. For the purposes of this Agreement,
"proceeding" means any threatened, pending, or completed action, suit or other
proceeding, whether civil, criminal, administrative, legislative, investigative
or any other type whatsoever, and including any of the foregoing commenced by or
on behalf of the Company, derivatively or otherwise.

                  (d)      Subsidiary. For purposes of this Agreement,
"subsidiary" means any corporation of which more than 50% of the outstanding
voting securities is owned directly or indirectly by the Company, and one or
more other subsidiaries, or by one or more other subsidiaries.

         2.       Agreement to Serve. The Indemnitee agrees to serve and/or
continue to serve the Company and/or its subsidiaries in the Indemnitee's
present capacity, so long as the Indemnitee is duly appointed or elected or
until such time as the Indemnitee tenders a written resignation, provided,
however, that nothing contained in this Agreement is intended to create any
right to continued employment by Indemnitee.

                                       2
<PAGE>

         3.       Maintenance of Liability Insurance.

                  (a)      The Company hereby covenants and agrees that, so long
as the Indemnitee shall continue to serve as an officer or director of the
Company or any of its subsidiaries, and thereafter so long as the Indemnitee
shall be subject to any possible proceeding by reason of such service, the
Company, subject to Section 3(b), shall use reasonable efforts to obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.

                  (b)      Notwithstanding the foregoing, the Company shall have
no obligation to obtain or maintain D&O Insurance if the Company determines in
good faith that such insurance is not reasonably available, the premium costs
for such insurance are disproportionate to the amount of coverage provided, the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary of the Company.

         4.       Mandatory Indemnification.

                  (a)      Right to Indemnification. In the event a covered
person was or is made a party or is threatened to be made a party to or is
involved in any proceeding, by reason of the fact that the Indemnitee is or was
a director, officer or employee of the Company (including any subsidiary or
affiliate thereof or any constituent corporation or any of the foregoing
absorbed in any merger) or is or was serving at the request of the Company
(including such subsidiary, affiliate or constituent corporation) as a director,
officer or employee of another corporation, or of a partnership, joint venture,
trust or other entity, including service with respect to employee benefit plans,
such person shall be indemnified and held harmless by the Company to the fullest
extent permitted by applicable law, against all expenses, liability and loss
(including, without limitation, attorneys' fees, judgments, fines, ERISA excise
and other taxes and penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. Such
indemnification shall continue after the Indemnitee has ceased to serve in such
capacity and shall inure to the benefit of the Indemnitee's heirs, executors and
administrators; provided, however, that except for a proceeding pursuant to
Section 7, the Company shall indemnify any such person in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Company.

                  (b)      Exception for Amounts Covered by Insurance.
Notwithstanding the foregoing, the Company shall not be obligated to indemnify a
covered person for expenses or liabilities of any type whatsoever (including,
but not limited to, judgments, fines, forfeitures, attorneys' fees, ERISA excise
taxes or penalties, and amounts paid in settlement) which have been paid
directly to such person by D&O Insurance.

                  (c)      Partial Indemnification. If a covered person is
entitled under any provision of this Agreement to indemnification by the Company
for some or a portion of any expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, forfeitures, attorneys' fees,
ERISA excise taxes or penalties, and amounts paid in settlement) incurred by the
Indemnitee in the investigation, defense, settlement or appeal of a proceeding
but

                                       3
<PAGE>

not entitled, however, to indemnification for all of the total amount thereof,
the Company shall nevertheless indemnify such person for such total amount
except as to the portion thereof to which the Indemnitee is not entitled.

         5.       Mandatory Advancement of Expenses. The Company shall pay all
expenses incurred by a covered person, or in defending any such proceeding as
they are incurred in advance of its final disposition; provided, however, that
if the Delaware General Corporation Law then so requires, the payment of such
expenses incurred in advance of the final disposition of such proceeding shall
be made only upon delivery to the Company of an undertaking, by or on behalf of
such covered person, to repay all amounts so advanced if it should be determined
ultimately that such person is not entitled to the payment of such expenses by
the Company.

         6.       Notice and Other Indemnification Procedures.

                  (a)      Promptly after receipt by a covered person of notice
of the commencement of or the threat of commencement of any proceeding, such
person shall, if such person believes that indemnification with respect thereto
may be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.

                  (b)      If, at the time of the receipt of a notice of the
commencement of a proceeding, the Company has D&O Insurance in effect, the
Company shall give prompt notice of the commencement of such proceeding to the
insurers in accordance with the procedures set forth in the respective policies.
The Company shall thereafter take all necessary or desirable action to cause
such insurers to pay, on behalf of the covered person, all amounts payable as a
result of such proceeding in accordance with the terms of such policies.

                  (c)      In the event the Company shall be obligated to
advance the expenses for any proceeding against the covered person, the Company,
if appropriate, shall be entitled to assume the defense of such proceeding, with
counsel approved by the covered person (such approval not to be unreasonably
withheld or delayed), upon the delivery to the covered person of written notice
of its election so to do. After delivery of such notice, approval of such
counsel by the covered person and the retention of such counsel by the Company,
the Company will not be liable to the covered person under this Agreement for
any fees of counsel subsequently incurred by the covered person with respect to
the same proceeding, provided that (i) the covered person shall have the right
to employ separate counsel in any such proceeding at the covered person's
expense; and (ii) if (A) the employment of counsel by the covered person has
been previously authorized by the Company, (B) the Company shall not, in fact,
have employed counsel to assume the defense of such proceeding, or (C) it is
determined by legal counsel for the Company and the Indemnitee that a conflict
of interest exists requiring the Indemnitee to retain separate counsel, the fees
and expenses of the covered person's counsel shall be at the expense of the
Company.

         7.       Right of Indemnitee to Bring Suit. If a claim for
indemnification or advancement of expenses hereunder is not paid in full by the
Company within sixty days after a written claim has been received by the
Company, except in the case of a claim for an advancement of expenses, in which
case the applicable period shall be twenty days, the covered person may at any
time thereafter bring suit against the Company to recover the unpaid amount of
the claim. If

                                       4
<PAGE>

successful in whole or in part in any such suit, or in a suit brought by the
Company to recover and advancement of expenses pursuant to the terms of an
undertaking, the covered person shall be entitled to be paid also the expense of
prosecuting or defending such suit. In any suit brought by a covered person to
enforce a right to indemnification hereunder (but not in a suit brought by a
covered person to enforce a right to an advancement of expenses) it shall be a
defense that indemnification is not permitted by applicable law. Further, in any
suit by the Company to recover an advancement of expenses pursuant to the terms
of an undertaking, the Company shall be entitled to recover such expenses upon a
final adjudication that indemnification is not permitted by applicable law.
Neither the failure of the Company (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the covered
person is proper in the circumstances, nor an actual determination by the
Company (including its Board of Directors, independent legal counsel or its
stockholders) that indemnification is not proper, shall create a presumption
that the covered person is not entitled to indemnification or, in the case of
such a suit brought by a covered person, be a defense to such suit. In any suit
brought by a covered person to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Company to recover an advancement
of expenses pursuant to the terms of an undertaking, the burden of proving that
the covered person is not entitled to be indemnified, or to such advancement of
expenses, shall be on the Company.

         8.       Limitation of Actions and Release of Claims. No proceeding
shall be brought and no cause of action shall be asserted by or on behalf of the
Company or any subsidiary against the Indemnitee, the Indemnitee's spouse,
heirs, estate, executors or administrators after the expiration of one year from
the act or omission of the Indemnitee upon which such proceeding is based;
however, in a case where the Indemnitee fraudulently conceals the facts
underlying such cause of action, no proceeding shall be brought and no cause of
action shall be asserted after the expiration of one year from the earlier of
(i) the date the Company or any subsidiary of the Company discovers such facts,
or (ii) the date the Company of any subsidiary of the Company could have
discovered such facts by the exercise of reasonable diligence. Any claim or
cause of action of the Company or any subsidiary of the Company, including
claims predicated upon the negligent act or omission of the Indemnitee, shall be
extinguished and deemed released unless asserted by filing of a legal action
within such period. This Section 8 shall not apply to any cause of action which
has accrued on the date hereof and of which the Indemnitee is aware on the date
hereof, but as to which the Company has no actual knowledge apart from the
Indemnitee's knowledge.

         9.       Non-exclusivity. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee or any covered person may
have under any provision of law, the Company's Certificate of Incorporation or
Bylaws, the vote of the Company's shareholders or disinterested directors, other
agreements, or otherwise, both as to action in the Indemnitee's official
capacity and to action in another capacity while occupying the Indemnitee's
position as an officer, director or employee of the Company, and the
Indemnitee's right hereunder shall continue after the Indemnitee has ceased to
so act and shall inure to the benefit of any heir, executor, administrator or
other legal representative of the Indemnitee.

                                       5
<PAGE>

         10.      Interpretation of Agreement. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law.

         11.      Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including, without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to Section 10
hereof.

         12.      Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.

         13.      Successors and Assigns. The terms of this Agreement shall
bind, and shall inure to the benefit of, the successors and assigns of the
parties hereto.

         14.      Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given (i) upon receipt, if delivered by hand, or (ii) on the third business day
after the mailing date, if mailed by certified or registered mail with postage
prepaid. Addresses for notice to either party are as shown on the signature page
of this Agreement, or as subsequently modified by written notice.

         15.      Governing Law. This Agreement shall be governed exclusively by
and construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
with Delaware.

         16.      Consent to Jurisdiction. The Company and the Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement

         The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written,

                                  CADENCE DESIGN SYSTEMS, NC.

                                  By: /s/ R.L.Smith McKeithen
                                      ------------------------------
                                        RL. Smith McKeithen
                                        Sr. Vice President, General Counsel and
                                        Secretary

                                       6
<PAGE>

                                  INDEMNITEE

                                  /s/ Penelope Herscher
                                  ----------------------------------------------
                                  Name: Penelope Herscher

                                  Address: _____________________________________

                                           _____________________________________

                                       7
<PAGE>

                                    EXHIBIT C

                            NONCOMPETITION AGREEMENT

<PAGE>

                            NONCOMPETITION AGREEMENT

         THIS NONCOMPETITION AGREEMENT (this "Agreement") is entered into as of
April 24, 2002, by and among Cadence Design Systems, Inc., a Delaware
corporation ("Parent"), Simplex Solutions, Inc., a Delaware corporation (the
"Company"), and Ms. Penelope A. Herscher ("Stockholder"). The Closing Date, as
defined in the Merger Agreement (as defined below), shall be the "Effective
Date" of this Agreement.

                                    RECITALS

         A.       Parent and the Company are engaged in the research, design and
development of electronic design automation software and products, such products
containing hardware, software and both hardware and/or software products,
designs and solutions for, and all intellectual property embodied in the
foregoing, and in commercial electronic design services and/or maintenance
services, such services including all intellectual property embodied in the
foregoing (the "Business").

         B.       The Company has entered into an Agreement and Plan of Merger
with Parent and Zodiac Acquisition, Inc. ("Acquisition"), a wholly-owned
subsidiary of Parent (the "Merger Agreement"), dated as of April 24, 2002, which
provides (subject to the conditions set forth therein) for the merger of
Acquisition with and into the Company with the Company as the surviving
corporation (the "Merger"). As a result of the Merger, the Company will become a
wholly-owned subsidiary of Parent, and Stockholder will receive shares of common
stock of Parent in exchange for Stockholder's shares of capital stock of the
Company. Capitalized terms used but not defined herein shall have their
respective meanings set forth in the Merger Agreement.

         C.       As a condition and essential inducement to Parents and
Acquisition's willingness to enter into the Merger Agreement and in
consideration of the transactions contemplated by the Merger Agreement,
including Stockholder's receipt of Merger Consideration in the Merger,
Stockholder has agreed to the noncompetition, nonsolicitation, confidentiality
and other agreements set forth in this Agreement In addition, Stockholder has
been offered and, concurrently with the execution of this Agreement, has
accepted employment with Parent contingent upon closing of the transactions
contemplated by the Merger pursuant to the terms of a written employment
agreement ("Employment Agreement").

                                    AGREEMENT

         NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and agreements in the Merger Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Stockholder hereby covenants and agrees as follows:

         1.       NONCOMPETITION.

                  (a)      During the period commencing at the Effective Date
and ending on the date that is three (3) years after the date on which the
Effective Date occurs, Stockholder shall

                                       2
<PAGE>

not, directly or indirectly (including, without limitation, through any
existing or future Affiliate (as defined below)), own, manage, operate, control,
enable (whether by license, sublicense, assignment or otherwise) or otherwise
engage or participate in, or be a securityholder, director, officer, employee,
partner' member, lender, guarantor or advisor of, or consultant to, any company,
limited liability company, partnership or other Person (as defined below) that,
directly or indirectly, (1) engages in the Business in the Business Area (as
defined below), (2) competes in the Business in the Business Area against Parent
or any of its existing or future Affiliates engaged in the Business, or (3)
markets, distributes or sells any products that are marketed, distributed or
sold, directly or indirectly through intermediaries, in the Business Area that
are competitive to Business products marketed sold or distributed by Parent or
any of its existing or future Affiliates. Without limiting the generality of the
foregoing, Stockholder shall not, directly or indirectly (including, without
limitation, through any existing or future Affiliate or any other Person in
which Stockholder has an interest):

                           (i)      engage in research, development,
                                    manufacture, licensing, marketing,
                                    distribution or sale of any existing or
                                    future products or services relating to the
                                    Business;

                           (ii)     have any interest in, own, manage, operate,
                                    control, be a securityholder (except as
                                    permitted by Section 1(b)), joint venturer,
                                    officer, director, agent, lender,
                                    representative, partner or securityholder
                                    of, or consultant to, or otherwise engage or
                                    invest or participate in, the Business or
                                    any Person that takes any of the actions
                                    described in clauses (1), (2) and (3) of
                                    this subsection (a);

                           (iii)    accept any business relating to the Business
                                    from any existing or prospective Business
                                    customer of Parent or any existing or future
                                    Affiliate of Parent engaged in the Business,
                                    or solicit or encourage any such customer to
                                    terminate or adversely alter any
                                    relationship with respect to the Business
                                    much Person may have with Parent or any of
                                    its existing or future Affiliates engaged in
                                    the Business; or

                           (iv)     market, sell, distribute, endorse or promote
                                    any products or services that are
                                    competitive with existing or future Business
                                    products or services of Parent or any of its
                                    existing or future Affiliates engaged in the
                                    Business.

                  (b)      Notwithstanding anything to the contrary set forth in
Section 1(a):

                           (i)      Stockholder may own (solely as a passive
                                    investor) securities in any publicly-held
                                    company that may be engaged in the Business,
                                    hut only to the extent Stockholder does not
                                    own, of record or beneficially, more than an
                                    aggregate of two percent (2%) of the
                                    outstanding Securities of such company that
                                    represent (either directly or upon
                                    conversion or exchange of any other
                                    securities) equity ownership thereof; and

                                       3
<PAGE>

                           (ii)     In connection with Stockholder's employment
                                    with any Person, Stockholder may engage in
                                    activities that are encompassed within the
                                    Business, provided (A) that the results of
                                    Stockholder's activities are used by
                                    Stockholder's employer solely for internal
                                    purposes for The development of integrated
                                    circuits to be manufactured by such employer
                                    and not for sale, license or use by third
                                    parties and (B) Stockholder a employer does
                                    not compete with Parent or any existing or
                                    future Affiliates of Parent in the Business.

                  (c)      The restrictions set forth in this Section 1 shall
apply worldwide (the "Business Area").

                  (d)      As used herein, "Affiliate" means, with respect to
any Person, any other Person directly or indirectly controlling, controlled by
or under direct or indirect common control with such first Person.

                  (e)      As used herein, "Person" means an individual,
corporation, partnership, limited liability company, association, trust,
unincorporated organization or other legal entity, including any Governmental
Entity.

         2.       NONSOLICITATION OF EMPLOYEES. During the period commencing at
the Effective Date and ending on the date that is three (3) years alter the date
on which the Effective Date occurs, Stockholder shall not, either on his or her
own account or for any company, limited liability company, partnership, joint
venture or other Person (including, without limitation. through any existing or
future Affiliate), solicit any employee of Parent or any existing or future
Affiliate of Parent to leave his or her employment or induce or attempt to
induce any such employee to terminate or breach his or her employment agreement
with Parent or any existing or future Affiliate of Parent, if any.
Notwithstanding the foregoing, Stockholder may place general advertisements for
prospective employees, either on his or her own account or for any company, in
media and in other forms directed to the general public, including but not
limited to newspapers, television, radio and non-Business specific Internet job
boards; provided that the hiring of any employee of Parent or any of its
existing or future Affiliates responding thereto shall be deemed a solicitation
of such person.

         3.       NONSOLICITATION OF CUSTOMERS AND SUPPLIERS. During the period
commencing at the Effective Date and ending on the date that is three (3) years
after the date on which the Effective Date occurs, Stockholder shall not,
directly or indirectly (including, without limitation, through any existing or
future Affiliate), solicit, cause in any part or encourage any current or future
customer of or supplier to Parent or any existing or future Affiliate of Parent
to cease doing business in whole or in part with Parent or any such Affiliate
with respect to the Business.

         4.       CONFIDENTIALITY. Stockholder has entered into an Employee
Proprietary Information and Inventions Agreement with Parent. The provisions of
Section 1 of such agreement are hereby incorporated by reference herein.

                                       4
<PAGE>

         5.       STAY OF TIME. In the event a court of competent jurisdiction
or other Person mutually selected by the parties to resolve any dispute
(collectively a "Court") has determined that Stockholder has violated the
provisions of this Agreement, the running of the time period of such provisions
so violated shall be automatically suspended as of the date of such violation
and shall be extended for the period of time from the date such violation
commenced through the date that the Court determines that such violation has
permanently ceased.

         6.       INJUNCTIVE RELIEF. The remedy at law for any breach of this
Agreement is and will be inadequate, and in the event of a breach or threatened
breach by Stockholder of this Agreement, Parent and its existing and future
Affiliates, if any, shall be entitled to an injunction restraining Stockholder
from breaching or otherwise violating any provision of this Agreement. Nothing
herein contained shall be construed as prohibiting Parent and its existing and
future Affiliates, from pursuing any other remedies available to it or them for
such breach or threatened breach, including, without limitation, the recovery of
damages from Stockholder.

         7.       NOTICE. All notices and other communications pursuant to this
Agreement shall be in writing and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the addresses set forth below or to such other address as the party
to whom notice is to be given may have furnished to the other parties hereto in
writing in accordance herewith. Any such notice or communication shall be deemed
to have been delivered and received (a) in the case of personal delivery, on the
date of such delivery, (b) in the case of telecopier, on the date sent if
confirmation of receipt is received and such notice is also promptly mailed by
registered or certified mail (return receipt requested), (c) in the case of a
nationally-recognized overnight courier in circumstances under which such
courier guarantees next business day delivery, on the next business day after
the date when sent and (d) in the case of mailing, on the fifth business day
following that on which the piece of mail containing such communication is
posted:

         if to Parent or Acquisition, to:

                  Cadence Design Systems, Inc.
                  2655 Seely Avenue
                  San Jose, CA 95134
                  Telecopier: (408) 944-6855
                  Attention: General Counsel

                  with a copy to:

                  Gibson. Dunn & Crutcher LLP
                  One Montgomery Street Telesis Tower
                  San Francisco, CA 94104
                  Telecopier: (415) 986-5309
                  Attention: Gregory J. Conklin, Esq.

         if to Stockholder, to:

                                       5
<PAGE>

         Ms. Penelope A. Herscher
         _________________________
         _________________________
         _________________________

or to such other address as the person to whom notice is given may have
previously furnished to the other, in writing in the manner set forth above. Any
party hereto may give any notice, request, demand, claim or other communication
hereunder using any other moans (including ordinary mail or electronic mail),
but no such notice, request, demand, claim or other communication shall be
deemed to have been duly given unless and until it actually is received by the
individual for whom it is intended.

         8.       SEPARATE COVENANTS. This Agreement shall be deemed to consist
of a series of separate covenants, one for each line of business included within
the Business as it may be conducted by Parent and its existing and future
Affiliates and its successors, if any, on or after the date hereof, and each
city, county, state, country or other region included within the Business Area.
The parties expressly agree that the character, duration and geographical scope
of this Agreement are reasonable in light of the circumstances as they exist on
the date upon which this Agreement has been executed. However, should a
determination nonetheless be made by a Court of competent jurisdiction at a
later date that the character, duration or geographical scope of this Agreement
is unreasonable in light of the circumstances as they then exist, then it is the
intention and the agreement of Parent and Stockholder that this Agreement shall
be construed by the Court in such a manner as to impose only those restrictions
on the conduct of Parent and Stockholder that are reasonable in light of the
circumstances as they then exist and as are necessary to assure Parent and its
existing and future Affiliates of the intended benefit of this Agreement. If, in
any proceeding, a Court shall refuse to enforce all of the separate covenants
deemed included herein because, taken together, they are more extensive than
necessary to assure Parent and its existing and future Affiliates of the
intended benefit of this Agreement, it is expressly understood and agreed among
the parties hereto that those of such covenants that, if eliminated, would
permit the remaining separate covenants to be enforced in such proceeding shall,
for the purpose of such proceeding, be deemed eliminated from the provisions
hereof.

         9.       SEVERABILITY. If any provision of this Agreement shall
otherwise contravene or be invalid under the laws of any state, country or other
jurisdiction where this Agreement is applicable but for such contravention or
invalidity, such contravention or invalidity shall not invalidate all of the
provisions of this Agreement but rather it shall be construed, insofar as the
laws of that state or other jurisdiction are concerned, as not containing the
provision or provisions contravening or invalid under the laws of that state or
jurisdiction, and the rights and obligations created hereby shall be construed
and enforced accordingly.

         10.      GOVERNING LAW; ARBITRATION.

                  (a)      This Agreement shall be construed in accordance with
and governed by the internal laws (without reference to choice or conflict of
laws) of the State of Delaware.

                  (b)      Each of the parties expressly agrees that to the
extent permitted by law and to the extent that the enforceability of this
Agreement is not thereby impaired, any and all

                                       6
<PAGE>

disputes, controversies or claims between Patent and Stockholder arising from or
relaxing to this Agreement, except for matters covered by Section 6 hereof,
shall be determined exclusively by final and binding arbitration before a single
arbitrator in accordance with then existing rules of the American Arbitration
Association ("AAA").

                  (c)      The arbitration shall be held in the San Jose,
California metropolitan area, and shall be administered by the AAA. Under such
proceeding, the parties shall select a mutually acceptable, neutral arbitrator
from among the AAA panel of arbitrators. In the event the parties cannot agree
on an arbitrator, the Administrator of AAA shall appoint an arbitrator. Neither
party nor the arbitrator shall disclose the existence, content or results of any
arbitration hereunder without the prior written consent of all parties, except
as may be compelled by court order. Except as provided herein, the Federal
Arbitration Act shall govern the interpretation and enforcement of such
arbitration and all proceedings. The arbitrator shill apply the substantive law
(and the law of remedies, if applicable) of the State of Delaware, or Federal
law, if Delaware law is preempted, and the arbitrator is without jurisdiction to
apply any different substantive law. The parties agree that both parties will be
allowed to engage in adequate discovery, the scope of which will be determined
by the arbitrator, consistent with the nature of the claims in dispute. The
arbitrator shall have the authority to entertain a motion to dismiss and/or a
motion for summary judgment by any party and shall apply the standards governing
such motions under the Federal Rules of Civil Procedure. The arbitrator shall
render an award that shall include a written statement of opinion setting forth
the arbitrator's findings of fact and conclusions of law. Judgment upon the
award may be entered in any court having jurisdiction thereof. The parties
intend this arbitration provision to be valid, enforceable, irrevocable and
construed as broadly as possible.

                  (d)      Costs of arbitration, except attorneys' fees or
expert fees that Stockholder may incur, shall be borne and paid by Parent. If
any party prevails on a statutory claim that entitles the prevailing party to
reasonable attorneys' fees (with or without expert fees), the arbitrator may
award reasonable attorneys' fees (with or without expert fees) to the prevailing
party in accord with such statute.

                  (e)      Notwithstanding the foregoing provisions of this
Section 10, either Stockholder or Parent may seek and obtain otherwise available
injunctive relief in a court of competent jurisdiction for any violation this
Agreement that cannot be adequately remedied at law or in arbitration. Any such
injunctive proceedings shall be without prejudice to any rights Parent or
Stockholder may have under this Agreement to obtain relief in arbitration with
respect to such matters. The parties hereto hereby consent to the jurisdiction
of Sate and federal courts located in the State of Delaware for purposes of this
clause (e).

         11.      AMENDMENTS AND WAIVERS.

                  (a)      This Agreement may be modified only by a written
instrument duly executed by each party hereto.

                  (b)      No waiver by a party of any default,
misrepresentation or breach of a warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of a warranty or covenant hereunder or

                                       7
<PAGE>

affect in any way any rights arising by virtue of any prior or subsequent
occurrence. No failure or delay by a party hereto in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided under applicable law.

         12.      ATTORNEYS' FEES. Should any litigation, arbitration or other
proceeding be commenced between the parties concerning this Agreement
(including, without limitation, the enforcement hereof and the rights and duties
of the parties hereunder), the party prevailing shall be entitled, in addition
to such other relief as may be granted, such party's attorneys' fees and
expenses in connection with such litigation, arbitration or other proceeding.

         13.      ENTIRE AGREEMENT. This Agreement, together with the Merger
Agreement and the ancillary documents referred to in the Merger Agreement and
executed in connection therewith, contains the entire understanding of the
parties, supersedes all prior and contemporaneous agreements and understandings
relating to the subject matter hereof.

         14.      COUNTERPARTS, FACSIMILE. This Agreement may be executed by the
parties in separate counterparts and by facsimile, each of which, when so
executed and delivered, shall be enforceable against the parties actually
executing such counterparts, and all of which, when taken as a whole, shall
constitute one and the same instrument.

         15.      SECTION HEADINGS AND REFERENCES. The headings of each Section,
subsection or other subdivision of this Agreement are for reference only and
shall not limit or control the meaning thereof. All references herein to a
Section arc references to a Section of this Agreement, unless otherwise
specified, and include all subparts thereof.

         16.      ASSIGNS. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, heirs, personal
representatives and permitted assigns. Neither this Agreement nor any right,
remedy, obligation or liability arising hereunder or by reason hereof nor any of
the documents executed in connection herewith may be assigned by any party
without the consent of the other parties; provided, however, that Parent may
assign its rights hereunder, without the consent of Stockholder, to any existing
or future Affiliate of Parent and to any Person that acquires or succeeds to all
or any part of the Business. No such assignment shall relieve the assigning
party of its obligations hereunder if such assignee does not perform such
obligations.

         17.      FURTHER ASSURANCES. From time to time, at Parent's request and
without further consideration, Stockholder shall execute and deliver such
additional documents and take all such further action as reasonably requested by
Parent to be necessary or desirable to make effective, in the most expeditious
manner possible, the terms of this Agreement.

         18.      EXPENSES. Each party hereto shall pay his, her or its own
expenses in connection with this Agreement.

         19.      TERM; TERMINATION. The term of this Agreement commences on the
Effective Date and shall terminate the earlier of either (i) three (3) years
from the Effective Date, or (2) in

                                       8
<PAGE>

the event Parent fails to pay any amounts due to Stockholder pursuant to Section
5 of the Employment Agreement within a reasonable time after either Parent
agrees or an arbitrator has determined in its written statement of opinion
delivered pursuant to Section 14 of the Employment Agreement that Stockholder
was terminated without cause (as defined in the Employment Agreement) or
Stockholder resigned with good reason (as defined in the Employment Agreement).

                                       9
<PAGE>

         IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.

                                           CADENCE DESIGN SYSTEMS, INC.

                                           By: /s/ William Porter
                                               ----------------------------
                                           Name:   William Porter
                                           Title:  Sr. VP & CFO

                                           SIMPLEX SOLUTIONS, INC.

                                           By: /s/ Luis Buhler
                                               ----------------------------
                                           Name:   Luis Buhler
                                           Title:  CFO

                                           STOCKHOLDER

                                           By: /s/ Penelope A. Herscher
                                               ----------------------------
                                           Name:   Penelope A. Herscher

                                       10
<PAGE>

                                    EXHIBIT D

                              FORM OF ANNOUNCEMENT

To:   All Cadence
From: Ray Bingham

Re:   Penny Herscher

Penny has decided to step down from her position as Executive Vice President and
General Manager of the Design and Verification Division. This change is
effective immediately.

Since the formation earlier this year of the design and verification division,
we have made great strides in establishing our presence and technology in the
marketplace. [Additional internal communication items to be added.]

Since joining Cadence in 2002, Penny has made many important contributions. As
Chief Marketing Officer, she rearchitected our marketing programs, and led
strategic planning and the Cadence Design Foundry business. As the first head of
the new Design and Verification division, she brought focus to our customers'
needs in this critical area, and zeal in establishing Cadence's solutions in
this space. And as a member of my executive team, she has made important
contributions to our technology roadmap, our merger and acquisitions strategy,
and our communications with our customers, investors and partners.

As we go into 2004, Penny has decided that she wants to step back from an
operating role at Cadence, as she repositions herself to be a chief executive
officer. During the course of the New Year, while she identifies such an
opportunity, Penny intends to spend time with her family and work with me as
needed to transition her responsibilities and duties. I am grateful for Penny's
contributions to Cadence, and I know that you will join me in wishing her luck
in her future endeavors.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.23
<SEQUENCE>4
<FILENAME>f93607exv10w23.txt
<DESCRIPTION>EXHIBIT 10.23
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.23

                                    QDA, INC.

                      2003 STOCK OPTION/STOCK ISSUANCE PLAN

                                   ARTICLE ONE

                               GENERAL PROVISIONS

I.       PURPOSE OF THE PLAN

         This 2003 Stock Option/Stock Issuance Plan is intended to promote the
interests of QDA, Inc., a California corporation, by providing eligible persons
in the Corporation's employ or service with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to continue in such employ or service.

         Capitalized terms herein shall have the meanings assigned to such terms
in the attached Appendix.

II.      STRUCTURE OF THE PLAN

         A.       The Plan shall be divided into two (2) separate equity
programs:

                  (i)      the Option Grant Program under which eligible persons
         may, at the discretion of the Plan Administrator, be granted options to
         purchase shares of Common Stock, and

                  (ii)     the Stock Issuance Program under which eligible
         persons may, at the discretion of the Plan Administrator, be issued
         shares of Common Stock directly, either through the immediate purchase
         of such shares or as a bonus for services rendered the Corporation (or
         any Parent or Subsidiary).

         B.       The provisions of Articles One and Four shall apply to both
equity programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.

III.     ADMINISTRATION OF THE PLAN

         A.       The Plan shall be administered by the Board. However, any or
all administrative functions otherwise exercisable by the Board may be delegated
to the Committee. Members of the Committee shall serve for such period of time
as the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.

<PAGE>

         B.       The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options or stock issuances thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator shall be final and binding on all
parties who have an interest in the Plan or any option grant or stock issuance
thereunder.

IV.      ELIGIBILITY

         A.       The persons eligible to participate in the Plan are as
follows:

                  (i)      Employees,

                  (ii)     non-employee members of the Board or the non-employee
         members of the board of directors of any Parent or Subsidiary, and

                  (iii)    consultants and other independent advisors who
         provide services to the Corporation (or any Parent or Subsidiary).

         B.       The Plan Administrator shall have full authority to determine,
(i) with respect to the grants made under the Option Grant Program, which
eligible persons are to receive such grants, the time or times when those grants
are to be made, the number of shares to be covered by each such grant, the
status of the granted option as either an Incentive Option or a Non-Statutory
Option, the time or times when each option is to become exercisable, the vesting
schedule (if any) applicable to the option shares and the maximum term for which
the option is to remain outstanding, and (ii) with respect to stock issuances
made under the Stock Issuance Program, which eligible persons are to receive
such issuances, the time or times when those issuances are to be made, the
number of shares to be issued to each Participant, the vesting schedule (if any)
applicable to the issued shares and the consideration to be paid by the
Participant for such shares.

         C.       The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Option Grant Program or to effect
stock issuances in accordance with the Stock Issuance Program.

V.       STOCK SUBJECT TO THE PLAN

         A.       The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. The maximum number of shares
of Common Stock which may be issued over the term of the Plan shall not exceed
one million five hundred thousand (1,500,000) shares.

         B.       Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at a price per share not greater than the option exercise or direct
issue price paid per share, pursuant to the Corporation's repurchase rights
under the Plan shall be

                                       2
<PAGE>

added back to the number of shares of Common Stock reserved for issuance under
the Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan.

         C.       Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan and (ii) the number and/or class of securities and the exercise
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive. In no event shall
any such adjustments be made in connection with the conversion of one or more
outstanding shares of the Corporation's preferred stock into shares of Common
Stock.

                                       3
<PAGE>

                                   ARTICLE TWO

                              OPTION GRANT PROGRAM

I.       OPTION TERMS

         Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.

         A.       EXERCISE PRICE.

                  1.       The exercise price per share shall be fixed by the
Plan Administrator in accordance with the following provisions:

                           (i)      The exercise price per share shall not be
         less than eighty-five percent (85%) of the Fair Market Value per share
         of Common Stock on the option grant date.

                           (ii)     If the person to whom the option is granted
         is a 10% Stockholder, then the exercise price per share shall not be
         less than one hundred ten percent (110%) of the Fair Market Value per
         share of Common Stock on the option grant date.

                  2.       The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Four and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
under Section 12 of the 1934 Act at the time the option is exercised, then the
exercise price may also be paid as follows:

                           (i)      in shares of Common Stock held for the
         requisite period necessary to avoid a charge to the Corporation's
         earnings for financial reporting purposes and valued at Fair Market
         Value on the Exercise Date, or

                           (ii)     to the extent the option is exercised for
         vested shares, through a special sale and remittance procedure pursuant
         to which the Optionee shall concurrently provide irrevocable
         instructions (A) to a Corporation-designated brokerage firm to effect
         the immediate sale of the purchased shares and remit to the
         Corporation, out of the sale proceeds available on the settlement date,
         sufficient funds to cover the aggregate exercise price payable for the
         purchased shares plus all applicable income and employment taxes
         required to be withheld by the Corporation by reason of such exercise
         and (B) to the Corporation to deliver the certificates for the
         purchased shares directly to such brokerage firm in order to complete
         the sale.

                                       4
<PAGE>

         Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

         B.       EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option grant. However, no option shall have a term in excess
often (10) years measured from the option grant date.

         C.       EFFECT OF TERMINATION OF SERVICE.

                  1.       The following provisions shall govern the exercise of
any options held by the Optionee at the time of cessation of Service or death:

                           (i)      Should the Optionee cease to remain in
         Service for any reason other than death, Disability or Misconduct, then
         the Optionee shall have a period of three (3) months following the date
         of such cessation of Service during which to exercise each outstanding
         option held by such Optionee.

                           (ii)     Should Optionee's Service terminate by
         reason of Disability, then the Optionee shall have a period of twelve
         (12) months following the date of such cessation of Service during
         which to exercise each outstanding option held by such Optionee.

                           (iii)    If the Optionee dies while holding an
         outstanding option, then the personal representative of his or her
         estate or the person or persons to whom the option is transferred
         pursuant to the Optionee's will or the laws of inheritance or the
         Optionee's designated beneficiary or beneficiaries of that option shall
         have a twelve (12)-month period following the date of the Optionee's
         death to exercise such option.

                           (iv)     Under no circumstances, however, shall any
         such option be exercisable after the specified expiration of the option
         term.

                           (v)      During the applicable post-Service exercise
         period, the option may not be exercised in the aggregate for more than
         the number of vested shares for which the option is exercisable on the
         date of the Optionee' s cessation of Service. Upon the expiration of
         the applicable exercise period or (if earlier) upon the expiration of
         the option term, the option shall terminate and cease to be outstanding
         for any vested shares for which the option has not been exercised.
         However, the option shall, immediately upon the Optionee's cessation of
         Service, terminate and cease to be outstanding with respect to any and
         all option shares for which the option is not otherwise at the time
         exercisable or in which the Optionee is not otherwise at that time
         vested.

                           (vi)     Should Optionee's Service be terminated for
         Misconduct or should Optionee otherwise engage in Misconduct while
         holding one or more outstanding options under the Plan, then all those
         options shall terminate immediately and cease to remain outstanding.

                                       5
<PAGE>

                  2.       The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:

                           (i)      extend the period of time for which the
         option is to remain exercisable following Optionee's cessation of
         Service or death from the limited period otherwise in effect for that
         option to such greater period of time as the Plan Administrator shall
         deem appropriate, but in no event beyond the expiration of the option
         term, and/or

                           (ii)     permit the option to be exercised, during
         the applicable post-Service exercise period, not only with respect to
         the number of vested shares of Common Stock for which such option is
         exercisable at the time of the Optionee's cessation of Service but also
         with respect to one or more additional installments in which the
         Optionee would have vested under the option had the Optionee continued
         in Service.

         D.       STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become the
recordholder of the purchased shares.

         E.       UNVESTED SHARES. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase any or all of those unvested
shares at a price per share equal to the lower of (i) the exercise price paid
per share or (ii) the Fair Market Value per share of Common Stock at the time of
Optionee's cessation of Service. The terms upon which such repurchase right
shall be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right. The Plan Administrator may not impose a vesting schedule upon any option
grant or the shares of Common Stock subject to that option which is more
restrictive than twenty percent (20%) per year vesting, with the initial vesting
to occur not later than one (1) year after the option grant date. However, such
limitation shall not be applicable to any option grants made to individuals who
are officers of the Corporation, non-employee Board members or independent
consultants.

         F.       FIRST REFUSAL RIGHTS. Until such time as the Common Stock is
first registered under Section 12 of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.

         G.       LIMITED TRANSFERABILITY OF OPTIONS. An Incentive Stock Option
shall be exercisable only by the Optionee during his or her lifetime and shall
not be assignable or transferable other than by will or by the laws of
inheritance following the Optionee's death. A Non-Statutory Option may be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's family or to a trust established exclusively for one
or more

                                       6
<PAGE>

such family members or to Optionee's former spouse, to the extent such
assignment is in connection with the Optionee's estate plan or pursuant to a
domestic relations order. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the Non-Statutory Option
pursuant to the assignment. The terms applicable to the assigned portion shall
be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. Notwithstanding the foregoing, the
Optionee may also designate one or more persons as the beneficiary or
beneficiaries of his or her outstanding options under the Plan, and those
options shall, in accordance with such designation, automatically be transferred
to such beneficiary or beneficiaries upon the Optionee' s death while holding
those options. Such beneficiary or beneficiaries shall take the transferred
options subject to all the terms and conditions of the applicable agreement
evidencing each such transferred option, including (without limitation) the
limited time period during which the option may be exercised following the
Optionee's death.

II.      INCENTIVE OPTIONS

         The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Four shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options shall not be subject
to the terms of this Section II.

         A.       ELIGIBILITY. Incentive Options may only be granted to
Employees.

         B.       EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.

         C.       DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

         D.       10% STOCKHOLDER. If any Employee to whom an Incentive Option
is granted is a 10% Stockholder, then the option term shall not exceed five (5)
years measured from the option grant date.

III.     CHANGE IN CONTROL

         A.       The shares subject to each option outstanding under the Plan
at the time of a Change in Control shall automatically vest in full so that each
such option shall, immediately prior to the effective date of the Change in
Control, become exercisable for all of the shares of Common Stock at the time
subject to that option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. However, the shares subject to an
outstanding option shall NOT vest on such an accelerated basis if and to the
extent: (i) such option is assumed

                                       7
<PAGE>

by the successor corporation (or parent thereof) or otherwise continued in full
force and effect pursuant to the terms of the Change in Control transaction and
any repurchase rights of the Corporation with respect to the unvested option
shares are concurrently assigned to such successor corporation (or parent
thereof) or otherwise continued in effect or (ii) such option is to be replaced
with a cash incentive program of the Corporation or any successor corporation
which preserves the spread existing on the unvested option shares at the time of
the Change in Control and provides for subsequent payout of that spread in
accordance with the same vesting schedule applicable to those unvested option
shares or (iii) the acceleration of such option is subject to other limitations
imposed by the Plan Administrator at the time of the option grant.

         B.       All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control, except to
the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) or otherwise continued in full force and effect
pursuant to the terms of the Change in Control transaction or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.

         C.       Immediately following the consummation of the Change in
Control, all outstanding options shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation (or parent thereof) or
otherwise continued in effect pursuant to the terms of the Change in Control
transaction.

         D.       Each option which is assumed in connection with a Change in
Control or otherwise continued in effect shall be appropriately adjusted,
immediately after such Change in Control, to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control, had the option been exercised immediately prior to such
Change in Control. Appropriate adjustments shall also be made to (i) the number
and class of securities available for issuance under the Plan following the
consummation of such Change in Control and (ii) the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Change in Control, the successor
corporation may, in connection with the assumption of the outstanding options
under this Plan, substitute one or more shares of its own common stock with a
fair market value equivalent to the cash consideration paid per share of Common
Stock in such Change in Control.

         E.       The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to structure one or more options so that those options shall
automatically accelerate and vest in full (and any repurchase rights of the
Corporation with respect to the unvested shares subject to those options shall
immediately terminate) upon the occurrence of a Change in Control, whether or
not those options are to be assumed in the Change in Control or otherwise
continued in effect.

         F.       The Plan Administrator shall also have full power and
authority, exercisable either at the time the option is granted or at any time
while the option remains outstanding, to structure such option so that the
shares subject to that option will automatically vest on an

                                       8
<PAGE>

accelerated basis should the Optionee's Service terminate by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Change in Control in which the
option is assumed or otherwise continued in effect and the repurchase rights
applicable to those shares do not otherwise terminate. Any option so accelerated
shall remain exercisable for the fully-vested option shares until the expiration
or sooner termination of the option term. In addition, the Plan Administrator
may provide that one or more of the Corporation's outstanding repurchase rights
with respect to shares held by the Optionee at the time of such Involuntary
Termination shall immediately terminate on an accelerated basis, and the shares
subject to those terminated rights shall accordingly vest at that time.

         G.       The portion of any Incentive Option accelerated in connection
with a Change in Control shall remain exercisable as an Incentive Option only to
the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is
not exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.

         H.       The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.

IV.      CANCELLATION AND REGRANT OF OPTIONS

         The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.

                                       9
<PAGE>

                                  ARTICLE THREE

                             STOCK ISSUANCE PROGRAM

I.       STOCK ISSUANCE TERMS

         Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.

         A.       PURCHASE PRICE.

                  1.       The purchase price per share shall be fixed by the
Plan Administrator but shall not be less than eighty-five percent (85%) of the
Fair Market Value per share of Common Stock on the issue date. However, the
purchase price per share of Common Stock issued to a 10% Stockholder shall not
be less than one hundred percent (100%) of such Fair Market Value.

                  2.       Subject to the provisions of Section I of Article
Four, shares of Common Stock may be issued under the Stock Issuance Program for
any of the following items of consideration which the Plan Administrator may
deem appropriate in each individual instance:

                           (i)      cash or check made payable to the
         Corporation, or

                           (ii)     past services rendered to the Corporation
         (or any Parent or Subsidiary).

         B.       VESTING PROVISIONS.

                  1.       Shares of Common Stock issued under the Stock
Issuance Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. However, the Plan Administrator may not impose a vesting schedule
upon any stock issuance effected under the Stock Issuance Program which is more
restrictive than twenty percent (20%) per year vesting, with initial vesting to
occur not later than one (1) year after the issuance date. Such limitation shall
not apply to any Common Stock issuances made to the officers of the Corporation,
non-employee Board members or independent consultants.

                  2.       Any new, substituted or additional securities or
other property (including money paid other than as a regular cash dividend)
which the Participant may have the right to receive with respect to the
Participant's unvested shares of Common Stock by reason of any stock dividend,
stock split, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.

                                       10
<PAGE>

                  3.       The Participant shall have full stockholder rights
with respect to any shares of Common Stock issued to the Participant under the
Stock Issuance Program, whether or not the Participant's interest in those
shares is vested. Accordingly, the Participant shall have the right to vote such
shares and to receive any regular cash dividends paid on such shares.

                  4.       Should the Participant cease to remain in Service
while holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the lower of (i) the cash consideration paid for the surrendered
shares or (ii) the Fair Market Value of those shares at the time of
Participant's cessation of Service and shall cancel the unpaid principal balance
of any outstanding purchase-money note of the Participant attributable to such
surrendered shares by the applicable clause (i) or (ii) amount.

                  5.       The Plan Administrator may in its discretion waive
the surrender and cancellation of one or more unvested shares of Common Stock
(or other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to those shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.

         C.       FIRST REFUSAL RIGHTS. Until such time as the Common Stock is
first registered under Section 12 of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Participant (or any successor in interest) of any shares of Common Stock issued
under the Stock Issuance Program. Such right of first refusal shall be
exercisable in accordance with the terms established by the Plan Administrator
and set forth in the document evidencing such right.

II.      CHANGE IN CONTROL

         A.       Upon the occurrence of a Change in Control, all outstanding
repurchase rights under the Stock Issuance Program shall terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, except to the extent: (i) those repurchase
rights are assigned to the successor corporation (or parent thereof) or
otherwise continued in full force and effect pursuant to the terms of the Change
in Control transaction or (ii) such accelerated vesting is precluded by other
limitations imposed by the Plan Administrator at the time the repurchase right
is issued.

         B.       The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding, to provide that those rights shall automatically terminate on an
accelerated basis, and the shares of Common Stock subject to those terminated

                                       11
<PAGE>

rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control in which those repurchase rights are assigned to
the successor corporation (or parent thereof) or otherwise continued in full
force and effect.

III.     SHARE ESCROW/LEGENDS

         Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.

                                       12
<PAGE>

                                  ARTICLE FOUR

                                  MISCELLANEOUS

I.       FINANCING

         The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Option Grant Program or the purchase price
for shares issued under the Stock Issuance Program by delivering a full-recourse
promissory note payable in one or more installments which bears interest at a
market rate and is secured by the purchased shares. In no event, however, may
the maximum credit available to the Optionee or Participant exceed the sum of
(i) the aggregate option exercise price or purchase price payable for the
purchased shares (less the par value of those shares) plus (ii) any applicable
income and employment tax liability incurred by the Optionee or the Participant
in connection with the option exercise or share purchase.

II.      EFFECTIVE DATE AND TERM OF PLAN

         A.       The Plan shall become effective when adopted by the Board, but
no option granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation's stockholders. If
such stockholder approval is not obtained within twelve (12) months after the
date of the Board's adoption of the Plan, then all options previously granted
under the Plan shall terminate and cease to be outstanding, and no further
options shall be granted and no shares shall be issued under the Plan. Subject
to such limitation, the Plan Administrator may grant options and issue shares
under the Plan at any time after the effective date of the Plan and before the
date fixed herein for termination of the Plan.

         B.       The Plan shall terminate upon the earliest of (i) the
expiration of the ten (10)-year period measured from the date the Plan is
adopted by the Board, (ii) the date on which all shares available for issuance
under the Plan shall have been issued as vested shares or (iii) the termination
of all outstanding options in connection with a Change in Control. All options
and unvested stock issuances outstanding at the time of a clause (i) termination
event shall continue to have full force and effect in accordance with the
provisions of the documents evidencing those options or issuances.

III.     AMENDMENT OF THE PLAN

         A.       The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws and regulations.

         B.       Options may be granted under the Option Grant Program and
shares may be issued under the Stock Issuance Program which are in each instance
in excess of the number of shares actually issued under those programs shall be
held in escrow until there is obtained

                                       13
<PAGE>

stockholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess grants or issuances are made, then (i) any unexercised
options granted on the basis of such excess shares shall terminate and cease to
be outstanding and (ii) the Corporation shall promptly refund to the Optionees
and the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.

IV.      USE OF PROCEEDS

         Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.

V.       WITHHOLDING

         The Corporation's obligation to deliver shares of Common Stock upon the
exercise of any options granted under the Plan or upon the issuance or vesting
of any shares issued under the Plan shall be subject to the satisfaction of all
applicable income and employment tax withholding requirements.

VI.      REGULATORY APPROVALS

         The implementation of the Plan, the granting of any options under the
Plan and the issuance of any shares of Common Stock (i) upon the exercise of any
option or (ii) under the Stock Issuance Program shall be subject to the
Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options granted under it and
the shares of Common Stock issued pursuant to it.

VII.     NO EMPLOYMENT OR SERVICE RIGHTS

         Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.

VIII.    FINANCIAL REPORTS

         The Corporation shall deliver a balance sheet and an income statement
at least annually to each individual holding an outstanding option under the
Plan, unless such individual is a key Employee whose duties in connection with
the Corporation (or any Parent or Subsidiary) assure such individual access to
equivalent information.

                                       14
<PAGE>

                                    APPENDIX

         The following definitions shall be in effect under the Plan:

         A.       BOARD shall mean the Corporation's Board of Directors.

         B.       CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through any of the following transactions:

                  (i)      a merger, consolidation or other reorganization
         approved by the Corporation's stockholders, unless securities
         representing more than fifty percent (50%) of the total combined voting
         power of the voting securities of the successor corporation are
         immediately thereafter beneficially owned, directly or indirectly and
         in substantially the same proportion, by the persons who beneficially
         owned the Corporation's outstanding voting securities immediately prior
         to such transaction, or

                  (ii)     a stockholder-approved sale, transfer or other
         disposition of all or substantially all of the Corporation's assets in
         complete liquidation or dissolution of the Corporation, or

                  (iii)    the acquisition, directly or indirectly by any person
         or related group of persons (other than the Corporation or a person
         that directly or indirectly controls, is controlled by, or is under
         common control with, the Corporation), of beneficial ownership (within
         the meaning of Rule 3d-3 of the 1934 Act) of securities possessing more
         than fifty percent (50%) of the total combined voting power of the
         Corporation's outstanding securities pursuant to a tender or exchange
         offer made directly to the Corporation's stockholders.

         In no event shall any public offering of the Corporation's securities
be deemed to constitute a Change in Control.

         C.       CODE shall mean the Internal Revenue Code of 1986, as amended.

         D.       COMMITTEE shall mean a committee of one (1) or more Board
members appointed by the Board to exercise one or more administrative functions
under the Plan.

         E.       COMMON STOCK shall mean the Corporation's common stock.

         F.       CORPORATION shall mean QDA, Inc., a California corporation,
and any successor corporation to all or substantially all of the assets or
voting stock of QDA, Inc. which shall by appropriate action adopt the Plan.

         G.       DISABILITY shall mean the inability of the Optionee or the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment and shall be determined by
the Plan Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances.

<PAGE>

         H.       EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

         I.       EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.

         J.       FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:

                  (i)      If the Common Stock is at the time traded on the
         Nasdaq National Market, then the Fair Market Value shall be the closing
         selling price per share of Common Stock on the date in question, as
         such price is reported by the National Association of Securities
         Dealers on the Nasdaq National Market and published in The Wall Street
         Journal. If there is no closing selling price for the Common Stock on
         the date in question, then the Fair Market Value shall be the closing
         selling price on the last preceding date for which such quotation
         exists.

                  (ii)     If the Common Stock is at the time listed on any
         Stock Exchange, then the Fair Market Value shall be the closing selling
         price per share of Common Stock on the date in question on the Stock
         Exchange determined by the Plan Administrator to be the primary market
         for the Common Stock, as such price is officially quoted in the
         composite tape of transactions on such exchange and published in The
         Wall Street Journal. If there is no closing selling price for the
         Common Stock on the date in question, then the Fair Market Value shall
         be the closing selling price on the last preceding date for which such
         quotation exists.

                  (iii)    If the Common Stock is at the time neither listed on
         any Stock Exchange nor traded on the Nasdaq National Market, then the
         Fair Market Value shall be determined by the Plan Administrator after
         taking into account such factors as the Plan Administrator shall deem
         appropriate.

         K.       INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.

         L.       INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:

                  (i)      such individual's involuntary dismissal or discharge
         by the Corporation for reasons other than Misconduct, or

                  (ii)     such individual's voluntary resignation following (A)
         a change in his or her position with the Corporation which materially
         reduces his or her duties and responsibilities or the level of
         management to which he or she reports, (B) a reduction in his or her
         level of compensation (including base salary, fringe benefits and
         target bonus under any corporate-performance based bonus or incentive
         programs) by more than fifteen percent (15%) or (C) a relocation of
         such individual's place of employment by more than fifty (50) miles,
         provided

                                       2
<PAGE>

         and only if such change, reduction or relocation is effected without
         the individual's consent.

         M.       MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not in any way preclude or restrict the right of the Corporation (or any
Parent or Subsidiary) to discharge or dismiss any Optionee, Participant or other
person in the Service of the Corporation (or any Parent or Subsidiary) for any
other acts or omissions, but such other acts or omissions shall not be deemed,
for purposes of the Plan, to constitute grounds for termination for Misconduct.

         N.       1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.

         O.       NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.

         P.       OPTION GRANT PROGRAM shall mean the option grant program in
effect under the Plan.

         Q.       OPTIONEE shall mean any person to whom an option is granted
under the Plan.

         R.       PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

         S.       PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.

         T.       PLAN shall mean the Corporation's 2003 Stock Option/Stock
Issuance Plan, as set forth in this document.

         U.       PLAN ADMINISTRATOR shall mean either the Board or the
Committee acting in its capacity as administrator of the Plan.

         V.       SERVICE shall mean the provision of services to the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant.

         W.       STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.

                                        3
<PAGE>

         X.       STOCK ISSUANCE AGREEMENT shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.

         Y.       STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.

         Z.       SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.

         AA.      10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).

                                        4

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.30
<SEQUENCE>5
<FILENAME>f93607exv10w30.txt
<DESCRIPTION>EXHIBIT 10.30
<TEXT>
<PAGE>


                                                                   EXHIBIT 10.30

                            AMBIT DESIGN SYSTEMS, INC

                           INCENTIVE STOCK OPTION PLAN

         1.       PURPOSE OF PLAN. This Incentive Stock Option Plan ("Plan") is
intended to encourage ownership of shares of AMBIT DESIGN SYSTEMS, INC., a
California corporation ("Company"), by key employees of the Company and to
provide additional incentive for them to promote the success of the Company's
business. Options granted under this Plan are intended to meet the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended ("the Code").
The Plan shall not confer upon any employee of the Company any right with
respect to continuation of employment with the Company, nor shall it interfere
in any way with the Company's right to terminate such employment at any time,
with or without cause.

         2.       SHARES SUBJECT TO PLAN. There will be reserved for use upon
the exercise of options to be granted from time to time under the Plan
("Options"), an aggregate of 1,000,000 shares of common stock of the Company,
which shares may be in whole or in part, as the Board of Directors of the
Company ("Board of Directors") shall from time to time determine, authorized but
unissued shares of common stock or shares of issued common stock which have been
reacquired by the Company. If an Option expires or terminates for any reason
without having been exercised in full, the unpurchased shares covered thereby
shall (unless the Plan has been terminated) be added to the shares otherwise
available for Options which may be granted in accordance with the terms of the
Plan. Shares purchased pursuant to the Plan and later repurchased by the Company
shall not be available for future grant or sale under the Plan.

         3.       ADMINISTRATION OF PLAN. The Board of Directors shall, subject
to the provisions of the Plan, have plenary authority in its discretion to
determine the employees of the Company to whom Options shall be granted, the
number of shares to be covered by each of the Options, and the time or times at
which Options shall be granted and may be exercisable; to interpret the Plan; to
prescribe, amend, and rescind rules and regulations relating to it; and to make
all other determinations necessary or advisable for the administration of the
Plan; provided, however, that, in the case of employees who are also directors
of the Company, Options shall be granted only upon approval of a majority of
disinterested directors.

         4.       ELIGIBLE EMPLOYEES.

                  a.       Options may be granted from time to time to any
employees of the Company selected by the Board of Directors whether or not the
grantee has previously received one or more Options hereunder. In no event shall
an Option be granted to any person who, immediately before such Option is
granted, owns (as defined in Section 424(d) of the Code) shares possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any subsidiary unless, at the time such Option is
granted, the purchase price of the shares covered by such Option is at least one
hundred ten percent (110%) of the fair market value of such shares and such
Option by its terms is not exercisable after the expiration of five (5) years
from the date such Option is granted.

<PAGE>

                  b.       In making any determination as to employees to whom
Options shall be granted and as to the number of shares to be covered by such
Options, the Board of Directors shall take into account the duties of the
respective employees, their present and potential contributions to the success
of the Company and such other factors as the Board of Directors deems relevant
in connection with accomplishing the purpose of the Plan.

         5.       LIMITATION ON SHARES SUBJECT TO OPTIONS. The aggregate fair
market value (determined as of the time an Option is granted) of all of the
shares with respect to which incentive stock options are exercisable for the
first time by the employee during any calendar year (under this Plan or any
other incentive stock option plan of the Company and any parent or subsidiary
corporation) shall not exceed the sum of One Hundred Thousand Dollars
($100,000). For purposes of the preceding sentence, Options shall be taken into
account in the order in which they were granted and the market value of such
shares shall be determined as of the time the Option with respect to such shares
was granted.

         6.       OPTION PRICES. The purchase price of the shares to be covered
by each Option shall be one hundred percent (100%) (or one hundred ten percent
(110%) if the conditions described in Section 4.a above apply) of the fair
market value of the shares as determined by the Board of Directors in good faith
at the time of granting the Option.

         7.       TERMS OF OPTIONS. Except as provided in 4.a above, each Option
must be exercised within ten (10) years from the date of grant. The Option term
may be subject to termination prior to the expiration of the period specified in
this paragraph as provided hereinafter.

         8.       EXERCISE OF OPTION. The Board of Directors shall determine, at
the time an Option is granted, the time or times at which the rights under such
Option may be exercised. An Option may not be exercised at any time unless the
holder thereof has been in the continuous employ of the Company from the date of
the granting of the Option to the date of either its exercise or the death of
the holder. Options may be exercised only in the manner set forth in the form of
Option Agreement attached hereto and marked as Exhibit A.

         9.       DISSOLUTION, LIQUIDATION, REORGANIZATION. Notwithstanding
Section 8 above, in the event the shareholders of the Company approve a
dissolution or liquidation of the Company, the holder of an Option shall have
the right to exercise his or her Option as to all or any part of the shares
covered by such Option which would not otherwise be exercisable by reason of an
insufficient lapse of time, during a time specified by the Board of Directors or
described in the Option Agreement.

         In the event of a Reorganization (defined below) in which the Company
is not the surviving or acquiring company or in which the Company is or becomes
a wholly-owned subsidiary of another company after the effective date of the
Reorganization, then the Board of Directors shall terminate all Options issued
under this Plan and the procedure described in the preceding paragraph shall
apply; or, if there is a reorganization agreement which specifically provides
for a change, conversion or exchange of Options issued under this Plan for
securities of another corporation, then such provision shall apply and the Board
of Directors shall make appropriate adjustments.

                                       2
<PAGE>

         The term "Reorganization" as used herein shall mean any statutory
merger, statutory consolidation, sale of all or substantially all of the assets
of the Company or sale of securities of the Company pursuant to which the
Company is or becomes a wholly-owned subsidiary of another company after the
effective date of such Reorganization.

         10.      NONTRANSFERABILITY. An Option shall not be transferable other
than by will or the laws of descent and distribution, and an Option may be
exercised during the lifetime of the employee only by the employee.

         11.      TERMINATION OF EMPLOYMENT.

                  a.       TERMINATION OF OPTION RIGHTS. In the event the
employment by the Company of any employee to whom an Option has been granted is
terminated for any reason other than death or disability, the Option may be
exercised within sixty (60) days of termination of employment to the extent the
employee would have been entitled to do so on the date of said termination.

                  b.       DEATH OF AN EMPLOYEE. If an employee to whom an
Option has been granted dies while employed by the Company, such Option may be
exercised to the extent the employee would have been entitled to do so at the
date of his or her death, by the employee's heirs, executors, administrators, or
other personal representative at any time within three (3) months after the
employee's death but not more than five (5) years and three (3) months after the
date on which such Option shall have been granted.

                  c.       DISABILITY OF EMPLOYEE. In the event of termination
of an employee's employment with the Company as a result of his or her total and
permanent disability (as defined in Section 22(e)(3) of the Code), such employee
may, but only within six (6) months from the date of such termination (but in no
event later than the date of expiration of the term of such Option as set forth
in the Option Agreement), exercise his or her Option to the extent such employee
was entitled to exercise it at the date of such termination. To the extent that
such employee was not entitled to exercise the Option at the date of
termination, or if such employee does not exercise such Option within the time
specified herein, the Option shall terminate.

                  d.       REPURCHASE OPTION. In the event the employment by the
Company of an employee who has purchased shares by exercise of an Option is
terminated for any reason, the Company shall have the option to repurchase any
or all of those shares at a price equal to one hundred percent (100%) of the
then fair market value of the shares as determined by the Board of Directors in
good faith.

         12.      COMPANY'S RIGHT OF FIRST REFUSAL. The Company shall have a
right of first refusal in the event an employee desires to sell or otherwise
dispose of any shares acquired by exercise of an Option granted pursuant to this
Plan.

         13.      ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of
changes in the outstanding shares of the Company, the Board of Directors shall
adjust the number of shares as to which Options may be granted to any employee.
No adjustment shall be made in the minimum number of shares which may be
purchased at any time.

                                       3
<PAGE>

         14.      EFFECTIVENESS OF PLAN. This Plan shall become effective only
after its adoption by the Board of Directors and the approval of the Plan by an
affirmative vote of a majority-in-interest of all the outstanding shares of the
Company. The Board of Directors adopted this Plan on December 1, 1994. A
majority-in-interest of the outstanding shares of the Company approved the Plan
on January 31, 1995. The effective date of this Plan shall be December 1, 1994.

         15.      TIME OF GRANTING OPTIONS. Neither anything contained in the
Plan or in any resolution adopted or to be adopted by the Board of Directors or
the shareholders of the Company nor any action taken by the Board of Directors
shall constitute the granting of any Option. The granting of an Option shall
take place only when a written option agreement substantially in the form of the
option agreement attached hereto and marked Exhibit A has been duly executed and
delivered by or on behalf of the Company and the employee to whom such Option is
being granted.

         16.      TERMINATION AND AMENDMENT OF PLAN. The Plan shall terminate on
the tenth (10th) anniversary of the earlier of either the adoption by the
Company or approval by the shareholders of the company, and an Option shall not
be granted under the Plan after that date. The Plan, including the attached form
of option agreement, may at any time or from time to time be terminated,
modified, or amended by the shareholders of the Company by the affirmative vote
of a majority in interest of all the shares of the Company. The Board of
Directors may at any time and from time to time modify or amend the Plan,
including such form of option agreement, in such respects as it deems advisable
in order that the Options shall qualify as incentive stock options pursuant to
the provisions of Section 422 of the Code and supporting regulations, if any, or
to conform to any change in the law or in any other respect. The termination or
any modification or amendment of the Plan shall not, without the consent of an
employee, affect the employee's rights under an Option theretofore granted to
him or her.

                                        /s/ Rajeev Madmavan
                                        ----------------------------
                                        RAJEEV MADMAVAN, President

                                       4

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.31
<SEQUENCE>6
<FILENAME>f93607exv10w31.txt
<DESCRIPTION>EXHIBIT 10.31
<TEXT>
<PAGE>


                                                                   EXHIBIT 10.31

                           AMBIT DESIGN SYSTEMS, INC.

                        1996 INCENTIVE STOCK OPTION PLAN

         1.       PURPOSE OF PLAN. This Incentive Stock Option Plan ("Plan") is
intended to encourage ownership of shares of AMBIT DESIGN SYSTEMS, INC., a
California corporation ("Company"), by key employees of the Company and to
provide additional incentive for them to promote the success of the Company's
business. Options granted under this Plan are intended to meet the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended ("the Code").
The Plan shall not confer upon any employee of the Company any right with
respect to continuation of employment with the Company, nor shall it interfere
in any way with the Company's right to terminate such employment at any time,
with or without cause.

         2.       SHARES SUBJECT TO PLAN. There will be reserved for use upon
the exercise of options to be granted from time to time under the Plan
("Options"), an aggregate of 900,000 shares of common stock of the Company,
which shares may be in whole or in part, as the Board of Directors of the
Company ("Board of Directors") shall from time t6 time determine, authorized but
unissued shares of common stock or shares of issued common stock which have been
reacquired by the Company. If an Option expires or terminates for any reason
without having been exercised in full, the unpurchased shares covered thereby
shall (unless the Plan has been terminated) be added to the shares otherwise
available for Options which may be granted in accordance with the terms of the
Plan. Shares purchased pursuant to the Plan and later repurchased by the Company
shall riot be available for future grant or sale under the Plan.

         3.       ADMINISTRATION OF PLAN. The Board of Directors shall, subject
to the provisions of the Plan, have plenary authority in its discretion to
determine the employees of the Company to whom Options shall be granted, the
number of shares to be covered by each of the Options, and the time or times at
which Options shall be granted and may be exercisable; to interpret the Plan; to
prescribe, amend, and rescind rules arid regulations relating to it; and to make
all other determinations necessary or advisable for the administration of the
Plan; provided, however, that, in the case of employees who are also directors
of the Company, Options shall be granted only upon approval of a majority of
disinterested directors.

         4.       ELIGIBLE EMPLOYEES.

                  a.       Options may be granted from time to time to any
employees of the Company selected by the Board of Directors whether or not the
grantee has previously received one or more Options hereunder. In no event shall
an Option be granted to any person who, immediately before such Option is
granted, owns (as defined in Section 424(d)of the code) shares possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any subsidiary unless, at the time such Option is
granted, the purchase price of the shares covered by such Option is at least one
hundred ten percent (110%) of the fair market value of such shares and such
Option by its terms is not exercisable after the expiration of five (5) years
from the date such Option is granted.

<PAGE>

                  b.       In making any determination as to employees to whom
Options shall be granted and as to the number of shares to be covered by such
Options, the Board of Directors shall take into account the duties of the
respective employees, their present and potential contributions to the success
of the Company and such other factors as the Board of Directors deems relevant
in connection with accomplishing the purpose of the Plan.

         5.       LIMITATION ON SHARES SUBJECT TO OPTIONS. The aggregate fair
market value (determined as of the time an Option is granted) of all of the
shares with respect to which incentive stock options are exercisable for the
first time by the employee during any calendar year (under this Plan or any
other incentive stock option plan of the Company and any parent or subsidiary
corporation) shall not exceed the sum of One Hundred Thousand Dollars
($100,000). For purposes of the preceding sentence, Options shall be taken into
account in the order in which they were granted and the market value of such
shares shall be determined as of the time the Option with respect to such shares
was granted.

         6.       OPTION PRICES. The purchase price of the shares to be covered
by each Option shall be one hundred percent (100%) (or one hundred ten percent
(110%) if the conditions described in Section 4.a above apply) of the fair
market value of the shares as determined by the Board of Directors in good faith
at the time of granting the Option.

         7.       TERMS OF OPTIONS. Except as provided in 4.a above, each Option
must be exercised within ten (10) years from the date of grant. The Option term
may be subject to termination prior to the expiration of the period specified in
this paragraph as provided hereinafter.

         8.       EXERCISE OF OPTION. The Board of Directors shall determine, at
the time an Option is granted, the time or times at which the rights under such
Option may be exercised. An Option may not be exercised at any time unless the
holder thereof has been in the continuous employ of the Company from the date of
the granting of the Option to the date of either its exercise or the death of
the holder. Options may be exercised only in the manner set forth in the form of
Option Agreement attached hereto and marked as Exhibit A.

         9.       DISSOLUTION, LIQUIDATION, REORGANIZATION. Notwithstanding
Section 8 above, in the event the shareholders of the Company approve a
dissolution or liquidation of the Company, the holder of an Option shall have
the right to exercise his or her Option as to all or any part of the shares
covered by such Option which would not otherwise be exercisable by reason of an
insufficient lapse of time, during a time specified by the Board of Directors or
described in the Option Agreement.

         In the event of a Reorganization (defined below) in which the Company
is not the surviving or acquiring company or in which the Company is or becomes
a wholly-owned subsidiary of another company after the effective date of the
Reorganization, then the Board of Directors shall terminate all Options issued
under this Plan and the procedure described in the preceding paragraph shall
apply; or, if there is a reorganization agreement which specifically provides
for a change, conversion or exchange of Options issued under this Plan for
securities of another corporation, then such provision shall apply and the Board
of Directors shall make appropriate adjustments.

                                       2
<PAGE>

         The term "Reorganization" as used herein shall mean any statutory
merger, statutory consolidation, sale of all or substantially all of the assets
of the Company or sale of securities of the Company pursuant to which the
Company is or becomes a wholly-owned subsidiary of another company after the
effective date of such Reorganization.

         10.      NONTRANSFERABILITY. An Option shall not be transferable other
than by will or the laws of descent and distribution, and an Option may be
exercised during the lifetime of the employee only by the employee.

         11.      TERMINATION OF EMPLOYMENT.

                  a.       TERMINATION OF OPTION RIGHTS. In the event the
employment by the Company of any employee to whom an Option has been granted is
terminated for any reason other than death or disability, the Option may be
exercised within thirty (30) days of termination of employment to the extent the
employee would have been entitled to do so on the date of said termination,
provided however if any employees shall cease to be employed by the Company by
reason of the employee's serious misconduct during the course of employment,
including but not limited to wrongful appropriation of the Company's funds, the
Option shall be terminated as of the date of the misconduct.

                  b.       DEATH OF AN EMPLOYEE. If an employee to whom an
Option has been granted dies while employed by the Company, such Option may be
exercised to the extent the employee would have been entitled to do so at the
date of his or her death, by the employee's heirs, executors, administrators, or
other personal representative at any time within six (6) months after the
employee's death but in no event later than the date of expiration of the term
of such Option as set forth in the Option Agreement.

                  c.       DISABILITY OF EMPLOYEE. In the event of termination
of an employee's employment with the Company as a result of his or her total and
permanent disability (as defined in Section 22(e)(3) of the Code), such employee
may, but only within six (6) months from the date of such termination (but in no
event later than the date of expiration of the term of such Option as set forth
in the Option Agreement), exercise his or her Option to the extent such employee
was entitled to exercise it at the date of such termination. To the extent that
such employee was not entitled to exercise the Option at the date of
termination, or if such employee does not exercise such Option within the time
specified herein, the Option shall terminate.

                  d.       REPURCHASE OPTION. In the event the employment by the
Company of an employee who has purchased shares by exercise of an Option is
terminated for any reason, the Company shall have the option to repurchase any
or all of those shares at a price equal to one hundred percent (100%) of the
then fair market value of the shares as determined by the Board of Directors in
good faith.

         12.      COMPANY'S RIGHT OF FIRST REFUSAL. The Company shall have a
right of first refusal in the event an employee desires to sell or otherwise
dispose of any shares acquired by exercise of an Option granted pursuant to this
Plan.

         13.      ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If there shall be
any change in the common stock through merger, consolidation, reorganization,
recapitalization, dividend in

                                       3
<PAGE>

the form of stock (of whatever amount), stock split or other change in the
Company's corporate structure, and all or any portion of any Option under the
Plan shall then be unexercised and not yet expired, then appropriate adjustments
in the outstanding Option shall be made by the Company, in order to prevent
dilution or enlargement of Option rights.

         14.      EFFECTIVENESS OF PLAN. This Plan shall become effective only
after its adoption by the Board of Directors and the approval of the Plan by an
affirmative vote of a majority-in-interest of all the outstanding shares of the
Company. The Board of Directors adopted this Plan on June 24, 1996. A
majority-in-interest of the outstanding shares of the Company approved the Plan
on ___________________, 19__. The effective date of this Plan shall be June 24,
1996.

         15.      TIME OF GRANTING OPTIONS. Neither anything contained in the
Plan or in any resolution adopted or to be adopted by the Board of Directors or
the shareholders of the Company nor any action taken by the Board of Directors
shall constitute the granting of any Option. The granting of an Option shall
take place only when a written option agreement substantially in the form of the
option agreement attached hereto and marked Exhibit A has been duly executed and
delivered by or on behalf of the Company and the employee to whom such Option is
being granted.

         16.      TERMINATION AND AMENDMENT OF PLAN. The Plan shall terminate on
the tenth (10th) anniversary of the earlier of either the adoption by the
Company or approval by the shareholders of the company, and an Option shall not
be granted under the Plan after that date. The Plan, including the attached form
of option agreement, may at any time or from time to time be terminated,
modified, or amended by the shareholders of the Company by the affirmative vote
of a majority in interest of all the shares of the Company. The Board of
Directors may at any time and from time to time modify or amend the Plan,
including such form of option agreement, in such respects as it deems advisable
in order that the Options shall qualify as incentive stock options pursuant to
the provisions of Section 422 of the Code and supporting regulations, if any, or
to conform to any change in the law or in any other respect. The termination or
any modification or amendment of the Plan shall not, without the consent of an
employee, affect the employee's rights under an Option theretofore granted to
him or her.

         17.      MISCELLANEOUS.

                  a.       Neither the Plan nor any Option granted hereunder
shall confer on any right with respect to continuance of employment by the
Company, nor will it interfere in any way with the right of the Company to
terminate such employment at any time. No employee shall have any rights of a
Shareholder with respect to Options issued under the Plan until such shares
subject to the Option shall have been issued to employee upon exercise of such
Option.

                  b.       The exercise of all or any parts of an Option under
the Plan shall only be effective at such time that the sale of the shares of
common stock pursuant to such exercise will not violate any state or federal
securities or other laws.

                                                /s/ Rajeev Madmavan
                                                --------------------------------
                                                President

                                       4

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.32
<SEQUENCE>7
<FILENAME>f93607exv10w32.txt
<DESCRIPTION>EXHIBIT 10.32
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.32

                          CADENCE DESIGN SYSTEMS, INC.

               2002 DEFERRED COMPENSATION VENTURE INVESTMENT PLAN

         CADENCE DESIGN SYSTEMS, INC., a Delaware corporation, hereby
establishes the Cadence Design Systems, Inc. 2002 Deferred Compensation Venture
Investment Plan, effective as of July 1, 2002, for the purpose of providing
certain deferred compensation benefits to a select group of management and
highly compensated executives of the Employer. The Plan is an unfunded deferred
compensation plan that is intended to qualify for the exemptions provided in
Sections 201, 301, and 401 of ERISA.

                                    SECTION 1
                                   DEFINITIONS

1.       DEFINITIONS. As used in the Plan:

         1.1      "ACCOUNT" shall mean, for each Participant, a separate
bookkeeping account established under the Plan and maintained by Employer in the
name of such Participant, that is:

                  (a)      Increased by: (i) an amount equal to the Deferred
Compensation of such Participant; and (ii) allocations of Profit made in
accordance with Section 3.8;

                  (b)      Decreased by: (i) an amount equal to the cash
distributed to such Participant pursuant to a distribution election made
pursuant to the Plan; (ii) the fair market value of any other property
distributed to such Participant pursuant to a distribution election made in
accordance with the Plan; and (iii) allocations of Loss made in accordance with
Section 3.8; and

                  (c)      Otherwise adjusted in accordance with the provisions
of the Plan.

         1.2      "AVAILABLE CAPITAL" shall mean, for each Participant, as of
the time of determination, such Participant's Deferred Compensation measured
from the Effective Date to the time of determination:

                  (a)      increased by such Participant's deemed share of
Distributable Assets that the Committee has determined are available for
re-investment in accordance with Section 3.7(c), and assets transferred to the
Trust in accordance with Section 3.9 (each determined by the Committee in its
sole discretion and measured from the Effective Date to the time of
determination); and

                  (b)      reduced by the aggregate Losses allocated to such
Participant's Account (other than Losses attributable to Portfolio Investments,
as determined by the Committee in its sole discretion) from the Effective Date
to the time of determination and further reduced by any assets transferred from
the Trust in accordance with Section 3.9;

<PAGE>
                  (c)      and further reduced by the sum of, for each Portfolio
Investment acquired by the Partnership prior to the time of determination, the
product of (x) the cost basis of such Portfolio Investment as reported by the
Partnership, and (y) such Participant's Investment Percentage in respect of such
Portfolio Investment (or zero if such Participant has no Investment Percentage
in respect of such Portfolio Investment).

         1.3      "BASE SALARY" for a given Plan Year means an Employee's
regular cash compensation payable during the Plan Year, excluding any bonuses,
commissions, overtime, incentive payments, non-monetary awards, compensation
deferred pursuant to all Section 125 (cafeteria) or Section 401(k) (savings)
plans of the Employer and other special compensation, and reduced by the tax
withholding obligations imposed on the Employer and any other withholding
requirements imposed by law with respect to such amounts.

         1.4      "BENEFICIARY" shall mean the person entitled to receive a
Participant's deferred Compensation benefits in accordance with Section 4.1 in
the event of the Participant's death.

         1.5      "BOARD" shall mean the Board of Directors of the Employer, as
constituted from time to time.

         1.6      "CASH BONUS" shall mean amounts (if any) awarded under the
bonus plans or policies maintained by the Employer and any commissions earned on
sales.

         1.7      "CHANGE OF CONTROL" shall have the meaning set forth in
Section 5.1.

         1.8      "CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the rules and regulations promulgated thereunder.

         1.9      "COMMITTEE" shall mean the Compensation Committee of the Board
or any other committee designated by the Board to administer the Plan in
accordance with Section 8.1.

         1.10     "COMPENSATION" shall mean the Base Salary, Cash Bonuses, and
Directors Fees described in Section 3.1.

         1.11     "DEFERRAL ELECTION PERIOD" shall mean, during a Plan Year, a
semi-annual period (a) beginning on January 1 and ending at the close of
business on June 30, or (b) beginning on July 1 and ending at the close of
business on December 31.

         1.12     "DEFERRED COMPENSATION" shall mean, for each Participant, the
aggregate amount of Compensation which is subject to a deferral election made in
accordance with Section 3.1 that actually would have been paid to such
Participant in the absence of such deferral election, calculated from the
Effective Date to the time of determination. "Deferred Compensation" in respect
of a Plan Year, shall mean, for each Participant, the aggregate amount of
Compensation which is subject to a deferral election made in accordance with
Section 3.1 that actually would have been paid to such Participant in the
absence of such deferral election, calculated from January 1 of such Plan Year
to the close of business on December 31 of such Plan Year.

                                       2
<PAGE>

         1.13     "DIRECTORS FEES" for a given Plan Year means the annual
retainer, meeting fees, any committee meeting fees, and consulting fees payable
to members of the Board for services during such year.

         1.14     "DISTRIBUTABLE ASSETS" shall mean cash or Marketable
Securities distributed by the Partnership to the Trust.

         1.15     "EFFECTIVE DATE" shall mean July 1, 2002.

         1.16     "ELIGIBLE COMPENSATION" shall mean an Employee's projected
annual compensation from the Employer, determined by the Employer at or before
the beginning of the Plan Year, which may consist of salary, bonus, and/or
incentive payments, determined before any deductions under any qualified plan of
the Employer (including a Code Section 401(k) or 125 plan) and excluding any
special or non-recurring compensatory payments such as moving or relocation
bonuses or automobile allowances.

         1.17     "EMPLOYEE" shall mean an employee of the Employer who (a) is a
U.S. citizen or is a lawful permanent resident of the U.S., within the meaning
of Code Section 7701(b)(1)(A)(i), (b) earns solely U.S. source income from the
Employer, and (c) is exclusively on the Employer's U.S. payroll system.
References to the term "Employee" herein shall include references to a
Non-Employee Director or Beneficiary where the context so requires.

         1.18     "EMPLOYER" shall mean Cadence Design Systems, Inc., a Delaware
corporation, and any successor organization thereto (but not Subsidiaries or
affiliates of the Employer).

         1.19     "EMPLOYER CONTRIBUTIONS" shall mean the Employer's
discretionary contribution, if any, pursuant to Section 3.1(d).

         1.20     "EMPLOYER PLAN" shall mean a non-qualified deferred
compensation plan (other than the Plan) sponsored by the Employer that is
intended to qualify for the exemptions provided in Sections 201, 301, and 401 of
ERISA.

         1.21     "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and the rules and regulations promulgated thereunder.

         1.22     "GAAP" shall mean United States generally accept accounting
principles, consistently applied.

         1.23     "GENERAL PARTNER" shall mean Telos Venture Management II, LLC,
a Delaware limited liability company.

         1.24     "IDLE FUNDS INCOME" shall mean any income attributable to the
following short-term investments of cash: (i) debt securities issued or backed
by the United States or a State; (ii) investment grade rated commercial paper;
(iii) certificates or other evidences of deposit in any commercial bank holding
over $500 million in deposits; (iv) money market or similar mutual fund
interests; and (v) other highly liquid investments.

                                       3
<PAGE>

         1.25     "INCUMBENT DIRECTORS" shall mean directors who are either: (i)
directors of the Employer as of the Effective Date; or (ii) elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Employer).

         1.26     "INSOLVENT" or "INSOLVENCY" shall have the meaning set forth
in Section 7 of the Trust Agreement.

         1.27     "INVESTMENT PERCENTAGE" shall mean, for each Participant, a
fraction, expressed as a percentage, which is assigned by the Committee in
respect of each Portfolio Investment made by the Partnership during a Plan Year:

                  (x)      the numerator of which equals the sum of (i) the
Available Capital of such Participant immediately following the close of
business on the last day of the preceding Plan Year, (ii) the Deferred
Compensation of such Participant in respect of such Plan Year, plus (iii) any
increase in the Available Capital of such Participant during such Plan Year by
operation of Section 1.2(b); and

                  (y)      the denominator of which equals the sum of (i) the
Available Capital of all Participants immediately following the close of
business on the last day of the preceding Plan Year, (ii) the Deferred
Compensation of all Participants in respect of such Plan Year; plus (iii) any
increase in the Available Capital of all Participants during such Plan Year by
operation of Section 1.2(b).

At all times following the Partnership's acquisition of a Portfolio Investment,
the aggregate Investment Percentages for all of the Participants in respect of
such Portfolio Investment shall equal 100 percent.

         1.28     "MARKETABLE SECURITIES" shall mean a Security that is freely
tradable by the holder thereof. For purposes of the preceding sentence, a
Security shall be deemed to be freely tradable if: (i) Securities equivalent to
such Security are generally traded on one or more established public markets;
(ii) such Security is not subject to "lockup" or other contractual restrictions,
and (iii) the Trust and/or each Participant receiving such Security is not
subject to restrictions and limitations on the transferability thereof under
Rule 144(e) (except for restrictions and limitations specifically applicable to
a particular Participant, such as restrictions applicable to a Participant that
is an affiliate of the issuer of such Security).

         1.29     "NON-EMPLOYEE DIRECTOR" shall mean a director of the Employer
who is not otherwise an employee of the Employer.

         1.30     "PARTICIPANT" shall mean an Employee or Non-Employee Director
who (i) has become a Participant in the Plan pursuant to Sections 3.3(a) through
(e), as applicable, and (ii) has not ceased to be a Participant pursuant to
Section 3.3(h).

         1.31     "PARTNERSHIP" shall mean Telos Venture Partners II, L.P., a
Delaware limited partnership.

                                       4
<PAGE>

         1.32     "PERMANENT DISABILITY" shall mean that a Participant is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or otherwise meets the definition of "Permanent Disability" as set forth
in the Employer's Long Term Disability Plan. A Participant shall not be deemed
to have a Permanent Disability unless he or she furnishes proof of such
condition sufficient to satisfy the Committee, acting in its sole and absolute
discretion.

         1.33     "PLAN" shall mean the Cadence Design Systems, Inc. 2002
Deferred Compensation Venture Investment Plan, as set forth herein and as
hereafter amended from time to time.

         1.34     "PLAN YEAR" shall mean the calendar year beginning on January
1 and ending at the close of business on December 31; provided, however, that
the 2002 Plan Year shall be the period beginning on the Effective Date through
the close of business on December 31, 2002.

         1.35     "PORTFOLIO INVESTMENT" shall mean any promissory note,
Security, or other interest in a corporation or other business entity which is
issued to the Partnership. Except as otherwise determined by the Committee
acting in its sole discretion, for purposes of determining a Participant's
Investment Percentage, each promissory note, Security or other interest in a
corporation or other entity which is issued to the Partnership at a specific
time shall be deemed to be a separate Portfolio Investment from any Security,
promissory note, or other interest in such corporation or business entity that
is issued at a subsequent time; provided, however, that in the event a Security
held by the Partnership is exchanged for another Security pursuant to a merger,
acquisition, reorganization, recapitalization or similar transaction, a
Participant's Investment Percentage applicable to such newly received Security
(immediately following receipt) shall equal the Participant's Investment
Percentage in respect of the Security exchanged therefor (as determined
immediately prior to such exchange).

         1.36     "PROFITS AND LOSSES" shall mean, for any period, items of
deemed income and gain as well as items of deemed loss, expense and deduction,
determined in accordance with GAAP (as if Participants' Accounts were invested
to acquire Partnership interest or in any other manner specified by the
Committee, acting in its sole and absolute discretion); provided, however, that
Profits and Loss computed for each allocation period under Section 3.8 shall not
be determined by taking into account any unrealized gains and losses; and
provided, further, that Losses shall include all items of cost and expense
associated with the formation, operation, dissolution, winding-up, or
termination of the Plan and Trust.

         1.37     "SECURITIES" shall mean equity, debt, synthetic securities of
any type, or any other evidence of ownership of an asset or entity.

         1.38     "SUBSIDIARY" shall mean any corporation (other than the
Employer) in an unbroken chain of corporations or other entities beginning with
the Employer, if each of the entities other than the last entity in the unbroken
chain holds equity or other indicia of ownership representing fifty percent
(50%) or more of the total combined voting power of all classes of equity or
other indicia of ownership in one of the other entities in such chain.

                                       5
<PAGE>

         1.39     "TALITY" shall mean the entity formed under the name "Tality
Corporation," or any other name, to own and operate the electronics design
services group business of the Employer.

         1.40     "TERMINATION DATE" shall have the meaning set forth in Section
3.3(h)(ii).

         1.41     "TRUST" shall mean the cash and other assets and/or properties
held and administered by Trustee pursuant to the Trust Agreement to carry out
the provisions of the Plan.

         1.42     "TRUST AGREEMENT" shall mean the Cadence Design Systems, Inc.
2002 Deferred Compensation Venture Investment Trust Agreement, including any
amendments thereto, entered into between the Employer and the Trustee to carry
out the provisions of the Plan.

         1.43     "TRUSTEE" shall mean the designated Trustee acting at any time
under the Trust Agreement.

         1.44     "1994 PLAN" shall mean the Cadence Design Systems, Inc. 1994
Deferred Compensation Plan, as amended from time to time.

         1.45     "1996 PLAN" shall mean the Cadence Design Systems, Inc. 1996
Deferred Compensation Plan, as amended from time to time.

                                    SECTION 2
                                   ELIGIBILITY

         2.1      ELIGIBILITY. Eligibility to participate in the Plan shall be
limited to (a) Employees who (i) have Eligible Compensation of at least $150,000
for the Plan Year, (ii) are classified as officers, vice-presidents, directors,
or an equivalent title, and (iii) have been selected to participate in the Plan
by the Committee acting in its sole and absolute discretion, and (b)
Non-Employee Directors who have been selected to participate in the Plan by the
Committee acting in its sole and absolute discretion. Participation in the Plan
shall commence as of the effective date of the eligible Employee's or
Non-Employee Director's enrollment form, which shall be completed and submitted
to the Employer in accordance with the provisions of Section 3.3. Nothing in the
Plan or in any administrative form used to administer the Plan or Trust shall be
construed to require any contributions to be made to the Plan on behalf of the
Participant by the Employer. The Committee has the discretion to end the
eligibility of one or more Participants at any time in the sole and absolute
discretion of the Committee.

                                    SECTION 3
                            DEFERRAL OF COMPENSATION

         3.1      DEFERRAL OF COMPENSATION.

                  (a)      Each eligible Employee or Non-Employee Director may
elect, in accordance with Section 3.3, to defer the receipt of a portion of the
Base Salary or Directors Fees for active service otherwise payable to him or her
by the Employer during each Plan Year or portion of a Plan Year that the
Participant is in the employ or service of the Employer. Each eligible Employee
may elect, in accordance with Section 3.3, to defer the receipt of a portion of

                                       6
<PAGE>

the Cash Bonus for active service otherwise payable to him or her by the
Employer during each Deferral Election Period or portion of a Deferral Election
Period that the Participant is in the employ or service of the Employer. The
Employer shall furnish each Participant with a statement of his or her Account
balance within 90 days of the end of each Plan Year or such longer period as the
Committee deems appropriate.

                           (i)      The amount or percentage of Compensation
         that a Participant elects to defer under Section 3.3 will remain
         constant for the Plan Year (or for Cash Bonus amounts, the Deferral
         Election Period) with respect to which the election was made and shall
         not be subject to change during such period, except to the extent that
         a Participant ceases to be eligible to defer Compensation for the
         period due to the termination of such Participant's employment or
         service to the Employer.

                           (ii)     Each such deferral election as to Base
         Salary or Directors Fees, or discontinuance of a deferral election as
         to Base Salary or Directors Fees, will continue in force for each
         successive Plan Year, until or unless suspended or modified by the
         filing of a subsequent election with the Employer by the Participant in
         accordance with Section 3.3.

                           (iii)    Each deferral election as to an eligible
         Employee's Cash Bonus shall continue in force only for the Deferral
         Election Period with respect to which it was made and shall not apply
         to any successive Deferral Election Periods or Plan Years. Any deferral
         election with respect to a Cash Bonus must be made prior to the time
         the amount of the bonus is determined, prior to the end of the period
         of time as to which the bonus is awarded, and at a time that the amount
         of any such Cash Bonus remains substantially uncertain, as determined
         by the Committee in its sole and absolute discretion.

                           (iv)     Subject to Section 3.1(c), Compensation
         deferral elections shall be subject to minimum dollar and maximum
         percentage amounts as follows: (i) the minimum annual deferral amount
         is $10,000, which shall be withheld from the Participant's
         Compensation; and (ii) the maximum deferral percentage amount is 80
         percent of the Participant's Base Salary, 100 percent of the
         Participant's Cash Bonus (if any), and 100 percent of the Participant's
         Directors Fees, as applicable.

                           (v)      The Employer shall withhold the amount or
         percentage of Base Salary specified to be deferred by an eligible
         Employee in equal amounts for each payroll period and shall withhold
         the amount or percentage of Cash Bonus (if any) specified to be
         deferred at the time or times such Cash Bonus is or otherwise would be
         paid to the Employee. The Employer shall withhold the amount or
         percentage of Directors Fees specified to be deferred by a Non-Employee
         Director at the time or times such Directors Fees are or otherwise
         would be paid to such Non-Employee Director.

                           (vi)     Subject to Sections 3.6, 7.1 and 7.2, all
         deferrals of Compensation made pursuant to this Section 3.1(a) shall be
         fully vested at all times.

                  (b)      Notwithstanding any provision of this Section 3.1 to
the contrary, amounts deferred under the Plan shall be calculated and withheld
from the Employee's Base Salary and/or

                                       7
<PAGE>

Cash Bonus (if any) after such Compensation has been reduced to reflect any tax
withholding obligations imposed on the Employer, any other withholding
requirements imposed by law, salary reduction contributions to the Employer's
Code Section 125 (cafeteria) and Code Section 401(k) (savings) plans, but before
any reductions for contributions to the Employer's Code Section 423 (employee
stock purchase) plan, the 1994 Plan, or the 1996 Plan.

                  (c)      Notwithstanding any provision of this Section 3.1 to
the contrary, the Committee may, in its sole and absolute discretion, decline to
accept all or any portion of any Participant's Compensation deferral election.

                  (d)      The Employer shall not be obligated to make any other
contribution to the Plan on behalf of any Participant or for any other purpose
at any time.

                           (i)      The Employer shall be entitled, in its sole
         and absolute discretion, to make Employer Contributions to the Plan on
         behalf of one or more Participants. Employer Contributions, if any, may
         be made without regard to whether the Participant to whose account such
         contribution is credited has made, or is making, Compensation deferrals
         pursuant to Section 3.1(a). The Employer shall not be bound or
         obligated to apply any specific formula or basis for calculating the
         amount of any Employer Contributions and the Employer shall have sole
         and absolute discretion as to the allocation of any Employer
         Contributions among Participants' Accounts. The use of any particular
         formula or basis for making an Employer Contribution in one or more
         Deferral Election Periods or Plan Years shall not bind or obligate the
         Employer to use such formula or basis in any other Deferral Election
         Period or Plan Year. Employer Contributions may be subject to a
         substantial risk of forfeiture in accordance with the terms of a
         vesting schedule, which may be selected by the Employer in its sole and
         absolute discretion.

                           (ii)     To the extent that the Trust lacks
         sufficient assets at any time to fulfill its capital contribution
         obligations to the Partnership, the Employer shall be entitled, in its
         sole and absolute discretion, to make capital contributions to the
         Trust to enable the Trust to satisfy such capital contribution
         obligations. If Employer makes capital contributions to the Trust in
         accordance with the preceding sentence, then, solely for purposes of
         maintaining the Participants' Accounts under the Plan, the Committee
         may establish an Account for Employer, and the provisions of Section
         3.8 may be amended in accordance with Section 7.1 to account for the
         extent and timing of Employer's contributions to the Trust pursuant to
         this Section 3.1(d)(ii).

         3.2      DISTRIBUTIONS OF ACCOUNT BALANCES. Subject to Section 3.2(f):

                  (a)      A Participant shall elect whether he or she will
receive distribution of his or her entire Account, subject to applicable tax
withholding requirements, (i) upon reaching a specified age, (ii) upon passage
of a specified number of years, (iii) upon termination of his or her employment
or service with the Employer, (iv) upon the earlier to occur of (A) his or her
termination of employment or service with the Employer or (B) passage of a
specified number of years or attainment of a specified age, or (v) upon the
later to occur of (A) his or her termination of employment or service with the
Employer or (B) passage of a specified number of years or

                                       8
<PAGE>
attainment of a specified age, as elected by the Participant in accordance with
the form established by the Committee. Such form may permit a Participant to
make an election among some or all of the alternatives listed in this Section
3.2(a), as determined in the Committee's sole and absolute discretion, and shall
also permit the Participant to make an election, pursuant to the provisions of
Section 3.2(e), to receive all amounts payable to him or her under the Plan in a
single lump sum or in equal monthly installments over a designated period of
five (5) or ten (10) years. A designation of the time of distribution shall be
required as a condition of participation in the Plan. These elections shall be
made in accordance with Section 3.4. All payments shall be made in the form of
cash.

                  (b)      Distributions shall be made to the maximum extent
allowable under the Plan and the election made by the Participant, except that
no distribution shall be made to the extent that the receipt of such
distribution, when combined with the receipt of all other "applicable employee
remuneration" (as defined in Code Section 162(m)(4)), would cause any
remuneration received by the Participant to be nondeductible by the Employer
under Code Section 162(m)(l). The portion of any distributable amount that is
not distributed by operation of this Section 3.2(b) shall be distributed in
subsequent taxable years in which such distribution would not be subject to the
deductibility limitation of Code Section 162(m) in accordance with the manner
elected by the Participant. For Participants who have elected to receive payment
in a single lump sum or in equal monthly installments over a designated period
of five (5) or ten (10) years in accordance with Section 3.2(e), the
commencement date of the lump sum payment or the five (5) or ten (10) year
period (whichever is applicable) shall be automatically extended, when necessary
to satisfy the requirements of this Section 3.2(b), for one-year periods until
all Account balances have been distributed in the manner elected by the
Participants.

                  (c)      Upon termination of a Participant's employment or
service with the Employer by reason of death or Permanent Disability prior to
the time when payment of his or her Account balance otherwise would have been
made or commenced under the provisions of Section 3.2(a), the Participant or his
or her Beneficiary will be entitled to receive all amounts credited to the
Account as of the date of the Participant's death or Permanent Disability
(notwithstanding any contrary election to receive distributions under the first
sentence of Section 3.2(a)). Upon termination of the Participant's employment or
service with the Employer by reason other than death or Permanent Disability
prior to the date when payment of his or her Account balance otherwise would
have been made or commenced under the provisions of Section 3.2(a), the Employer
may, in the sole and absolute discretion of the Committee, distribute to the
Participant all amounts credited to the Participant's Account as of the date of
such termination (notwithstanding any contrary election to receive distributions
under the first sentence of Section 3.2(a)). Said amounts shall be payable in
the form determined pursuant to the provisions of Section 3.2(e).

                  (d)      Upon the death of a Participant prior to the complete
distribution to him or her of the entire balance of his or her Account (and
after the date of termination of employment or service with the Employer), the
balance of his or her Account on the date of death shall be payable to the
Participant's Beneficiary pursuant to Section 3.2(e). Notwithstanding any other
provision of the Plan to the contrary, except for Section 3.2(f), the
Participant's Beneficiary may receive the distribution of the remaining portion
of such deceased Participant's Account in the

                                       9
<PAGE>

form of a single lump sum if the Beneficiary requests such a distribution and
the Committee, in its sole and absolute discretion, consents to such a
distribution.

                  (e)      The Employer shall distribute or direct distribution
of the balance of amounts previously credited to a Participant's Account, in a
single lump sum, or in monthly installments over a period of five (5) years or
ten (10) years, as the Participant shall designate pursuant to his or her
distribution election made pursuant to Section 3.4. The Participant's
distribution election shall be in the form established by the Committee in
accordance with the terms of the Plan. A designation of the form of distribution
shall be required as a condition of participation in the Plan. Subject to the
other provisions of this Section 3.2, distribution of the lump sum or the first
installment generally shall be made or commenced within ninety (90) days
following the date specified in the first sentence of Section 3.2(a). Subsequent
installments, if any, shall be made on the first day of each month following the
first installment as determined by Employer. The amount of each installment
shall be calculated by dividing the Account balance as of the date of the
distribution by the number of installments remaining pursuant to the
Participant's distribution election. Each such installment, if any, shall take
into account deemed allocations of items of Profit and Loss to the Participant's
Account. If at the time for a distribution of an installment payment, the
balance in a Participant's Account that may be distributed is less than the
amount of the distribution calculated in accordance with the prior two
sentences, then at such time only that lesser amount that may be distributed
shall be distributed to the Participant. The remaining amount (subject to any
necessary adjustments as determined by the Committee acting in its sole and
absolute discretion) that should have been distributed with such installment
shall be distributed at a reasonably administratively convenient time following
the time that any additional amounts that may be distributed have been allocated
to the Participant's Account. If the balance in a Participant's Account cannot
be distributed in its entirety on the date for final distribution of the
Participant's Account under such Participant's last effective distribution
election, then as that balance becomes distributable, it shall be distributed to
such Participant as soon as reasonably administratively convenient.

         (f)      Distributions shall be made in accordance with a Participant's
distribution election only to the extent that the Committee determines, in its
sole and absolute discretion, that the Trust has sufficient Distributable Assets
available to reasonably satisfy the distribution elections made, or to be made,
by all Participants; provided, however, that the Committee shall be entitled, in
its sole and absolute discretion, to permit distributions to Participants in
accordance with their positive Account balances or in any other manner that the
Committee deems appropriate. Notwithstanding any provision of the Plan or the
Trust Agreement to the contrary, no distribution shall be made to any
Participant except to the extent that such distribution is approved by the
Committee, acting in its sole and absolute discretion, and such distribution
does not:

                  (i)      require either the transfer of an interest in the
         Partnership or any other investment partnership or trust holding some
         or all of the Distributable Assets;

                  (ii)     require a distribution of assets from the
         Partnership;

                  (iii)    cause the Trust to be insolvent or cause the Trust's
         assets to be insufficient to satisfy any unpaid debt or capital calls
         made by the General Partner;

                                       10
<PAGE>

                  (iv)     cause the Partnership or Trust to sell or distribute
         Securities other than Marketable Securities; or

                  (v)      create a negative balance in the Account of such
         Participant or increase the amount by which such Account balance is
         negative.

         3.3      ELECTION TO DEFER COMPENSATION. Each eligible Employee or
Non-Employee Director's decision to become a Participant shall be entirely
voluntary.

                  (a)      INITIAL ELECTIONS BY CURRENT EMPLOYEES AND
NON-EMPLOYEE DIRECTORS. An Employee or Non-Employee Director who is eligible to
participate in the Plan pursuant to Section 2.1 may elect to become a
Participant in the Plan by electing in writing, no later than the Effective
Date, to defer his or her Compensation under the Plan. An election under this
Section 3.3(a) to defer Compensation shall be effective only for the 2002 Plan
Year.

                  (b)      INITIAL ELECTIONS BY OTHER EMPLOYEES. Each Employee
who first becomes eligible to participate in the Plan pursuant to Section 2.1
during the 2002 Plan Year or a subsequent Plan Year (whether by hire or
promotion) may elect to become a Participant in the Plan by electing in writing,
within thirty (30) days of the date of his or her hire or promotion (as the case
may be), to defer his or her Compensation under the Plan. An election under this
Section 3.3(b) to defer Base Salary shall be effective only for the remainder of
the Plan Year with respect to which the election is made.

                  (c)      INITIAL ELECTIONS BY OTHER NON-EMPLOYEE DIRECTORS.
Each individual who is elected a Non-Employee Director during a Plan Year and is
eligible to participate in the Plan pursuant to Section 2.1 may elect to become
a Participant in the Plan by electing in writing, within thirty (30) calendar
days of the effective date of his or her election to the Board, to defer his or
her Compensation under the Plan. An election under this Section 3.3(c) to defer
Compensation shall be effective only for the remainder of the Plan Year with
respect to which the election is made.

                  (d)      ELECTIONS FOR SUBSEQUENT PLAN YEARS. An Employee or
Non-Employee Director who is eligible to participate in the Plan pursuant to
Section 2.1 may elect to become a Participant (or to continue or reinstate his
or her active participation) in the Plan for any subsequent Plan Year by
electing in writing, at least twenty (20) days (or such other period of time
determined by the Committee and communicated to eligible individuals prior to
the beginning of the Plan Year with respect to which the Compensation to be
deferred is otherwise payable to them) prior to the beginning of the Plan Year
with respect to which the Compensation to be deferred is otherwise payable to
the Employee or Non-Employee Director.

                  (e)      SEPARATE ELECTION TO DEFER BONUSES. Each Employee who
is eligible to participate in the Plan pursuant to Section 2.1 shall make a
separate written Compensation deferral election with respect to the Cash Bonus
portion(s) (if any) of his or her Compensation. An election under this Section
3.3(e) to defer Cash Bonus shall be effective only for the Deferral Election
Period with respect to which the election is made. An Employee's Compensation
deferral election with respect to his or her Cash Bonus(es) shall be made prior
to the time the amount of the bonus is determined, prior to the end of the
period of time as to which the bonus is

                                       11
<PAGE>

awarded, and at a time that the amount of any such bonus remains substantially
uncertain, as determined by the Committee acting in its sole and absolute
discretion.

                  (f)      NO ELECTION CHANGES DURING PLAN YEAR OR DEFERRAL
ELECTION PERIOD. A Participant shall not be permitted to change or revoke his or
her election to defer (i) Base Salary or Directors Fees for a Plan Year after
the beginning of such Plan Year, (ii) Cash Bonus for a Deferral Election Period
after the beginning of such Deferral Election Period.

                  (g)      SPECIFIC TIMING AND METHOD OF ELECTION.
Notwithstanding any provision of this Section 3.3 to the contrary, the
Committee, in its sole and absolute discretion, shall determine the manner and
deadlines for Participants to make Compensation deferral elections under the
Plan. The deadlines prescribed by the Committee may be earlier than the
deadlines otherwise specified in this Section 3.3, but shall not be later than
such specified deadlines.

                  (h)      TERMINATION OF PARTICIPATION.

                           (i)      An eligible Employee or Non-Employee
         Director who has become a Participant shall remain a Participant until
         his or her entire vested positive Account balance is distributed. An
         eligible Employee or Non-Employee Director who has become a Participant
         may or may not be an active Participant making Compensation deferrals
         for a particular period, depending on whether such Participant is
         entitled, and has elected, to make Compensation deferrals for such Plan
         Year or Deferral Election Period.

                           (ii)     Notwithstanding any provision in the Plan or
         Trust Agreement to the contrary, from and after the close of business
         on the date that a Participant's employment or service to the Employer
         is terminated (the "Termination Date"), such Participant shall no
         longer be entitled to make Compensation deferrals under the Plan
         (except to the extent that such Participant is subsequently re-hired or
         begins to provide services to the Employer, and is deemed eligible to
         become an active Participant in the Plan in accordance with Section
         2.1). Except as otherwise determined by the Committee acting in its
         sole and absolute discretion, from and after a Participant's
         Termination Date: (A) the Available Capital of such Participant shall
         not be deemed to be invested in the Partnership during any Plan Year
         which begins after the Termination Date; and (B) the Participant's
         Investment Percentage in respect of each Portfolio Investment made by
         the Partnership during any Plan Year beginning after the Termination
         Date shall equal zero percent.

         3.4      DISTRIBUTION ELECTION. Each Participant shall indicate on his
or her Compensation deferral election made pursuant to Section 3.3, the form and
time of payment of his or her positive Account balance as provided in Section
3.2. Subject to Section 3.2(f), a Participant's election as to the form and time
of payment shall apply to all amounts credited to the Participant's Account, and
except to the limited extent provided below, shall be irrevocable. If permitted
by the Committee in its sole and absolute discretion, a Participant may change
the terms of such distribution election by making a new distribution election,
and any such new election will be effective as of the later of the date that is
(a) six (6) months following the date the new election is made, or (b) the first
day of the Plan Year following the Plan Year in which

                                       12
<PAGE>

the new election is made and will apply to the Participant's entire Account. A
Participant may not make a new election once distributions from the Plan have
commenced or which would first become effective at a time when distributions
from the Plan have commenced. The Participant's distribution election shall be
in the form and manner established by the Committee acting in its sole and
absolute discretion.

         3.5      PAYMENT UPON CHANGE OF CONTROL. Notwithstanding any provision
of the Plan to the contrary, the aggregate balance credited to each
Participant's Account shall be distributed to such Participant, subject to
Section 3.2(f), in a single lump sum within ninety (90) days following a Change
of Control, except to the extent that one or more of the Committee, the Board,
or the Employer's 401(k)/NQDC Administrative Committee (as each is composed
immediately prior to such Change in Control) determines in its sole and absolute
discretion that no such distribution shall be made following a Change of
Control.

         3.6      EMPLOYEE'S RIGHTS UNSECURED. The right of a Participant or his
or her Beneficiary to receive a distribution hereunder shall be an unsecured
claim against the general assets of the Employer, and neither the Participant
nor his or her Beneficiary shall have any rights in or against any amount
credited to his or her Account or any specific assets of the Employer, except as
otherwise provided in the Trust Agreement. Nothing contained in the Plan, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind or a fiduciary relationship between the Plan and the
Employer or any other person.

         3.7      INVESTMENT OF CONTRIBUTIONS.

                  (a)      Although no assets will be segregated or otherwise
set aside with respect to a Participant's Account, the amount that is ultimately
payable to the Participant with respect to his or her Account shall be
determined as if such Account had been invested in such manner as the Committee,
in its sole and absolute discretion, may specify from time to time. The
Committee, in its sole and absolute discretion, shall adopt (and may modify from
time to time) such rules and procedures as it deems necessary or appropriate to
implement the deemed investment of Participants' Accounts.

                  (b)      The investment options available to each Participant
for the deemed investment of his or her Account shall be determined by the
Committee in its sole and absolute discretion and described in a separate
written document, a copy of which shall be attached hereto and by this reference
is incorporated herein. Initially, the Committee anticipates that all of the
Trust's assets will be invested to acquire a limited partnership interest in the
Partnership, and that such investment shall be the sole option available to
Participants under the Plan for the deemed investment of their Accounts. In the
event that the Committee makes more than one option available to Participants
for the deemed investment of their Accounts, each Participant shall have the
right to direct the Trustee as to the deemed investment of the portion of his or
her Account among those options in accordance with policies and procedures
implemented by the Committee, the Trustee and the terms and conditions of those
options, and the Plan shall be amended to account for such options.

                  (c)      Recycling of Distributable Assets.

                                       13
<PAGE>

                           (i)      The Committee shall be entitled, in its sole
         and absolute discretion, to direct the Trust to retain Distributable
         Assets (or cash proceeds from the liquidation thereof) to satisfy any
         capital calls issued by the General Partner or any items of deemed debt
         or expense which are allocable to a Participant's Account in accordance
         with the Plan.

                           (ii)     A Participant may request that the
         Committee, acting in its sole and absolute discretion, direct the
         Trustee to retain Distributable Assets (or cash proceeds from the
         liquidation thereof) and invest such assets in the Partnership or other
         available investment options in accordance with policies and procedures
         implemented by the Trustee, provided, however, that no Participant
         whose employment or service with the Employer has terminated may
         request that the Committee direct the Trustee to re-invest any
         Distributable Assets in the Partnership.

                           (iii)    If the Committee directs the Trustee to
         retain all or a portion of a Participant's deemed share of
         Distributable Assets in accordance with this Section 3.7(c), such
         assets shall be deemed to increase the Available Capital of such
         Participant (to the extent of the value thereof) until such time as
         such assets are re-invested by the Trustee or used to satisfy any items
         of deemed debt or expense which are allocable to such Participant's
         Account.

                  (d)      Notwithstanding any provision of the Plan to the
contrary, the Committee may determine not to take account of a Participant's
deemed investment elections, if any, and determine to have the Participant's
Account deemed invested in any other manner as the Committee shall determine.
The Committee shall also be entitled to designate the manner in which the
Trust's assets shall be invested for interim short-term periods of time pending
investment in the Partnership or following distribution from the Partnership but
prior to distribution from the Trust or re-investment of the Trust's assets in
another investment option.

         3.8      ALLOCATIONS.

                  (a)      Except as otherwise provided in the Plan, items of
Profit and Loss shall be allocated among the Participants' Accounts at the close
of business on last day of each Plan Year, as follows:

                           (i)      First, items of Profit and Loss attributable
         to each Portfolio Investment, as determined by the Committee in its
         sole discretion, shall be allocated among the Participants' Accounts in
         proportion to each Participant's respective Investment Percentage for
         such Portfolio Investment;

                           (ii)     Next, items of Profit attributable to Idle
         Funds Income shall be allocated among the Participants' Accounts in
         proportion to each Participant's deemed interest in the cash assets of
         the Trust (as determined by the Committee in its sole and absolute
         discretion); and

                           (iii)    Next, all remaining items of Profit and Loss
         shall be allocated among the Participants' Accounts in proportion to
         the aggregate Deferred Compensation of each Participant.

                                       14
<PAGE>

                  (b)      Prior to the final allocation of items of Profit and
Loss in respect of a Plan Year, the Committee may make interim allocations of
items of Profit and Loss among the Participants' Accounts in proportion to the
Deferred Compensation of each Participant in respect of such Plan Year
(determined as of the time of such interim allocation) or in any other manner
that the Committee deems appropriate, acting in its sole and absolute
discretion. Immediately following the final allocation of items of Profit and
Loss in respect of a Plan Year, the Committee shall be entitled to cause items
of Profit and Loss among the Participants' Accounts to be re-allocated, as
necessary, to cause the Participants' Accounts to reflect the same amounts that
they would have reflected if all items of Profit and Loss for such Plan Year had
been allocated in accordance with Section 3.8(a).

                  (c)      If an item of Loss otherwise allocable in respect of
a Plan Year under Sections 3.8(a) or 3.8(b) would create a negative balance in a
Participant's Account (or increase the amount by which such Account balance is
negative), the item shall not be allocated to such Participant's Account but
shall instead be specially allocated as follows:

                           (i)      First, to the Participants' Accounts as a
         group, to the extent possible in proportion to respective positive
         Account balances, until the Account balance of each Participant has
         been reduced to (but not less than) zero; and

                           (ii)     Next, to the Participants as a group in
         proportion to the aggregate amount of Deferred Compensation for each
         Participant.

To the extent that there have been special allocations of Loss under this
Section 3.8(c) away from a Participant that have not been subsequently been
reversed pursuant to this sentence, the next available items of Profit otherwise
allocable to such Participant pursuant to Sections 3.8(a) and 3.8(b) shall be
specially allocated to the Participants to whom such items of Loss had been
specially allocated under this Section 3.8(c) so as to first offset in reverse
order such special allocations of Loss.

                  (d)      To the extent that (i) Losses that otherwise would
have been allocated to a Participant under this Section 3.8 were allocated to
one or more other Participant's Accounts under Section 3.8(c) in consequence of
such Participant's Account balance having been equal to, reduced to, or less
than zero, (ii) such allocation has not been reversed pursuant to the subsequent
operation of Section 3.8(c) or this Section 3.8(d), and (iii) by operation of a
deferral election, Section 3.7(c) or Section 3.9, a Participant's Available
Capital subsequently increases, the Accounts of the Participants shall be
adjusted in connection with such increase in such Participant's Available
Capital (to the extent of the value thereof) to effect a reallocation of such
Losses to the Participant.

                  (e)      From time to time, the Trustee shall be entitled,
with Committee approval, to borrow funds to satisfy the obligations of the
Trust, whether to cover expenses, meet capital calls issued by the General
Partner, or otherwise. The principal amount of any such loan, and costs
associated with interest expenses on such loan, shall be allocated to
Participants' Accounts as determined by the Committee in its sole and absolute
discretion.

                                       15
<PAGE>

                  (f)      The selection of a given method of allocating deemed
expenses or other items of Profit and Loss among Participants' Accounts shall
not be deemed to restrict the Committee in any manner whatsoever from selecting
a different method for future allocations or to imply that a different method
would not be fair and equitable to Participants.

         3.9      TRANSFER OF ASSETS.

                  (a)      The Committee shall be entitled, in its sole and
absolute discretion, to direct the Trustee to:

                           (i)      transfer assets to the Trust from the trust
         established under the 1996 Plan for the benefit of the Participant (if
         such individual is a participant under the 1996 Plan and such transfer
         is approved by the plan administrator of the 1996 Plan in its sole and
         absolute discretion);

                           (ii)     transfer assets to the Trust from the trust
         established under the 1994 Plan for the benefit of the Participant (if
         such individual is a participant under the 1994 Plan and such transfer
         is approved by the plan administrator of the 1994 Plan in its sole and
         absolute discretion);

                           (iii)    transfer Distributable Assets to the trust
         established under the 1994 Plan for the benefit of the Participant (if
         such individual is a participant under the 1994 Plan and such transfer
         is approved by the plan administrator of the 1994 Plan in its sole and
         absolute discretion);

                           (iv)     transfer to the Trust some or all of the
         assets of any other trust established under the terms of an Employer
         Plan; or

                           (v)      transfer of some or all of the Trust's
         assets to any other trust established under the terms of an Employer
         Plan.

                  (b)      In the event that assets are transferred in
accordance with Section 3.9(a) to the Trust, such assets shall be subject to the
terms and conditions of the Trust, provided, however, that such assets shall
continue to be subject to the distribution election made by a Participant under
the applicable Employer Plan unless such distribution election is revised as
permitted by the Plan. In the event that assets are transferred in accordance
with Section 3.9(a) to a trust established under an applicable Employer Plan,
such assets shall be subject to the terms and conditions of such trust,
provided, however, that such assets shall continue to be subject to the
Participant's distribution election under the Plan unless such distribution
election is revised as permitted by the applicable Employer Plan.

                  (c)      Any transfer of assets made in accordance with this
Section 3.9 from the Trust to any other trust established under an Employer
Plan, or from any other trust established under an Employer Plan to the Trust,
shall not cause any individual's rights to a distribution under the Plan or any
Employer Plan to be a secured right to a distribution under the Plan or any
Employer Plan.

                                       16
<PAGE>

                                    SECTION 4
                           DESIGNATION OF BENEFICIARY

         4.1      DESIGNATION OF BENEFICIARY.

                  (a)      Each Participant may designate a Beneficiary or
Beneficiaries to receive any amount due hereunder by the Participant by written
notice thereof to the Employer at any time prior to his or her death and may
revoke or change the Beneficiary designated therein without the Beneficiary's
consent by written notice delivered to the Employer at any time and from time to
time prior to the Participant's death.

                  (b)      If a Participant designates a person other than or in
addition to his or her spouse as a primary Beneficiary, the designation shall be
ineffective unless the Participant's spouse consents to the designation. Any
spousal consent required under this Section 4.1 shall be ineffective unless it
(i) is set forth in writing in a form specified by the Committee in its sole and
absolute discretion, (ii) acknowledges the effect of the Participant's
designation of another person as his or her Beneficiary, and (iii) is signed by
the spouse and witnessed by a notary public. Any spousal consent required under
this Section 4.1 shall be valid only with respect to the spouse who signs the
consent.

                  (c)      Any Beneficiary designation or revocation shall be
effective only if it is received by the Employer. However, when so received, the
designation or revocation shall be effective as of the date the notice is
executed (whether or not the Participant still is living), but without prejudice
to the Committee on account of any payment made before the change is recorded.
The last effective designation received by the Employer shall supersede all
prior designations.

                  (d)      If the Participant dies without having effectively
designated a Beneficiary, or if no Beneficiary survives him or her, then such
amount shall be paid to his or her estate. Designations of Beneficiaries shall
be in the form and manner determined by the Committee in its sole and absolute
discretion.

                                    SECTION 5
                                CHANGE OF CONTROL

         5.1      CHANGE OF CONTROL. For purposes of the Plan, a Change of
Control shall mean the following:

                  (a)      The first public announcement or public
acknowledgment (including without limitation, a report filed pursuant to Section
13(d) of the Securities Exchange Act of 1934 as amended (the "Exchange Act")) by
the Employer that a "person," as such term is used in Sections 13(d) and 14(d)
of the Exchange Act (other than the Employer, a Subsidiary or an employee
benefit plan of the Employer or a Subsidiary, or other controlled affiliate of
the Employer, including any trustee of such plan acting as trustee) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act
or comparable successor rule), directly or indirectly, of securities of the
Employer representing fifty percent (50%) or more of the combined voting power
of the Employer's then outstanding Common Stock entitled to vote in the

                                       17
<PAGE>

election of directors, where such person's beneficial ownership of the
Employer's Common Stock was not initiated by the Employer or approved by the
Employer's Board of Directors; or

                  (b)      The sale, lease or other disposition of all or
substantially all of the assets of the Employer (but not including the formation
or any initial public offering or any subsequent or "follow-on" public offering
of the common stock of Tality);

                  (c)      The merger or consolidation of the Employer with or
into another corporation not initiated by the Employer, in which the Employer is
not the surviving corporation and the stockholders of the Employer immediately
prior to the merger or consolidation fail to possess direct or indirect
beneficial ownership of more than eighty percent (80%) of the voting power of
the securities of the surviving corporation (or if the surviving corporation is
a controlled affiliate of another entity, then the required beneficial ownership
shall be determined with respect to the securities of that entity which controls
the surviving corporation and is not itself a controlled affiliate of any other
entity) immediately following such transaction, or a reverse merger not
initiated by the Employer, in which the Employer is the surviving corporation
and the stockholders of the Employer immediately prior to the reverse merger
fail to possess direct or indirect beneficial ownership of more than eighty
percent (80%) of the securities of the Employer (or if the Employer is a
controlled affiliate of another entity, then the required beneficial ownership
shall be determined with respect to the securities of that entity which controls
the Employer and is not itself a controlled affiliate of any other entity)
immediately following the reverse merger. For purposes of this Section 5.1(c),
any person who acquired securities of the Employer prior to the occurrence of a
merger, reverse merger, or consolidation in contemplation of such transaction
and who after such transaction possesses direct or indirect beneficial ownership
of at least ten percent (10%) of the Common Stock of the Employer or the
surviving corporation (or if the Employer or the surviving corporation is a
controlled affiliate, then of the appropriate entity as determined above)
immediately following such transaction shall not be included in the group of
stockholders of the Employer immediately prior to such transaction; or

                  (d)      A change in the composition of the Board, as a result
of which fewer than a majority of the directors are Incumbent Directors; or

                  (e)      Any liquidation or dissolution of the Employer.

                                    SECTION 6
                                TRUST PROVISIONS

         6.1      TRUST AGREEMENT. The Employer shall establish the Trust within
an administratively reasonable period of time following the adoption of the Plan
for the purpose of retaining assets set aside by the Employer pursuant to the
Trust Agreement for payment of amounts payable pursuant to the Plan. The Trust
shall be intended to constitute a grantor trust (within the meaning of subpart
E, part I, subchapter J, chapter 1, subtitle A of the Code). Any Plan benefits
not paid from the Trust shall be paid solely from the Employer's general funds,
and any benefits paid from the Trust shall be credited against and reduced by a
corresponding amount of the Employer's liability to Participants under the Plan.
No special or separate fund, other than the Trust, shall be required to be
established and no other segregation of assets shall

                                       18
<PAGE>

be required to be made to assist the Employer in meeting its obligations to pay
benefits under the Plan. All Trust assets shall be subject to the claims of the
general creditors of the Employer in the event the Employer is Insolvent. The
obligations of the Employer to pay benefits under the Plan constitutes an
unfunded, unsecured promise to pay benefits under the Plan and Participants and
Beneficiaries shall have no greater rights than the general creditors of the
Employer.

                                    SECTION 7
                            AMENDMENT AND TERMINATION

         7.1      AMENDMENT. The Committee shall be entitled, in its sole and
absolute discretion, to amend the Plan in such manner as it may determine, at
any time and for any reason. Any such amendment shall become effective upon the
date stated therein, and shall be binding on all Participants, except as
otherwise provided in such amendment.

         7.2      TERMINATION. Notwithstanding any other provision of the Plan
to the contrary, the Committee shall have the right to terminate the Plan at any
time and for any reason and, subject to Section 3.2(f), direct the lump sum
payments of all assets held by the Trust if the Employer is not then Insolvent.
Except as otherwise provided in the Plan, no such termination shall reduce the
balance then credited to a Participant's Account.

                                    SECTION 8
                                 ADMINISTRATION

         8.1      ADMINISTRATION. The Employer is hereby designated as the
administrator of the Plan (within the meaning of section 3(16)(A) of ERISA). The
Committee shall administer and interpret the Plan in accordance with the
provisions of the Plan and the Trust Agreement. The Committee shall have all
powers and discretion necessary or appropriate to supervise the administration
of the Plan and to control its operation, including (but not limited to) the
following powers:

                  (a)      To interpret and determine the meaning and validity
of the provisions of the Plan and to determine any question arising under, or in
connection with, the administration, operation or validity of the Plan or any
amendment thereto;

                  (b)      To determine any and all considerations affecting the
eligibility of any employee or director to become a Participant or remain a
Participant in the Plan;

                  (c)      To determine the status and rights of Participants
and their spouses, Beneficiaries or estates;

                  (d)      To establish and revise the accounting method for the
Plan;

                  (e)      To employ legal counsel, consultants, actuaries and
agents as it may deem desirable in the administration of the Plan and to rely on
the opinion of such counsel or the computations of such consultants or other
agents in carrying out the provisions of the Plan;

                  (f)      To arrange for the preparation and delivery of an
annual statement of benefits for each Participant;

                                       19
<PAGE>

                  (g)      To publish a claims and appeal procedure satisfying
the minimum requirements of section 503 of ERISA pursuant to which individuals
or estates may claim Plan benefits and appeal denials of such claims;

                  (h)      To delegate some or all of the powers and
responsibilities under the Plan and the Trust Agreement to such person or
persons as it shall deem necessary, desirable or appropriate for administration
of the Plan; and

                  (i)      To cause deferrals of Compensation to be credited,
and items of Profit and Loss allocated, to Participants' Accounts and determine
all issues and questions regarding Account balances, and the time, form, manner
and amount of any distributions to Participants or Beneficiaries.

Any determination or decision by the Committee (or its delegates) shall be
conclusive and binding on all persons, and shall be given the maximum possible
deference allowed by law.

         8.2      LIABILITY OF COMMITTEE; INDEMNIFICATION. To the maximum extent
not prohibited by law, no member of the Committee shall be liable to any person
and in any event shall be indemnified by the Employer, from and against any and
all losses, claims, damages or liabilities (including attorneys' fees and
amounts paid, with the approval of the Committee and the Board in settlement of
any claim) for any duty, decision, action taken or omitted in connection with
the interpretation and administration of the Plan, so long as unless such duty,
decision, action taken or omitted was not attributable to the bad faith or
willful misconduct of such individual.

         8.3      EXPENSES. All costs and expenses of establishing, adopting and
administering the Plan and the Trust, including legal fees and expenses, shall
be borne by the Trust unless the Employer elects in its sole and absolute
discretion to pay all or a portion of those expenses; provided, however, that
the Employer shall bear, and shall not be reimbursed by, the Trust for any tax
liability of the Employer associated with the investment of the assets of the
Trust.

                                    SECTION 9
                            GENERAL AND MISCELLANEOUS

         9.1      RIGHTS AGAINST EMPLOYER. Except as expressly provided in the
Plan, neither the establishment nor the maintenance of the Plan shall be held or
construed as giving to any Employee or to any other person, any legal, equitable
or other rights against the Employer, or against its officers, directors, agents
or stockholders, or as giving to any Employee or Beneficiary any equitable or
other interest in the assets, business or shares of Employer stock or giving any
Employee the right to be retained in the employ of the Employer. Neither the
Plan nor any action taken hereunder shall be held or construed as giving to any
Employee the right to be retained in the employ of the Employer or as affecting
the right of the Employer to dismiss any Employee. Any benefit paid or payable
under the Plan shall not be deemed salary or other compensation for the purpose
of computing benefits under any other employee benefit plan or arrangement of
the Employer for the benefit of its Employees, but Compensation deferrals under
the Plan shall be deemed salary or other compensation for the purpose of
computing benefits under other employee benefit plans or arrangements of the
Employer for the benefit of its


                                       20
<PAGE>
Employees, but only to the extent provided under the terms of such other plans
or arrangements. Nothing in the Plan or in any instrument executed pursuant
thereto shall confer upon any Non-Employee Director any right to continue in the
service of the Employer in any capacity or shall affect any right of the
Employer, the Board or stockholders of the Employer to remove any Non-Employee
Director pursuant to the Employer's By-Laws and the provisions of the Delaware
General Corporation Law.

         9.2      NO ASSIGNMENT OR TRANSFER. No right, title or interest of any
kind in the Plan shall be transferable or assignable by any Participant, former
Participant or his or her Beneficiary, spouse or estate or be subject to
alienation, anticipation, encumbrance, garnishment, attachment, execution or
levy of any kind, whether voluntary or involuntary, or be subject to the debts,
contracts, liabilities, engagements, or torts of the Participant, former
Participant or his or her Beneficiary or spouse. Any attempt to alienate,
anticipate, encumber, sell, transfer, assign, pledge, garnish, attach or
otherwise subject to legal or equitable process or encumber or dispose of any
interest in the Plan shall be void. Notwithstanding the foregoing, and only if
the Committee in its sole and absolute discretion so permits pursuant to such
procedures it may specify from time to time, a Participant's interest in the
Plan may be transferable to an alternate payee in accordance with a domestic
relations order.

         9.3      SEVERABILITY. If any provision of the Plan shall be declared
illegal or invalid for any reason, said illegality or invalidity shall not
affect the remaining provisions of the Plan but shall be fully severable, and
the Plan shall be construed and enforced as if said illegal or invalid provision
had never been inserted herein.

         9.4      CONSTRUCTION. The article and section headings and numbers are
included only for convenience of reference and are not be taken as limiting or
extending the meaning of any of the terms and provisions of the Plan. Whenever
appropriate, words used in the singular shall include the plural or the plural
may be read as the singular. When used herein, the masculine gender includes the
feminine gender.

         9.5      GOVERNING LAW. The provisions of the Plan shall be construed,
administered and enforced in accordance with ERISA, and to the extent not
preempted by ERISA, with the laws of the State of Delaware (other than its
conflict of laws provisions).

         9.6      PAYMENT DUE TO INCOMPETENCE. If the Committee receives
evidence that a Participant or Beneficiary entitled to receive any payment under
the Plan is physically or mentally incompetent to receive such payment, the
Committee may, in its sole and absolute discretion, direct the payment to any
other person or trust which has been legally appointed by the courts or to any
other person determined by the Employer to be a proper recipient on behalf of
such person otherwise entitled to payment, or any of them, in such manner and
proportion as the Employer may deem proper. Any such payment shall be in
complete discharge of the Employer's obligations under the Plan to the extent of
such payment.

         9.7      TAXES. The Employer may withhold from any benefits payable
under the Plan, all federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.

                                       21
<PAGE>

         9.8      ATTORNEY'S FEES. The Employer shall pay the reasonable
attorney's fees incurred by any Participant in an action brought against the
Employer to enforce the Participant's rights under the Plan, provided that such
fees shall only be payable in the event that the Participant prevails in such
action.

         9.9      PLAN BINDING ON SUCCESSORS/ASSIGNEES. The Plan shall be
binding upon and inure to the benefit of the Employer and its successor and
assigns and the Participant and the Participant's designee and estate.

   [Remainder of this page intentionally left blank; signature page follows.]

                                       22
<PAGE>

                                    EXECUTION

         IN WITNESS WHEREOF, the Employer has caused its authorized officer to
execute the Plan on this _____ day of _____________, 2002.

CADENCE DESIGN SYSTEMS, INC.

Signature:  _________________________________________

By:  ________________________________________________

Title:  _____________________________________________

                                       23

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.73
<SEQUENCE>8
<FILENAME>f93607exv10w73.txt
<DESCRIPTION>EXHIBIT 10.73
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.73

                                                                 [JPMORGAN LOGO]

                                                 August 10, 2003

                                                 JPMORGAN CHASE BANK
                                                 C/O J.P. MORGAN SECURITIES INC.
                                                 277 PARK AVENUE, 11TH FLOOR
                                                 NEW YORK, NEW YORK 10172

CADENCE DESIGN SYSTEMS, INC.
2655 SEELY AVENUE
SAN JOSE, CA 95134

Ladies and Gentlemen:

         Reference is made to the following transactions between Cadence Design
Systems, Inc. (the "COMPANY") and JPMorgan Chase Bank ("JPMORGAN"): (i) the
issuance of up to $350,000,000 principal amount of Senior Convertible Notes due
August 15, 2023 (the "CONVERTIBLE TRANSACTION"), (ii) a convertible bond hedge
transaction to be evidenced by the ISDA confirmation in substantially the form
attached as Exhibit A hereto (the "BOND HEDGE TRANSACTION") and (iii) a call
option transaction to be evidenced by the ISDA confirmation in substantially the
form attached as Exhibit B hereto (the "CALL OPTION TRANSACTION" and together
with the Convertible Transaction and the Bond Hedge Transaction, the
"TRANSACTIONS"). The Company acknowledges that (i) JPMorgan and the Company are
entering into the Bond Hedge Transaction and the Call Option Transaction in
connection with the Convertible Transaction and (ii) prior to the execution of
final documentation for the Transactions, JPMorgan, or one or more of its
affiliates, will enter into certain hedging activities in connection with the
Bond Hedge Transaction (the "ADVANCE HEDGING ACTIVITIES").

         Based on the foregoing, the Company and JPMorgan, intending to be
legally bound, hereby acknowledge and agree that in the event that the Company
determines not to enter into the Transactions for any reason within the pricing
parameters of the Convertible Transaction proposed to the Company on August 10,
2003 by 6.00 p.m. in New York on August 11, 2003 (or such later date as agreed
upon by the parties) (August 11, 2003 or such later date as agreed upon being
the "EARLY UNWIND DATE"), JPMorgan or one or more of its affiliates shall
terminate the Advance Hedging Activities (the "EARLY UNWIND") on the Early
Unwind Date and the Company shall purchase from JPMorgan on the Early Unwind
Date all shares of common stock of the Company (the "SHARES") purchased by
JPMorgan or one or more of its affiliates in connection with the Advance Hedging
Activities (the "EARLY UNWIND PURCHASE"). The purchase price paid by the Company
for the Shares purchased in the Early

<PAGE>

                                                                 [JPMORGAN LOGO]

Unwind Purchase shall be JPMorgan's actual out-of-pocket cost of such Shares as
JPMorgan informs the Company in writing and shall be paid in immediately
available funds on the business day immediately following the Early Unwind Date.
JPMorgan and the Company hereby represent and acknowledge to the other that,
upon consummation of the Early Unwind Purchase, all obligations of the parties
with respect to the Advance Hedging Activities shall be deemed fully and finally
discharged.

<PAGE>

                                                                 [JPMORGAN LOGO]

         Please indicate your agreement with the terms set forth in this letter
by signing below.

                                               Very truly yours,

                                               J.P. MORGAN SECURITIES INC.,
                                                as agent for JPMorgan Chase Bank

                                               By: /s/ Nicola Mudge
                                                   -----------------------------
                                                   Name: NICOLA MUDGE
                                                   Title: VICE PRESIDENT

ACKNOWLEDGED AND AGREED:

CADENCE DESIGN SYSTEMS, INC.

By: ______________________________________
    Name:
    Title:

<PAGE>

                                                                 [JPMORGAN LOGO]

         Please indicate your agreement with the terms set forth in this letter
by signing below.

                                             Very truly yours,

                                             J.P. MORGAN SECURITIES INC.,
                                               as agent for JPMorgan Chase Bank

                                             By: _______________________________
                                                 Name:
                                                 Title:

ACKNOWLEDGED AND AGREED:

CADENCE DESIGN SYSTEMS, INC.

By: /s/ William Porter
    ------------------
    Name: WILLIAM PORTER
    Title:

<PAGE>

                                                                 [JPMORGAN LOGO]

                                                                       EXHIBIT A

                       BOND HEDGE TRANSACTION CONFIRMATION

<PAGE>

                                                                 [JPMORGAN LOGO]

JPMorgan Chase Bank
P.O. Box 161
60 Victoria Embankment
London EC4Y 0JP
England

                                                                  August 11,2003

To: CADENCE DESIGN SYSTEMS, INC.
2655 Seely Avenue
San Jose, CA 95134
Attention: Treasurer
Telephone No.: (408)943-1234
Facsimile No.: (408)943-0513

Re: Call Option Transaction

Reference: [          ]

         The purpose of this letter agreement is to confirm the terms and
conditions of the Transaction entered into between JPMORGAN CHASE BANK, LONDON
BRANCH ("JPMORGAN") and CADENCE DESIGN SYSTEMS, INC. ("COUNTERPARTY") on the
Trade Date specified below (the "TRANSACTION"). This letter agreement
constitutes a "Confirmation" as referred to in the ISDA Master Agreement
specified below. This Confirmation shall replace any previous letter and serve
as the final documentation for this Transaction.

         The definitions and provisions contained in the 1996 ISDA Equity
Derivatives Definitions (the "EQUITY DEFINITIONS"), as published by the
International Swaps and Derivatives Association, Inc., are incorporated into
this Confirmation. In the event of any inconsistency between the Equity
Definitions and this Confirmation, this Confirmation shall govern. Certain
defined terms used herein have the meanings assigned to them in the Offering
Memorandum dated August 11, 2003 (the "OFFERING MEMORANDUM") relating to the USD
350,000,000 principal amount of Zero Coupon Zero Yield Senior Convertible Notes
due August 15, 2023, (the "CONVERTIBLE NOTES") issued by the Counterparty
pursuant to an Indenture to be dated August 15, 2003 between Counterparty and
JPMorgan Trust Company, N.A., as trustee (the "INDENTURE"). In the event of any
inconsistency between the terms defined in the Offering Memorandum and this
Confirmation, the Confirmation shall govern.

         Each party is hereby advised, and each such party acknowledges, that
the other party has engaged in, or refrained from engaging in, substantial
financial transactions and has taken other material actions in reliance upon the
parties' entry into the Transaction to which this Confirmation relates on the
terms and conditions set forth below.

1.       This Confirmation evidences a complete and binding agreement between
JPMorgan and the Counterparty as to the terms of the Transaction to which this
Confirmation relates. In addition, JPMorgan and the Counterparty agree to make
all reasonable efforts to promptly negotiate, execute, and deliver an agreement
in the form of the 1992 ISDA Master Agreement (Multicurrency-Cross Border) (the
"AGREEMENT"), with such modifications as JPMorgan and the Counterparty will in
good faith agree together with related schedules. Upon the execution by JPMorgan
and the Counterparty of such an agreement, this Confirmation will supplement,
form a apart of, and be subject to, that agreement. All provisions contained or
incorporated by reference in that agreement upon its execution will govern this
Confirmation except as expressly modified below. Until JPMorgan and the
Counterparty execute such agreement, this Confirmation, together with all other
documents referring to an Agreement (each a "CONFIRMATION") confirming

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

<PAGE>

                                                                 [JPMORGAN LOGO]

transactions (each a "TRANSACTION") entered into between JPMorgan and the
Counterparty (notwithstanding anything to the contrary in a Confirmation), shall
supplement, form a part of, and be subject to an agreement in the form of the
Agreement as if JPMorgan and the Counterparty had executed an agreement in such
form (but without any Schedule except for the election of the laws of the State
of New York as the governing law and United States dollars as the Termination
Currency and Second Method and Loss as the payments on early termination) on the
Trade Date of the first such Transaction between JPMorgan and the Counterparty.
In the event of any inconsistency between provisions of that agreement and this
Confirmation, this Confirmation will prevail for the purpose of the Transaction
to which this Confirmation relates. The parties hereby agree that if they have
not executed an Agreement within 60 days from the Trade Date it shall constitute
an Additional Termination Event under the Agreement in respect of which the
Counterparty is the sole Affected Party and this Transaction is the sole
Affected Transaction.

2.       The terms of the particular Transaction to which this Confirmation
relates are as follows:

General Terms:

         Trade Date:                     August 11, 2003

         Option Style:                   "Modified American", as set forth under
                                         "Exercise and Valuation" below

         Option Type:                    Call

         Buyer:                          Counterparty

         Seller:                         JPMorgan

         Shares:                         The common stock of Counterparty, par
                                         value USD 0.01 per Share (Exchange
                                         symbol "CDN")

         Number of Options:              A number equal to the Conversion Rate
                                         (as defined in the Offering Memorandum,
                                         but without regard to Section 13.06(g)
                                         of the Indenture), multiplied by the
                                         number of USD 1,000 principal amount of
                                         Convertible Notes (each such USD 1,000
                                         principal amount, a "CONVERTIBLE NOTE")

         Option Entitlement:             One Share per Option

         Strike Price:                   USD [____]

         Premium:                        USD [_________]

         Premium Payment Date:           August 15, 2003

         Exchange:                       The New York Stock Exchange

         Related Exchange(s):            The principal exchange(s) for options
                                         contracts or futures contracts, if any,
                                         with respect to the Shares

Exercise and Valuation:

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       2

<PAGE>

                                                                 [JPMORGAN LOGO]

         Exercise Period:                Notwithstanding the Equity Definitions,
                                         the Exercise Period shall be, in
                                         respect of the Exercise Options, each
                                         period commencing from the date a
                                         Notice of Conversion is submitted to
                                         the Counterparty by a holder of
                                         Convertible Notes to and including the
                                         third Exchange Business Day following
                                         the Conversion Date for such
                                         Convertible Notes. For the avoidance of
                                         doubt, only a number of options equal
                                         to the Exercise Options shall be
                                         exercisable hereunder, and only during
                                         the Exercise Period for such Exercise
                                         Options.

         Exercise Options:               A number of Options equal to the
                                         Conversion Rate (but without regard to
                                         any adjustment under Section 13.06(g)
                                         of the Indenture) of Convertible Notes
                                         surrendered to Counterparty for
                                         conversion times the number of such
                                         Convertible Notes.

         Expiration Time:                The Valuation Time

         Expiration Date:                In respect of any Exercise Options, the
                                         earlier of August 15, 2008 and the
                                         final day of the Exercise Period in
                                         respect of such Exercise Options.

         Multiple Exercise:              Applicable; and means that Counterparty
                                         may exercise, with respect to an
                                         Exercise Period and the Exercise
                                         Options relating to such Period, a
                                         number of Options not less than one (1)
                                         and not greater than such Exercise
                                         Options.

         Automatic Exercise:             Applicable; and means that a number of
                                         Options not previously exercised
                                         hereunder equal to the Exercise Options
                                         shall be deemed to be exercised on the
                                         Expiration Date for the Exercise Period
                                         relating to such Exercise Options;
                                         provided that Counterparty has notified
                                         JPMorgan (in writing or orally) of the
                                         Conversion Date and the number of such
                                         Exercise Options one Exchange Business
                                         Day prior to such Expiration Date.

         Valuation Time:                 At the close of trading of the regular
                                         trading session on the Exchange

Settlement Terms:

         Physical Settlement:            Applicable; provided that if and to the
                                         extent Counterparty is required to
                                         deliver cash in lieu of fractional
                                         Shares (or any fractional Shares) with
                                         respect to the settlement of
                                         Convertible Notes, the Calculation
                                         Agent shall adjust the settlement terms
                                         hereunder to account for delivery by
                                         JPMorgan to Counterparty of such cash
                                         or fractional Shares in the amount of
                                         such required delivery obligation.

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       3

<PAGE>

                                                                 [JPMORGAN LOGO]

         Settlement Date:                For any Exercise Options relating to
                                         the conversion of Convertible Notes,
                                         the settlement date for Shares to be
                                         delivered under such Convertible Notes
                                         under the terms of the Indenture.

        Failure to Deliver:              Applicable

3. Additional Terms applicable to the
   Transaction:

   Adjustments applicable to the
   Transaction:

    Potential Adjustment Events:         Notwithstanding Section 9.1(e) of the
                                         Equity Definitions, a "Potential
                                         Adjustment Event" means any occurrence
                                         of any event or condition, as set forth
                                         in Section 5.01 of the Indenture that
                                         would result in an adjustment to the
                                         Conversion Rate of the Convertible
                                         Notes; provided that in no event shall
                                         there be any adjustment hereunder as a
                                         result of an adjustment to the
                                         Conversion Rate pursuant to Section
                                         13.06(g) of the Indenture.

    Method of Adjustment:                Calculation Agent Adjustment, and means
                                         that, notwithstanding Section 9.1(c) of
                                         the Equity Definitions, upon any
                                         adjustment to the Conversion Rate of
                                         the Convertible Notes pursuant to the
                                         Indenture (other than Section 13.06(g)
                                         of the Indenture), the Calculation
                                         Agent will make a corresponding
                                         adjustment to any one or more of the
                                         Strike Price, Number of Options, the
                                         Option Entitlement and any other
                                         variable relevant to the exercise,
                                         settlement or payment for the
                                         Transaction.

Extraordinary Events applicable to the
Transaction:

         Merger Events:                  Notwithstanding Section 9.2(c) of the
                                         Equity Definition, a "Merger Event"
                                         means the occurrence of any event or
                                         condition set forth in Section 8.01 of
                                         the Indenture.

         Consequence of Merger Events:   Notwithstanding Section 9.3 of the
                                         Equity Definition, upon the occurrence
                                         of a Merger Event, the Calculation
                                         Agent shall make a corresponding
                                         adjustment in respect of any adjustment
                                         under the Indenture to any one or more
                                         of the nature of the Shares, Strike
                                         Price, Number of Options, the Option
                                         Entitlement and any other variable
                                         relevant to the exercise, settlement or
                                         payment for the Transaction.

 Additional Termination Events:     If an event of default with respect to
                                    Counterparty shall occur under the terms of
                                    the Convertible Notes as set forth in
                                    Section 5.01 of the Indenture, then such
                                    event shall constitute an Additional
                                    Termination Event applicable to this
                                    Transaction and, with respect to such event
                                    (i) Counterparty shall be deemed to be
                                    Affected Party and JPMorgan shall be deemed
                                    to be the party that is not the Affected
                                    Party and (ii) JPMorgan shall be the party
                                    entitled to designate an Early Termination
                                    Date pursuant to Section 6(b) of the
                                    Agreement.

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       4

<PAGE>

                                                                 [JPMORGAN LOGO]

Payments on Early Termination:           Second Method and Loss

4. Calculation Agent:                    JPMorgan, whose calculations and
                                         determinations shall be made in good
                                         faith and in a commercially reasonable
                                         manner, including with respect to
                                         calculations and determinations that
                                         are made in its sole discretion.

5. Account Details:

         (a)     Account for payments to Counterparty:

                 [                ]Bank
                 ABA#[             ]
                 Acct: Cadence Design Systems, Inc.
                 Acct No.: [        ]

                 Account for delivery of Shares to Counterparty:

                 [                 ]

         (b)     Account for payments to JPMorgan:

                 [JPMorgan Chase Bank]
                 [A/c No. 0010962009]
                 [Favour: JPMorgan Chase Bank - London]
                 [Ref. CHASUS33XXX]

                 Account for delivery of Shares from JPMorgan:

                 [                 ]

6.Offices:

The Office of Counterparty for the Transaction is: Inapplicable, Counterparty is
not a Multibranch Party.

The Office of JPMorgan for the Transaction is: New York

                 JP Morgan Chase Bank
                 London Branch
                 P.O. Box 161
                 60 Victoria Embankment
                 London EC4Y 0JP
                 England

7.Notices: For purposes of this Confirmation:

         (a)     Address for notices or communications to Counterparty:

                 Cadence Design Systems, Inc.
                 Attention: Treasurer

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                        5

<PAGE>

                                                                 [JPMORGAN LOGO]

                 Telephone No.:  [        ]
                 Facsimile No.:  [        ]

                 Address for notices or communications to JPMorgan:

                 [JPMorgan notice information to follow]:

                 [         ]

8. Other Provisions:

         (a)     No Reliance, etc. Each party represents that (i) it is entering
                 into the Transaction evidenced hereby as principal (and not as
                 agent or in any other capacity); (ii) neither the other party
                 nor any of its agents are acting as a fiduciary for it; (iii)
                 it is not relying upon any representations except those
                 expressly set forth in the Agreement or this Confirmation; (iv)
                 it has not relied on the other party for any legal, regulatory,
                 tax, business, investment, financial, and accounting advice,
                 and it has made its own investment, hedging, and trading
                 decisions based upon its own judgment and upon any view
                 expressed by the other party or any of its agents; and (v) it
                 is entering into this Transaction with a full understanding of
                 the terms, conditions and risks thereof and it is capable of
                 and willing to assume those risks.

         (b)     Share De-listing Event. If at any time during the period from
                 and including the Trade Date, to and including August 15, 2008,
                 the Shares cease to be listed on the Exchange for any reason
                 (other than a Merger Event) and are not immediately re-listed
                 as of the date of such de-listing on The New York Stock
                 Exchange, The American Stock Exchange or the Nasdaq National
                 Market System (or their respective successors) (the "SUCCESSOR
                 EXCHANGE"), then Cancellation and Payment shall apply, and the
                 date of the de-listing shall be deemed the date of termination
                 for purposes of calculating any payment due from one party to
                 the other in connection with the cancellation of this
                 Transaction. If the Shares are immediately re-listed on a
                 Successor Exchange upon their de-listing from the Exchange,
                 this Transaction shall continue in full force and effect,
                 provided that the Successor Exchange shall be deemed to be the
                 Exchange for all purposes hereunder. In addition, the
                 Calculation Agent shall make any adjustments it deems necessary
                 to the terms of the Transaction in accordance with Calculation
                 Agent Adjustment method as defined under Section 9.1(c) of the
                 Equity Definitions.

         (c)     Repurchase Notices. Counterparty shall, on any day on which
                 Counterparty effects any repurchase of Shares, promptly give
                 JPMorgan a written notice of such repurchase (a "REPURCHASE
                 NOTICE") if following such repurchase, the Options Equity
                 Percentage as determined on such day is (i) greater than 5% and
                 (ii) greater by 0.5% than the Options Equity Percentage
                 included in the immediately preceding Repurchase Notice (or, in
                 the case of the first such Repurchase Notice, greater than the
                 Options Equity Percentage as of the date hereof). The "OPTIONS
                 EQUITY PERCENTAGE" as of any day is the fraction (A) the
                 numerator of which is the product of the Number of Options and
                 the Option Entitlement and (B) the denominator of which is the
                 number of Shares outstanding on such day. Counterparty agrees
                 to indemnify and hold harmless JPMorgan and its affiliates and
                 their respective officers, directors, employees, affiliates,
                 advisors, agents and controlling persons (each, an "INDEMNIFIED
                 PERSON") from and against any and all losses (including losses
                 relating to JPMorgan's hedging activities as a consequence of
                 becoming, or as a risk of becoming, a Section 16 "insider",
                 including without limitation, any forbearance from hedging
                 activities or cessation of hedging activities and any losses in
                 connection

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       6

<PAGE>

                                                                 [JPMORGAN LOGO]

                 therewith with respect to this Transaction), claims, damages,
                 judgments, liabilities and expenses (including reasonable
                 attorney's fees), joint or several, to which an Indemnified
                 Person actually incurs as a result of Counterparty's failure to
                 provide JPMorgan with a Repurchase Notice on the day and in the
                 manner specified in this Section 8(c), and to reimburse, within
                 30 days, upon written request, each of such Indemnified Persons
                 for any reasonable legal or other expenses incurred in
                 connection with investigating, preparing for, providing
                 testimony or other evidence in connection with or defending any
                 of the foregoing. If any suit, action, proceeding (including
                 any governmental or regulatory investigation), claim or demand
                 shall be brought or asserted against the Indemnified Person,
                 such Indemnified Person shall promptly notify the Counterparty
                 in writing, and the Counterparty, upon request of the
                 Indemnified Person, shall retain counsel reasonably
                 satisfactory to the Indemnified Person to represent the
                 Indemnified Person and any others the Counterparty may
                 designate in such proceeding and shall pay the fees and
                 expenses of such counsel related to such proceeding.
                 Counterparty shall not be liable for any settlement of any
                 proceeding effected without its written consent, but if settled
                 with such consent or if there be a final judgment for the
                 plaintiff, Counterparty agrees to indemnify any Indemnified
                 Person from and against any loss or liability by reason of such
                 settlement or judgment. Counterparty shall not, without the
                 prior written consent of the Indemnified Person, effect any
                 settlement of any pending or threatened proceeding in respect
                 of which any Indemnified Person is or could have been a party
                 and indemnity could have been sought hereunder by such
                 Indemnified Person, unless such settlement includes an
                 unconditional release of such Indemnified Person from all
                 liability on claims that are the subject matter of such
                 proceeding on terms reasonably satisfactory to such Indemnified
                 Person. If the indemnification provided for in this paragraph
                 (c) is unavailable to an Indemnified Person or insufficient in
                 respect of any losses, claims, damages or liabilities referred
                 to therein, then Counterparty under such paragraph, in lieu of
                 indemnifying such Indemnified Person thereunder, shall
                 contribute to the amount paid or payable by such Indemnified
                 Person as a result of such losses, claims, damages or
                 liabilities. The remedies provided for in this paragraph (c)
                 are not exclusive and shall not limit any rights or remedies
                 which may otherwise be available to any Indemnified Party at
                 law or in equity. The indemnity and contribution agreements
                 contained in this paragraph (c) shall remain operative and in
                 full force and effect regardless of the termination of this
                 Transaction.

         (d)     Material Non-Public Information. Counterparty represents and
                 warrants that each of it and its Affiliates is not, on the date
                 hereof, in possession of any material non-public information
                 with respect to Counterparty.

         (e)     Eligible Contract Participant. Counterparty represents and
                 warrants that it is an "eligible contract participant" (as such
                 term is defined in Section 1(a)(12) of the Commodity Exchange
                 Act, as amended (the "CEA") because one or more of the
                 following is true:

                 Counterparty is a corporation, partnership, proprietorship,
                 organization, trust or other entity and:

                    (A)       Counterparty has total assets in excess of USD
                              10,000,000;

                    (B)       the obligations of Counterparty hereunder are
                              guaranteed, or otherwise supported by a letter of
                              credit or keepwell, support or other agreement, by
                              an entity of the type described in Section
                              1a(12)(A)(i) through (iv), 1a(12)(A)(v)(I),
                              1a(12)(A)(vii) or 1a(12)(C) of the CEA; or

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                        7

<PAGE>

                                                                 [JPMORGAN LOGO]

                    (C)       Counterparty has a net worth in excess of USD
                              1,000,000 and has entered into this Agreement in
                              connection with the conduct of Counterparty's
                              business or to manage the risk associated with an
                              asset or liability owned or incurred or reasonably
                              likely to be owned or incurred by Counterparty in
                              the conduct of Counterparty's business.

         (f)     Regulation M. The Counterparty was not on the Trade Date and is
                 not on the date hereof engaged in a distribution, as such term
                 is used in Regulation M under the Securities Exchange Act of
                 1934, as amended ("EXCHANGE ACT"), of any securities of
                 Counterparty, other than a distribution meeting the
                 requirements of the exception set forth in sections 101(b)(10)
                 and 102(b)(7) of Regulation M. The Counterparty shall not,
                 until the fifth Exchange Business Day immediately following the
                 Trade Date, engage in any such distribution.

         (g)     No Manipulation. The Counterparty is not entering into this
                 Transaction to create actual or apparent trading activity in
                 the Shares (or any security convertible into or exchangeable
                 for the Shares) or to raise or depress or otherwise manipulate
                 the price of the Shares (or any security convertible into or
                 exchangeable for the Shares).

         (h)     Number of Repurchased Shares. Counterparty represents that it
                 could have purchased Shares, in an amount equal to the product
                 of the Number of Options and the Option Entitlement, on the
                 Exchange or otherwise, in compliance with applicable law, its
                 organizational documents and any orders, decrees, contractual
                 agreements binding upon Counterparty, on the Trade Date.

         (i)     Board Authorization. Each of this Transaction and the issuance
                 of the Convertible Notes was approved by its board of directors
                 and publicly announced, solely for the purposes stated in such
                 board resolution and public disclosure and, prior to any
                 exercise of Options hereunder, Counterparty's board of
                 directors will have duly authorized any repurchase of Shares
                 pursuant to this Transaction. Counterparty further represents
                 that there is no internal policy, whether written or oral, of
                 Counterparty that would prohibit Counterparty from entering
                 into any aspect of this Transaction, including, but not limited
                 to, the purchases of Shares to be made pursuant hereto.

         (j)     Transfer or Assignment. Neither party may transfer any of its
                 rights or obligations under this Transaction without the prior
                 written consent of the non-transferring party; provided that
                 if, as determined at JPMorgan's sole discretion, its
                 "beneficial ownership" (within the meaning of Section 16 of the
                 Exchange Act and rules promulgated thereunder) exceeds 8% of
                 Counterparty's outstanding Shares, JPMorgan may transfer or
                 assign a number of Options sufficient to reduce such
                 "beneficial ownership" to 7.5% to any third party with a rating
                 for its long term, unsecured and unsubordinated indebtedness of
                 A+ or better by Standard and Poor's Rating Group, Inc. or its
                 successor ("S&P"), or A1 or better by Moody's Investor Service,
                 Inc. ("MOODY'S") or, if either S&P or Moody's ceases to rate
                 such debt, at least an equivalent rating or better by a
                 substitute agency rating mutually agreed by Counterparty and
                 JPMorgan. If, in the discretion of JPMorgan, JPMorgan is unable
                 to effect such transfer or assignment after its commercially
                 reasonable efforts on pricing terms reasonably acceptable to
                 JPMorgan and within a time period reasonably acceptable to
                 JPMorgan, JPMorgan may designate any Exchange Business Day as
                 an Early Termination Date with respect to a portion (the
                 "TERMINATED PORTION") of this Transaction, such that its
                 "beneficial ownership" following such partial termination will
                 be equal to or less than 8%. In the event that JPMorgan so
                 designates an Early Termination Date with respect to a portion
                 of this Transaction, a payment shall be made pursuant to
                 Section 6 of the Agreement as if (i) an Early Termination Date
                 had

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       8

<PAGE>


                                                                 [JPMORGAN LOGO]

                 been designated in respect of a Transaction having terms
                 identical to this Transaction and a Number of Options equal to
                 the Terminated Portion, (ii) the Counterparty and JPMorgan
                 shall both be Affected Parties with respect to such partial
                 termination and (iii) such Transaction shall be the only
                 Terminated Transaction. Notwithstanding any other provision in
                 this Confirmation to the contrary requiring or allowing
                 JPMorgan to purchase, sell, receive or deliver any shares or
                 other securities to or from Counterparty, JPMorgan may
                 designate any of its affiliates to purchase, sell, receive or
                 deliver such shares or other securities and otherwise to
                 perform JPMorgan's obligations in respect of this Transaction
                 and any such designee may assume such obligations. JPMorgan
                 shall be discharged of its obligations to Counterparty to the
                 extent of any such performance.

         (k)     Amendment. Paragraph (i) of Section 9.7(b) of the Equity
                 Definitions is hereby amended for purposes of this Transaction
                 by replacing "two-year" with "90 calendar day".

         (1)     Damages. Neither party shall be liable under Section 6.10 of
                 the Equity Definitions for special, indirect or consequential
                 damages, even if informed of the possibility thereof.

         (m)     Early Unwind. In event the sale of Convertible Notes is not
                 consummated with the initial purchasers for any reason by the
                 close of business in New York on August 15, 2003 (or such later
                 date as agreed upon by the parties) (August 15, 2003 or such
                 later date as agreed upon being the "EARLY UNWIND DATE"), this
                 Transaction shall automatically terminate (the "EARLY UNWIND"),
                 on the Early Unwind Date and (i) the Transaction and all of the
                 respective rights and obligations of JPMorgan and Counterparty
                 under the Transaction shall be cancelled and terminated and
                 (ii) each party shall be released and discharged by the other
                 party from and agrees not to make any claim against the other
                 party with respect to any obligations or liabilities of the
                 other party arising out of and to be performed in connection
                 with the Transaction either prior to or after the Early Unwind
                 Date; provided that Counterparty shall purchase from JPMorgan
                 on the Early Unwind Date all Shares purchased by JPMorgan or
                 one or more of its affiliates and assume, or reimburse the cost
                 of, derivatives entered into by JPMorgan or one or more of its
                 affiliates in connection with hedging this Transaction. The
                 Purchase price paid by the Counterparty shall be JPMorgan's
                 actual cost of such Shares and derivatives as JPMorgan informs
                 Counterparty and shall be paid in immediately available funds
                 on the Early Unwind Date. JPMorgan and Counterparty represent
                 and acknowledge to the other that, subject to the proviso
                 included in the preceding sentence, upon an Early Unwind, all
                 obligations with respect to the Transaction shall be deemed
                 fully and finally discharged.

         (n)     Role of Agent. Each party agrees and acknowledges that (i) J.P.
                 Morgan Securities Inc., an affiliate of JPMorgan ("JPMSI"), has
                 acted solely as agent and not as principal with respect to this
                 Transaction and (ii) JPMSI has no obligation or liability, by
                 way of guaranty, endorsement or otherwise, in any manner in
                 respect of this Transaction (including, if applicable, in
                 respect of the settlement thereof). Each party agrees it will
                 look solely to the other party (or any guarantor in respect
                 thereof) for performance of such other party's obligations
                 under this Transaction.

         (o)     Additional Provisions.

                 (i) Section 9.6(a)(ii) of the Equity Definitions is hereby
                 amended by (1) deleting from the third line thereof the word
                 "or" after the word "official" and inserting a comma therefor,
                 and (2) deleting the period at the end of subsection (ii)
                 thereof and inserting the following words therefor " or (C) at
                 JPMorgan's option, the occurrence of any of the events
                 specified in Section 5(a)(vii) (1) through (9) of the ISDA
                 Master Agreement with respect to that Issuer."

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       9

<PAGE>

                                                                 [JPMORGAN LOGO]

                 (ii) Notwithstanding Section 9.7 of the Equity Definitions,
                 everything in the first paragraph of Section 9.7(b) of the
                 Equity Definitions after the words "Calculation Agent" in the
                 third line through the remainder of such Section 9.7 shall be
                 deleted and replaced with the following:

                 "based on an amount representing the Calculation Agent's
                 determination of the fair value to Buyer of an option with
                 terms that would preserve for Buyer the economic equivalent of
                 any payment or delivery (assuming satisfaction of each
                 applicable condition precedent) by the parties in respect of
                 the relevant Transaction that would have been required after
                 that date but for the occurrence of the Nationalization or
                 De-Listing Event, as the case may be."

         (p)     Alternative Calculations and Payment on Early Termination and
                 on Certain Extraordinary Events. If JPMorgan shall owe
                 Counterparty any amount pursuant to Sections 9.3, 9.6 or 9.7 of
                 the Equity Definitions or pursuant to any early termination
                 hereunder or under the Agreement or pursuant to Section
                 6(d)(ii) of the Agreement or otherwise (a "PAYMENT
                 OBLIGATION"), JPMorgan may, in its sole discretion, satisfy any
                 such Payment Obligation by the Share Termination Alternative
                 (as defined below) by giving irrevocable telephonic notice to
                 Counterparty, confirmed in writing within one Currency Business
                 Day, between the hours of 9:00 a.m. and 4:00 p.m. New York
                 local time on the Announcement Date or Early Termination Date,
                 as applicable ("NOTICE OF SHARE TERMINATION"). Upon Notice of
                 Share Termination no later than 8:00 a.m. on the Exchange
                 Business Day immediately following the Announcement Date or
                 Early Termination Date, as applicable, the following provisions
                 shall apply:

                 Share Termination       Applicable and means that JPMorgan
                 Alternative:            shall deliver to Counterparty the Share
                                         Termination Delivery Property on the
                                         date when the Payment Obligation would
                                         otherwise be due pursuant to Section
                                         9.7 of the Equity Definitions or
                                         Section 6(d)(ii) of the Agreement, as
                                         applicable (the "SHARE TERMINATION
                                         PAYMENT DATE"), in satisfaction of the
                                         Payment Obligation in the manner
                                         reasonably requested by Counterparty
                                         free of payment.

                 Share Termination       A number of Share Termination Delivery
                 Delivery Property:      Units, as calculated by the Calculation
                                         Agent, equal to the Payment Obligation
                                         divided by the Share Termination Unit
                                         Price. The Calculation Agent shall
                                         adjust the Share Termination Delivery
                                         Property by replacing any fractional
                                         portion of a security therein with an
                                         amount of cash equal to the value of
                                         such fractional security based on the
                                         values used to calculate the Share
                                         Termination Unit Price.

                 Share Termination       The value to JPMorgan of property
                 Unit Price:             contained in one Share Termination
                                         Delivery Unit on the date such Share
                                         Termination Delivery Units are to be

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       10

<PAGE>

                                                                 [JPMORGAN LOGO]

                                         delivered as Share Termination Deliver,
                                         Property, as determined by the
                                         Calculation Agent in its discretion by
                                         commercially reasonable means and
                                         notified by the Calculation Agent to
                                         JPMorgan at the time of notification of
                                         the Payment Obligation.

                 Share Termination       One Share or, if a Merger Event has
                 Delivery Unit:          occurred and a corresponding adjustment
                                         to this Transaction has been made, a
                                         unit consisting of the number or amount
                                         of each type of property received by a
                                         holder of one Share (without
                                         consideration of any requirement to pay
                                         cash or other consideration in lieu of
                                         fractional amounts of any securities)
                                         in such Merger Event, as determined by
                                         the Calculation Agent.

                 Failure to Deliver:     Applicable

                 Other applicable        If this Transaction is to be Share
                 provisions:             Termination Settled, the provisions of
                                         Sections 6.6, 6.7, 6.8 and 6.10 (as
                                         modified above) of the Equity
                                         Definitions will be applicable, except
                                         that all references in such provisions
                                         to "Physically-Settled" shall be read
                                         as references to "Share Termination
                                         Settled" and all references to "Shares"
                                         shall be read as references to "Share
                                         Termination Delivery Units". "Share
                                         Termination Settled" in relation to
                                         this Transaction means that Share
                                         Termination Settlement is applicable to
                                         this Transaction.

    (q) Governing Law. New York law (without reference to choice of law
doctrine).

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       11

<PAGE>

                                                                 [JPMORGAN LOGO]

          Please confirm that the foregoing correctly sets forth the terms of
our agreement by executing this Confirmation and returning it to EDG
Confirmation Group, J.P. Morgan Securities Inc., 277 Park Avenue. 11th Floor,
New York, NY 10172-3401, or by fax on 212 622 8519 (PLEASE NOTE THIS NEW FAX
NUMBER).

                                      Very truly yours,

                                        J.P. MORGAN SECURITIES INC., AS AGENT
                                        FOR JPMORGAN CHASE BANK

                                        By: ____________________________________
                                            Authorized Signatory
                                            Name:

          Accepted and confirmed
          as of the Trade Date:

          CADENCE DESIGN SYSTEMS, INC.

          By:___________________________________
             Authorized Signatory
             Name:

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.
<PAGE>

                                                                 [JPMORGAN LOGO]

                                                                       EXHIBIT B
                      CALL OPTION TRANSACTION CONFIRMATION

<PAGE>

                                                                      DRAFT COPY

JPMorgan Chase Bank
P.O. Box 161
60 Victoria Embankment
London EC4Y 0JP
England
                                                                 August 11, 2003
To: CADENCE DESIGN SYSTEMS, INC.
2655 Seely Avenue
San Jose, CA 95134
Attention: Treasurer
Telephone No.: (408) 943-1234
Facsimile No.: (408) 943-0513

Re: Warrants

Reference: [        ]

         The purpose of this letter agreement is to confirm the terms and
conditions of the Warrants issued by CADENCE DESIGN SYSTEMS, INC. ("COMPANY") to
JPMORGAN ENTITY Chase Bank, London Branch ("JPMORGAN") on the Trade Date
specified below (the "TRANSACTION"). This letter agreement constitutes a
"Confirmation" as referred to in the ISDA Master Agreement specified below. This
Confirmation shall replace any previous letter and serve as the final
documentation for this Transaction.

         The definitions and provisions contained in the 1996 ISDA Equity
Derivatives Definitions (the "EQUITY DEFINITIONS"), as published by the
International Swaps and Derivatives Association, Inc., are incorporated into
this Confirmation. In the event of any inconsistency between the Equity
Definitions and this Confirmation, this Confirmation shall govern. This
Transaction shall be deemed to be a Share Option Transaction within the meaning
set forth in the Equity Definitions.

         Each party is hereby advised, and each such party acknowledges, that
the other party has engaged in, or refrained from engaging in, substantial
financial transactions and has taken other material actions in reliance upon the
parties' entry into the Transaction to which this Confirmation relates on the
terms and conditions set forth below.

1.       This Confirmation evidences a complete and binding agreement between
JPMorgan and the Company as to the terms of the Transaction to which this
Confirmation relates. In addition, JPMorgan and the Company agree to make all
reasonable efforts to promptly negotiate, execute, and deliver an agreement in
the form of the 1992 ISDA Master Agreement (Multicurrency-Cross Border) (the
"AGREEMENT"), with such modifications as JPMorgan and the Company will in good
faith agree together with related schedules. Upon the execution by JPMorgan and
the Company of such an agreement, this Confirmation will supplement, form a
apart of, and be subject to, that agreement. All provisions contained or
incorporated by reference in that agreement upon its execution will govern this
Confirmation except as expressly modified below. Until JPMorgan and the Company
execute such agreement, this Confirmation, together with all other documents
referring to an Agreement (each a "CONFIRMATION") confirming transactions (each
a "TRANSACTION") entered into between JPMorgan and the Company (notwithstanding
anything to the contrary in a Confirmation), shall supplement, form a part of,
and be subject to an agreement in the form of the Agreement as if JPMorgan and
the Company had executed an agreement in such form (but without any Schedule
except for the election of the laws of the State of New York as the governing
law and United States dollars as the Termination Currency and Second Method and
Loss as the payments on early termination) on the Trade Date of the first

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
               INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK
                        STATE CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
       REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD
                     OFFICE 270 PARK AVENUE, NEW YORK, USA.

<PAGE>

such Transaction between JPMorgan and the Company. In the event of any
inconsistency between provisions of that agreement and this Confirmation, this
Confirmation will prevail for the purpose of the Transaction to which this
Confirmation relates. The parties hereby agree that if they have not executed an
Agreement within 60 days from the Trade Date it shall constitute an Additional
Termination Event under the Agreement in respect of which the Company is the
sole Affected Party and this Transaction is the sole Affected Transaction.

2.       The terms of the particular Transaction to which this Confirmation
relates are as follows:

<TABLE>
<S>                                          <C>
General Terms:

    Trade Date:                              August 11, 2003

    Warrants:                                American-style equity call warrants to
                                             be issued by the Company to JPMorgan,
                                             each giving the holder the right to
                                             purchase one Share at the Strike Price.
                                             For the purposes of Equity Definitions,
                                             each Warrant shall be deemed to be a
                                             Call Option.

    Buyer:                                   JPMorgan

    Seller:                                  Company

    Shares:                                  The common stock of Company, par value USD 0.01 per
                                             Share (Exchange symbol "CDN")

    Number of Warrants:                      [________]

    Warrant Entitlement:                     One Share per Warrant

    Multiple Exercise:                       Applicable

    Minimum Number of Warrants:              1

    Maximum Number of Warrants:              [___________]

    Strike Price:                            USD [_____]

    Premium:                                 USD [_____]

    Premium Payment Date:                    August 15, 2003

    Exchange:                                The New York Stock Exchange

    Related Exchange(s):                     The principal exchange(s) for options contracts or
                                             futures contracts, if any, with respect to the Shares

Exercise and Valuation:

    Expiration Time:                         The Valuation Time

    Expiration Date:                         For any Daily Number of Warrants, each date
                                             specified as such in Annex A hereto. If there is a
                                             Market Disruption Event on any Expiration Date,
                                             then the
</TABLE>

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
                    INCORPORATED WITH LIMITED LIABILITY AS A
                   NEW YORK STATE CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
       REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD
                     OFFICE 270 PARK AVENUE, NEW YORK, USA.

                                       2
<PAGE>

<TABLE>
<S>                                            <C>
                                               Calculation Agent shall determine
                                               the Reference Price or Settlement
                                               Price for such Expiration Date,
                                               as the case may be, on the basis
                                               of its good faith estimate of the
                                               trading value for the relevant
                                               Shares.

    Automatic Exercise:                        Applicable

Valuation applicable to each Warrant:

    Valuation Time:                            At the close of trading of the regular trading
                                               session on the Exchange

    Valuation Date:                            The Exercise Date

Settlement Terms applicable to the
Transaction:

Method of Settlement:                          Net Share Settlement; and means
                                               that, on each Settlement Date, Company
                                               shall deliver to JPMorgan, the
                                               Share Delivery Quantity of Shares
                                               for such Settlement Date to the
                                               account specified hereto free of
                                               payment through the Clearance
                                               System.

Share Delivery Quantity:                       For any Settlement Date, a number of
                                               Shares, as Calculated by the
                                               Calculation Agent, equal to the
                                               Net Share Settlement Amount for
                                               such Settlement Date divided by
                                               the Settlement Price for such
                                               Settlement Date, plus cash in
                                               lieu of any fractional shares.

Net Share Settlement Amount:                   For any Settlement Date, the Daily
                                               Number of Warrants specified in
                                               Annex A with respect to the
                                               Expiration Date corresponding to
                                               such Settlement Date multiplied
                                               by the Strike Price Differential
                                               for such Settlement Date.

Strike Price Differential:                     (a) If the Settlement Price for any Expiration Date
                                               is greater than the Strike Price, an amount equal
                                               to the excess of such Settlement Price over the
                                               Strike Price; or

                                               (b) If such Settlement Price is less than or equal
                                               to the Strike Price, zero.

Settlement Price:                              For any Expiration Date, the closing price per
                                               Share on the Exchange at the Valuation Time on the
                                               Valuation Date.

Settlement Date:                               For any Expiration Date, the date defined as such
                                               in Section 6.2 of the Equity Definitions, subject
                                               to Section 8(r)(i) hereof.

Failure to Deliver:                            Applicable

Other Applicable Provisions:                   The  provisions of Sections 6.6, 6.7, 6.8 and 6.10
                                               of the Equity Definitions will be applicable,
                                               except that all references in such provisions to
                                               "Physically-Settled" shall be read as references to
                                               "Net Share Settled". "Net
</TABLE>

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
               INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK
                        STATE CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       3
<PAGE>

<TABLE>
<S>                                             <C>
                                                Share Settled" in relation to
                                                any Warrant means that Met Share
                                                Settlement is applicable to that
                                                Warrant.
3. Additional Terms applicable to the
   Transaction:

   Adjustments applicable to the Warrants:

     Method of Adjustment:                      Calculation Agent Adjustment

Extraordinary Events applicable to the
   Transaction:

      Consequence of Merger Events

      (a) Share-for-Share:                       Alternative Obligation; provided that the Calculation
                                                 Agent will determine if the Merger Event affects the
                                                 theoretical value of the Transaction and if so
                                                 JPMorgan in its sole discretion may elect to make
                                                 adjustments to the Strike Price and any other term
                                                 necessary to reflect the characteristics (including
                                                 volatility, dividend practice and policy and
                                                 liquidity) of the New Shares. Notwithstanding the
                                                 foregoing, Cancellation and Payment shall apply in the
                                                 event the New Shares are not publicly traded on a
                                                 United States national securities exchange or quoted
                                                 on the Nasdaq National Market System.

      (b) Share-for-Other:                       Cancellation and Payment

      (c) Share-for-Combined:                    Cancellation and Payment

Nationalization or Insolvency:                   Cancellation and Payment

Nationalization or Insolvency:                   Cancellation and Payment

Payments on Early Termination:            Second Method and Loss

4. Calculation Agent:                     JPMorgan, whose calculations and determinations shall be
                                          made in good faith and in a commercially reasonable
                                          manner, including with respect to calculations and
                                          determinations that are made in its sole discretion.
</TABLE>

5. Account Details:

         (a)      Account for payments to Company:

                  [             ]Bank
                  ABA#[          ]
                  Acct: Cadence Design Systems, Inc.
                  Acct No.: [      ]
                  Account for delivery of Shares to
                  Company:
                  [              ]

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
                INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK
                        STATE CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
               REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON,
              EC2Y 5AJ. HEAD OFFICE 270 PARK AVENUE, NEW YORK, USA.

                                       4
<PAGE>

         (b)      Account for payments to JPMorgan:

                  [JPMorgan Chase Bank]
                  [A/c No. 0010962009]
                  [Favour: JPMorgan Chase Bank - London]
                  [Ref. CHASUS33XXX]

                  Account for delivery of Shares from JPMorgan:

                  [         ]
6. Offices:

The Office of Company for the Transaction is: Inapplicable, Company is not a
Multibranch Party.

The Office of JPMorgan for the Transaction is: New York

                  JPMorgan Chase Bank
                  London Branch
                  P.O. Box 161
                  60 Victoria Embankment
                  London EC4Y 0JP
                  England

7. Notices: For purposes of this Confirmation:

         (a)      Address for notices or communications to Company:
                  Cadence Design Systems, Inc.
                  Attention: Treasurer
                  Telephone No.: [         ]
                  Facsimile No.: [         ]

                  Address for notices or communications to JPMorgan:

                  [JPMorgan notice information to follow]:

                  [       ]

8. Other Provisions:

         (a)      No Reliance, etc. Each party represents that (i) it is
                  entering into the Transaction evidenced hereby as principal
                  (and not as agent or in any other capacity); (ii) neither the
                  other party nor any of its agents are acting as a fiduciary
                  for it; (iii) it is not relying upon any representations
                  except those expressly set forth in the Agreement or this
                  Confirmation; (iv) it has not relied on the other party for
                  any legal, regulatory, tax, business, investment, financial,
                  and accounting advice, and it has made its own investment,
                  hedging, and trading decisions based upon its own judgment and
                  upon any view expressed by the other party or any of its
                  agents; and (v) it is entering into this Transaction with a
                  full understanding of the terms, conditions and risks thereof
                  and it is capable of and willing to assume those risks.

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
               INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK
                        STATE CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
        REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD
                     OFFICE 270 PARK AVENUE, NEW YORK, USA.

                                       5

<PAGE>

         (b)      Share De-listing Event. If at any time during the period from
                  and including the Trade Date, to and including the final
                  Valuation Date, the Shares cease to be listed on the Exchange
                  for any reason (other than a Merger Event) and are not
                  immediately re-listed as of the date of such de-listing on The
                  New York Stock Exchange, The American Stock Exchange or the
                  Nasdaq National Market System (or their respective successors)
                  (the "SUCCESSOR EXCHANGE"), then Cancellation and Payment
                  shall apply, and the date of the de-listing shall be deemed
                  the date of termination for purposes of calculating any
                  payment due from one party to the other in connection with the
                  cancellation of this Transaction. If the Shares are
                  immediately re-listed on a Successor Exchange upon their
                  de-listing from the Exchange, this Transaction shall continue
                  in full force and effect, provided that the Successor Exchange
                  shall be deemed to be the Exchange for all purposes hereunder.
                  In addition, the Calculation Agent shall make any adjustments
                  it deems necessary to the terms of the Transaction in
                  accordance with Calculation Agent Adjustment method as defined
                  under Section 9.1(c) of the Equity Definitions.

         (c)      Repurchase Notices. Company shall, on any day on which Company
                  effects any repurchase of Shares, promptly give JPMorgan a
                  written notice of such repurchase (a "REPURCHASE NOTICE") if
                  following such repurchase, the Warrants Equity Percentage as
                  determined on such day is (i) greater than 5% and (ii) greater
                  by 0.5% than the Warrants Equity Percentage included in the
                  immediately preceding Repurchase Notice (or, in the case of
                  the first such Repurchase Notice, greater than the Warrants
                  Equity Percentage as of the date hereof). The "WARRANTS EQUITY
                  PERCENTAGE" as of any day is the fraction (A) the numerator of
                  which is the product of the Number of Warrants and the Warrant
                  Entitlement and (B) the denominator of which is the number of
                  Shares outstanding on such day. Company agrees to indemnify
                  and hold harmless JPMorgan and its affiliates and their
                  respective officers, directors, employees, affiliates,
                  advisors, agents and controlling persons (each, an
                  "INDEMNIFIED PERSON") from and against any and all losses
                  (including losses relating to JPMorgan's hedging activities as
                  a consequence of becoming, or as a risk of becoming, a Section
                  16 "insider", including without limitation, any forbearance
                  from hedging activities or cessation of hedging activities and
                  any losses in connection therewith with respect to this
                  Transaction), claims, damages, judgments, liabilities and
                  expenses (including reasonable attorney's fees), joint or
                  several, to which an Indemnified Person actually incurs as a
                  result of Company's failure to provide JPMorgan with a
                  Repurchase Notice on the day and in the manner specified in
                  this Section 8(c), and to reimburse, within 30 days, upon
                  written request, each of such Indemnified Persons for any
                  reasonable legal or other expenses incurred in connection with
                  investigating, preparing for, providing testimony or other
                  evidence in connection with or defending any of the foregoing.
                  If any suit, action, proceeding (including any governmental or
                  regulatory investigation), claim or demand shall be brought or
                  asserted against the Indemnified Person, such Indemnified
                  Person shall promptly notify the Company in writing, and the
                  Company, upon request of the Indemnified Person, shall retain
                  counsel reasonably satisfactory to the Indemnified Person to
                  represent the Indemnified Person and any others the Company
                  may designate in such proceeding and shall pay the fees and
                  expenses of such counsel related to such proceeding. Company
                  shall not be liable for any settlement of any proceeding
                  effected without its written consent, but if settled with such
                  consent or if there be a final judgment for the plaintiff,
                  Company agrees to indemnify any Indemnified Person from and
                  against any loss or liability by reason of such settlement or
                  judgment. Company shall not, without the prior written consent
                  of the Indemnified Person, effect any settlement of any
                  pending or threatened proceeding in respect of which any
                  Indemnified Person is or could have been a party and indemnity
                  could have been sought hereunder by such Indemnified Person,
                  unless such settlement includes an unconditional release of
                  such Indemnified Person from all liability on claims that are
                  the subject matter of such proceeding on terms reasonably
                  satisfactory to such Indemnified Person. If the
                  indemnification provided for in this

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
               INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK
                        STATE CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
       REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD
                     OFFICE 270 PARK AVENUE, NEW YORK, USA.

                                       6

<PAGE>

                  paragraph (c) is unavailable to an Indemnified Person or
                  insufficient in respect of any losses, claims, damages or
                  liabilities referred to therein, then Company under such
                  paragraph, in lieu of indemnifying such Indemnified Person
                  thereunder, shall contribute to the amount paid or payable by
                  such Indemnified Person as a result of such losses, claims,
                  damages or liabilities. The remedies provided for in this
                  paragraph (c) are not exclusive and shall not limit any rights
                  or remedies which may otherwise be available to any
                  Indemnified Party at law or in equity. The indemnity and
                  contribution agreements contained in this paragraph (c) shall
                  remain operative and in full force and effect regardless of
                  the termination of this Transaction.

         (d)      Material Non-Public Information. Company represents and
                  warrants that each of it and its Affiliates is not, on the
                  date hereof, in possession of any material non-public
                  information with respect to Company.

         (e)      Eligible Contract Participant. Company represents and warrants
                  that it is an "eligible contract participant" (as such term is
                  defined in Section 1(a)(12) of the Commodity Exchange Act, as
                  amended (the "CEA") because one or more of the following is
                  true:

                  Company is a corporation, partnership, proprietorship,
                  organization, trust or other entity and:

                           (A)      Company has total assets in excess of USD
                                    10,000,000;

                           (B)      the obligations of Company hereunder are
                                    guaranteed, or otherwise supported by a
                                    letter of credit or keepwell, support or
                                    other agreement, by an entity of the type
                                    described in Section 1a(12)(A)(i) through
                                    (iv), 1a(12)(A)(v)(I), 1a(12)(A)(vii) or
                                    1a(12)(C) of the CEA; or

                           (C)      Company has a net worth in excess of USD
                                    1,000,000 and has entered into this
                                    Agreement in connection with the conduct of
                                    Company's business or to manage the risk
                                    associated with an asset or liability owned
                                    or incurred or reasonably likely to be owned
                                    or incurred by Company in the conduct of
                                    Company's business.

         (f)      Regulation M. The Company was not on the Trade Date and is not
                  on the date hereof engaged in a distribution, as such term is
                  used in Regulation M under the Securities Exchange Act of
                  1934, as amended ("EXCHANGE ACT"), of any securities of
                  Company, other than a distribution meeting the requirements of
                  the exception set forth in sections 101(b)(10) and 102(b)(7)
                  of Regulation M. The Company shall not, until the fifth
                  Exchange Business Day immediately following the Trade Date,
                  engage in any such distribution.

         (g)      No Manipulation. The Company is not entering into this
                  Transaction to create actual or apparent trading activity in
                  the Shares (or any security convertible into or exchangeable
                  for the Shares) or to raise or depress or otherwise manipulate
                  the price of the Shares (or any security convertible into or
                  exchangeable for the Shares).

         (h)      Board Authorization. Company represents that it is entering
                  into the Transaction, solely for the purposes stated in the
                  board resolution authorizing this Transaction and in its
                  public disclosure. Company further represents that there is no
                  internal policy, whether written or oral, of Company that
                  would prohibit Company from entering into any aspect of this
                  Transaction, including, but not limited to, the purchases of
                  Shares to be made pursuant hereto.

                    A SUBSIDIARY OF J.P, MORGAN CHASE & CO.
               INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK
                        STATE CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
                      REGISTERED BRANCH ADDRESS 125 LONDON
      WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270 PARK AVENUE, NEW YORK, USA.

                                       7

<PAGE>

         (i)      Transfer or Assignment. Company may not transfer any of its
                  rights or obligations under this Transaction without the prior
                  written consent of JPMorgan. JPMorgan may transfer or assign
                  all or any portion of its rights or obligations under this
                  Transaction without consent of the Company. If JPMorgan, in
                  its sole discretion, determines that its "beneficial
                  ownership" (within the meaning of Section 16 of the Exchange
                  Act and rules promulgated thereunder) exceeds 8% or more of
                  the Company's outstanding Shares and, in its sole discretion,
                  JPMorgan is unable after its commercially reasonable efforts
                  to effect a transfer or assignment on pricing terms and in a
                  time period reasonably acceptable to JPMorgan that would
                  reduce its "beneficial ownership" to 7.5%, JPMorgan may
                  designate any Exchange Business Day as an Early Termination
                  Date with respect to a portion (the "TERMINATED PORTION") of
                  this Transaction, such that the its "beneficial ownership"
                  following such partial termination will be equal to or less
                  than 8%. In the event that JPMorgan so designates an Early
                  Termination Date with respect to a portion of this
                  Transaction, a payment shall be made pursuant to Section 6 of
                  the Agreement as if (i) an Early Termination Date had been
                  designated in respect of a Transaction having terms identical
                  to this Transaction and a Number of Warrants equal to the
                  Terminated Portion, (ii) the Company and JPMorgan shall both
                  be Affected Parties with respect to such partial termination
                  and (iii) such Transaction shall be the only Terminated
                  Transaction. For the avoidance of doubt, if JPMorgan assigns
                  or terminates any Warrants hereunder, each Daily Number of
                  Warrants not previously settled as set forth in Annex A hereto
                  shall be reduced proportionally, as calculated by the
                  Calculation Agent. Notwithstanding any other provision in this
                  Confirmation to the contrary requiring or allowing JPMorgan to
                  purchase, sell, receive or deliver any shares or other
                  securities to or from Company, JPMorgan may designate any of
                  its affiliates to purchase, sell, receive or deliver such
                  shares or other securities and otherwise to perform JPMorgan's
                  obligations in respect of this Transaction and any such
                  designee may assume such obligations. JPMorgan shall be
                  discharged of its obligations to Company to the extent of any
                  such performance.

         (j)      Amendment. Paragraph (i) of Section 9.7(b) of the Equity
                  Definitions is hereby amended for purposes of this Transaction
                  by replacing "two-year" with "90 calendar day".

         (k)      Damages. Neither party shall be liable under Section 6.10 of
                  the Equity Definitions for special, indirect or consequential
                  damages, even if informed of the possibility thereof.

         (l)      Early Unwind. If, on or prior to August 15, 2003 (the "EARLY
                  UNWIND DATE"), JPMorgan, in its sole discretion, seeks to
                  effect short sales of Shares or enter into equivalent
                  derivatives transactions in respect to of this Transaction and
                  such short sales or equivalent derivatives transactions, in
                  the sole opinion of JPMorgan, would require registration under
                  the Securities Act or be subject to any other restrictions
                  under the Securities Act then this Transaction shall be
                  automatically terminated, as if the Early Unwind Date were an
                  Early Termination Date and Counterparty were the sole Affected
                  Party and this Transaction were the sole Affected Transaction.

         (m)      Dividends. If at any time during the period from and including
                  the Trade Date, but excluding the Expiration Date, an
                  ex-dividend date for a cash dividend occurs with respect to
                  the Shares (an "EX-DIVIDEND DATE"), and that dividend is
                  greater than the Regular Dividend on a per share basis then
                  the forward value of the difference between the Regular
                  Dividend and the per share cash dividend corresponding to that
                  Ex-Dividend Date shall be subtracted from the Strike Price.
                  "REGULAR DIVIDEND" shall mean USD 0.00 per Share per quarter.
                  The forward value of any such amount shall be calculated from
                  the Ex-Dividend Date through and including the Settlement
                  Date. The interest rate used for the calculation of such
                  forward values shall be the mid-market interpolated Eurodollar
                  zero coupon swap rate with a maturity corresponding to the
                  Settlement Date, as determined by JPMorgan.

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO
               INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK
                        STATE CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
                   REGISTERED BRANCH ADDRESS 125 LONDON WALL,
         LONDON, EC2Y 5AJ. HEAD OFFICE 270 PARK AVENUE, NEW YORK, USA.

                                       8
<PAGE>

         (n)      Netting and Setoff. Notwithstanding Section 2(c) of the
                  Agreement, Company waives its rights to net and offset against
                  its obligations hereunder any rights Company might have
                  against JPMorgan under any other transactions.

         (o)      Role of Agent. Each party agrees and acknowledges that (i)
                  J.P. Morgan Securities Inc., an affiliate of JPMorgan
                  ("JPMSI"), has acted solely as agent and not as principal with
                  respect to this Transaction and (ii) JPMSI has no obligation
                  or liability, by way of guaranty, endorsement or otherwise, in
                  any manner in respect of this Transaction (including, if
                  applicable, in respect of the settlement thereof). Each party
                  agrees it will look solely to the other party (or any
                  guarantor in respect thereof) for performance of such other
                  party's obligations under this Transaction.

         (p)      Additional Provisions.

                  (i) The first paragraph of Section 9.1(c) of the Equity
                  Definitions is hereby amended to read as follows: (c) 'If
                  "Calculation Agent Adjustment" is specified as the method of
                  adjustment in the Confirmation of a Share Option Transaction,
                  then following the declaration by the Issuer of the terms of
                  any Potential Adjustment Event, the Calculation Agent will
                  determine whether such Potential Adjustment Event has a
                  material effect on the theoretical value of the relevant
                  Shares or Warrants and, if so, will (i) make appropriate
                  adjustment(s), if any, to any one or more of:' and, the
                  sentence immediately preceding Section 9.1(c)(ii) is hereby
                  amended by deleting the words "diluting or concentrative".

                  (ii) Section 9.1(e)(vi) of the Equity Definitions is hereby
                  amended by deleting the words "other similar" between "any"
                  and "event"; deleting the words "diluting or concentrative"
                  and replacing them with "material"; and adding the following
                  words at the end of the sentence "or Warrants".

                  (iii) Section 9.6(a)(ii) of the Equity Definitions is hereby
                  amended by (1) deleting from the third line thereof the word
                  "or" after the word "official" and inserting a comma therefor,
                  and (2) deleting the period at the end of subsection (ii)
                  thereof and inserting the following words therefor " or (C) at
                  JPMorgan's option, the occurrence of any of the events
                  specified in Section 5(a)(vii) (1) through (9) of the ISDA
                  Master Agreement with respect to that Issuer."

                  (iv) Notwithstanding Section 9.7 of the Equity Definitions,
                  everything in the first paragraph of Section 9.7(b) of the
                  Equity Definitions after the words "Calculation Agent" in the
                  third line through the remainder of such Section 9.7 shall be
                  deleted and replaced with the following:

                  "based on an amount representing the Calculation Agent's
                  determination of the fair value to Buyer of an option with
                  terms that would preserve for Buyer the economic equivalent of
                  any payment or delivery (assuming satisfaction of each
                  applicable condition precedent) by the parties in respect of
                  the relevant Transaction that would have been required after
                  that date but for the occurrence of the Merger Event,
                  Nationalization, Insolvency or De-Listing Event, as the case
                  may be."

         (q)      Alternative Calculations and Payment on Early Termination and
                  on Certain Extraordinary Events. If Company shall owe JPMorgan
                  any amount pursuant to Sections 9.3, 9.6 or 9.7 of the Equity
                  Definitions (except in the event of a Nationalization or a
                  Merger Event in which the merger consideration to be paid to
                  holders of Shares consists solely of cash) or pursuant to
                  Section 6(d)(ii) of the Agreement (except in the event of an
                  Event of Default in which Company is the Defaulting Party or a
                  Termination Event in

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
               INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK
                        STATE CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
       REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD
                     OFFICE 270 PARK AVENUE, NEW YORK, USA.

                                       9

<PAGE>

                which Company is the Affected Party, other than an Event of
                Default of the type described in Section 5(a)(iii), (v), (vi) or
                (vii) of the Agreement or a Termination Event of the type
                described in Section 5(b)(i), (ii), (iii), (iv), or (v) of the
                Agreement that resulted from an event or events outside
                Company's control) (a "PAYMENT OBLIGATION"), Company may, in its
                sole discretion, satisfy any such Payment Obligation by the
                Share Termination Alternative (as defined below) and shall give
                irrevocable telephonic notice to JPMorgan, confirmed in writing
                within one Currency Business Day, between the hours of 9:00 a.m.
                and 4:00 p.m. New York local time on the Announcement Date or
                Early Termination Date, as applicable ("NOTICE OF SHARE
                TERMINATION"). Upon Notice of Share Termination no later than
                8:00 a.m. on the Exchange Business Day immediately following the
                Merger Date, Announcement Date or Early Termination Date, as
                applicable, the following provisions shall apply:

<TABLE>
<S>                                       <C>
Share Termination Alternative:            Applicable and means that Company shall
                                          deliver to JPMorgan the Share Termination
                                          Delivery Property on the date (the "SHARE
                                          TERMINATION PAYMENT DATE") when the
                                          Payment Obligation would otherwise  be
                                          due, subject to paragraph (r)(i) below,
                                          in satisfaction, subject to paragraph
                                          (r)(ii) below, of the Payment Obligation
                                          in the manner reasonably requested by
                                          JPMorgan free of payment.

Share Termination Delivery Property:      A number of Share Termination Delivery
                                          Units, as calculated by the Calculation
                                          Agent, equal to the Payment Obligation
                                          divided by the Share Termination Unit
                                          Price. The Calculation Agent shall adjust
                                          the Share Termination Delivery Property
                                          by replacing any fractional portion of a
                                          security therein with an amount of cash
                                          equal to the value of such fractional
                                          security based on the values used to
                                          calculate the Share Termination Unit
                                          Price.

Share Termination Unit Price:             The value to JPMorgan of property
                                          contained in one Share Termination
                                          Delivery Unit on the date such Share
                                          Termination Delivery Units are to be
                                          delivered as Share Termination Delivery
                                          Property, as determined by the
                                          Calculation Agent in its discretion by
                                          commercially reasonable means and
                                          notified by the Calculation Agent to
                                          Company at the time of notification of
                                          the Payment Obligation. In the case of a
                                          Private Placement of Share Termination
                                          Delivery Units that are Restricted Shares
                                          (as defined below) as set for in
                                          paragraph (r)(i) below, the Share
                                          Termination Unit Price shall be
                                          determined by the discounted price
                                          applicable to such Share Termination
                                          Delivery Units. In the case of a
                                          Registered Settlement of Share
</TABLE>

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
               INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK
                        STATE CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       10
<PAGE>

<TABLE>
<S>                                       <C>
                                          Termination Delivery Units that are
                                          Restricted Shares (as defined below) as set
                                          forth in paragraph (r)(ii) below, the
                                          Share Termination Unit Price shall be the
                                          Settlement Price.

Share Termination Delivery Unit:          In the case of a Termination Event or Event
                                          of Default, one Share or, in the case of a
                                          Merger Event, a unit consisting of the
                                          number or amount of each type of property
                                          received by a holder of one Share (without
                                          consideration of any requirement to pay
                                          cash or other consideration in lieu of
                                          fractional amounts of any securities) in
                                          such Merger Event. If a Share Termination
                                          Delivery Unit consists of property other
                                          than cash or New Shares, the Calculation
                                          Agent will replace such property with
                                          cash, New Shares or a combination thereof as
                                          components of a Share Termination Delivery
                                          Unit in such amounts, as determined by the
                                          Calculation Agent in its discretion by
                                          commercially reasonable means, as shall have
                                          a value equal to the value of the property
                                          so replaced. If such Merger Event involves
                                          a choice of consideration to be received
                                          by holders, such holder shall be deemed to
                                          have elected to receive the maximum
                                          possible amount of cash.

Failure to Deliver:                       Applicable

Other applicable provisions:              If this Transaction is to be Share Termination
                                          Settled, the provisions of Sections 6.6,
                                          6.7, 6.8 and 6.10 (as modified above) of
                                          the Equity Definitions will be applicable,
                                          except that all references in such provisions to
                                          "Physically-Settled" shall be read as
                                          references to "Share Termination Settled"
                                          and all references to "Shares" shall be
                                          read as references to "Share Termination
                                          Delivery Units". "Share Termination Settled"
                                          in relation to this Transaction means that
                                          Share Termination Settlement is applicable to this
                                          Transaction.
</TABLE>

         (r)      Registration/Private Placement Procedures. If, in the
                  reasonable opinion of JPMorgan, following any delivery of
                  Shares or Share Termination Delivery Property to JPMorgan
                  hereunder, such Shares or Share Termination Delivery Property
                  would be in the hands of JPMorgan subject to any applicable
                  restrictions with respect to any registration or qualification
                  requirement or prospectus delivery requirement for such Shares
                  or Share Termination Delivery Property pursuant to any
                  applicable federal or state securities law (including, without
                  limitation, any such requirement arising under Section 5 of
                  the Securities Act as a result of such Shares or Share
                  Termination Delivery Property being a

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
       INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       11

<PAGE>

                  "restricted securities", as such term is defined in Rule 144
                  under the Securities Act, or as a result of the sale of such
                  Shares or Share Termination Delivery Property being subject to
                  paragraph (c) of Rule 145 under the Securities Act) (such
                  Shares or Share Termination Delivery Property, "RESTRICTED
                  SHARES"), then delivery of such Restricted Shares shall be
                  effected pursuant to either clause (i) or (ii) below at the
                  election of Company, unless waived by JPMorgan.
                  Notwithstanding the foregoing, the Company shall elect, prior
                  to the first Settlement Date under Section 2 above, a Private
                  Placement Settlement or Registered Settlement for all
                  deliveries of Restricted Shares pursuant to Section 2 above
                  which election shall be applicable to all Settlement Dates and
                  the procedures in clause (i) or clause (ii) below shall apply
                  for all such delivered Restricted Shares on aggregate basis
                  commencing after the first Settlement Date. The Calculation
                  Agent shall make reasonable adjustments to settlement terms
                  and provisions under this Confirmation to reflect a single
                  Private Placement or Registered Settlement for such aggregate
                  Restricted Shares delivered hereunder.

                  (i)      If the Company elects to settle the Transaction
                           pursuant to this clause (i) (a "PRIVATE PLACEMENT
                           SETTLEMENT"), then deliveries of Restricted Shares by
                           the Company shall be effected in customary private
                           placement procedures with respect to such Restricted
                           Shares reasonably acceptable to JPMorgan; provided
                           that the Company may not elect a Private Placement
                           Settlement if, on the date of its election, it has
                           taken, or caused to be taken, any action that would
                           make unavailable either the exemption pursuant to
                           Section 4(2) of the Securities Act for the sale by
                           the Company to JPMorgan (or any affiliate designated
                           by JPMorgan) of the Restricted Shares or the
                           exemption pursuant to Section 4(1) or Section 4(3) of
                           the Securities Act for resales of the Restricted
                           Shares by JPMorgan (or any such affiliate of
                           JPMorgan). The Private Placement Settlement of such
                           Registered Shares shall include customary
                           representations, covenants, blue sky and other
                           governmental filings and/or registrations,
                           indemnities to JPMorgan, due diligence rights (for
                           JPMorgan or any designated buyer of the Restricted
                           Shares by JPMorgan), opinions and certificates, and
                           such other documentation as is customary for private
                           placement agreements, all reasonably acceptable to
                           JPMorgan. In the case of a Private Placement
                           Settlement, JPMorgan shall determine the appropriate
                           discount to the Share Termination Unit Price (in the
                           case of settlement of Share Termination Delivery
                           Units pursuant to paragraph (q) above) or any
                           Settlement Price (in the case of settlement of Shares
                           pursuant to Section 2 above) applicable to such
                           Restricted Shares in a commercially reasonable manner
                           and appropriately adjust the amount of such
                           Restricted Shares to be delivered to JPMorgan
                           hereunder; provided that in no event such number
                           shall be greater than [________ ] (the "MAXIMUM
                           AMOUNT"). Notwithstanding the Agreement or this
                           Confirmation, the date of delivery of such Restricted
                           Shares shall be the Exchange Business Day following
                           notice by JPMorgan to the Company, of such applicable
                           discount and the number of Restricted Shares to be
                           delivered pursuant to this clause (i). For the
                           avoidance of doubt, delivery of Restricted Shares
                           shall be due as set forth in the previous sentence
                           and not be due on the Share Termination Payment Date
                           (in the case of settlement of Share Termination
                           Delivery Units pursuant to paragraph (q) above) or on
                           the Settlement Date for such Restricted Shares (in
                           the case of settlement of Shares pursuant to Section
                           2 above).

                  (ii)     If the Company elects to settle the Transaction
                           pursuant to this clause (ii) (a "REGISTRATION
                           SETTLEMENT"), then the Company shall file and use its
                           reasonable best efforts to make effective under the
                           Securities Act a registration statement or supplement
                           or amend an outstanding registration statement in
                           form and substance reasonably satisfactory to
                           JPMorgan, to cover the resale of such

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
       INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       12

<PAGE>

                           Restricted Shares in accordance with customary resale
                           registration procedures, including covenants,
                           conditions, representations, underwriting discounts
                           (if applicable), commissions (if applicable),
                           indemnities due diligence rights, opinions and
                           certificates, and such other documentation as is
                           customary for equity resale underwriting agreements,
                           all reasonably acceptable to JPMorgan. If JPMorgan is
                           satisfied with such procedures and documentation, it
                           shall sell the Restricted Shares pursuant to such
                           registration statement during a period (the "RESALE
                           PERIOD") commencing on the Exchange Business Day
                           following delivery of such Restricted Shares (which,
                           for the avoidance of doubt, shall be any Settlement
                           Date in the case of settlement of Shares pursuant to
                           Section 2 above or the Share Termination Payment Date
                           in case of settlement of Share Termination Delivery
                           Units pursuant to paragraph (q) above) and ending on
                           the earliest of (i) the Exchange Business Day on
                           which JPMorgan completes the sale of all Restricted
                           Shares or, in the case of settlement of Share
                           Termination Delivery Units, a sufficient number of
                           Restricted Shares so that the realized net proceeds
                           of such sales exceed the Payment Obligation (as
                           defined above), (ii) the date upon which all
                           Restricted Shares have been sold or transferred
                           pursuant to Rule 144 (or similar provisions then in
                           force) or Rule 145(d)(l) or (2) (or any similar
                           provision then in force) under the Securities Act and
                           (iii) the date upon which all Restricted Shares may
                           be sold or transferred by a non-affiliate pursuant to
                           Rule 144(k) (or any similar provision then in force)
                           or Rule 145(d)(3) (or any similar provision then in
                           force under the Securities Act. If the Payment
                           Obligation exceeds the realized net proceeds from
                           such resale, Company shall transfer to JPMorgan by
                           the open of the regular trading session on the
                           Exchange on the Exchange Trading Day immediately
                           following the last day of the Resale Period the
                           amount of such excess (the "ADDITIONAL AMOUNT") in
                           cash or in a number of Shares ("MAKE-WHOLE SHARES")
                           in an amount that, based on the Settlement Price on
                           the last day of the Resale Period (as if such day was
                           the "Valuation Date" for purposes of computing such
                           Settlement Price), has a dollar value equal to the
                           Additional Amount. The Resale Period shall continue
                           to enable the sale of the Make-whole Shares. If
                           Company elects to pay the Additional Amount in
                           Shares, the requirements and provisions for
                           Registration Settlement shall apply. This provision
                           shall be applied successively until the Additional
                           Amount is equal to zero. In no even shall the Company
                           deliver a number of Restricted Shares greater than
                           the Maximum Amount.

                  (iii)    Without limiting the generality of the foregoing,
                           Company agrees that any Restricted Shares delivered
                           to JPMorgan, as purchaser of such Restricted Shares,
                           (i) may be transferred by and among JPMorgan Chase
                           Bank and its affiliates and Company shall effect such
                           transfer without any further action by JPMorgan and
                           (ii) after the minimum "holding period" within the
                           meaning of Rule 144(d) under the Securities Act has
                           elapsed after any Settlement Date for such Restricted
                           Shares, Company shall promptly remove, or cause the
                           transfer agent for such Restricted Shares to remove,
                           any legends referring to any such restrictions or
                           requirements from such Restricted Shares upon
                           delivery by JPMorgan (or such affiliate of JPMorgan)
                           to Company or such transfer agent of seller's and
                           broker's representation letters and an opinion of
                           counsel customarily delivered by JPMorgan in
                           connection with resales of restricted securities
                           pursuant to Rule 144 under the Securities Act,
                           without any further requirement for the delivery of
                           any certificate, consent, agreement, opinion of
                           counsel, notice or any other document, any transfer
                           tax stamps or payment of any other amount or any
                           other action by JPMorgan (or such affiliate of
                           JPMorgan).

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
       INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       13

<PAGE>

                           If the Private Placement Settlement or the
                           Registration Settlement shall not be effected as set
                           forth in clauses (i) or (ii), as applicable, then
                           failure to effect such Private Placement Settlement
                           or such Registration Settlement shall constitute an
                           Event of Default with respect to which Company shall
                           be the Defaulting Party.

                  (s)      DTC-Eligible Deliveries. Notwithstanding anything to
                           the contrary herein, the Company agrees that any
                           delivery of Shares or Share Termination Delivery
                           Property shall be effected by book-entry transfer
                           through the facilities of DTC, or any successor
                           depositary, if at the time of delivery, such class of
                           Shares or class of Share Termination Delivery
                           Property is eligible to be in book-entry form at DTC
                           or such successor depositary.

                  (t)      Governing Law. New York law (without reference to
                           choice of law doctrine).

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
       INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       14

<PAGE>

         Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing this Confirmation and returning it to EDG Confirmation
Group, J.P. Morgan Securities Inc., 277 Park Avenue, 11th Floor, New York, NY
10172-3401, or by fax on 212 622 8519 (PLEASE NOTE THIS NEW FAX NUMBER).

                                   Very truly yours,

                                       J.P. MORGAN SECURITIES INC., AS AGENT FOR
                                       JPMORGAN CHASE BANK

                                       By: ________________________
                                       Authorized Signatory
                                       Name:

       Accepted and confirmed
       as of the Trade Date:

       CADENCE DESIGN SYSTEMS, INC.

       By: _________________________
       Authorized Signatory
       Name:

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
       INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

<PAGE>

                                     Annex A

<TABLE>
<CAPTION>
NUMBER               EXPIRATION DATE         DAILY NUMBER OF WARRANTS
------               ---------------         ------------------------
<S>                 <C>                      <C>
  1                 February 21, 2008                [________]
  2.                February 22, 2008                [________]
  3.                February 25, 2008                [________]
  4.                February 26, 2008                [________]
  5.                February 27, 2008                [________]
  6.                February 28, 2008                [________]
  7.                February 29, 2008                [________]
  8.                March 3, 2008                    [________]
  9.                March 4, 2008                    [________]
 10.                March 5, 2008                    [________]
 11.                March 6, 2008                    [________]
 12.                March 7, 2008                    [________]
 13.                March 10, 2008                   [________]
 14.                March 11, 2008                   [________]
 15.                March 12, 2008                   [________]
 16.                March 13, 2008                   [________]
 17.                March 14, 2008                   [________]
 18.                March 17, 2008                   [________]
 19.                March 18, 2008                   [________]
 20.                March 19, 2008                   [________]
 21.                March 20, 2008                   [________]
 22.                March 24, 2008                   [________]
 23.                March 25, 2008                   [________]
 24.                March 26, 2008                   [________]
 25.                March 27, 2008                   [________]
 26.                March 28, 2008                   [________]
 27.                March 31, 2008                   [________]
 28.                April 1, 2008                    [________]
 29.                April 2, 2008                    [________]
 30.                April 3, 2008                    [________]
 31.                April 4, 2008                    [________]
 32.                April 7, 2008                    [________]
 33.                April 8, 2008                    [________]
 34.                April 9, 2008                    [________]
 35.                April 10, 2008                   [________]
 36.                April 11, 2008                   [________]
 37.                April 14, 2008                   [________]
 38.                April 15, 2008                   [________]
 39.                April 16, 2008                   [________]
 40.                April 17, 2008                   [________]
 41.                April 18, 2008                   [________]
 42.                April 21, 2008                   [________]
 43.                April 22, 2008                   [________]
 44.                April 23, 2008                   [________]
 45.                April 24, 2008                   [________]
 46.                April 25, 2008                   [________]
 47.                April 28, 2008                   [________]
 48.                April 29, 2008                   [________]
 49.                April 30, 2008                   [________]
 50.                May 1, 2008                      [________]
 51.                May 2, 2008                      [________]
 52.                May 5, 2008                      [________]
 53.                May 6, 2008                      [________]
 54.                May 7, 2008                      [________]
 55.                May 8, 2008                      [________]
 56.                May 9, 2008                      [________]
 57.                May 12, 2008                     [________]
 58.                May 13, 2008                     [________]
 59.                May 14, 2008                     [________]
 60.                May 15, 2008                     [________]
</TABLE>

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
       INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORIZED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       16


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.74
<SEQUENCE>9
<FILENAME>f93607exv10w74.txt
<DESCRIPTION>EXHIBIT 10.74
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.74

                                                                 [JPMORGAN LOGO]

JPMorgan Chase Bank
P.O. Box 161
60 Victoria Embankment
London EC4Y 0JP
England

To: CADENCE DESIGN SYSTEMS, INC.                                 August 11, 2003
2655 Seely Avenue
San Jose, CA 95134
Attention: Treasurer
Telephone No.: (408) 943-1234
Facsimile No.: (408) 943-0513

Re: Warrants

Reference:

         The purpose of this letter agreement is to confirm the terms and
conditions of the Warrants issued by CADENCE DESIGN SYSTEMS, INC. ("COMPANY") to
JPMORGAN ENTITY Chase Bank, London Branch ("JPMORGAN") on the Trade Date
specified below (the "TRANSACTION"). This letter agreement constitutes a
"Confirmation" as referred to in the ISDA Master Agreement specified below. This
Confirmation shall replace any previous letter and serve as the final
documentation for this Transaction.

         The definitions and provisions contained in the 1996 ISDA Equity
Derivatives Definitions (the "EQUITY DEFINITIONS"), as published by the
International Swaps and Derivatives Association, Inc., are incorporated into
this Confirmation. In the event of any inconsistency between the Equity
Definitions and this Confirmation, this Confirmation shall govern. This
Transaction shall be deemed to be a Share Option Transaction within the meaning
set forth in the Equity Definitions.

         Each party is hereby advised, and each such party acknowledges, that
the other party has engaged in, or refrained from engaging in, substantial
financial transactions and has taken other material actions in reliance upon the
parties' entry into the Transaction to which this Confirmation relates on the
terms and conditions set forth below.

1.       This Confirmation evidences a complete and binding agreement between
JPMorgan and the Company as to the terms of the Transaction to which this
Confirmation relates. In addition, JPMorgan and the Company agree to make all
reasonable efforts to promptly negotiate, execute, and deliver an agreement in
the form of the 1992 ISDA Master Agreement (Multicurrency-Cross Border) (the
"AGREEMENT"), with such modifications as JPMorgan and the Company will in good
faith agree together with related schedules. Upon the execution by JPMorgan and
the Company of such an agreement, this Confirmation will supplement, form a
apart of, and be subject to, that agreement. All provisions contained or
incorporated by reference in that agreement upon its execution will govern this
Confirmation except as expressly modified below. Until JPMorgan and the Company
execute such agreement, this Confirmation, together with all other documents
referring to an Agreement (each a "CONFIRMATION") confirming transactions (each
a "TRANSACTION") entered into between JPMorgan and the Company (notwithstanding
anything to the contrary in a Confirmation), shall supplement, form a part of,
and be subject to an agreement in the form of the Agreement as if JPMorgan and
the Company had executed an agreement in such form (but without any Schedule
except for the election of the laws of the State of New York as the governing
law and United States dollars as the Termination Currency and Second Method and
Loss as the payments on early termination) on the Trade Date of the first such
Transaction between JPMorgan and the Company. In the event of any inconsistency
between provisions

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
       INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

<PAGE>

of that agreement and this Confirmation, this Confirmation will prevail for the
purpose of the Transaction to which this Confirmation relates. The parties
hereby agree that if they have not executed an Agreement within 60 days from the
Trade Date it shall constitute an Additional Termination Event under the
Agreement in respect of which the Company is the sole Affected Party and this
Transaction is the sole Affected Transaction.

2.       The terms of the particular Transaction to which this Confirmation
         relates are as follows:

<TABLE>
<S>                                       <C>
 General Terms:

       Trade Date:                        August 11, 2003

       Warrants:                          American-style equity call warrants to be
                                          issued by the Company to JPMorgan, each
                                          giving the holder the right to purchase
                                          one Share at the Strike Price. For the
                                          purposes of Equity Definitions, each
                                          Warrant shall be deemed to be a Call
                                          Option.

       Buyer:                             JPMorgan

       Seller:                            Company

       Shares:                            The common stock of Company, par value
                                          USD 0.01 per Share (Exchange symbol
                                          "CDN")

       Number of Warrants:                22,357,646

       Warrant Entitlement:               One Share per Warrant

       Multiple Exercise:                 Applicable

       Minimum Number of Warrants:        1

       Maximum Number of Warrants:        22,357,646

       Strike Price:                      USD 23.08

       Premium:                           USD 46,095,000

       Premium Payment Date:              August 15, 2003

       Exchange:                          The New York Stock Exchange

       Related Exchange(s):               The principal exchange(s) for options
                                          contracts or futures contracts, if any,
                                          with respect to the Shares
Exercise and Valuation:

       Expiration Time:                   The Valuation Time

       Expiration Date:                   For any Daily Number of Warrants, each
                                          date specified as such in Annex A
                                          hereto. If there is a Market Disruption
                                          Event on any Expiration Date, then the
                                          Calculation Agent shall determine the
                                          Reference Price or
</TABLE>

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
             INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE
                           CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
          REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ.
                   HEAD OFFICE 270 PARK AVENUE, NEW YORK, USA.

                                       2
<PAGE>

<TABLE>
<S>                                       <C>
                                          Settlement Price for such Expiration Date,
                                          as the case may be, on the basis of
                                          its good faith estimate of the trading
                                          value for the relevant Shares.

       Automatic Exercise:                Applicable

Valuation applicable to each Warrant:

       Valuation Time:                    At the close of trading of the regular
                                          trading session on the Exchange

       Valuation Date:                    The Exercise Date

Settlement Terms applicable to the
Transaction:

Method of Settlement:                     Net Share Settlement; and means that,
                                          on each Settlement Date, Company shall
                                          deliver to JPMorgan, the Share Delivery
                                          Quantity of Shares for such Settlement
                                          Date to the account specified hereto free
                                          of payment through the Clearance
                                          System.

Share Delivery Quantity:                  For any Settlement Date, a number of
                                          Shares, as calculated by the Calculation
                                          Agent, equal to the Net Share Settlement
                                          Amount for such Settlement Date divided
                                          by the Settlement Price for such
                                          Settlement Date, plus cash in lieu of any
                                          fractional shares.

Net Share Settlement Amount:              For any Settlement Date, the Daily
                                          Number of Warrants specified in Annex
                                          A with respect to the Expiration Date
                                          corresponding to such Settlement Date
                                          multiplied by the Strike Price
                                          Differential for such Settlement Date.

Strike Price Differential:                (a) If the Settlement Price for any
                                          Expiration Date is greater than the Strike
                                          Price, an amount equal to the excess of
                                          such Settlement Price over the Strike
                                          Price; or

                                          (b) If such Settlement Price is less
                                          than or equal to the Strike Price, zero.

Settlement Price:                         For any Expiration Date, the closing
                                          price per Share on the Exchange at the
                                          Valuation Time on the Valuation Date.

Settlement Date:                          For any Expiration Date, the date defined
                                          as such in Section 6.2 of the Equity
                                          Definitions, subject to Section 8(r)(i) hereof.

Failure to Deliver:                       Applicable

Other Applicable Provisions:              The provisions of Sections 6.6, 6.7,
                                          6.8 and 6.10 of the Equity Definitions
                                          will be applicable, except that all
                                          references in such provisions to
                                          "Physically-Settled" shall be read as
                                          references to "Net Share Settled". "Net
</TABLE>

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
             INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE
                           CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
          REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ.
                   HEAD OFFICE 270 PARK AVENUE, NEW YORK, USA.

                                        3

<PAGE>

                                                  Share Settled" in relation to
                                                  any Warrant means that Net
                                                  Share Settlement is
                                                  applicable to that Warrant.
3. Additional Terms applicable to the
   Transaction:

   Adjustments applicable to the Warrants:

    Method of Adjustment:                         Calculation Agent Adjustment

 Extraordinary Events applicable to the
    Transaction:

       Consequence of Merger Events

       (a) Share-for-Share:                       Alternative Obligation;
                                                  provided that the Calculation
                                                  Agent will determine if the
                                                  Merger Event affects the
                                                  theoretical value of the
                                                  Transaction and if so JPMorgan
                                                  in its sole discretion may
                                                  elect to make adjustments to
                                                  the Strike Price and any other
                                                  term necessary to reflect the
                                                  characteristics (including
                                                  volatility, dividend practice
                                                  and policy and liquidity) of
                                                  the New Shares.
                                                  Notwithstanding the foregoing,
                                                  Cancellation and Payment shall
                                                  apply in the event the New
                                                  Shares are not publicly traded
                                                  on a United States national
                                                  securities exchange or quoted
                                                  on the Nasdaq National Market
                                                  System.

        (b) Share-for-Other:                      Cancellation and Payment

        (c) Share-for-Combined:                   Cancellation and Payment

        Nationalization or Insolvency:            Cancellation and Payment

Nationalization or Insolvency:                    Cancellation and Payment

Payments on Early Termination:          Second Method and Loss

4. Calculation Agent:                   JPMorgan, whose calculations and
                                        determinations shall be made in good
                                        faith and in a commercially reasonable
                                        manner, including with respect to
                                        calculations and determinations that are
                                        made in its sole discretion.

5. Account Details:

        (a)   Account for payments to Company:

              Cadence Design Systems, Inc.

              ----------------------------

              ----------------------------

              ----------------------------

              ----------------------------

              ----------------------------


                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
             INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE
                           CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
          REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ.
                   HEAD OFFICE 270 PARK AVENUE, NEW YORK, USA.

                                        4

<PAGE>

                  Account for delivery of Shares to Counterparty:

                  Mellon Investor Services
                  235 Montgomery Street, 23rd Floor
                  San Francisco, CA 94104
                  Cadence Design Systems Book Memo Treasury Reserve Account
                  Comment: When you are ready to deliver shares contact
                  Cadence FIRST.

         (b)      Account for payments to JPMorgan:

                  JPMorgan Chase Bank, New York
                  _________________________________
                  _________________________________
                  _________________________________
                  _________________________________

                  Account for delivery of Shares from JPMorgan:

                  DTC 060

6. Offices:

The Office of Company for the Transaction is: Inapplicable, Company is not a
Multibranch Party.

The Office of JPMorgan for the Transaction is: New York

                  JPMorgan Chase Bank
                  London Branch
                  P.O. Box 161
                  60 Victoria Embankment
                  London EC4Y 0JP, England

7. Notices: For purposes of this Confirmation:

         (a)      Address for notices or communications to Company:

                  Cadence Design Systems, Inc.
                  Attention: Treasurer
                  Telephone No.: (408) 943-1234
                  Facsimile No.: (408) 943-0513

                  Address for notices or communications to JPMorgan:

                  JPMorgan Chase Bank
                  277 Park Avenue, 11th Floor
                  New York, NY 10172
                  Attention: Kevin J. Moran
                  EDG Corporate Marketing
                  Telephone No.: (212) 622-6707
                  Facsimile No.: (212) 622-8534

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
                INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK
                        STATE CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                        5
<PAGE>

8. Other Provisions:

         (a)      No Reliance, etc. Each party represents that (i) it is
                  entering into the Transaction evidenced hereby as principal
                  (and not as agent or in any other capacity); (ii) neither the
                  other party nor any of its agents are acting as a fiduciary
                  for it; (iii) it is not relying upon any representations
                  except those expressly set forth in the Agreement or this
                  Confirmation; (iv) it has not relied on the other party for
                  any legal, regulatory, tax, business, investment, financial,
                  and accounting advice, and it has made its own investment,
                  hedging, and trading decisions based upon its own judgment and
                  upon any view expressed by the other party or any of its
                  agents; and (v) it is entering into this Transaction with a
                  full understanding of the terms, conditions and risks thereof
                  and it is capable of and willing to assume those risks.

         (b)      Share De-listing Event. If at any time during the period from
                  and including the Trade Date, to and including the final
                  Valuation Date, the Shares cease to be listed on the Exchange
                  for any reason (other than a Merger Event) and are not
                  immediately re-listed as of the date of such de-listing on The
                  New York Stock Exchange, The American Stock Exchange or the
                  Nasdaq National Market System (or their respective successors)
                  (the "SUCCESSOR EXCHANGE"), then Cancellation and Payment
                  shall apply, and the date of the de-listing shall be deemed
                  the date of termination for purposes of calculating any
                  payment due from one party to the other in connection with the
                  cancellation of this Transaction. If the Shares are
                  immediately re-listed on a Successor Exchange upon their
                  de-listing from the Exchange, this Transaction shall continue
                  in full force and effect, provided that the Successor Exchange
                  shall be deemed to be the Exchange for all purposes hereunder.
                  In addition, the Calculation Agent shall make any adjustments
                  it deems necessary to the terms of the Transaction in
                  accordance with Calculation Agent Adjustment method as defined
                  under Section 9.1(c) of the Equity Definitions.

         (c)      Repurchase Notices. Company shall, on any day on which Company
                  effects any repurchase of Shares, promptly give JPMorgan a
                  written notice of such repurchase (a "REPURCHASE NOTICE") if
                  following such repurchase, the Warrants Equity Percentage as
                  determined on such day is (i) greater than 5% and (ii) greater
                  by 0.5% than the Warrants Equity Percentage included in the
                  immediately preceding Repurchase Notice (or, in the case of
                  the first such Repurchase Notice, greater than the Warrants
                  Equity Percentage as of the date hereof). The "WARRANTS EQUITY
                  PERCENTAGE" as of any day is the fraction (A) the numerator of
                  which is the product of the Number of Warrants and the Warrant
                  Entitlement and (B) the denominator of which is the number of
                  Shares outstanding on such day. Company agrees to indemnify
                  and hold harmless JPMorgan and its affiliates and their
                  respective officers, directors, employees, affiliates,
                  advisors, agents and controlling persons (each, an
                  "INDEMNIFIED PERSON") from and against any and all losses
                  (including losses relating to JPMorgan's hedging activities as
                  a consequence of becoming, or of the risk of becoming, a
                  Section 16 "insider", including without limitation, any
                  forbearance from hedging activities or cessation of hedging
                  activities and any losses in connection therewith with respect
                  to this Transaction), claims, damages, judgments, liabilities
                  and expenses (including reasonable attorney's fees), joint or
                  several, to which an Indemnified Person actually incurs as a
                  result of Company's failure to provide JPMorgan with a
                  Repurchase Notice on the day and in the manner specified in
                  this Section 8(c), and to reimburse, within 30 days, upon
                  written request, each of such Indemnified Persons for any
                  reasonable legal or other expenses incurred in connection with
                  investigating, preparing for, providing testimony or other
                  evidence in connection with or defending any of the foregoing.
                  If any suit, action, proceeding (including any governmental or
                  regulatory investigation), claim or demand shall be brought or
                  asserted against the Indemnified Person, such Indemnified
                  Person shall promptly notify the Company in writing, and the
                  Company, upon request of the Indemnified Person, shall

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
       INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                        6
<PAGE>

                  retain counsel reasonably satisfactory to the Indemnified
                  Person to represent the Indemnified Person and any others the
                  Company may designate in such proceeding and shall pay the
                  fees and expenses of such counsel related to such proceeding.
                  Company shall not be liable for any settlement of any
                  proceeding effected without its written consent, but if
                  settled with such consent or if there be a final judgment for
                  the plaintiff, Company agrees to indemnify any Indemnified
                  Person from and against any loss or liability by reason of
                  such settlement or judgment. Company shall not, without the
                  prior written consent of the Indemnified Person, effect any
                  settlement of any pending or threatened proceeding in respect
                  of which any Indemnified Person is or could have been a party
                  and indemnity could have been sought hereunder by such
                  Indemnified Person, unless such settlement includes an
                  unconditional release of such Indemnified Person from all
                  liability on claims that are the subject matter of such
                  proceeding on terms reasonably satisfactory to such
                  Indemnified Person. If the indemnification provided for in
                  this paragraph (c) is unavailable to an Indemnified Person or
                  insufficient in respect of any losses, claims, damages or
                  liabilities referred to therein, then Company under such
                  paragraph, in lieu of indemnifying such Indemnified Person
                  thereunder, shall contribute to the amount paid or payable by
                  such Indemnified Person as a result of such losses, claims,
                  damages or liabilities. The remedies provided for in this
                  paragraph (c) are not exclusive and shall not limit any rights
                  or remedies which may otherwise be available to any
                  Indemnified Party at law or in equity. The indemnity and
                  contribution agreements contained in this paragraph (c) shall
                  remain operative and in full force and effect regardless of
                  the termination of this Transaction.

         (d)      Material Non-Public Information. Company represents and
                  warrants that each of it and its Affiliates is not, on the
                  date hereof, in possession of any material non-public
                  information with respect to Company.

         (e)      Eligible Contract Participant. Company represents and warrants
                  that it is an "eligible contract participant" (as such term is
                  defined in Section 1(a)(12) of the Commodity Exchange Act, as
                  amended (the "CEA") because one or more of the following is
                  true:

                  Company is a corporation, partnership, proprietorship,
                  organization, trust or other entity and:

                           (A)      Company has total assets in excess of USD
                                    10,000,000;

                           (B)      the obligations of Company hereunder are
                                    guaranteed, or otherwise supported by a
                                    letter of credit or keepwell, support or
                                    other agreement, by an entity of the type
                                    described in Section 1a(12)(A)(i) through
                                    (iv), 1a(12)(A)(v)(I), 1a(12)(A)(vii) or
                                    1a(12) of the CEA; or

                           (C)      Company has a net worth in excess of USD
                                    1,000,000 and has entered into this
                                    Agreement in connection with the conduct of
                                    Company's business or to manage the risk
                                    associated with an asset or liability owned
                                    or incurred or reasonably likely to be owned
                                    or incurred by Company in the conduct of
                                    Company's business.

         (f)      Regulation M. The Company was not on the Trade Date and is not
                  on the date hereof engaged in a distribution, as such term is
                  used in Regulation M under the Securities Exchange Act of
                  1934, as amended ("EXCHANGE ACT"), of any securities of
                  Company, other than a distribution meeting the requirements of
                  the exception set forth in sections 101(b)(10) and 102(b)(7)
                  of Regulation M. The Company shall not, until the fifth
                  Exchange Business Day immediately following the Trade Date,
                  engage in any such distribution.

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       7

<PAGE>

         (g)      No Manipulation. The Company is not entering into this
                  Transaction to create actual or apparent trading activity in
                  the Shares (or any security convertible into or exchangeable
                  for the Shares) or to raise or depress or otherwise manipulate
                  the price of the Shares (or any security convertible into or
                  exchangeable for the Shares).

         (h)      Board Authorization. Company represents that it is entering
                  into the Transaction, solely for the purposes stated in the
                  board resolution authorizing this Transaction and in its
                  public disclosure. Company further represents that there is no
                  internal policy, whether written or oral, of Company that
                  would prohibit Company from entering into any aspect of this
                  Transaction, including, but not limited to, the purchases of
                  Shares to be made pursuant hereto.

         (i)      Transfer or Assignment. Company may not transfer any of its
                  rights or obligations under this Transaction without the prior
                  written consent of JPMorgan. JPMorgan may transfer or assign
                  all or any portion of its rights or obligations under this
                  Transaction without consent of the Company. If JPMorgan, in
                  its sole discretion, determines that its "beneficial
                  ownership" (within the meaning of Section 16 of the Exchange
                  Act and rules promulgated thereunder) exceeds 8% or more of
                  the Company's outstanding Shares and, in its sole discretion,
                  JPMorgan is unable after its commercially reasonable efforts
                  to effect a transfer or assignment on pricing terms and in a
                  time period reasonably acceptable to JPMorgan that would
                  reduce its "beneficial ownership" to 7.5%, JPMorgan may
                  designate any Exchange Business Day as an Early Termination
                  Date with respect to a portion (the "TERMINATED PORTION") of
                  this Transaction, such that the its "beneficial ownership"
                  following such partial termination will be equal to or less
                  than 8%. In the event that JPMorgan so designates an Early
                  Termination Date with respect to a portion of this
                  Transaction, a payment shall be made pursuant to Section 6 of
                  the Agreement as if (i) an Early Termination Date had been
                  designated in respect of a Transaction having terms identical
                  to this Transaction and a Number of Warrants equal to the
                  Terminated Portion, (ii) the Company and JPMorgan shall both
                  be Affected Parties with respect to such partial termination
                  and (iii) such Transaction shall be the only Terminated
                  Transaction. For the avoidance of doubt, if JPMorgan assigns
                  or terminates any Warrants hereunder, each Daily Number of
                  Warrants not previously settled as set forth in Annex A hereto
                  shall be reduced proportionally, as calculated by the
                  Calculation Agent. Notwithstanding any other provision in this
                  Confirmation to the contrary requiring or allowing JPMorgan to
                  purchase, sell, receive or deliver any shares or other
                  securities to or from Company, JPMorgan may designate any of
                  its affiliates to purchase, sell, receive or deliver such
                  shares or other securities and otherwise to perform JPMorgan's
                  obligations in respect of this Transaction and any such
                  designee may assume such obligations. JPMorgan shall be
                  discharged of its obligations to Company to the extent of any
                  such performance.

         (j)      Amendment. Paragraph (i) of Section 9.7(b) of the Equity
                  Definitions is hereby amended for purposes of this Transaction
                  by replacing "two-year" with "90 calendar day".

         (k)      Damages. Neither party shall be liable under Section 6.10 of
                  the Equity Definitions for special, indirect or consequential
                  damages, even if informed of the possibility thereof.

         (l)      Early Unwind. If, on or prior to August 15, 2003 (the "EARLY
                  UNWIND DATE"), JPMorgan, in its sole discretion, seeks to
                  effect short sales of Shares or enter into equivalent
                  derivatives transactions in respect to of this Transaction and
                  such short sales or equivalent derivatives transactions, in
                  the sole opinion of JPMorgan, would require registration under
                  the Securities Act or be subject to any other restrictions
                  under the Securities Act then this Transaction shall be
                  automatically terminated, as if the Early Unwind Date were an
                  Early Termination Date and Counterparty were the sole Affected
                  Party and this Transaction were the sole Affected Transaction.

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       8

<PAGE>

         (m)      Dividends. If at any time during the period from and including
                  the Trade Date, but excluding the Expiration Date, an
                  ex-dividend date for a cash dividend occurs with respect to
                  the Shares (an "EX-DIVIDEND DATE"), and that dividend is
                  greater than the Regular Dividend on a per share basis then
                  the forward value of the difference between the Regular
                  Dividend and the per share cash dividend corresponding to that
                  Ex-Dividend Date shall be subtracted from the Strike Price.
                  "REGULAR DIVIDEND" shall mean USD 0.00 per Share per quarter.
                  The forward value of any such amount shall be calculated from
                  the Ex-Dividend Date through and including the Settlement
                  Date. The interest rate used for the calculation of such
                  forward values shall be the mid-market interpolated Eurodollar
                  zero coupon swap rate with a maturity corresponding to the
                  Settlement Date, as determined by JPMorgan.

         (n)      Netting and Setoff. Notwithstanding Section 2(c) of the
                  Agreement, Company waives its rights to net and offset against
                  its obligations hereunder any rights Company might have
                  against JPMorgan under any other transactions.

         (o)      Role of Agent. Each party agrees and acknowledges that (i)
                  J.P. Morgan Securities Inc., an affiliate of JPMorgan
                  ("JPMSI"), has acted solely as agent and not as principal with
                  respect to this Transaction and (ii) JPMSI has no obligation
                  or liability, by way of guaranty, endorsement or otherwise, in
                  any manner in respect of this Transaction (including, if
                  applicable, in respect of the settlement thereof). Each party
                  agrees it will look solely to the other party (or any
                  guarantor in respect thereof) for performance of such other
                  party's obligations under this Transaction.

         (p)      Additional Provisions.

                  (i) The first paragraph of Section 9.1(c) of the Equity
                  Definitions is hereby amended to read as follows: (c) 'If
                  "Calculation Agent Adjustment" is specified as the method of
                  adjustment in the Confirmation of a Share Option Transaction,
                  then following the declaration by the Issuer of the terms of
                  any Potential Adjustment Event, the Calculation Agent will
                  determine whether such Potential Adjustment Event has a
                  material effect on the theoretical value of the relevant
                  Shares or Warrants and, if so, will (i) make appropriate
                  adjustments), if any, to any one or more of:' and, the
                  sentence immediately preceding Section 9.1(c)(ii) is hereby
                  amended by deleting the words "diluting or concentrative".

                  (ii) Section 9.1(e)(vi) of the Equity Definitions is hereby
                  amended by deleting the words "other similar" between "any"
                  and "event"; deleting the words "diluting or concentrative"
                  and replacing them with "material"; and adding the following
                  words at the end of the sentence "or Warrants".

                  (iii) Section 9.6(a)(ii) of the Equity Definitions is hereby
                  amended by (1) deleting from the third line thereof the word
                  "or" after the word "official" and inserting a comma therefor,
                  and (2) deleting the period at the end of subsection (ii)
                  thereof and inserting the following words therefor " or (C) at
                  JPMorgan's option, the occurrence of any of the events
                  specified in Section 5(a)(vii) (1) through (9) of the ISDA
                  Master Agreement with respect to that Issuer."

                  (iv) Notwithstanding Section 9.7 of the Equity Definitions,
                  everything in the first paragraph of Section 9.7(b) of the
                  Equity Definitions after the words "Calculation Agent" in the
                  third line through the remainder of such Section 9.7 shall be
                  deleted and replaced with the following:

                  "based on an amount representing the Calculation Agent's
                  determination of the fair value to Buyer of an option with
                  terms that would preserve for Buyer the economic equivalent

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       9

<PAGE>

                  of any payment or delivery (assuming satisfaction of each
                  applicable condition precedent) by the parties in respect of
                  the relevant Transaction that would have been required after
                  that date but for the occurrence of the Merger Event,
                  Nationalization, Insolvency or De-Listing Event, as the case
                  may be."

         (q)      Alternative Calculations and Payment on Early Termination and
                  on Certain Extraordinary Events. If Company shall owe JPMorgan
                  any amount pursuant to Sections 9.3, 9.6 or 9.7 of the Equity
                  Definitions (except in the event of a Nationalization or a
                  Merger Event in which the merger consideration to be paid to
                  holders of Shares consists solely of cash) or pursuant to
                  Section 6(d)(ii) of the Agreement (except in the event of an
                  Event of Default in which Company is the Defaulting Party or a
                  Termination Event in which Company is the Affected Party,
                  other than an Event of Default of the type described in
                  Section 5(a)(iii), (v), (vi) or (vii) of the Agreement or a
                  Termination Event of the type described in Section 5(b)(i),
                  (ii), (iii), (iv), or (v) of the Agreement that resulted from
                  an event or events outside Company's control) (a "PAYMENT
                  OBLIGATION"), Company may, in its sole discretion, satisfy any
                  such Payment Obligation by the Share Termination Alternative
                  (as defined below) and shall give irrevocable telephonic
                  notice to JPMorgan, confirmed in writing within one Currency
                  Business Day, between the hours of 9:00 a.m. and 4:00 p.m. New
                  York local time on the Announcement Date or Early Termination
                  Date, as applicable ("NOTICE OF SHARE TERMINATION"). Upon
                  Notice of Share Termination no later than 8:00 a.m. on the
                  Exchange Business Day immediately following the Merger Date,
                  Announcement Date or Early Termination Date, as applicable,
                  the following provisions shall apply:


Share Termination Alternative:        Applicable and means that Company shall
                                      deliver to JPMorgan the Share
                                      Termination Delivery Property on the
                                      date (the "SHARE TERMINATION PAYMENT
                                      DATE") when the Payment Obligation would
                                      otherwise be due, subject to paragraph
                                      (r)(i) below, in satisfaction, subject
                                      to paragraph (r)(ii) below, of the
                                      Payment Obligation in the manner
                                      reasonably requested by JPMorgan free of
                                      payment.

Share Termination Delivery Property:  A number of Share Termination Delivery
                                      Units, as calculated by the Calculation
                                      Agent, equal to the Payment Obligation
                                      divided by the Share Termination Unit
                                      Price. The Calculation Agent shall
                                      adjust the Share Termination Delivery
                                      Property by replacing any fractional
                                      portion of a security therein with an
                                      amount of cash equal to the value of
                                      such fractional security based on the
                                      values used to calculate the Share
                                      Termination Unit Price.



Share Termination Unit Price:         The value to JPMorgan of property
                                      contained in one Share Termination
                                      Delivery Unit on the date such Share
                                      Termination Delivery Units are to be
                                      delivered as Share Termination Delivery
                                      Property, as determined by the
                                      Calculation Agent in its discretion by
                                      commercially

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       10

<PAGE>

                                      reasonable means and notified by the
                                      Calculation Agent to Company at the time
                                      of notification of the Payment Obligation.
                                      In the case of a Private Placement of
                                      Share Termination Delivery Units that are
                                      Restricted Shares (as defined below) as
                                      set for in paragraph (r)(i) below, the
                                      Share Termination Unit Price shall be
                                      determined by the discounted price
                                      applicable to such Share Termination
                                      Delivery Units. In the case of a
                                      Registered Settlement of Share Termination
                                      Delivery Units that are Restricted Shares
                                      (as defined below) as set forth in
                                      paragraph (r)(ii) below, the Share
                                      Termination Unit Price shall be the
                                      Settlement Price.

Share Termination Delivery Unit:      In the case of a Termination Event or
                                      Event of Default, one Share or, in the
                                      case of a Merger Event, a unit consisting
                                      of the number or amount of each type of
                                      property received by a holder of one Share
                                      (without consideration of any requirement
                                      to pay cash or other consideration in lieu
                                      of fractional amounts of any securities)
                                      in such Merger Event. If a Share
                                      Termination Delivery Unit consists of
                                      property other than cash or New Shares,
                                      the Calculation Agent will replace such
                                      property with cash, New Shares or a
                                      combination thereof as components of a
                                      Share Termination Delivery Unit in such
                                      amounts, as determined by the Calculation
                                      Agent in its discretion by commercially
                                      reasonable means, as shall have a value
                                      equal to the value of the property so
                                      replaced. If such Merger Event involves a
                                      choice of consideration to be received by
                                      holders, such holder shall be deemed to
                                      have elected to receive the maximum
                                      possible amount of cash.

Failure to Deliver:                   Applicable

Other applicable provisions:          If this Transaction is to be Share
                                      Termination Settled, the provisions of
                                      Sections 6.6, 6.7, 6.8 and 6.10 (as
                                      modified above) of the Equity Definitions
                                      will be applicable, except that all
                                      references in such provisions to
                                      "Physically-Settled" shall be read as
                                      references to "Share Termination Settled"
                                      and all references to "Shares" shall be
                                      read as references to "Share Termination
                                      Delivery Units". "Share Termination
                                      Settled" in relation to this Transaction

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       11
<PAGE>

                                      means that Share Termination Settlement is
                                      applicable to this Transaction.

         (r)      Registration/Private Placement Procedures. If, in the
                  reasonable opinion of JPMorgan, following any delivery of
                  Shares or Share Termination Delivery Property to JPMorgan
                  hereunder, such Shares or Share Termination Delivery Property
                  would be in the hands of JPMorgan subject to any applicable
                  restrictions with respect to any registration or qualification
                  requirement or prospectus delivery requirement for such Shares
                  or Share Termination Delivery Property pursuant to any
                  applicable federal or state securities law (including, without
                  limitation, any such requirement arising under Section 5 of
                  the Securities Act as a result of such Shares or Share
                  Termination Delivery Property being a "restricted securities",
                  as such term is defined in Rule 144 under the Securities Act,
                  or as a result of the sale of such Shares or Share Termination
                  Delivery Property being subject to paragraph (c) of Rule 145
                  under the Securities Act) (such Shares or Share Termination
                  Delivery Property, "RESTRICTED SHARES"), then delivery of such
                  Restricted Shares shall be effected pursuant to either clause
                  (i) or (ii) below at the election of Company, unless waived by
                  JPMorgan. Notwithstanding the foregoing, the Company shall
                  elect, prior to the first Settlement Date under Section 2
                  above, a Private Placement Settlement or Registered Settlement
                  for all deliveries of Restricted Shares pursuant to Section 2
                  above which election shall be applicable to all Settlement
                  Dates and the procedures in clause (i) or clause (ii) below
                  shall apply for all such delivered Restricted Shares on
                  aggregate basis commencing after the first Settlement Date.
                  The Calculation Agent shall make reasonable adjustments to
                  settlement terms and provisions under this Confirmation to
                  reflect a single Private Placement or Registered Settlement
                  for such aggregate Restricted Shares delivered hereunder.

                  (i)      If the Company elects to settle the Transaction
                           pursuant to this clause (i) (a "PRIVATE PLACEMENT
                           SETTLEMENT"), then deliveries of Restricted Shares by
                           the Company shall be effected in customary private
                           placement procedures with respect to such Restricted
                           Shares reasonably acceptable to JPMorgan; provided
                           that the Company may not elect a Private Placement
                           Settlement if, on the date of its election, it has
                           taken, or caused to be taken, any action that would
                           make unavailable either the exemption pursuant to
                           Section 4'(2) of the Securities Act for the sale by
                           the Company to JPMorgan (or any affiliate designated
                           by JPMorgan) of the Restricted Shares or the
                           exemption pursuant to Section 4(1) or Section 4(3) of
                           the Securities Act for resales of the Restricted
                           Shares by JPMorgan (or any such affiliate of
                           JPMorgan). The Private Placement Settlement of such
                           Registered Shares shall include customary
                           representations, covenants, blue sky and other
                           governmental filings and/or registrations,
                           indemnities to JPMorgan, due diligence rights (for
                           JPMorgan or any designated buyer of the Restricted
                           Shares by JPMorgan), opinions and certificates, and
                           such other documentation as is customary for private
                           placement agreements, all reasonably acceptable to
                           JPMorgan. In the case of a Private Placement
                           Settlement, JPMorgan shall determine the appropriate
                           discount to the Share Termination Unit Price (in the
                           case of settlement of Share Termination Delivery
                           Units pursuant to paragraph (q) above) or any
                           Settlement Price (in the case of settlement of Shares
                           pursuant to Section 2 above) applicable to such
                           Restricted Shares in a commercially reasonable manner
                           and appropriately adjust the amount of such
                           Restricted Shares to be delivered to JPMorgan
                           hereunder; provided that in no event such number
                           shall be greater than 328,513,388 (the "MAXIMUM
                           AMOUNT"). Notwithstanding the Agreement or this
                           Confirmation, the date of delivery of such Restricted
                           Shares shall be the Exchange Business Day following
                           notice by JPMorgan to the Company, of such applicable
                           discount and the number of Restricted Shares to be
                           delivered pursuant to this clause (i).

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       12

<PAGE>

                           For the avoidance of doubt, delivery of Restricted
                           Shares shall be due as set forth in the previous
                           sentence and not be due on the Share Termination
                           Payment Date (in the case of settlement of Share
                           Termination Delivery Units pursuant to paragraph (q)
                           above) or on the Settlement Date for such Restricted
                           Shares (in the case of settlement of Shares pursuant
                           to Section 2 above).

                  (ii)     If the Company elects to settle the Transaction
                           pursuant to this clause (ii) (a "REGISTRATION
                           SETTLEMENT"), then the Company shall file and use its
                           reasonable best efforts to make effective under the
                           Securities Act a registration statement or supplement
                           or amend an outstanding registration statement in
                           form and substance reasonably satisfactory to
                           JPMorgan, to cover the resale of such Restricted
                           Shares in accordance with customary resale
                           registration procedures, including covenants,
                           conditions, representations, underwriting discounts
                           (if applicable), commissions (if applicable),
                           indemnities due diligence rights, opinions and
                           certificates, and such other documentation as is
                           customary for equity resale underwriting agreements,
                           all reasonably acceptable to JPMorgan. If JPMorgan is
                           satisfied with such procedures and documentation, it
                           shall sell the Restricted Shares pursuant to such
                           registration statement during a period (the "RESALE
                           PERIOD") commencing on the Exchange Business Day
                           following delivery of such Restricted Shares (which,
                           for the avoidance of doubt, shall be any Settlement
                           Date in the case of settlement of Shares pursuant to
                           Section 2 above or the Share Termination Payment Date
                           in case of settlement of Share Termination Delivery
                           Units pursuant to paragraph (q) above) and ending on
                           the earliest of (i) the Exchange Business Day on
                           which JPMorgan completes the sale of all Restricted
                           Shares or, in the case of settlement of Share
                           Termination Delivery Units, a sufficient number of
                           Restricted Shares so that the realized net proceeds
                           of such sales exceed the Payment Obligation (as
                           defined above), (ii) the date upon which all
                           Restricted Shares have been sold or transferred
                           pursuant to Rule 144 (or similar provisions then in
                           force) or Rule 145(d)(l) or (2) (or any similar
                           provision then in force) under the Securities Act and
                           (iii) the date upon which all Restricted Shares may
                           be sold or transferred by a non-affiliate pursuant to
                           Rule 144(k) (or any similar provision then in force)
                           or Rule 145(d)(3) (or any similar provision then in
                           force under the Securities Act. If the Payment
                           Obligation exceeds the realized net proceeds from
                           such resale, Company shall transfer to JPMorgan by
                           the open of the regular trading session on the
                           Exchange on the Exchange Trading Day immediately
                           following the last day of the Resale Period the
                           amount of such excess (the "ADDITIONAL AMOUNT") in
                           cash or in a number of Shares ("MAKE-WHOLE SHARES")
                           in an amount that, based on the Settlement Price on
                           the last day of the Resale Period (as if such day was
                           the "Valuation Date" for purposes of computing such
                           Settlement Price), has a dollar value equal to the
                           Additional Amount. The Resale Period shall continue
                           to enable the sale of the Make-whole Shares. If
                           Company elects to pay the Additional Amount in
                           Shares, the requirements and provisions for
                           Registration Settlement shall apply. This provision
                           shall be applied successively until the Additional
                           Amount is equal to zero. In no even shall the Company
                           deliver a number of Restricted Shares greater than
                           the Maximum Amount.

                  (iii)    Without limiting the generality of the foregoing,
                           Company agrees that any Restricted Shares delivered
                           to JPMorgan, as purchaser of such Restricted Shares,
                           (i) may be transferred by and among JPMorgan Chase
                           Bank and its affiliates and Company shall effect such
                           transfer without any further action by JPMorgan and
                           (ii) after the minimum "holding period" within the
                           meaning of Rule 144(d) under the Securities Act has
                           elapsed after any Settlement Date for

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       13

<PAGE>

                           such Restricted Shares, Company shall promptly
                           remove, or cause the transfer agent for such
                           Restricted Shares to remove, any legends referring to
                           any such restrictions or requirements from such
                           Restricted Shares upon delivery by JPMorgan (or such
                           affiliate of JPMorgan) to Company or such transfer
                           agent of seller's and broker's representation letters
                           and an opinion of counsel customarily delivered by
                           JPMorgan in connection with resales of restricted
                           securities pursuant to Rule 144 under the Securities
                           Act, without any further requirement for the delivery
                           of any certificate, consent, agreement, opinion of
                           counsel, notice or any other document, any transfer
                           tax stamps or payment of any other amount or any
                           other action by JPMorgan (or such affiliate of
                           JPMorgan).

                  If the Private Placement Settlement or the Registration
                  Settlement shall not be effected as set forth in clauses (i)
                  or (ii), as applicable, then failure to effect such Private
                  Placement Settlement or such Registration Settlement shall
                  constitute an Event of Default with respect to which Company
                  shall be the Defaulting Party.

         (s)      DTC-Eligible Deliveries. Notwithstanding anything to the
                  contrary herein, the Company agrees that any delivery of
                  Shares or Share Termination Delivery Property shall be
                  effected by book-entry transfer through the facilities of DTC,
                  or any successor depositary, if at the time of delivery, such
                  class of Shares or class of Share Termination Delivery
                  Property is eligible to be in book-entry form at DTC or such
                  successor depositary.

         (t)      Governing Law. New York law (without reference to choice of
                  law doctrine).

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       14

<PAGE>

         Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing this Confirmation and returning it to EDG Confirmation
Group, J.P. Morgan Securities Inc., 277 Park Avenue, 11th Floor, New York, NY
10172-3401, or by fax on 212 622 8519 (PLEASE NOTE THIS NEW FAX NUMBER).

                                 Very truly yours,

                                      J.P. MORGAN SECURITIES INC., AS AGENT( FOR
                                      JPMORGAN CHASE BANK

                                      By: /s/ Nicola Mudge
                                          --------------------------------------
                                      Authorized Signatory
                                      Name: Nicola Mudge

Accepted and confirmed
as of the Trade Date:

CADENCE DESIGN SYSTEMS, INC.

By:
   -----------------------------------
Authorized Signatory
Name:

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

<PAGE>

         Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing this Confirmation and returning it to EDG Confirmation
Group. J.P. Morgan Securities Inc., 277 Park Avenue. 11th Floor, New York, NY
10172-3401, or by fax on 212 622 8519(PLEASE NOTE THIS NEW FAX NUMBER).

                                 Very truly yours,

                                      J.P. MORGAN SECURITIES INC., AS AGENT FOR
                                      JPMORGAN CHASE BANK

                                      By.
                                         ---------------------------------------
                                      Authorized Signatory
                                      Name:

         Accepted and confirmed
         as of the Trade Date:

         CADENCE DESIGN SYSTEMS, INC.

         By: /s/ WILLIAM PORTER
             ---------------------------------------
         Authorized Signatory
         Name: WILLIAM PORTER
               SR. VP & CFO

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

<PAGE>

                                     Annex A


<TABLE>
<CAPTION>
NUMBER                           EXPIRATION DATE               DAILY NUMBER OF WARRANTS
------                          -----------------              ------------------------
<S>                             <C>                            <C>
  1.                            February 21, 2008                       372,627
  2.                            February 22, 2008                       372,627
  3.                            February 25, 2008                       372,627
  4.                            February 26, 2008                       372,627
  5.                            February 27, 2008                       372,627
  6.                            February 28, 2008                       372,627
  7.                            February 29, 2008                       372,627
  8.                            March 3, 2008                           372,627
  9.                            March 4, 2008                           372,627
  10.                           March 5, 2008                           372,627
  11.                           March 6, 2008                           372,627
  12.                           March 7, 2008                           372,627
  13.                           March 10, 2008                          372,627
  14.                           March 11, 2008                          372,627
  15.                           March 12, 2008                          372,627
  16.                           March 13, 2008                          372,627
  17.                           March 14, 2008                          372,627
  18.                           March 17, 2008                          372,627
  19.                           March 18, 2008                          372,627
  20.                           March 19, 2008                          372,627
  21.                           March 20, 2008                          372,627
  22.                           March 24, 2008                          372,627
  23.                           March 25, 2008                          372,627
  24.                           March 26, 2008                          372,627
  25.                           March 27, 2008                          372,627
  26.                           March 28, 2008                          372,627
  27.                           March 31, 2008                          372,627
  28.                           April 1, 2008                           372,627
  29.                           April 2, 2008                           372,627
  30.                           April 3, 2008                           372,627
  31.                           April 4, 2008                           372,627
  32.                           April 7, 2008                           372,627
  33.                           April 8, 2008                           372,627
  34.                           April 9, 2008                           372,627
  35.                           April 10, 2008                          372,627
  36.                           April 11, 2008                          372,627
  37.                           April 14, 2008                          372,627
  38.                           April 15, 2008                          372,627
  39.                           April 16, 2008                          372,627
  40.                           April 17, 2008                          372,627
  41.                           April 18, 2008                          372,627
  42.                           April 21, 2008                          372,627
  43.                           April 22, 2008                          372,627
  44.                           April 23, 2008                          372,627
  45.                           April 24, 2008                          372,627
  46.                           April 25, 2008                          372,627
  47.                           April 28, 2008                          372,627
  48.                           April 29, 2008                          372,627
  49.                           April 30, 2008                          372,627
  50.                           May 1, 2008                             372,627
  51.                           May 2, 2008                             372,627
  52.                           May 5, 2008                             372,627
  53.                           May 6, 2008                             372,627
  54.                           May 7, 2008                             372,627
  55.                           May 8, 2008                             372,627
  56.                           May 9, 2008                             372,627
  57.                           May 12, 2008                            372,627
  58.                           May 13, 2008                            372,627
  59.                           May 14, 2008                            372,627
  60.                           May 15, 2008                            379,224
</TABLE>

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       16

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.75
<SEQUENCE>10
<FILENAME>f93607exv10w75.txt
<DESCRIPTION>EXHIBIT 10.75
<TEXT>
<PAGE>

                                                                  EXHIBIT 10.75

                                                                 [JPMORGAN LOGO]

JPMorgan Chase Bank
P.O. Box 161
60 Victoria Embankment
London EC4YO JP
England

                                                          August 11, 2003

To: CADENCE DESIGN SYSTEMS, INC.
2655 Seely Avenue
San Jose, CA 95134
Attention: Treasurer
Telephone No.: (408) 943-1234
Facsimile No.: (408) 943-0513

Re: Call Option Transaction

Reference:

         The purpose of this letter agreement is to confirm the terms and
conditions of the Transaction entered into between JPMORGAN CHASE BANK, LONDON
BRANCH ("JPMORGAN") AND CADENCE DESIGN SYSTEMS, INC. ("COUNTERPARTY") on the
Trade Date specified below (the "TRANSACTION"). This letter agreement
constitutes a "Confirmation" as referred to in the ISDA Master Agreement
specified below. This Confirmation shall replace any previous letter and serve
as the final documentation for this Transaction.

         The definitions and provisions contained in the 1996 ISDA Equity
Derivatives Definitions (the "EQUITY DEFINITIONS"), as published by the
International Swaps and Derivatives Association, Inc., are incorporated into
this Confirmation. In the event of any inconsistency between the Equity
Definitions and this Confirmation, this Confirmation shall govern. Certain
defined terms used herein have the meanings assigned to them in the Offering
Memorandum dated August 11, 2003 (the "OFFERING MEMORANDUM") relating to the USD
350,000,000 principal amount of Zero Coupon Zero Yield Senior Convertible Notes
due August 15, 2023, (the "CONVERTIBLE NOTES") issued by the Counterparty
pursuant to an Indenture to be dated August 15, 2003 between Counterparty and
J.P. Morgan Trust Company, National Association, as trustee (the "INDENTURE").
In the event of any inconsistency between the terms defined in the Offering
Memorandum and this Confirmation, the Confirmation shall govern.

         Each party is hereby advised, and each such party acknowledges, that
the other party has engaged in, or refrained from engaging in, substantial
financial transactions and has taken other material actions in reliance upon the
parties' entry into the Transaction to which this Confirmation relates on the
terms and conditions set forth below.

1.       This Confirmation evidences a complete and binding agreement between
JPMorgan and the Counterparty as to the terms of the Transaction to which this
Confirmation relates. In addition, JPMorgan and the Counterparty agree to make
all reasonable efforts to promptly negotiate, execute, and deliver an agreement
in the form of the 1992 ISDA Master Agreement (Multicurrency-Cross Border) (the
"AGREEMENT"), with such modifications as JPMorgan and the Counterparty will in
good faith agree together with related schedules. Upon the execution by JPMorgan
and the Counterparty of such an agreement, this Confirmation will supplement,
form a apart of, and be subject to, that agreement. All provisions contained or
incorporated by reference in that agreement upon its execution will govern this
Confirmation except as expressly modified below. Until JPMorgan and the
Counterparty execute such agreement, this Confirmation, together with all other
documents referring to an Agreement (each a "CONFIRMATION") confirming
transactions (each a "TRANSACTION") entered into between JPMorgan and the
Counterparty (notwithstanding

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

<PAGE>

                                                                 [JPMORGAN LOGO]

anything to the contrary in a Confirmation), shall supplement, form a part of,
and be subject to an agreement in the form of the Agreement as if JPMorgan and
the Counterparty had executed an agreement in such form (but without any
Schedule except for the election of the laws of the State of New York as the
governing law and United States dollars as the Termination Currency and Second
Method and Loss as the payments on early termination) on the Trade Date of the
first such Transaction between JPMorgan and the Counterparty. In the event of
any inconsistency between provisions of that agreement and this Confirmation,
this Confirmation will prevail for the purpose of the Transaction to which this
Confirmation relates. The parties hereby agree that if they have not executed an
Agreement within 60 days from the Trade Date it shall constitute an Additional
Termination Event under the Agreement in respect of which the Counterparty is
the sole Affected Party and this Transaction is the sole Affected Transaction.

2.         The terms of the particular Transaction to which this Confirmation
relates are as follows:

General Terms:

         Trade Date:                          August 11, 2003

         Option Style:                        "Modified American", as set forth
                                              under "Exercise and Valuation"
                                              below

         Option Type:                         Call

         Buyer:                               Counterparty

         Seller:                              JPMorgan

         Shares:                              The common stock of Counterparty,
                                              par value USD 0.01 per Share
                                              (Exchange symbol "CDN")

         Number of Options:                   A number equal to the Conversion
                                              Rate (as defined in the Offering
                                              Memorandum, but without regard to
                                              Section 13.08 and Section 13.13 of
                                              the Indenture), multiplied by the
                                              number of USD 1,000 principal
                                              amount of Convertible Notes (each
                                              such USD 1,000 principal amount, a
                                              "CONVERTIBLE NOTE")

         Option Entitlement:                  One Share per Option

         Strike Price:                        USD 15.65

         Premium:                             USD 110,998,055

         Premium Payment Date:                August 15, 2003

         Exchange:                            The New York Stock Exchange

         Related Exchange(s):                 The principal exchange(s) for
                                              options contracts or futures
                                              contracts, if any, with respect to
                                              the Shares

Exercise and Valuation:

         Exercise Period:                     Notwithstanding the Equity
                                              Definitions, the Exercise Period
                                              shall be, in respect of the
                                              Exercise Options, each

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       2
<PAGE>

                                                                 [JPMORGAN LOGO]

                                              period commencing from the date a
                                              Notice of Conversion is submitted
                                              to the Counterparty by a holder of
                                              Convertible Notes to and including
                                              the third Exchange Business Day
                                              following the Conversion Date for
                                              such Convertible Notes. For the
                                              avoidance of doubt, only a number
                                              of options equal to the Exercise
                                              Options shall be exercisable
                                              hereunder, and only during the
                                              Exercise Period for such Exercise
                                              Options.

         Exercise Options:                    A number of Options equal to the
                                              Conversion Rate (but without
                                              regard to any adjustment under
                                              Section 13.08 and Section 13.13 of
                                              the Indenture) of Convertible
                                              Notes surrendered to Counterparty
                                              for conversion times the number of
                                              such Convertible Notes.

         Expiration Time:                     The Valuation Time

         Expiration Date:                     In respect of any Exercise
                                              Options, the earlier of August 15,
                                              2008 and the final day of the
                                              Exercise Period in respect of such
                                              Exercise Options.

         Multiple Exercise:                   Applicable; and means that
                                              Counterparty may exercise, with
                                              respect to an Exercise Period and
                                              the Exercise Options relating to
                                              such Period, a number of Options
                                              not less than one (1) and not
                                              greater than such Exercise
                                              Options.

         Automatic Exercise:                  Applicable; and means that a
                                              number of Options not previously
                                              exercised hereunder equal to the
                                              Exercise Options shall be deemed
                                              to be exercised on the Expiration
                                              Date for the Exercise Period
                                              relating to such Exercise Options;
                                              provided that Counterparty has
                                              notified JPMorgan (in writing or
                                              orally) of the Conversion Date and
                                              the number of such Exercise
                                              Options one Exchange Business Day
                                              prior to such Expiration Date.

         Valuation Time:                      At the close of trading of the
                                              regular trading session on the
                                              Exchange

Settlement Terms:

         Physical Settlement:                 Applicable; provided that if and
                                              to the extent Counterparty is
                                              required to deliver cash in lieu
                                              of fractional Shares (or any
                                              fractional Shares) with respect to
                                              the settlement of Convertible
                                              Notes, the Calculation Agent shall
                                              adjust the settlement terms
                                              hereunder to account for delivery
                                              by JPMorgan to Counterparty of
                                              such cash or fractional Shares in
                                              the amount of such required
                                              delivery obligation.

         Settlement Date:                     For any Exercise Options relating
                                              to the conversion of Convertible
                                              Notes, the settlement date for
                                              Shares to be

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       3
<PAGE>

                                                                 [JPMORGAN LOGO]

                                              delivered under such Convertible
                                              Notes under the terms of the
                                              Indenture.

         Failure to Deliver:                  Applicable

3. Additional Terms applicable to the Transaction:

   Adjustments applicable to the Transaction:

    Potential Adjustment Events:              Notwithstanding Section 9.1(e) of
                                              the Equity Definitions, a
                                              "Potential Adjustment Event" means
                                              any occurrence of any event or
                                              condition, as set forth in Section
                                              13.06 of the Indenture that would
                                              result in an adjustment to the
                                              Conversion Rate of the Convertible
                                              Notes; provided that in no event
                                              shall there be any adjustment
                                              hereunder as a result of an
                                              adjustment to the Conversion Rate
                                              pursuant to Section 13.08 and
                                              Section 13.13 of the Indenture.

    Method of Adjustment:                     Calculation Agent Adjustment, and
                                              means that, notwithstanding
                                              Section 9.1(c) of the Equity
                                              Definitions, upon any adjustment
                                              to the Conversion Rate of the
                                              Convertible Notes pursuant to the
                                              Indenture (other than Section
                                              13.08 and Section 13.13 of the
                                              Indenture), the Calculation Agent
                                              will make a corresponding
                                              adjustment to any one or more of
                                              the Strike Price, Number of
                                              Options, the Option Entitlement
                                              and any other variable relevant to
                                              the exercise, settlement or
                                              payment for the Transaction.

Extraordinary Events applicable to the Transaction:

         Merger Events:                       Notwithstanding Section 9.2(a) of
                                              the Equity Definition, a "Merger
                                              Event" means the occurrence of any
                                              event or condition set forth in
                                              Section 8.01 of the Indenture.

         Consequence of Merger Events:        Notwithstanding Section 9.3 of the
                                              Equity Definition, upon the
                                              occurrence of a Merger Event, the
                                              Calculation Agent shall make a
                                              corresponding adjustment in
                                              respect of any adjustment under
                                              the Indenture to any one or more
                                              of the nature of the Shares,
                                              Strike Price, Number of Options,
                                              the Option Entitlement and any
                                              other variable relevant to the
                                              exercise, settlement or payment
                                              for the Transaction.

Additional Termination Events:            If an event of default with respect to
                                          Counterparty shall occur under the
                                          terms of the Convertible Notes as set
                                          forth in Section 5.01 of the
                                          Indenture, then such event shall
                                          constitute an Additional Termination
                                          Event applicable to this Transaction
                                          and, with respect to such event (i)
                                          Counterparty shall be deemed to be
                                          Affected Party and JPMorgan shall be
                                          deemed to be the party that is not the
                                          Affected Party and (ii) JPMorgan shall
                                          be the party entitled to designate an
                                          Early Termination Date pursuant to
                                          Section 6(b) of the Agreement.

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       4
<PAGE>

                                                                 [JPMORGAN LOGO]

Payments on Early Termination:                Second Method and Loss

  4. Calculation Agent:                       JPMorgan, whose calculations and
                                              determinations shall be made in
                                              good faith and in a commercially
                                              reasonable manner, including with
                                              respect to calculations and
                                              determinations that are made in
                                              its sole discretion.

  5. Account Details:

         (a)      Account for payments to Counterparty:

                  Cadence Design Systems, Inc.
                  _________________________________
                  _________________________________
                  _________________________________
                  _________________________________
                  _________________________________

                  Account for delivery of Shares to Counterparty:

                  Mellon Investor Services
                  235 Montgomery Street, 23rd Floor
                  San Francisco, CA 94104
                  Cadence Design Systems Book Memo Treasury Reserve Account
                  Comment: When you are ready to deliver shares contact Cadence
                  FIRST.

         (b)      Account for payments to JPMorgan:

                  JPMorgan Chase Bank, New York
                  _________________________________
                  _________________________________
                  _________________________________
                  _________________________________

                  Account for delivery of Shares from JPMorgan:

                  DTC 060

  6. Offices:

The Office of Counterparty for the Transaction is: Inapplicable, Counterparty is
not a Multibranch Party.

The Office of JPMorgan for the Transaction is: New York

                  JP Morgan Chase Bank
                  London Branch
                  P.O. Box 161
                  60 Victoria Embankment
                  London EC4Y 0JP, England

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       5
<PAGE>

                                                                 [JPMORGAN LOGO]

  7. Notices: For purposes of this Confirmation:

         (a)      Address for notices or communications to Counterparty:

                  Cadence Design Systems, Inc.
                  Attention: Treasurer
                  Telephone No.: (408) 943-1234
                  Telecopy No.: (408) 943-0513

                  Address for notices or communications to JPMorgan:

                  JPMorgan Chase Bank
                  277 Park Avenue, 11th Floor
                  New York, NY 10172
                  Attention: Kevin J. Moran
                  EDG Corporate Marketing
                  Telephone No.: (212)622-6707
                  Telecopy No.:  (212)622- 8534

  8. Other Provisions:

         (a)      No Reliance, etc. Each party represents that (i) it is
                  entering into the Transaction evidenced hereby as principal
                  (and not as agent or in any other capacity); (ii) neither the
                  other party nor any of its agents are acting as a fiduciary
                  for it; (iii) it is not relying upon any representations
                  except those expressly set forth in the Agreement or this
                  Confirmation; (iv) it has not relied on the other party for
                  any legal, regulatory, tax, business, investment, financial,
                  and accounting advice, and it has made its own investment,
                  hedging, and trading decisions based upon its own judgment and
                  upon any view expressed by the other party or any of its
                  agents; and (v) it is entering into this Transaction with a
                  full understanding of the terms, conditions and risks thereof
                  and it is capable of and willing to assume those risks.

         (b)      Share De-listing Event. If at any time during the period from
                  and including the Trade Date, to and including August 15,
                  2008, the Shares cease to be listed on the Exchange for any
                  reason (other than a Merger Event) and are not immediately
                  re-listed as of the date of such de-listing on The New York
                  Stock Exchange, The American Stock Exchange or the Nasdaq
                  National Market System (or their respective successors) (the
                  "SUCCESSOR EXCHANGE"), then Cancellation and Payment shall
                  apply, and the date of the de-listing shall be deemed the date
                  of termination for purposes of calculating any payment due
                  from one party to the other in connection with the
                  cancellation of this Transaction. If the Shares are
                  immediately re-listed on a Successor Exchange upon their
                  de-listing from the Exchange, this Transaction shall continue
                  in full force and effect, provided that the Successor Exchange
                  shall be deemed to be the Exchange for all purposes hereunder.
                  In addition, the Calculation Agent shall make any adjustments
                  it deems necessary to the terms of the Transaction in
                  accordance with Calculation Agent Adjustment method as defined
                  under Section 9.1(c) of the Equity Definitions.

         (c)      Repurchase Notices. Counterparty shall, on any day on which
                  Counterparty effects any repurchase of Shares, promptly give
                  JPMorgan a written notice of such repurchase (a "REPURCHASE
                  NOTICE") if following such repurchase, the Options Equity
                  Percentage as determined on such day is (i) greater than 5%
                  and (ii) greater by 0.5% than the Options

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       6
<PAGE>

                                                                 [JPMORGAN LOGO]

                  Equity Percentage included in the immediately preceding
                  Repurchase Notice (or, in the case of the first such
                  Repurchase Notice, greater than the Options Equity Percentage
                  as of the date hereof). The "OPTIONS EQUITY PERCENTAGE" as of
                  any day is the fraction (A) the numerator of which is the
                  product of the Number of Options and the Option Entitlement
                  and (B) the denominator of which is the number of Shares
                  outstanding on such day. Counterparty agrees to indemnify and
                  hold harmless JPMorgan and its affiliates and their respective
                  officers, directors, employees, affiliates, advisors, agents
                  and controlling persons (each, an "INDEMNIFIED PERSON") from
                  and against any and all losses (including losses relating to
                  JPMorgan's hedging activities as a consequence of becoming, or
                  of the risk of becoming, a Section 16 "insider", including
                  without limitation, any forbearance from hedging activities or
                  cessation of hedging activities and any losses in connection
                  therewith with respect to this Transaction), claims, damages,
                  judgments, liabilities and expenses (including reasonable
                  attorney's fees), joint or several, to which an Indemnified
                  Person actually incurs as a result of Counterparty's failure
                  to provide JPMorgan with a Repurchase Notice on the day and in
                  the manner specified in this Section 8(c), and to reimburse,
                  within 30 days, upon written request, each of such Indemnified
                  Persons for any reasonable legal or other expenses incurred in
                  connection with investigating, preparing for, providing
                  testimony or other evidence in connection with or defending
                  any of the foregoing. If any suit, action, proceeding
                  (including any governmental or regulatory investigation),
                  claim or demand shall be brought or asserted against the
                  Indemnified Person, such Indemnified Person shall promptly
                  notify the Counterparty in writing, and the Counterparty, upon
                  request of the Indemnified Person, shall retain counsel
                  reasonably satisfactory to the Indemnified Person to represent
                  the Indemnified Person and any others the Counterparty may
                  designate in such proceeding and shall pay the fees and
                  expenses of such counsel related to such proceeding.
                  Counterparty shall not be liable for any settlement of any
                  proceeding effected without its written consent, but if
                  settled with such consent or if there be a final judgment for
                  the plaintiff, Counterparty agrees to indemnify any
                  Indemnified Person from and against any loss or liability by
                  reason of such settlement or judgment. Counterparty shall not,
                  without the prior written consent of the Indemnified Person,
                  effect any settlement of any pending or threatened proceeding
                  in respect of which any Indemnified Person is or could have
                  been a party and indemnity could have been sought hereunder by
                  such Indemnified Person, unless such settlement includes an
                  unconditional release of such Indemnified Person from all
                  liability on claims that are the subject matter of such
                  proceeding on terms reasonably satisfactory to such
                  Indemnified Person. If the indemnification provided for in
                  this paragraph (c) is unavailable to an Indemnified Person or
                  insufficient in respect of any losses, claims, damages or
                  liabilities referred to therein, then Counterparty under such
                  paragraph, in lieu of indemnifying such Indemnified Person
                  thereunder, shall contribute to the amount paid or payable by
                  such Indemnified Person as a result of such losses, claims,
                  damages or liabilities. The remedies provided for in this
                  paragraph (c) are not exclusive and shall not limit any rights
                  or remedies which may otherwise be available to any
                  Indemnified Party at law or in equity. The indemnity and
                  contribution agreements contained in this paragraph (c) shall
                  remain operative and in full force and effect regardless of
                  the termination of this Transaction.

         (d)      Material Non-Public Information. Counterparty represents and
                  warrants that each of it and its Affiliates is not, on the
                  date hereof, in possession of any material non-public
                  information with respect to Counterparty.

         (e)      Eligible Contract Participant. Counterparty represents and
                  warrants that it is an "eligible contract participant" (as
                  such term is defined in Section 1(a)(12) of the Commodity
                  Exchange Act, as amended (the "CEA") because one or more of
                  the following is true:

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       7
<PAGE>

                                                                 [JPMORGAN LOGO]

                  Counterparty is a corporation, partnership, proprietorship,
                  organization, trust or other entity and:

                           (A)      Counterparty has total assets in excess of
                                    USD 10,000,000;

                           (B)      the obligations of Counterparty hereunder
                                    are guaranteed, or otherwise supported by a
                                    letter of credit or keepwell, support or
                                    other agreement, by an entity of the type
                                    described in Section 1a(12)(A)(i) through
                                    (iv), 1a(12)(A)(v)(I), 1a(12)(A)(vii) or
                                    1a(12)(C) of the CEA; or

                           (C)      Counterparty has a net worth in excess of
                                    USD 1,000,000 and has entered into this
                                    Agreement in connection with the conduct of
                                    Counterparty's business or to manage the
                                    risk associated with an asset or liability
                                    owned or incurred or reasonably likely to be
                                    owned or incurred by Counterparty in the
                                    conduct of Counterparty's business.

         (f)      Regulation M. The Counterparty was not on the Trade Date and
                  is not on the date hereof engaged in a distribution, as such
                  term is used in Regulation M under the Securities Exchange Act
                  of 1934, as amended ("EXCHANGE ACT"), of any securities of
                  Counterparty, other than a distribution meeting the
                  requirements of the exception set forth in sections 101(b)(10)
                  and 102(b)(7) of Regulation M. The Counterparty shall not,
                  until the fifth Exchange Business Day immediately following
                  the Trade Date, engage in any such distribution.

         (g)      No Manipulation. The Counterparty is not entering into this
                  Transaction to create actual or apparent trading activity in
                  the Shares (or any security convertible into or exchangeable
                  for the Shares) or to raise or depress or otherwise manipulate
                  the price of the Shares (or any security convertible into or
                  exchangeable for the Shares).

         (h)      Number of Repurchased Shares. Counterparty represents that it
                  could have purchased Shares, in an amount equal to the product
                  of the Number of Options and the Option Entitlement, on the
                  Exchange or otherwise, in compliance with applicable law, its
                  organizational documents and any orders, decrees, contractual
                  agreements binding upon Counterparty, on the Trade Date.

         (i)      Board Authorization. Each of this Transaction and the issuance
                  of the Convertible Notes was approved by its board of
                  directors and publicly announced, solely for the purposes
                  stated in such board resolution and public disclosure and,
                  prior to any exercise of Options hereunder, Counterparty's
                  board of directors will have duly authorized any repurchase of
                  Shares pursuant to this Transaction. Counterparty further
                  represents that there is no internal policy, whether written
                  or oral, of Counterparty that would prohibit Counterparty from
                  entering into any aspect of this Transaction, including, but
                  not limited to, the purchases of Shares to be made pursuant
                  hereto.

         (j)      Transfer or Assignment. Neither party may transfer any of its
                  rights or obligations under this Transaction without the prior
                  written consent of the non-transferring party; provided that
                  if, as determined at JPMorgan's sole discretion, its
                  "beneficial ownership" (within the meaning of Section 16 of
                  the Exchange Act and rules promulgated thereunder) exceeds 8%
                  of Counterparty's outstanding Shares, JPMorgan may transfer or
                  assign a number of Options sufficient to reduce such
                  "beneficial ownership" to 7.5% to any third party with a
                  rating for its long term, unsecured and unsubordinated
                  indebtedness of A+ or better by Standard and Poor's Rating
                  Group, Inc. or its successor ("S&P"), or A1 or

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       8
<PAGE>

                                                                 [JPMORGAN LOGO]

                  better by Moody's Investor Service, Inc. ("MOODY'S") or, if
                  either S&P or Moody's ceases to rate such debt, at least an
                  equivalent rating or better by a substitute agency rating
                  mutually agreed by Counterparty and JPMorgan. If, in the
                  discretion of JPMorgan, JPMorgan is unable to effect such
                  transfer or assignment after its commercially reasonable
                  efforts on pricing terms reasonably acceptable to JPMorgan and
                  within a time period reasonably acceptable to JPMorgan,
                  JPMorgan may designate any Exchange Business Day as an Early
                  Termination Date with respect to a portion (the "TERMINATED
                  PORTION") of this Transaction, such that its "beneficial
                  ownership" following such partial termination will be equal to
                  or less than 8%. In the event that JPMorgan so designates an
                  Early Termination Date with respect to a portion of this
                  Transaction, a payment shall be made pursuant to Section 6 of
                  the Agreement as if (i) an Early Termination Date had been
                  designated in respect of a Transaction having terms identical
                  to this Transaction and a Number of Options equal to the
                  Terminated Portion, (ii) the Counterparty and JPMorgan shall
                  both be Affected Parties with respect to such partial
                  termination and (iii) such Transaction shall be the only
                  Terminated Transaction. Notwithstanding any other provision in
                  this Confirmation to the contrary requiring or allowing
                  JPMorgan to purchase, sell, receive or deliver any shares or
                  other securities to or from Counterparty, JPMorgan may
                  designate any of its affiliates to purchase, sell, receive or
                  deliver such shares or other securities and otherwise to
                  perform JPMorgan's obligations in respect of this Transaction
                  and any such designee may assume such obligations. JPMorgan
                  shall be discharged of its obligations to Counterparty to the
                  extent of any such performance.

         (k)      Amendment. Paragraph (i) of Section 9.7(b) of the Equity
                  Definitions is hereby amended for purposes of this Transaction
                  by replacing "two-year" with "90 calendar day".

         (l)      Damages. Neither party shall be liable under Section 6.10 of
                  the Equity Definitions for special, indirect or consequential
                  damages, even if informed of the possibility thereof.

         (m)      Early Unwind. In event the sale of Convertible Notes is not
                  consummated with the initial purchasers for any reason by the
                  close of business in New York on August 15, 2003 (or such
                  later date as agreed upon by the parties) (August 15, 2003 or
                  such later date as agreed upon being the "EARLY UNWIND DATE"),
                  this Transaction shall automatically terminate (the "EARLY
                  UNWIND"), on the Early Unwind Date and (i) the Transaction and
                  all of the respective rights and obligations of JPMorgan and
                  Counterparty under the Transaction shall be cancelled and
                  terminated and (ii) each party shall be released and
                  discharged by the other party from and agrees not to make any
                  claim against the other party with respect to any obligations
                  or liabilities of the other party arising out of and to be
                  performed in connection with the Transaction either prior to
                  or after the Early Unwind Date; provided that Counterparty
                  shall purchase from JPMorgan on the Early Unwind Date all
                  Shares purchased by JPMorgan or one or more of its affiliates
                  and assume, or reimburse the cost of, derivatives entered into
                  by JPMorgan or one or more of its affiliates in connection
                  with hedging this Transaction. The Purchase price paid by the
                  Counterparty shall be JPMorgan's actual cost of such Shares
                  and derivatives as JPMorgan informs Counterparty and shall be
                  paid in immediately available funds on the Early Unwind Date.
                  JPMorgan and Counterparty represent and acknowledge to the
                  other that, subject to the proviso included in the preceding
                  sentence, upon an Early Unwind, all obligations with respect
                  to the Transaction shall be deemed fully and finally
                  discharged.

         (n)      Role of Agent. Each party agrees and acknowledges that (i)
                  J.P. Morgan Securities Inc., an affiliate of JPMorgan
                  ("JPMSI"), has acted solely as agent and not as principal with
                  respect to this Transaction and (ii) JPMSI has no obligation
                  or liability, by way of guaranty, endorsement or otherwise, in
                  any manner in respect of this Transaction (including, if
                  applicable, in respect of the settlement thereof). Each party
                  agrees it will

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                     BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       9
<PAGE>

                                                                 [JPMORGAN LOGO]

                  look solely to the other party (or any guarantor in respect
                  thereof) for performance of such other party's obligations
                  under this Transaction.

         (o)      Additional Provisions.

                  (i) Section 9.6(a)(ii) of the Equity Definitions is hereby
                  amended by (1) deleting from the third line thereof the word
                  "or" after the word "official" and inserting a comma therefor,
                  and (2) deleting the period at the end of subsection (ii)
                  thereof and inserting the following words therefor " or (C) at
                  JPMorgan's option, the occurrence of any of the events
                  specified in Section 5(a)(vii) (1) through (9) of the ISDA
                  Master Agreement with respect to that Issuer."

                  (ii) Notwithstanding Section 9.7 of the Equity Definitions,
                  everything in the first paragraph of Section 9.7(b) of the
                  Equity Definitions after the words "Calculation Agent" in the
                  third line through the remainder of such Section 9.7 shall be
                  deleted and replaced with the following:

                  "based on an amount representing the Calculation Agent's
                  determination of the fair value to Buyer of an option with
                  terms that would preserve for Buyer the economic equivalent of
                  any payment or delivery (assuming satisfaction of each
                  applicable condition precedent) by the parties in respect of
                  the relevant Transaction that would have been required after
                  that date but for the occurrence of the Nationalization or
                  De-Listing Event, as the case may be."

         (p)      Alternative Calculations and Payment on Early Termination and
                  on Certain Extraordinary Events. If JPMorgan shall owe
                  Counterparty any amount pursuant to Sections 9.3, 9.6 or 9.7
                  of the Equity Definitions or pursuant to any early termination
                  hereunder or under the Agreement or pursuant to Section
                  6(d)(ii) of the Agreement or otherwise (a "PAYMENT
                  OBLIGATION"), JPMorgan may, in its sole discretion, satisfy
                  any such Payment Obligation by the Share Termination
                  Alternative (as defined below) by giving irrevocable
                  telephonic notice to Counterparty, confirmed in writing within
                  one Currency Business Day, between the hours of 9:00 a.m. and
                  4:00 p.m. New York local time on the Announcement Date or
                  Early Termination Date, as applicable ("NOTICE OF SHARE
                  TERMINATION"). Upon Notice of Share Termination no later than
                  8:00 a.m. on the Exchange Business Day immediately following
                  the Announcement Date or Early Termination Date, as
                  applicable, the following provisions shall apply:

                  Share Termination               Applicable and means that
                  Alternative:                    JPMorgan shall deliver to
                                                  Counterparty the Share
                                                  Termination Delivery Property
                                                  on the date when the Payment
                                                  Obligation would otherwise be
                                                  due pursuant to Section 9.7 of
                                                  the Equity Definitions or
                                                  Section 6(d)(ii) of the
                                                  Agreement, as applicable (the
                                                  "SHARE TERMINATION PAYMENT
                                                  DATE"), in satisfaction of the
                                                  Payment Obligation in the
                                                  manner reasonably requested by
                                                  Counterparty free of payment.

                  Share Termination Delivery      A number of Share Termination
                  Property:                       Delivery Units, as calculated
                                                  by the Calculation Agent,
                                                  equal to the Payment
                                                  Obligation divided by the
                                                  Share Termination Unit

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       10
<PAGE>

                                                                 [JPMORGAN LOGO]

                                              Price. The Calculation Agent shall
                                              adjust the Share Termination
                                              Delivery Property by replacing any
                                              fractional portion of a security
                                              therein with an amount of cash
                                              equal to the value of such
                                              fractional security based on the
                                              values used to calculate the Share
                                              Termination Unit Price.

         Share Termination Unit Price:        The value to JPMorgan of property
                                              contained in one Share Termination
                                              Delivery Unit on the date such
                                              Share Termination Delivery Units
                                              are to be delivered as Share
                                              Termination Delivery Property, as
                                              determined by the Calculation
                                              Agent in its discretion by
                                              commercially reasonable means and
                                              notified by the Calculation Agent
                                              to JPMorgan at the time of
                                              notification of the Payment
                                              Obligation.

         Share Termination Delivery Unit:     One Share or, if a Merger Event
                                              has occurred and a corresponding
                                              adjustment to this Transaction has
                                              been made, a unit consisting of
                                              the number or amount of each type
                                              of property received by a holder
                                              of one Share (without
                                              consideration of any requirement
                                              to pay cash or other consideration
                                              in lieu of fractional amounts of
                                              any securities) in such Merger
                                              Event, as determined by the
                                              Calculation Agent.

         Failure to Deliver:                  Applicable

         Other applicable provisions:         If this Transaction is to be Share
                                              Termination Settled, the
                                              provisions of Sections 6.6, 6.7,
                                              6.8 and 6.10 (as modified above)
                                              of the Equity Definitions will be
                                              applicable, except that all
                                              references in such provisions to
                                              "Physically-Settled" shall be read
                                              as references to "Share
                                              Termination Settled" and all
                                              references to "Shares" shall be
                                              read as references to "Share
                                              Termination Delivery Units".
                                              "Share Termination Settled" in
                                              relation to this Transaction means
                                              that Share Termination Settlement
                                              is applicable to this Transaction.

(q)      Governing Law. New York law (without reference to choice of law
         doctrine).

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       11
<PAGE>


                                                                 [JPMORGAN LOGO]

         Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing this Confirmation and returning it to EDG Confirmation
Group, J.P. Morgan Securities Inc., 277 Park Avenue, 11th Floor, New York, NY
10172-3401, or by fax on 212 622 8519 (PLEASE NOTE THIS NEW FAX NUMBER).

                                 Very truly yours,

                                       J.P. Morgan Securities Inc., as agent for
                                       JPMorgan Chase Bank

                                       By: /s/ Nicola Mudge
                                           --------------------
                                       Authorized Signatory
                                       Name: NICOLA MUDGE

         Accepted and confirmed
         as of the Trade Date:

         CADENCE DESIGN SYSTEMS, INC.

         By:___________________
         Authorized Signatory
         Name:

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS ON NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
   REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y5N HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

<PAGE>

                                                                 [JPMORGAN LOGO]

         Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing this Confirmation and returning it to EDG Confirmation
Group, J.P. Morgan Securities Inc., 277 Park Avenue. 11th Floor, New York, NY
10172-3401, or by fax on 212 622 8519 (PLEASE NOTE THIS NEW FAX NUMBER).

                                    Very truly yours,

                                       J.P. MORGAN SECURITIES INC., AS AGENT FOR
                                       JPMORGAN CHASE BANK

                                       By:_______________________
                                       Authorized Signatory
                                       Name:

         Accepted and confirmed
         as of the Trade Date:

         CADENCE DESIGN SYSTEMS, INC.

         By: /s/ William Porter
             -----------------------
         Authorized Signatory
         Name:

                  WILLIAM PORTER
                  SR. VP &CFO

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, LISA.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.76
<SEQUENCE>11
<FILENAME>f93607exv10w76.txt
<DESCRIPTION>EXHIBIT 10.76
<TEXT>
<PAGE>
                                                                   EXHIBIT 10.76

                                                                 [JPMORGAN LOGO]

JPMorgan Chase Bank
P.O. Box 161
60 Victoria Embankment
London EC4Y 0JP
England

                                                                 August 27, 2003

TO: CADENCE DESIGN SYSTEMS, INC.
2655 Seely Avenue
San Jose, CA 95134
Attention: Treasurer
Telephone No.: (408) 943-1234
Facsimile No.: (408) 943-0513

Re: Warrants

Reference:

         The purpose of this letter agreement is to confirm the terms and
conditions of the Warrants issued by CADENCE DESIGN SYSTEMS, INC. ("COMPANY") to
JPMorgan Chase Bank, London Branch ("JPMORGAN") on the Trade Date specified
below (the "TRANSACTION"). This letter agreement constitutes a "Confirmation" as
referred to in the ISDA Master Agreement specified below. This Confirmation
shall replace any previous letter and serve as the final documentation for this
Transaction.

         The definitions and provisions contained in the 1996 ISDA Equity
Derivatives Definitions (the "EQUITY DEFINITIONS"), as published by the
International Swaps and Derivatives Association, Inc., are incorporated into
this Confirmation. In the event of any inconsistency between the Equity
Definitions and this Confirmation, this Confirmation shall govern. This
Transaction shall be deemed to be a Share Option Transaction within the meaning
set forth in the Equity Definitions.

         Each party is hereby advised, and each such party acknowledges, that
the other party has engaged in, or refrained from engaging in, substantial
financial transactions and has taken other material actions in reliance upon the
parties' entry into the Transaction to which this Confirmation relates on the
terms and conditions set forth below.

1.       This Confirmation evidences a complete and binding agreement between
JPMorgan and the Company as to the terms of the Transaction to which this
Confirmation relates. In addition, JPMorgan and the Company agree to make all
reasonable efforts to promptly negotiate, execute, and deliver an agreement in
the form of the 1992 ISDA Master Agreement (Multicurrency-Cross Border) (the
"AGREEMENT"), with such modifications as JPMorgan and the Company will in good
faith agree together with related schedules. Upon the execution by JPMorgan and
the Company of such an agreement, this Confirmation will supplement, form a part
of, and be subject to, that agreement. All provisions contained or incorporated
by reference in that agreement upon its execution will govern this Confirmation
except as expressly modified below. Until JPMorgan and the Company execute such
agreement, this Confirmation, together with all other documents referring to an
Agreement (each a "CONFIRMATION") confirming transactions (each a "TRANSACTION")
entered into between JPMorgan and the Company (notwithstanding anything to the
contrary in a Confirmation), shall supplement, form a part of, and be subject to
an agreement in the form of the Agreement as if JPMorgan and the Company had
executed an agreement in such form (but without any Schedule except for the
election of the laws of the State of New York as the governing law and United
States dollars as the Termination Currency and Second Method and Loss as the
payments on early termination) on the Trade Date of the first such Transaction
between JPMorgan and the Company. In the event of any inconsistency between
provisions

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
             INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE
                           CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

<PAGE>

of that agreement and this Confirmation, this Confirmation will prevail for the
purpose of the Transaction to which this Confirmation relates. The parties
hereby agree that if they have not executed an Agreement within 60 days from the
Trade Date it shall constitute an Additional Termination Event under the
Agreement in respect of which the Company is the sole Affected Party and this
Transaction is the sole Affected Transaction.

2.       The terms of the particular Transaction to which this Confirmation
         relates are as follows:

General Terms:

       Trade Date:                         August 27, 2003

       Warrants:                           American-style equity call warrants
                                           to be issued by the Company to
                                           JPMorgan, each giving the holder the
                                           right to purchase one Share at the
                                           Strike Price. For the purposes of
                                           Equity Definitions, each Warrant
                                           shall be deemed to be a Call Option.

       Buyer:                              JPMorgan

       Seller:                             Company

       Shares:                             The common stock of Company, par
                                           value USD 0.01 per Share (Exchange
                                           symbol "CDN")

       Number of Warrants:                 4,471,530

       Warrant Entitlement:                One Share per Warrant

       Multiple Exercise:                  Applicable

       Minimum Number of Warrants:         1

       Maximum Number of Warrants:         4,471,530

       Strike Price:                       USD 23.08

       Premium:                            USD 10,346,000

       Premium Payment Date:               August 29, 2003

       Exchange:                           The New York Stock Exchange

       Related Exchange(s):                The principal exchange(s) for options
                                           contracts or futures contracts, if
                                           any, with respect to the Shares

Exercise and Valuation:

       Expiration Time:                    The Valuation Time

       Expiration Date:                    For any Daily Number of Warrants,
                                           each date specified as such in Annex
                                           A hereto. If there is a Market
                                           Disruption Event on any Expiration
                                           Date, then the Calculation Agent
                                           shall determine the Reference Price
                                           or

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
            INCORPORATED LIMITED WITH LIABILITY AS A NEW YORK STATE
                           CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                        2

<PAGE>

                                           Settlement Price for such Expiration
                                           Date, as the case may be, on the
                                           basis of its good faith estimate of
                                           the trading value for the relevant
                                           Shares.

        Automatic Exercise:                Applicable

Valuation applicable to each Warrant:

       Valuation Time:                     At the close of trading of the
                                           regular trading session on the
                                           Exchange

       Valuation Date:                     The Exercise Date

Settlement Terms applicable to
 the Transaction:

Method of Settlement:                      Net Share Settlement; and means that,
                                           on each Settlement Date, Company
                                           shall deliver to JPMorgan, the Share
                                           Delivery Quantity of Shares for such
                                           Settlement Date to the account
                                           specified hereto free of payment
                                           through the Clearance System.

Share Delivery Quantity:                   For any Settlement Date, a number of
                                           Shares, as calculated by the
                                           Calculation Agent, equal to the Net
                                           Share Settlement Amount for such
                                           Settlement Date divided by the
                                           Settlement Price for such Settlement
                                           Date, plus cash in lieu of any
                                           fractional shares.

Net Share Settlement Amount:               For any Settlement Date, the Daily
                                           Number of Warrants specified in Annex
                                           A with respect to the Expiration Date
                                           corresponding to such Settlement Date
                                           multiplied by the Strike Price
                                           Differential for such Settlement
                                           Date.

Strike Price Differential:                 (a) If the Settlement Price for any
                                           Expiration Date is greater than the
                                           Strike Price, an amount equal to the
                                           excess of such Settlement Price over
                                           the Strike Price; or

                                           (b) If such Settlement Price is less
                                           than or equal to the Strike Price,
                                           zero.

Settlement Price:                          For any Expiration Date, the closing
                                           price per Share on the Exchange at
                                           the Valuation Time on the Valuation
                                           Date.

Settlement Date:                           For any Expiration Date, the date
                                           defined as such in Section 6.2 of the
                                           Equity Definitions, subject to
                                           Section 8(q)(i) hereof.

Failure to Deliver:                        Applicable

Other Applicable Provisions:               The provisions of Sections 6.6, 6.7,
                                           6.8 and 6.10 of the Equity
                                           Definitions will be applicable,
                                           except that all references in such
                                           provisions to "Physically-Settled"
                                           shall be read as references to "Net
                                           Share Settled". "Net

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
            INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE
                           CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE,NEW YORK, USA.

                                        3

<PAGE>

                                           Share Settled" in relation to any
                                           Warrant means that Net Share
                                           Settlement is applicable to that
                                           Warrant.

3. Additional Terms applicable to the
    Transaction:

   Adjustments applicable to the
    Warrants:

    Method of Adjustment:                  Calculation Agent Adjustment

Extraordinary Events applicable to the
    Transaction:

       Consequence of Merger Events

       (a) Share-for-Share:                Alternative Obligation; provided that
                                           the Calculation Agent will determine
                                           if the Merger Event affects the
                                           theoretical value of the Transaction
                                           and if so JPMorgan in its sole
                                           discretion may elect to make
                                           adjustments to the Strike Price and
                                           any other term necessary to reflect
                                           the characteristics (including
                                           volatility, dividend practice and
                                           policy and liquidity) of the New
                                           Shares. Notwithstanding the
                                           foregoing, Cancellation and Payment
                                           shall apply in the event the New
                                           Shares are not publicly traded on a
                                           United States national securities
                                           exchange or quoted on the Nasdaq
                                           National Market System.

       (b) Share-for-Other:                Cancellation and Payment

       (c) Share-for-Combined:             Cancellation and Payment

       Nationalization or Insolvency:      Cancellation and Payment

Nationalization or Insolvency:             Cancellation and Payment

Payments on Early Termination:          Second Method and Loss

4. Calculation Agent:                      JPMorgan, whose calculations
                                           and determinations shall be made in
                                           good faith and in a commercially
                                           reasonable manner, including with
                                           respect to calculations and
                                           determinations that are made in its
                                           sole discretion.

5. Account Details:

         (a)      Account for payments to Company:

                  Cadence Design Systems, Inc.
                  _________________________________
                  _________________________________
                  _________________________________
                  _________________________________
                  _________________________________

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
            INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE
                           CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                        4

<PAGE>

                  Account for delivery of Shares to Counterparty:

                  Mellon Investor Services
                  235 Montgomery Street, 23rd Floor
                  San Francisco, CA 94104
                  Cadence Design Systems Book Memo Treasury Reserve Account
                  Comment: When you are ready to deliver Shares contact Cadence
                  FIRST.

         (b)      Account for payments to JPMorgan:

                  JPMorgan Chase Bank, New York
                  _________________________________
                  _________________________________
                  _________________________________
                  _________________________________

                  Account for delivery of Shares from JPMorgan:

                  DTC 060

6. Offices:

The Office of Company for the Transaction is: Inapplicable, Company is not a
Multibranch Party.

The Office of JPMorgan for the Transaction is: New York

                  JPMorgan Chase Bank
                  London Branch
                  P.O. Box 161
                  60 Victoria Embankment
                  London EC4Y 0JP, England

 7. Notices: For purposes of this Confirmation:

         (a)      Address for notices or communications to Company:

                  Cadence Design Systems, Inc.
                  Attention: Treasurer
                  Telephone No.: (408) 943-1234
                  Facsimile No.: (408)943-0513

                  Address for notices or communications to JPMorgan:

                  JPMorgan Chase Bank
                  277 Park Avenue, 11th Floor
                  New York, NY 10172
                  Attention: Kevin J. Moran
                  EDG Corporate Marketing
                  Telephone No.: (212) 622-6707
                  Facsimile No.: (212) 622-8534

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
            INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE
                           CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                        5


<PAGE>

8. Other Provisions:

         (a)      No Reliance, etc. Each party represents that (i) it is
                  entering into the Transaction evidenced hereby as principal
                  (and not as agent or in any other capacity); (ii) neither the
                  other party nor any of its agents are acting as a fiduciary
                  for it; (iii) it is not relying upon any representations
                  except those expressly set forth in the Agreement or this
                  Confirmation; (iv) it has not relied on the other party for
                  any legal, regulatory, tax, business, investment, financial,
                  and accounting advice, and it has made its own investment,
                  hedging, and trading decisions based upon its own judgment and
                  upon any view expressed by the other party or any of its
                  agents; and (v) it is entering into this Transaction with a
                  full understanding of the terms, conditions and risks thereof
                  and it is capable of and willing to assume those risks.

         (b)      Share De-listing Event. If at any time during the period from
                  and including the Trade Date, to and including the final
                  Valuation Date, the Shares cease to be listed on the Exchange
                  for any reason (other than a Merger Event) and are not
                  immediately re-listed as of the date of such de-listing on The
                  New York Stock Exchange, The American Stock Exchange or the
                  Nasdaq National Market System (or their respective successors)
                  (the "SUCCESSOR EXCHANGE"), then Cancellation and Payment
                  shall apply, and the date of the de-listing shall be deemed
                  the date of termination for purposes of calculating any
                  payment due from one party to the other in connection with the
                  cancellation of this Transaction. If the Shares are
                  immediately re-listed on a Successor Exchange upon their
                  de-listing from the Exchange, this Transaction shall continue
                  in full force and effect, provided that the Successor Exchange
                  shall be deemed to be the Exchange for all purposes hereunder.
                  In addition, the Calculation Agent shall make any adjustments
                  it deems necessary to the terms of the Transaction in
                  accordance with Calculation Agent Adjustment method as defined
                  under Section 9.1(c) of the Equity Definitions.

         (c)      Repurchase Notices. Company shall, on any day on which Company
                  effects any repurchase of Shares, promptly give JPMorgan a
                  written notice of such repurchase (a "REPURCHASE NOTICE") if
                  following such repurchase, the Warrants Equity Percentage as
                  determined on such day is (i) greater than 5% and (ii) greater
                  by 0.5% than the Warrants Equity Percentage included in the
                  immediately preceding Repurchase Notice (or, in the case of
                  the first such Repurchase Notice, greater than the Warrants
                  Equity Percentage as of the date hereof). The "WARRANTS EQUITY
                  PERCENTAGE" as of any day is the fraction (A) the numerator of
                  which is the sum of (1) the product of the Number of Warrants
                  and the Warrant Entitlement and (2) the product of the Number
                  of Warrants as defined in the Confirmation dated August 11,
                  2003 between Counterparty and JPMorgan relating to 22,357,646
                  Warrants of the Company (the "INITIAL TRANSACTION") and the
                  Warrant Entitlement as defined in the Initial Transaction, and
                  (B) the denominator of which is the number of Shares
                  outstanding on such day. Company agrees to indemnify and hold
                  harmless JPMorgan and its affiliates and their respective
                  officers, directors, employees, affiliates, advisors, agents
                  and controlling persons (each, an "INDEMNIFIED PERSON") from
                  and against any and all losses (including losses relating to
                  JPMorgan's hedging activities as a consequence of becoming, or
                  of the risk of becoming, a Section 16 "insider", including
                  without limitation, any forbearance from hedging activities or
                  cessation of hedging activities and any losses in connection
                  therewith with respect to this Transaction), claims, damages,
                  judgments, liabilities and expenses (including reasonable
                  attorney's fees), joint or several, which an Indemnified
                  Person actually incurs as a result of Company's failure to
                  provide JPMorgan with a Repurchase Notice on the day and in
                  the manner specified in this Section 8(c), and to reimburse,
                  within 30 days, upon written request, each of such Indemnified
                  Persons for any reasonable legal or other expenses incurred in
                  connection with investigating, preparing for, providing
                  testimony or other evidence in connection with or defending
                  any of the foregoing. If any suit, action,

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                        6

<PAGE>

                  proceeding (including any governmental or regulatory
                  investigation), claim or demand shall be brought or asserted
                  against the Indemnified Person, such Indemnified Person shall
                  promptly notify the Company in writing, and the Company, upon
                  request of the Indemnified Person, shall retain counsel
                  reasonably satisfactory to the Indemnified Person to represent
                  the Indemnified Person and any others the Company may
                  designate in such proceeding and shall pay the fees and
                  expenses of such counsel related to such proceeding. Company
                  shall not be liable for any settlement of any proceeding
                  effected without its written consent, but if settled with such
                  consent or if there be a final judgment for the plaintiff,
                  Company agrees to indemnify any Indemnified Person from and
                  against any loss or liability by reason of such settlement or
                  judgment. Company shall not, without the prior written consent
                  of the Indemnified Person, effect any settlement of any
                  pending or threatened proceeding in respect of which any
                  Indemnified Person is or could have been a party and indemnity
                  could have been sought hereunder by such Indemnified Person,
                  unless such settlement includes an unconditional release of
                  such Indemnified Person from all liability on claims that are
                  the subject matter of such proceeding on terms reasonably
                  satisfactory to such Indemnified Person. If the
                  indemnification provided for in this paragraph (c) is
                  unavailable to an Indemnified Person or insufficient in
                  respect of any losses, claims, damages or liabilities referred
                  to therein, then Company under such paragraph, in lieu of
                  indemnifying such Indemnified Person thereunder, shall
                  contribute to the amount paid or payable by such Indemnified
                  Person as a result of such losses, claims, damages or
                  liabilities. The remedies provided for in this paragraph (c)
                  are not exclusive and shall not limit any rights or remedies
                  which may otherwise be available to any Indemnified Party at
                  law or in equity. The indemnity and contribution agreements
                  contained in this paragraph (c) shall remain operative and in
                  full force and effect regardless of the termination of this
                  Transaction.

         (d)      Material Non-Public Information. Company represents and
                  warrants that each of it and its Affiliates is not, on the
                  date hereof, in possession of any material non-public
                  information with respect to Company.

         (e)      Eligible Contract Participant. Company represents and warrants
                  that it is an "eligible contract participant" (as such term is
                  defined in Section 1(a)(12) of the Commodity Exchange Act, as
                  amended (the "CEA")) because one or more of the following is
                  true:

                  Company is a corporation, partnership, proprietorship,
                  organization, trust or other entity and:

                           (A)      Company has total assets in excess of USD
                                    10,000,000;

                           (B)      the obligations of Company hereunder are
                                    guaranteed, or otherwise supported by a
                                    letter of credit or keepwell, support or
                                    other agreement, by an entity of the type
                                    described in Section 1a(12)(A)(i) through
                                    (iv), 1a(12)(A)(v)(I), 1a(12)(A)(vii) or
                                    1a(12)(C) of the CEA; or

                           (C)      Company has a net worth in excess of USD
                                    1,000,000 and has entered into this
                                    Agreement in connection with the conduct of
                                    Company's business or to manage the risk
                                    associated with an asset or liability owned
                                    or incurred or reasonably likely to be owned
                                    or incurred by Company in the conduct of
                                    Company's business.

         (f)      Regulation M. The Company was not on the Trade Date and is not
                  on the date hereof engaged in a distribution, as such term is
                  used in Regulation M under the Securities Exchange Act of
                  1934, as amended ("EXCHANGE ACT"), of any securities of
                  Company, other than a distribution meeting the requirements of
                  the exception set forth in sections 101(b)(10) and 102(b)(7)
                  of Regulation M. The Company shall not, until the fifth

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
       INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                        7

<PAGE>

                  Exchange Business Day immediately following the Trade Date,
                  engage in any such distribution.

         (g)      No Manipulation. The Company is not entering into this
                  Transaction to create actual or apparent trading activity in
                  the Shares (or any security convertible into or exchangeable
                  for the Shares) or to raise or depress or otherwise manipulate
                  the price of the Shares (or any security convertible into or
                  exchangeable for the Shares).

         (h)      Board Authorization. Company represents that it is entering
                  into the Transaction, solely for the purposes stated in the
                  board resolution authorizing this Transaction and in its
                  public disclosure. Company further represents that there is no
                  internal policy, whether written or oral, of Company that
                  would prohibit Company from entering into any aspect of this
                  Transaction, including, but not limited to, the purchases of
                  Shares to be made pursuant hereto.

         (i)      Transfer or Assignment. Company may not transfer any of its
                  rights or obligations under this Transaction without the prior
                  written consent of JPMorgan. JPMorgan may transfer or assign
                  all or any portion of its rights or obligations under this
                  Transaction without consent of the Company. If JPMorgan, in
                  its sole discretion, determines that its "beneficial
                  ownership" with respect to the Initial Transaction and this
                  Transaction (within the meaning of Section 16 of the Exchange
                  Act and rules promulgated thereunder) exceeds 8% or more of
                  the Company's outstanding Shares and, in its sole discretion,
                  JPMorgan is unable after its commercially reasonable efforts
                  to effect a transfer or assignment on pricing terms and in a
                  time period reasonably acceptable to JPMorgan that would
                  reduce its "beneficial ownership" to 7.5%, JPMorgan may
                  designate any Exchange Business Day as an Early Termination
                  Date with respect to a portion (the "TERMINATED PORTION") of
                  this Transaction or the Initial Transaction, such that the its
                  "beneficial ownership" following such partial termination will
                  be equal to or less than 8%. In the event that JPMorgan so
                  designates an Early Termination Date with respect to a portion
                  of this Transaction, a payment shall be made pursuant to
                  Section 6 of the Agreement as if (i) an Early Termination Date
                  had been designated in respect of a Transaction having terms
                  identical to this Transaction and a Number of Warrants equal
                  to the Terminated Portion, (ii) the Company and JPMorgan shall
                  both be Affected Parties with respect to such partial
                  termination and (iii) such Transaction shall be the only
                  Terminated Transaction. For the avoidance of doubt, if
                  JPMorgan assigns or terminates any Warrants hereunder, each
                  Daily Number of Warrants not previously settled as set forth
                  in Annex A hereto shall be reduced proportionally, as
                  calculated by the Calculation Agent. Notwithstanding any other
                  provision in this Confirmation to the contrary requiring or
                  allowing JPMorgan to purchase, sell, receive or deliver any
                  shares or other securities to or from Company, JPMorgan may
                  designate any of its affiliates to purchase, sell, receive or
                  deliver such shares or other securities and otherwise to
                  perform JPMorgan's obligations in respect of this Transaction
                  and any such designee may assume such obligations. JPMorgan
                  shall be discharged of its obligations to Company to the
                  extent of any such performance.

         (j)      Amendment. Paragraph (i) of Section 9.7(b) of the Equity
                  Definitions is hereby amended for purposes of this Transaction
                  by replacing "two-year" with "90 calendar day".

         (k)      Damages. Neither party shall be liable under Section 6.10 of
                  the Equity Definitions for special, indirect or consequential
                  damages, even if informed of the possibility thereof.

         (1)      Dividends. If at any time during the period from and including
                  the Trade Date, but excluding the Expiration Date, an
                  ex-dividend date for a cash dividend occurs with respect to
                  the Shares (an "EX-DIVIDEND DATE"), and that dividend is
                  greater than the Regular Dividend on a per share basis then
                  the forward value of the difference between the Regular
                  Dividend and the per share cash dividend corresponding to that
                  Ex-Dividend

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
             INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE
                           CHARTERED COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                        8

<PAGE>

                  Date shall be subtracted from the Strike Price. "REGULAR
                  DIVIDEND" shall mean USD 0.00 per Share per quarter. The
                  forward value of any such amount shall be calculated from the
                  Ex-Dividend Date through and including the Settlement Date.
                  The interest rate used for the calculation of such forward
                  values shall be the mid-market interpolated Eurodollar zero
                  coupon swap rate with a maturity corresponding to the
                  Settlement Date, as determined by JPMorgan.

         (m)      Netting and Setoff. Notwithstanding Section 2(c) of the
                  Agreement, Company waives its rights to net and offset against
                  its obligations hereunder any rights Company might have
                  against JPMorgan under any other transactions.

         (n)      Role of Agent. Each party agrees and acknowledges that (i)
                  J.P. Morgan Securities Inc., an affiliate of JPMorgan
                  ("JPMSI"), has acted solely as agent and not as principal with
                  respect to this Transaction and (ii) JPMSI has no obligation
                  or liability, by way of guaranty, endorsement or otherwise, in
                  any manner in respect of this Transaction (including, if
                  applicable, in respect of the settlement thereof). Each party
                  agrees it will look solely to the other party (or any
                  guarantor in respect thereof) for performance of such other
                  party's obligations under this Transaction.

         (o)      Additional Provisions.

                  (i) The first paragraph of Section 9.1(c) of the Equity
                  Definitions is hereby amended to read as follows: (c) 'If
                  "Calculation Agent Adjustment" is specified as the method of
                  adjustment in the Confirmation of a Share Option Transaction,
                  then following the declaration by the Issuer of the terms of
                  any Potential Adjustment Event, the Calculation Agent will
                  determine whether such Potential Adjustment Event has a
                  material effect on the theoretical value of the relevant
                  Shares or Warrants and, if so, will (i) make appropriate
                  adjustment(s), if any, to any one or more of:' and, the
                  sentence immediately preceding Section 9.1(c)(ii) is hereby
                  amended by deleting the words "diluting or concentrative".

                  (ii) Section 9.1(e)(vi) of the Equity Definitions is hereby
                  amended by deleting the words "other similar" between "any"
                  and "event"; deleting the words "diluting or concentrative"
                  and replacing them with "material"; and adding the following
                  words at the end of the sentence "or Warrants".

                  (iii) Section 9.6(a)(ii) of the Equity Definitions is hereby
                  amended by (1) deleting from the third line thereof the word
                  "or" after the word "official" and inserting a comma therefor,
                  and (2) deleting the period at the end of subsection (ii)
                  thereof and inserting the following words therefor " or (C) at
                  JPMorgan's option, the occurrence of any of the events
                  specified in Section 5(a)(vii) (1) through (9) of the ISDA
                  Master Agreement with respect to that Issuer."

                  (iv) Notwithstanding Section 9.7 of the Equity Definitions,
                  everything in the first paragraph of Section 9.7(b) of the
                  Equity Definitions after the words "Calculation Agent" in the
                  third line through the remainder of such Section 9.7 shall be
                  deleted and replaced with the following:

                  "based on an amount representing the Calculation Agent's
                  determination of the fair value to Buyer of an option with
                  terms that would preserve for Buyer the economic equivalent of
                  any payment or delivery (assuming satisfaction of each
                  applicable condition precedent) by the parties in respect of
                  the relevant Transaction that would have been required after
                  that date but for the occurrence of the Merger Event,
                  Nationalization, Insolvency or De-Listing Event, as the case
                  may be."

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
       INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                        9
<PAGE>

          (p)      Alternative Calculations and Payment on Early Termination and
                   on Certain Extraordinary Events. If Company shall owe
                   JPMorgan any amount pursuant to Sections 9.3, 9.6 or 9.7 of
                   the Equity Definitions (except in the event of a
                   Nationalization or a Merger Event in which the merger
                   consideration to be paid to holders of Shares consists solely
                   of cash) or pursuant to Section 6(d)(ii) of the Agreement
                   (except in the event of an Event of Default in which Company
                   is the Defaulting Party or a Termination Event in which
                   Company is the Affected Party, other than an Event of Default
                   of the type described in Section 5(a)(iii), (v), (vi) or
                   (vii) of the Agreement or a Termination Event of the type
                   described in Section 5(b)(i), (ii), (iii), (iv), or (v) of
                   the Agreement that resulted from an event or events outside
                   Company's control) (a "PAYMENT OBLIGATION"), Company may, in
                   its sole discretion, satisfy any such Payment Obligation by
                   the Share Termination Alternative (as defined below) and
                   shall give irrevocable telephonic notice to JPMorgan,
                   confirmed in writing within one Currency Business Day,
                   between the hours of 9:00 a.m. and 4:00 p.m. New York local
                   time on the Announcement Date or Early Termination Date, as
                   applicable ("NOTICE OF SHARE TERMINATION"). Upon Notice of
                   Share Termination no later than 8:00 a.m. on the Exchange
                   Business Day immediately following the Merger Date,
                   Announcement Date or Early Termination Date, as applicable,
                   the following provisions shall apply:

                   Share Termination Alternative:          Applicable and means
                                                           that Company shall
                                                           deliver to JPMorgan
                                                           the Share Termination
                                                           Delivery Property on
                                                           the date (the "SHARE
                                                           TERMINATION PAYMENT
                                                           DATE") when the
                                                           Payment Obligation
                                                           would otherwise be
                                                           due, subject to
                                                           paragraph (q)(i)
                                                           below, in
                                                           satisfaction, subject
                                                           to paragraph (q)(ii)
                                                           below, of the Payment
                                                           Obligation in the
                                                           manner reasonably
                                                           requested by JPMorgan
                                                           free of payment.

                   Share Termination Delivery Property:    A number of Share
                                                           Termination Delivery
                                                           Units, as calculated
                                                           by the Calculation
                                                           Agent, equal to the
                                                           Payment Obligation
                                                           divided by the Share
                                                           Termination Unit
                                                           Price. The
                                                           Calculation Agent
                                                           shall adjust the
                                                           Share Termination
                                                           Delivery Property by
                                                           replacing any
                                                           fractional portion of
                                                           a security therein
                                                           with an amount of
                                                           cash equal to the
                                                           value of such
                                                           fractional security
                                                           based on the values
                                                           used to calculate the
                                                           Share Termination
                                                           Unit Price.

                   Share Termination Unit Price:           The value to JPMorgan
                                                           of property contained
                                                           in one Share
                                                           Termination Delivery
                                                           Unit on the date such
                                                           Share Termination
                                                           Delivery Units are to
                                                           be delivered as Share
                                                           Termination Delivery
                                                           Property, as
                                                           determined by the
                                                           Calculation Agent in
                                                           its discretion by
                                                           commercially
                                                           reasonable means and
                                                           notified by the
                                                           Calculation Agent to
                                                           Company at the time
                                                           of notification of
                                                           the Payment
                                                           Obligation. In the
                                                           case of a Private
                                                           Placement of Share
                                                           Termination Delivery
                                                           Units that are

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       10
<PAGE>
                                                           Restricted Shares (as
                                                           defined below) as set
                                                           for in paragraph
                                                           (q)(i) below, the
                                                           Share Termination
                                                           Unit Price shall be
                                                           determined by the
                                                           discounted price
                                                           applicable to such
                                                           Share Termination
                                                           Delivery Units. In
                                                           the case of a
                                                           Registered Settlement
                                                           of Share Termination
                                                           Delivery Units that
                                                           are Restricted Shares
                                                           (as defined below) as
                                                           set forth in
                                                           paragraph (q)(ii)
                                                           below, the Share
                                                           Termination Unit
                                                           Price shall be the
                                                           Settlement Price.

                   Share Termination Delivery Unit:        In the case of a
                                                           Termination Event or
                                                           Event of Default, one
                                                           Share or, in the case
                                                           of a Merger Event, a
                                                           unit consisting of
                                                           the number or amount
                                                           of each type of
                                                           property received by
                                                           a holder of one Share
                                                           (without
                                                           consideration of any
                                                           requirement to pay
                                                           cash or other
                                                           consideration in lieu
                                                           of fractional amounts
                                                           of any securities) in
                                                           such Merger Event. If
                                                           a Share Termination
                                                           Delivery Unit
                                                           consists of property
                                                           other than cash or
                                                           New Shares, the
                                                           Calculation Agent
                                                           will replace such
                                                           property with cash,
                                                           New Shares or a
                                                           combination thereof
                                                           as components of a
                                                           Share Termination
                                                           Delivery Unit in such
                                                           amounts, as
                                                           determined by the
                                                           Calculation Agent in
                                                           its discretion by
                                                           commercially
                                                           reasonable means, as
                                                           shall have a value
                                                           equal to the value of
                                                           the property so
                                                           replaced. If such
                                                           Merger Event involves
                                                           a choice of
                                                           consideration to be
                                                           received by holders,
                                                           such holder shall be
                                                           deemed to have
                                                           elected to receive
                                                           the maximum possible
                                                           amount of cash.

                   Failure to Deliver:                     Applicable

                   Other applicable provisions:            If this Transaction
                                                           is to be Share
                                                           Termination Settled,
                                                           the provisions of
                                                           Sections 6.6, 6.7,
                                                           6.8 and 6.10 (as
                                                           modified above) of
                                                           the Equity
                                                           Definitions will be
                                                           applicable, except
                                                           that all references
                                                           in such provisions to
                                                           "Physically-Settled"
                                                           shall be read as
                                                           references to "Share
                                                           Termination Settled"
                                                           and all references to
                                                           "Shares" shall be
                                                           read as references to
                                                           "Share Termination
                                                           Delivery Units".
                                                           "Share Termination
                                                           Settled" in relation
                                                           to this Transaction
                                                           means that Share
                                                           Termination
                                                           Settlement is
                                                           applicable to this
                                                           Transaction.

         (q)      Registration/Private Placement Procedures. If, in the
                  reasonable opinion of JPMorgan, following any delivery of
                  Shares or Share Termination Delivery Property to JPMorgan

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       11
<PAGE>

                  hereunder, such Shares or Share Termination Delivery Property
                  would be in the hands of JPMorgan subject to any applicable
                  restrictions with respect to any registration or qualification
                  requirement or prospectus delivery requirement for such Shares
                  or Share Termination Delivery Property pursuant to any
                  applicable federal or state securities law (including, without
                  limitation, any such requirement arising under Section 5 of
                  the Securities Act as a result of such Shares or Share
                  Termination Delivery Property being a "restricted securities",
                  as such term is defined in Rule 144 under the Securities Act,
                  or as a result of the sale of such Shares or Share Termination
                  Delivery Property being subject to paragraph (c) of Rule 145
                  under the Securities Act) (such Shares or Share Termination
                  Delivery Property, "RESTRICTED SHARES"), then delivery of such
                  Restricted Shares shall be effected pursuant to either clause
                  (i) or (ii) below at the election of Company, unless waived by
                  JPMorgan. Notwithstanding the foregoing, the Company shall
                  elect, prior to the first Settlement Date under Section 2
                  above, a Private Placement Settlement or Registered Settlement
                  for all deliveries of Restricted Shares pursuant to Section 2
                  above which election shall be applicable to all Settlement
                  Dates and the procedures in clause (i) or clause (ii) below
                  shall apply for all such delivered Restricted Shares on
                  aggregate basis commencing after the first Settlement Date.
                  The Calculation Agent shall make reasonable adjustments to
                  settlement terms and provisions under this Confirmation to
                  reflect a single Private Placement or Registered Settlement
                  for such aggregate Restricted Shares delivered hereunder.

                  (i)      If the Company elects to settle the Transaction
                           pursuant to this clause (i) (a "PRIVATE PLACEMENT
                           SETTLEMENT"), then deliveries of Restricted Shares by
                           the Company shall be effected in customary private
                           placement procedures with respect to such Restricted
                           Shares reasonably acceptable to JPMorgan; provided
                           that the Company may not elect a Private Placement
                           Settlement if, on the date of its election, it has
                           taken, or caused to be taken, any action that would
                           make unavailable either the exemption pursuant to
                           Section 4(2) of the Securities Act for the sale by
                           the Company to JPMorgan (or any affiliate designated
                           by JPMorgan) of the Restricted Shares or the
                           exemption pursuant to Section 4(1) or Section 4(3) of
                           the Securities Act for resales of the Restricted
                           Shares by JPMorgan (or any such affiliate of
                           JPMorgan). The Private Placement Settlement of such
                           Registered Shares shall include customary
                           representations, covenants, blue sky and other
                           governmental filings and/or registrations,
                           indemnities to JPMorgan, due diligence rights (for
                           JPMorgan or any designated buyer of the Restricted
                           Shares by JPMorgan), opinions and certificates, and
                           such other documentation as is customary for private
                           placement agreements, all reasonably acceptable to
                           JPMorgan. In the case of a Private Placement
                           Settlement, JPMorgan shall determine the appropriate
                           discount to the Share Termination Unit Price (in the
                           case of settlement of Share Termination Delivery
                           Units pursuant to paragraph (p) above) or any
                           Settlement Price (in the case of settlement of Shares
                           pursuant to Section 2 above) applicable to such
                           Restricted Shares in a commercially reasonable manner
                           and appropriately adjust the amount of such
                           Restricted Shares to be delivered to JPMorgan
                           hereunder; provided that in no event such number
                           shall be greater than 328,513,388 (the "MAXIMUM
                           AMOUNT"). Notwithstanding the Agreement or this
                           Confirmation, the date of delivery of such Restricted
                           Shares shall be the Exchange Business Day following
                           notice by JPMorgan to the Company, of such applicable
                           discount and the number of Restricted Shares to be
                           delivered pursuant to this clause (i). For the
                           avoidance of doubt, delivery of Restricted Shares
                           shall be due as set forth in the previous sentence
                           and not be due on the Share Termination Payment Date
                           (in the case of settlement of Share Termination
                           Delivery Units pursuant to paragraph (p) above) or on
                           the Settlement Date for such Restricted Shares (in
                           the case of settlement of Shares pursuant to Section
                           2 above).

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       12
<PAGE>

                  (ii)     If the Company elects to settle the Transaction
                           pursuant to this clause (ii) (a "REGISTRATION
                           SETTLEMENT"), then the Company shall file and use its
                           reasonable best efforts to make effective under the
                           Securities Act a registration statement or supplement
                           or amend an outstanding registration statement in
                           form and substance reasonably satisfactory to
                           JPMorgan, to cover the resale of such Restricted
                           Shares in accordance with customary resale
                           registration procedures, including covenants,
                           conditions, representations, underwriting discounts
                           (if applicable), commissions (if applicable),
                           indemnities due diligence rights, opinions and
                           certificates, and such other documentation as is
                           customary for equity resale underwriting agreements,
                           all reasonably acceptable to JPMorgan. If JPMorgan is
                           satisfied with such procedures and documentation, it
                           shall sell the Restricted Shares pursuant to such
                           registration statement during a period (the "RESALE
                           PERIOD") commencing on the Exchange Business Day
                           following delivery of such Restricted Shares (which,
                           for the avoidance of doubt, shall be any Settlement
                           Date in the case of settlement of Shares pursuant to
                           Section 2 above or the Share Termination Payment Date
                           in case of settlement of Share Termination Delivery
                           Units pursuant to paragraph (p) above) and ending on
                           the earliest of (i) the Exchange Business Day on
                           which JPMorgan completes the sale of all Restricted
                           Shares or, in the case of settlement of Share
                           Termination Delivery Units, a sufficient number of
                           Restricted Shares so that the realized net proceeds
                           of such sales exceed the Payment Obligation (as
                           defined above), (ii) the date upon which all
                           Restricted Shares have been sold or transferred
                           pursuant to Rule 144 (or similar provisions then in
                           force) or Rule 145(d)(1) or (2) (or any similar
                           provision then in force) under the Securities Act and
                           (iii) the date upon which all Restricted Shares may
                           be sold or transferred by a non-affiliate pursuant to
                           Rule 144(k) (or any similar provision then in force)
                           or Rule 145(d)(3) (or any similar provision then in
                           force under the Securities Act. If the Payment
                           Obligation exceeds the realized net proceeds from
                           such resale, Company shall transfer to JPMorgan by
                           the open of the regular trading session on the
                           Exchange on the Exchange Trading Day immediately
                           following the last day of the Resale Period the
                           amount of such excess (the "ADDITIONAL AMOUNT") in
                           cash or in a number of Shares ("MAKE-WHOLE SHARES")
                           in an amount that, based on the Settlement Price on
                           the last day of the Resale Period (as if such day was
                           the "Valuation Date" for purposes of computing such
                           Settlement Price), has a dollar value equal to the
                           Additional Amount. The Resale Period shall continue
                           to enable the sale of the Make-whole Shares. If
                           Company elects to pay the Additional Amount in
                           Shares, the requirements and provisions for
                           Registration Settlement shall apply. This provision
                           shall be applied successively until the Additional
                           Amount is equal to zero. In no even shall the Company
                           deliver a number of Restricted Shares greater than
                           the Maximum Amount.

                  (iii)    Without limiting the generality of the foregoing,
                           Company agrees that any Restricted Shares delivered
                           to JPMorgan, as purchaser of such Restricted Shares,
                           (i) may be transferred by and among JPMorgan Chase
                           Bank and its affiliates and Company shall effect such
                           transfer without any further action by JPMorgan and
                           (ii) after the minimum "holding period" within the
                           meaning of Rule 144(d) under the Securities Act has
                           elapsed after any Settlement Date for such Restricted
                           Shares, Company shall promptly remove, or cause the
                           transfer agent for such Restricted Shares to remove,
                           any legends referring to any such restrictions or
                           requirements from such Restricted Shares upon
                           delivery by JPMorgan (or such affiliate of JPMorgan)
                           to Company or such transfer agent of seller's and
                           broker's representation letters and an opinion of
                           counsel customarily delivered by JPMorgan in
                           connection with resales of restricted

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       13
<PAGE>

                           securities pursuant to Rule 144 under the Securities
                           Act, without any further requirement for the delivery
                           of any certificate, consent, agreement, opinion of
                           counsel, notice or any other document, any transfer
                           tax stamps or payment of any other amount or any
                           other action by JPMorgan (or such affiliate of
                           JPMorgan).

                  If the Private Placement Settlement or the Registration
                  Settlement shall not be effected as set forth in clauses (i)
                  or (ii), as applicable, then failure to effect such Private
                  Placement Settlement or such Registration Settlement shall
                  constitute an Event of Default with respect to which Company
                  shall be the Defaulting Party.

         (r)      DTC-Eligible Deliveries. Notwithstanding anything to the
                  contrary herein, the Company agrees that any delivery of
                  Shares or Share Termination Delivery Property shall be
                  effected by book-entry transfer through the facilities of DTC,
                  or any successor depositary, if at the time of delivery, such
                  class of Shares or class of Share Termination Delivery
                  Property is eligible to be in book-entry form at DTC or such
                  successor depositary.

         (s)      Governing Law. New York law (without reference to choice of
                  law doctrine).

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       14
<PAGE>

                                                                 [JPMORGAN LOGO]

         Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing this Confirmation and returning it to EDG Confirmation
Group, J.P. Morgan Securities Inc., 277 Park Avenue, 11th Floor, New York, NY
10172-3401. or by fax on 212 622 8519 (PLEASE NOTE THIS NEW FAX NUMBER).

                                     Very truly yours,

                                         J.P. MORGAN SECURITIES INC., AS AGENT
                                         FOR JPMORGAN CHASE BANK

                                         By: _______________________________
                                         Authorized Signatory
                                         Name:

         Accepted and confirmed
         as of the Trade Date:

         CADENCE DESIGN SYSTEMS, INC.

         By: -s-  William Porter
             -----------------------------
         Authorized Signatory
         Name: William Porter
               Senior Vice President and
               Chief Financial Officer

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

<PAGE>

                                                                 [JPMORGAN LOGO]

         Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing this Confirmation and returning it to EDG Confirmation
Group, J.P, Morgan Securities Inc., 277 Park Avenue, 11th Floor, New York, NY
10172-3401, or by fax on 212 622 8519 (PLEASE NOTE THIS NEW FAX NUMBER).

                                     Very truly yours,

                                         J.P. MORGAN SECURITIES INC., AS AGENT
                                         FOR JPMORGAN CHASE BANK

                                         By: -s- Nicola Mudge
                                             ---------------------------
                                         Authorized Signatory
                                         Name: Nicola Mudge

         Accepted and confirmed
         as of the Trade Date:

         CADENCE DESIGN SYSTEMS, INC.

         By: ________________________
         Authorized Signatory
         Name:

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

<PAGE>

                                         ANNEX A

<TABLE>
<CAPTION>
NUMBER               EXPIRATION DATE        DAILY NUMBER OF WARRANTS
------               ---------------        ------------------------
<S>                 <C>                     <C>
  l.                February 21, 2008                 74,525
  2.                February 22, 2008                 74,525
  3.                February 25, 2008                 74,525
  4.                February 26, 2008                 74,525
  5.                February 27, 2008                 74,525
  6.                February 28, 2008                 74,525
  7.                February 29, 2008                 74,525
  8.                  March 3, 2008                   74,525
  9.                  March 4, 2008                   74,525
 10.                  March 5, 2008                   74,525
 11.                  March 6, 2008                   74,525
 12.                  March 7, 2008                   74,525
 13.                 March 10, 2008                   74,525
 14.                 March 11, 2008                   74,525
 15.                 March 12, 2008                   74,525
 16.                 March 13, 2008                   74,525
 17.                 March 14, 2008                   74,525
 18.                 March 17, 2008                   74,525
 19.                 March 18, 2008                   74,525
 20.                 March 19, 2008                   74,525
 21.                 March 20, 2008                   74,525
 22.                 March 24, 2008                   74,525
 23.                 March 25, 2008                   74,525
 24.                 March 26, 2008                   74,525
 25.                 March 27, 2008                   74,525
 26.                 March 28, 2008                   74,525
 27.                 March 31, 2008                   74,525
 28.                  April 1, 2008                   74,525
 29.                  April 2, 2008                   74,525
 30.                  April 3, 2008                   74,525
 31.                  April 4, 2008                   74,525
 32.                  April 7, 2008                   74,525
 33.                  April 8, 2008                   74,525
 34.                  April 9, 2008                   74,525
 35.                 April 10, 2008                   74,525
 36.                 April 11, 2008                   74,525
 37.                 April 14, 2008                   74,525
 38.                 April 15, 2008                   74,525
 39.                 April 16, 2008                   74,525
 40.                 April 17, 2008                   74,525
 41.                 April 18, 2008                   74,525
 42.                 April 21, 2008                   74,525
 43.                 April 22, 2008                   74,525
 44.                 April 23, 2008                   74,525
 45.                 April 24, 2008                   74,525
 46.                 April 25, 2008                   74,525
 47.                 April 28, 2008                   74,525
 48.                 April 29, 2008                   74,525
 49.                 April 30, 2008                   74,525
 50.                   May 1, 2008                    74,525
 51.                   May 2, 2008                    74,525
 52.                   May 5, 2008                    74,525
 53.                   May 6, 2008                    74,525
 54.                   May 7, 2008                    74,525
 55.                   May 8, 2008                    74,525
 56.                   May 9, 2008                    74,525
 57.                  May 12, 2008                    74,525
 58.                  May 13, 2008                    74,525
 59.                  May 14, 2008                    74,525
 60.                  May 15, 2008                    74,555
</TABLE>

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
        INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       16

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.77
<SEQUENCE>12
<FILENAME>f93607exv10w77.txt
<DESCRIPTION>EXHIBIT 10.77
<TEXT>
<PAGE>
                                                                   EXHIBIT 10.77

                                                                 [JPMORGAN LOGO]

JPMorgan Chase Bank
P.O. Box 161
60 Victoria Embankment
London EC4Y 0JP
England

                                                                 August 27, 2003

To: CADENCE DESIGN SYSTEMS, INC.
2655 Seely Avenue
San Jose, CA 95134
Attention: Treasurer
Telephone No.: (408) 943-1234
Facsimile No.: (408) 943-0513

Re: Call Option Transaction

Reference:

         The purpose of this letter agreement is to confirm the terms and
conditions of the Transaction entered into between JPMORGAN CHASE BANK, LONDON
BRANCH ("JPMORGAN") and CADENCE DESIGN SYSTEMS, INC. ("COUNTERPARTY") on the
Trade Date specified below (the "TRANSACTION"). This letter agreement
constitutes a "Confirmation" as referred to in the ISDA Master Agreement
specified below. This Confirmation shall replace any previous letter and serve
as the final documentation for this Transaction.

         The definitions and provisions contained in the 1996 ISDA Equity
Derivatives Definitions (the "EQUITY DEFINITIONS"), as published by the
International Swaps and Derivatives Association, Inc., are incorporated into
this Confirmation. In the event of any inconsistency between the Equity
Definitions and this Confirmation, this Confirmation shall govern. Certain
defined terms used herein have the meanings assigned to them in the Offering
Memorandum dated August 11, 2003 (the "OFFERING MEMORANDUM") relating to the USD
350,000,000 principal amount of Zero Coupon Zero Yield Senior Convertible Notes
due August 15, 2023, (the "INITIAL CONVERTIBLE NOTES") and an additional USD
70,000,000 principal amount of Zero Coupon Zero Yield Senior Convertible Notes
due August 15, 2023 (the "ADDITIONAL CONVERTIBLE NOTES" and together with the
Initial Convertible Notes, the "CONVERTIBLE NOTES") issued by Counterparty to
the initial purchasers as a result of their exercise of the right granted with
respect to such Additional Convertible Notes and issued by the Counterparty
pursuant to an Indenture dated as of August 15, 2003 between Counterparty and
J.P. Morgan Trust Company, National Association, as trustee (the "INDENTURE").
In the event of any inconsistency between the terms defined in the Indenture and
this Confirmation, the Confirmation shall govern.

         Each party is hereby advised, and each such party acknowledges, that
the other party has engaged in, or refrained from engaging in, substantial
financial transactions and has taken other material actions in reliance upon the
parties' entry into the Transaction to which this Confirmation relates on the
terms and conditions set forth below.

1.       This Confirmation evidences a complete and binding agreement between
JPMorgan and the Counterparty as to the terms of the Transaction to which this
Confirmation relates. In addition, JPMorgan and the Counterparty agree to make
all reasonable efforts to promptly negotiate, execute, and deliver an agreement
in the form of the 1992 ISDA Master Agreement (Multicurrency-Cross Border) (the
"AGREEMENT"), with such modifications as JPMorgan and the Counterparty will in
good faith agree together with related schedules. Upon the execution by JPMorgan
and the Counterparty of such an agreement, this Confirmation will supplement,
form a part of, and be subject to, that agreement. All provisions contained or

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
          REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ.
                  HEAD OFFICE 270 PARK AVENUE, NEW YORK, USA.

<PAGE>

                                                                 [JPMORGAN LOGO]

incorporated by reference in that agreement upon its execution will govern this
Confirmation except as expressly modified below. Until JPMorgan and the
Counterparty execute such agreement, this Confirmation, together with all other
documents referring to an Agreement (each a "CONFIRMATION") confirming
transactions (each a "TRANSACTION") entered into between JPMorgan and the
Counterparty (notwithstanding anything to the contrary in a Confirmation), shall
supplement, form a part of, and be subject to an agreement in the form of the
Agreement as if JPMorgan and the Counterparty had executed an agreement in such
form (but without any Schedule except for the election of the laws of the State
of New York as the governing law and United States dollars as the Termination
Currency and Second Method and Loss as the payments on early termination) on the
Trade Date of the first such Transaction between JPMorgan and the Counterparty.
In the event of any inconsistency between provisions of that agreement and this
Confirmation, this Confirmation will prevail for the purpose of the Transaction
to which this Confirmation relates. The parties hereby agree that if they have
not executed an Agreement within 60 days from the Trade Date it shall constitute
an Additional Termination Event under the Agreement in respect of which the
Counterparty is the sole Affected Party and this Transaction is the sole
Affected Transaction.

2.       The terms of the particular Transaction to which this Confirmation
relates are as follows:

General Terms:

         Trade Date:                         August 27, 2003

         Option Style:
                                             "Modified American", as set forth
                                             under "Exercise and Valuation"
                                             below

         Option Type:                        Call

         Buyer:                              Counterparty

         Seller:                             JPMorgan

         Shares:                             The common stock of Counterparty,
                                             par value USD 0.01 per Share
                                             (Exchange symbol "CDN")

         Number of Options:                  A number equal to the Conversion
                                             Rate (as defined in the Offering
                                             Memorandum, but without regard to
                                             Section 13.08 and Section 13.13 of
                                             the Indenture), multiplied by the
                                             number of USD 1,000 principal
                                             amount of Additional Convertible
                                             Notes (each such USD 1,000
                                             principal amount, a "CONVERTIBLE
                                             NOTE")

         Option Entitlement:                 One Share per Option

         Strike Price:                       USD 15.65

         Premium:                            USD 23,639,000

         Premium Payment Date:               August 29, 2003

         Exchange:                           The New York Stock Exchange

         Related Exchange(s):                The principal exchange(s) for
                                             options contracts or futures
                                             contracts, if any, with respect to
                                             the Shares

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       2
<PAGE>

                                                                 [JPMORGAN LOGO]

Exercise and Valuation:

         Exercise Period:                    Notwithstanding the Equity
                                             Definitions, the Exercise Period
                                             shall be, in respect of the
                                             Exercise Options, each period
                                             commencing from the date a Notice
                                             of Conversion is submitted to the
                                             Counterparty by a holder of
                                             Additional Convertible Notes to and
                                             including the third Exchange
                                             Business Day following the
                                             Conversion Date for such Additional
                                             Convertible Notes. For the
                                             avoidance of doubt, only a number
                                             of options equal to the Exercise
                                             Options shall be exercisable
                                             hereunder, and only during the
                                             Exercise Period for such Exercise
                                             Options.

         Exercise Options:                   A number of Options equal to the
                                             Conversion Rate (but without regard
                                             to any adjustment under Section
                                             13.08 and Section 13.13 of the
                                             Indenture) of Additional
                                             Convertible Notes surrendered to
                                             Counterparty for conversion times
                                             the number of such Additional
                                             Convertible Notes.

         Expiration Time:                    The Valuation Time

         Expiration Date:                    In respect of any Exercise Options,
                                             the earlier of August 15, 2008 and
                                             the final day of the Exercise
                                             Period in respect of such Exercise
                                             Options.

         Multiple Exercise:                  Applicable; and means that
                                             Counterparty may exercise, with
                                             respect to an Exercise Period and
                                             the Exercise Options relating to
                                             such Period, a number of Options
                                             not less than one (1) and not
                                             greater than such Exercise Options.

         Automatic Exercise:                 Applicable; and means that a number
                                             of Options not previously exercised
                                             hereunder equal to the Exercise
                                             Options shall be deemed to be
                                             exercised on the Expiration Date
                                             for the Exercise Period relating to
                                             such Exercise Options; provided
                                             that Counterparty has notified
                                             JPMorgan (in writing or orally) of
                                             the Conversion Date and the number
                                             of such Exercise Options one
                                             Exchange Business Day prior to such
                                             Expiration Date.

         Valuation Time:                     At the close of trading of the
                                             regular trading session on the
                                             Exchange

Settlement Terms:

         Physical Settlement:                Applicable; provided that if and to
                                             the extent Counterparty is required
                                             to deliver cash in lieu of
                                             fractional Shares (or any
                                             fractional Shares) with respect to
                                             the settlement of Additional
                                             Convertible Notes, the Calculation
                                             Agent shall adjust the settlement
                                             terms hereunder to account for
                                             delivery by JPMorgan to

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                        3
<PAGE>

                                                                (JPMORGAN LOGO)

                                             Counterparty of such cash or
                                             fractional Shares in the amount of
                                             such required delivery obligation.

                  Settlement Date:           For any Exercise Options relating
                                             to the conversion of Additional
                                             Convertible Notes, the settlement
                                             date for Shares to be delivered
                                             under such Additional Convertible
                                             Notes under the terms of the
                                             Indenture.

                  Failure to Deliver:        Applicable

3.       Additional Terms applicable to the Transaction:

           Adjustments applicable to the Transaction:

           Potential Adjustment Events:      Notwithstanding Section 9.1(e) of
                                             the Equity Definitions, a
                                             "Potential Adjustment Event" means
                                             any occurrence of any event or
                                             condition, as set forth in Section
                                             13.06 of the Indenture that would
                                             result in an adjustment to the
                                             Conversion Rate of the Convertible
                                             Notes; provided that in no event
                                             shall there be any adjustment
                                             hereunder as a result of an
                                             adjustment to the Conversion Rate
                                             pursuant to Section 13.08 and
                                             Section 13.13 of the Indenture.

         Method of Adjustment:               Calculation Agent Adjustment, and
                                             means that, notwithstanding Section
                                             9.1(c) of the Equity Definitions,
                                             upon any adjustment to the
                                             Conversion Rate of the Convertible
                                             Notes pursuant to the Indenture
                                             (other than Section 13.08 and
                                             Section 13.13 of the Indenture),
                                             the Calculation Agent will make a
                                             corresponding adjustment to any one
                                             or more of the Strike Price, Number
                                             of Options, the Option Entitlement
                                             and any other variable relevant to
                                             the exercise, settlement or payment
                                             for the Transaction.

Extraordinary Events applicable to the Transaction:

                  Merger Events:             Notwithstanding Section 9.2(a) of
                                             the Equity Definitions, a "Merger
                                             Event" means the occurrence of any
                                             event or condition set forth in
                                             Section 8.01 of the Indenture.

                  Consequence of Merger      Notwithstanding Section 9.3 of the
                  Events:                    Equity Definitions, upon the
                                             occurrence of a Merger Event, the
                                             Calculation Agent shall make a
                                             corresponding adjustment in respect
                                             of any adjustment under the
                                             Indenture to any one or more of the
                                             nature of the Shares, Strike Price,
                                             Number of Options, the Option
                                             Entitlement and any other variable
                                             relevant to the exercise,
                                             settlement or payment for the
                                             Transaction.

Additional Termination Events:             If an event of default with respect
                                           to Counterparty shall occur under the
                                           terms of the Convertible Notes as set
                                           forth in Section 5.01 of the
                                           Indenture, then such event shall
                                           constitute an Additional Termination
                                           Event applicable to this Transaction
                                           and, with respect to such event (i)
                                           Counterparty shall be deemed to be

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       4
<PAGE>

                                                                (JPMORGAN LOGO)

                                             Affected Party and JPMorgan shall
                                             be deemed to be the party that is
                                             not the Affected Party and (ii)
                                             JPMorgan shall be the party
                                             entitled to designate an Early
                                             Termination Date pursuant to
                                             Section 6(b) of the Agreement.

Payments on Early Termination:               Second Method and Loss

 4.      Calculation Agent:                  JPMorgan, whose calculations and
                                             determinations shall be
                                             made in good faith and in a
                                             commercially reasonable manner,
                                             including with respect to
                                             calculations and determinations
                                             that are made in its sole
                                             discretion.

5.       Account Details:

         (a)      Account for payments to Counterparty:

                  Cadence Design Systems, Inc.
                  __________________________________
                  __________________________________
                  __________________________________
                  __________________________________
                  __________________________________

                  Account for delivery of Shares to Counterparty:

                  Mellon Investor Services
                  235 Montgomery Street, 23rd Floor
                  San Francisco, CA 94104
                  Cadence Design Systems Book Memo Treasury Reserve Account
                  Comment: When you are ready to deliver Shares contact Cadence
                  FIRST.

         (b)      Account for payments to JPMorgan:

                  JPMorgan Chase Bank, New York
                  __________________________________
                  __________________________________
                  __________________________________
                  __________________________________

                  Account for delivery of Shares from JPMorgan:

                  DTC 060

6.       Offices:

The Office of Counterparty for the Transaction is: Inapplicable, Counterparty is
not a Multibranch Party.

The Office of JPMorgan for the Transaction is: New York

                  JP Morgan Chase Bank
                  London Branch

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       5
<PAGE>

                                                                (JPMORGAN LOGO)

                  P.O. Box 161
                  60 Victoria Embankment
                  London EC4Y 0JP, England

7.       Notices: For purposes of this Confirmation:

           (a)    Address for notices or communications to Counterparty:

                  Cadence Design Systems, Inc.
                  Attention: Treasurer
                  Telephone No.: (408) 943-1234
                  Telecopy No.: (408)943-0513

                  Address for notices or communications to JPMorgan:

                  JPMorgan Chase Bank
                  277 Park Avenue, 11th Floor
                  New York, NY 10172
                  Attention: Kevin J. Moran
                  EDG Corporate Marketing
                  Telephone No.: (212) 622-6707
                  Telecopy No.: (212) 622-8534

8.       Other Provisions:

           (a)    No Reliance, etc. Each party represents that (i) it is
                  entering into the Transaction evidenced hereby as principal
                  (and not as agent or in any other capacity); (ii) neither the
                  other party nor any of its agents are acting as a fiduciary
                  for it; (iii) it is not relying upon any representations
                  except those expressly set forth in the Agreement or this
                  Confirmation; (iv) it has not relied on the other party for
                  any legal, regulatory, tax, business, investment, financial,
                  and accounting advice, and it has made its own investment,
                  hedging, and trading decisions based upon its own judgment and
                  upon any view expressed by the other party or any of its
                  agents; and (v) it is entering into this Transaction with a
                  full understanding of the terms, conditions and risks thereof
                  and it is capable of and willing to assume those risks.

           (b)    Share De-listing Event. If at any time during the period from
                  and including the Trade Date, to and including August 15,
                  2008, the Shares cease to be listed on the Exchange for any
                  reason (other than a Merger Event) and are not immediately
                  re-listed as of the date of such de-listing on The New York
                  Stock Exchange, The American Stock Exchange or the Nasdaq
                  National Market System (or their respective successors) (the
                  "SUCCESSOR EXCHANGE"), then Cancellation and Payment shall
                  apply, and the date of the de-listing shall be deemed the date
                  of termination for purposes of calculating any payment due
                  from one party to the other in connection with the
                  cancellation of this Transaction. If the Shares are
                  immediately re-listed on a Successor Exchange upon their
                  de-listing from the Exchange, this Transaction shall continue
                  in full force and effect, provided that the Successor Exchange
                  shall be deemed to be the Exchange for all purposes hereunder.
                  In addition, the Calculation Agent shall make any adjustments
                  it deems necessary to the terms of the Transaction in
                  accordance with Calculation Agent Adjustment method as defined
                  under Section 9.1(c) of the Equity Definitions.

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                           PARK AVENUE, NEW YORK, USA.

                                       6
<PAGE>

                                                                [JPMORGAN LOGO]

         (c)      Repurchase Notices. Counterparty shall, on any day on which
                  Counterparty effects any repurchase of Shares, promptly give
                  JPMorgan a written notice of such repurchase (a "REPURCHASE
                  NOTICE") if following such repurchase, the Options Equity
                  Percentage as determined on such day is (i) greater than 5%
                  and (ii) greater by 0.5% than the Options Equity Percentage
                  included in the immediately preceding Repurchase Notice (or,
                  in the case of the first such Repurchase Notice, greater than
                  the Options Equity Percentage as of the date hereof). The
                  "OPTIONS EQUITY PERCENTAGE" as of any day is the fraction (A)
                  the numerator of which is the sum of (1) the product of the
                  Number of Options and the Option Entitlement and (2) the
                  product of the Number of Options as defined in the
                  Confirmation dated August 11, 2003 between Counterparty and
                  JPMorgan in respect of the Initial Convertible Notes (the
                  "INITIAL TRANSACTION") and the Option Entitlement as defined
                  in the Initial Transaction, and (B) the denominator of which
                  is the number of Shares outstanding on such day. Counterparty
                  agrees to indemnify and hold harmless JPMorgan and its
                  affiliates and their respective officers, directors,
                  employees, affiliates, advisors, agents and controlling
                  persons (each, an "INDEMNIFIED PERSON") from and against any
                  and all losses (including losses relating to JPMorgan's
                  hedging activities as a consequence of becoming, or of the
                  risk of becoming, a Section 16 "insider", including without
                  limitation, any forbearance from hedging activities or
                  cessation of hedging activities and any losses in connection
                  therewith with respect to this Transaction), claims, damages,
                  judgments, liabilities and expenses (including reasonable
                  attorney's fees), joint or several, which an Indemnified
                  Person actually incurs as a result of Counterparty's failure
                  to provide JPMorgan with a Repurchase Notice on the day and in
                  the manner specified in this Section 8(c), and to reimburse,
                  within 30 days, upon written request, each of such Indemnified
                  Persons for any reasonable legal or other expenses incurred in
                  connection with investigating, preparing for, providing
                  testimony or other evidence in connection with or defending
                  any of the foregoing. If any suit, action, proceeding
                  (including any governmental or regulatory investigation),
                  claim or demand shall be brought or asserted against the
                  Indemnified Person, such Indemnified Person shall promptly
                  notify the Counterparty in writing, and the Counterparty, upon
                  request of the Indemnified Person, shall retain counsel
                  reasonably satisfactory to the Indemnified Person to represent
                  the Indemnified Person and any others the Counterparty may
                  designate in such proceeding and shall pay the fees and
                  expenses of such counsel related to such proceeding.
                  Counterparty shall not be liable for any settlement of any
                  proceeding effected without its written consent, but if
                  settled with such consent or if there be a final judgment for
                  the plaintiff, Counterparty agrees to indemnify any
                  Indemnified Person from and against any loss or liability by
                  reason of such settlement or judgment. Counterparty shall not,
                  without the prior written consent of the Indemnified Person,
                  effect any settlement of any pending or threatened proceeding
                  in respect of which any Indemnified Person is or could have
                  been a party and indemnity could have been sought hereunder by
                  such Indemnified Person, unless such settlement includes an
                  unconditional release of such Indemnified Person from all
                  liability on claims that are the subject matter of such
                  proceeding on terms reasonably satisfactory to such
                  Indemnified Person. If the indemnification provided for in
                  this paragraph (c) is unavailable to an Indemnified Person or
                  insufficient in respect of any losses, claims, damages or
                  liabilities referred to therein, then Counterparty under such
                  paragraph, in lieu of indemnifying such Indemnified Person
                  thereunder, shall contribute to the amount paid or payable by
                  such Indemnified Person as a result of such losses, claims,
                  damages or liabilities. The remedies provided for in this
                  paragraph (c) are not exclusive and shall not limit any rights
                  or remedies which may otherwise be available to any
                  Indemnified Party at law or in equity. The indemnity and
                  contribution agreements contained in this paragraph (c) shall
                  remain operative and in full force and effect regardless of
                  the termination of this Transaction.

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
               REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON,
             EC2Y 5AJ. HEAD OFFICE 270 PARK AVENUE, NEW YORK, USA.

                                       7
<PAGE>

                                                                [JPMORGAN LOGO]

         (d)      Material Non-Public Information. Counterparty represents and
                  warrants that each of it and its Affiliates is not, on the
                  date hereof, in possession of any material non-public
                  information with respect to Counterparty.

         (e)      Eligible Contract Participant. Counterparty represents and
                  warrants that it is an "eligible contract participant" (as
                  such term is defined in Section 1(a)(12) of the Commodity
                  Exchange Act, as amended (the "CEA")) because one or more of
                  the following is true:

                  Counterparty is a corporation, partnership, proprietorship,
                  organization, trust or other entity and:

                           (A)      Counterparty has total assets in excess of
                                    USD 10,000,000;

                           (B)      the obligations of Counterparty hereunder
                                    are guaranteed, or otherwise supported by a
                                    letter of credit or keepwell, support or
                                    other agreement, by an entity of the type
                                    described in Section 1a(12)(A)(i) through
                                    (iv), 1a(12)(A)(v)(I), 1a(12)(A)(vii) or
                                    1a(12)(C) of the CEA; or

                           (C)      Counterparty has a net worth in excess of
                                    USD 1,000,000 and has entered into this
                                    Agreement in connection with the conduct of
                                    Counterparty's business or to manage the
                                    risk associated with an asset or liability
                                    owned or incurred or reasonably likely to be
                                    owned or incurred by Counterparty in the
                                    conduct of Counterparty's business.

         (f)      Regulation M. The Counterparty was not on the Trade Date and
                  is not on the date hereof engaged in a distribution, as such
                  term is used in Regulation M under the Securities Exchange Act
                  of 1934, as amended ("EXCHANGE ACT"), of any securities of
                  Counterparty, other than a distribution meeting the
                  requirements of the exception set forth in sections 101(b)(10)
                  and 102(b)(7) of Regulation M. The Counterparty shall not,
                  until the fifth Exchange Business Day immediately following
                  the Trade Date, engage in any such distribution.

         (g)      No Manipulation. The Counterparty is not entering into this
                  Transaction to create actual or apparent trading activity in
                  the Shares (or any security convertible into or exchangeable
                  for the Shares) or to raise or depress or otherwise manipulate
                  the price of the Shares (or any security convertible into or
                  exchangeable for the Shares).

         (h)      Number of Repurchased Shares. Counterparty represents that it
                  could have purchased Shares, in an amount equal to the product
                  of the Number of Options and the Option Entitlement, on the
                  Exchange or otherwise, in compliance with applicable law, its
                  organizational documents and any orders, decrees, contractual
                  agreements binding upon Counterparty, on the Trade Date.

         (i)      Board Authorization. Each of this Transaction and the issuance
                  of the Convertible Notes was approved by its board of
                  directors and publicly announced, solely for the purposes
                  stated in such board resolution and public disclosure and,
                  prior to any exercise of Options hereunder, Counterparty's
                  board of directors will have duly authorized any repurchase of
                  Shares pursuant to this Transaction. Counterparty further
                  represents that there is no internal policy, whether written
                  or oral, of Counterparty that would prohibit Counterparty from
                  entering into any aspect of this Transaction, including, but
                  not limited to, the purchases of Shares to be made pursuant
                  hereto.

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
               REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON,
             EC2Y 5AJ. HEAD OFFICE 270 PARK AVENUE, NEW YORK, USA.

                                       8
<PAGE>

                                                                 [JPMORGAN LOGO]

         (j)      Transfer or Assignment. Neither party may transfer any of its
                  rights or obligations under this Transaction without the prior
                  written consent of the non-transferring party; provided that
                  if, as determined at JPMorgan's sole discretion, its
                  "beneficial ownership" with respect to the Initial Transaction
                  and this Transaction (within the meaning of Section 16 of the
                  Exchange Act and rules promulgated thereunder) exceeds 8% of
                  Counterparty's outstanding Shares, JPMorgan may transfer or
                  assign a number of Options sufficient to reduce such
                  "beneficial ownership" to 7.5% to any third party with a
                  rating for its long term, unsecured and unsubordinated
                  indebtedness of A+ or better by Standard and Poor's Rating
                  Group, Inc. or its successor ("S&P"), or A1 or better by
                  Moody's Investor Service, Inc. ("MOODY'S") or, if either S&P
                  or Moody's ceases to rate such debt, at least an equivalent
                  rating or better by a substitute agency rating mutually agreed
                  by Counterparty and JPMorgan. If, in the discretion of
                  JPMorgan, JPMorgan is unable to effect such transfer or
                  assignment after its commercially reasonable efforts on
                  pricing terms reasonably acceptable to JPMorgan and within a
                  time period reasonably acceptable to JPMorgan, JPMorgan may
                  designate any Exchange Business Day as an Early Termination
                  Date with respect to a portion (the "TERMINATED PORTION") of
                  this Transaction or the Initial Transaction, such that its
                  "beneficial ownership" following such partial termination will
                  be equal to or less than 8%. In the event that JPMorgan so
                  designates an Early Termination Date with respect to a portion
                  of this Transaction, a payment shall be made pursuant to
                  Section 6 of the Agreement as if (i) an Early Termination Date
                  had been designated in respect of a Transaction having terms
                  identical to this Transaction and a Number of Options equal to
                  the Terminated Portion, (ii) the Counterparty and JPMorgan
                  shall both be Affected Parties with respect to such partial
                  termination and (iii) such Transaction shall be the only
                  Terminated Transaction. Notwithstanding any other provision in
                  this Confirmation to the contrary requiring or allowing
                  JPMorgan to purchase, sell, receive or deliver any shares or
                  other securities to or from Counterparty, JPMorgan may
                  designate any of its affiliates to purchase, sell, receive or
                  deliver such shares or other securities and otherwise to
                  perform JPMorgan's obligations in respect of this Transaction
                  and any such designee may assume such obligations. JPMorgan
                  shall be discharged of its obligations to Counterparty to the
                  extent of any such performance.

         (k)      Amendment. Paragraph (i) of Section 9.7(b) of the Equity
                  Definitions is hereby amended for purposes of this Transaction
                  by replacing "two-year" with "90 calendar day".

         (l)      Damages. Neither party shall be liable under Section 6.10 of
                  the Equity Definitions for special, indirect or consequential
                  damages, even if informed of the possibility thereof.

         (m)      Role of Agent. Each party agrees and acknowledges that (i)
                  J.P. Morgan Securities Inc., an affiliate of JPMorgan
                  ("JPMSI"), has acted solely as agent and not as principal with
                  respect to this Transaction and (ii) JPMSI has no obligation
                  or liability, by way of guaranty, endorsement or otherwise, in
                  any manner in respect of this Transaction (including, if
                  applicable, in respect of the settlement thereof). Each party
                  agrees it will look solely to the other party (or any
                  guarantor in respect thereof) for performance of such other
                  party's obligations under this Transaction.

         (n)      Additional Provisions.

                  (i) Section 9.6(a)(ii) of the Equity Definitions is hereby
                  amended by (1) deleting from the third line thereof the word
                  "or" after the word "official" and inserting a comma therefor,
                  and (2) deleting the period at the end of subsection (ii)
                  thereof and inserting the following words therefor " or (C) at
                  JPMorgan's option, the occurrence of any of the

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
       INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       9
<PAGE>

                                                                [JPMORGAN LOGO]

                  events specified in Section 5(a)(vii) (1) through (9) of the
                  ISDA Master Agreement with respect to that Issuer."

                  (ii) Notwithstanding Section 9.7 of the Equity Definitions,
                  everything in the first paragraph of Section 9.7(b) of the
                  Equity Definitions after the words "Calculation Agent" in the
                  third line through the remainder of such Section 9.7 shall be
                  deleted and replaced with the following:

                  "based on an amount representing the Calculation Agent's
                  determination of the fair value to Buyer of an option with
                  terms that would preserve for Buyer the economic equivalent of
                  any payment or delivery (assuming satisfaction of each
                  applicable condition precedent) by the parties in respect of
                  the relevant Transaction that would have been required after
                  that date but for the occurrence of the Nationalization or
                  De-Listing Event, as the case may be."

         (o)      Alternative Calculations and Payment on Early Termination and
                  on Certain Extraordinary Events. If JPMorgan shall owe
                  Counterparty any amount pursuant to Sections 9.3, 9.6 or 9.7
                  of the Equity Definitions or pursuant to any early termination
                  hereunder or under the Agreement or pursuant to Section
                  6(d)(ii) of the Agreement or otherwise (a "PAYMENT
                  OBLIGATION"), JPMorgan may, in its sole discretion, satisfy
                  any such Payment Obligation by the Share Termination
                  Alternative (as defined below) by giving irrevocable
                  telephonic notice to Counterparty, confirmed in writing within
                  one Currency Business Day, between the hours of 9:00 a.m. and
                  4:00 p.m. New York local time on the Announcement Date or
                  Early Termination Date, as applicable ("NOTICE OF SHARE
                  TERMINATION"). Upon Notice of Share Termination no later than
                  8:00 a.m. on the Exchange Business Day immediately following
                  the Announcement Date or Early Termination Date, as
                  applicable, the following provisions shall apply:

                  Share Termination          Applicable and means that JPMorgan
                  Alternative:               shall deliver to Counterparty the
                                             Share Termination Delivery Property
                                             on the date when the Payment
                                             Obligation would otherwise be due
                                             pursuant to Section 9.7 of the
                                             Equity Definitions or Section
                                             6(d)(ii) of the Agreement, as
                                             applicable (the "SHARE TERMINATION
                                             PAYMENT DATE"), in satisfaction of
                                             the Payment Obligation in the
                                             manner reasonably requested by
                                             Counterparty free of payment.

                  Share Termination          A number of Share Termination
                  Delivery Property:         Delivery Units, as calculated by
                                             the Calculation Agent, equal to the
                                             Payment Obligation divided by the
                                             Share Termination Unit Price. The
                                             Calculation Agent shall adjust the
                                             Share Termination Delivery Property
                                             by replacing any fractional portion
                                             of a security therein with an
                                             amount of cash equal to the value
                                             of such fractional security based
                                             on the values used to calculate the
                                             Share Termination Unit Price.

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
       INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED
                                COMMERCIAL BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
  REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD OFFICE 270
                          PARK AVENUE, NEW YORK, USA.

                                       10
<PAGE>

                                                                [JPMORGAN LOGO]

                  Share Termination Unit     The value to JPMorgan of property
                  Price:                     contained in one Share Termination
                                             Delivery Unit on the date such
                                             Share Termination Delivery Units
                                             are to be delivered as Share
                                             Termination Delivery Property, as
                                             determined by the Calculation Agent
                                             in its discretion by commercially
                                             reasonable means and notified by
                                             the Calculation Agent to JPMorgan
                                             at the time of notification of the
                                             Payment Obligation.

                  Share Termination          One Share or, if a Merger Event has
                  Delivery Unit:             occurred and a corresponding
                                             adjustment to this Transaction has
                                             been made, a unit consisting of the
                                             number or amount of each type of
                                             property received by a holder of
                                             one Share (without consideration of
                                             any requirement to pay cash or
                                             other consideration in lieu of
                                             fractional amounts of any
                                             securities) in such Merger Event,
                                             as determined by the Calculation
                                             Agent.

                  Failure to Deliver:        Applicable

                  Other applicable           If this Transaction is to be Share
                  provisions:                Termination Settled, the provisions
                                             of Sections 6.6, 6.7, 6.8 and 6.10
                                             (as modified above) of the Equity
                                             Definitions will be applicable,
                                             except that all references in such
                                             provisions to "Physically-Settled"
                                             shall be read as references to
                                             "Share Termination Settled" and all
                                             references to "Shares" shall be
                                             read as references to "Share
                                             Termination Delivery Units". "Share
                                             Termination Settled" in relation to
                                             this Transaction means that Share
                                             Termination Settlement is
                                             applicable to this Transaction.

         (p)      Governing Law. New York law (without reference to choice of
                  law doctrine).

                    A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                     BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE FSA.
       REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ. HEAD
                     OFFICE 270 PARK AVENUE, NEW YORK, USA.

                                       11
<PAGE>

                                                                [JPMORGAN LOGO]

         Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing this Confirmation and returning it to EDG Confirmation
Group, J.P. Morgan Securities Inc., 277 Park Avenue, 11th Floor, New York, NY
10172-3401, or by fax on 212 622 8519 (PLEASE NOTE THIS NEW FAX NUMBER).

                                      Very truly yours,

                                             J.P. MORGAN SECURITIES INC., AS
                                             AGENT FOR JPMORGAN CHASE BANK

                                             BY: /s/ Nicola Mudge
                                                -------------------------------
                                                Authorized Signatory
                                                Name: Nicola Mudge

         Accepted and confirmed as
         of the Trade Date:

         CADENCE DESIGN SYSTEMS, INC.

         By: /s/ William Porter
             -----------------------------
         Authorized Signatory
         Name: William Porter
               Senior Vice President
               and Chief Financial Officer

                     A SUBSIDIARY OF J.P. MORGAN CHASE & CO.
  INCORPORATED WITH LIMITED LIABILITY AS A NEW YORK STATE CHARTERED COMMERCIAL
                                      BANK.
      REGISTERED IN ENGLAND BRANCH NUMBER BR000746. AUTHORISED BY THE PSA.
          REGISTERED BRANCH ADDRESS 125 LONDON WALL, LONDON, EC2Y 5AJ.
                  HEAD OFFICE 270 PARK AVENUE, NEW YORK, USA.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.01
<SEQUENCE>13
<FILENAME>f93607exv21w01.txt
<DESCRIPTION>EXHIBIT 21.01
<TEXT>
<PAGE>
                                                                   EXHIBIT 21.01

                          CADENCE DESIGN SYSTEMS, INC.
                         SUBSIDIARIES OF THE REGISTRANT

The Registrant's subsidiaries and the state or country in which each is
incorporated or organized, are as follows:

<TABLE>
<S>                                                                    <C>
1Chip Silicon Systems, Inc.                                            Delaware, U.S.A.
849 College Avenue, Inc.                                               California, U.S.A
Altius Solutions, Inc.                                                 California, U.S.A
Ambit Design Systems, Inc.                                             California, U.S.A
Arkos Design, Inc.                                                     California, U.S.A
Beijing Cadence Electronics Technology Co., Ltd.                       China
Cadence China Ltd.                                                     Hong Kong
Cadence Credit Corporation                                             Delaware, U.S.A
Cadence Design Centre LLC                                              Russia
Cadence Design Foundry, Inc.                                           Delaware, U.S.A
Cadence Design Foundry UK Ltd.                                         United Kingdom
Cadence Design Services Y.K.                                           Japan
Cadence Design Systems (Canada) Limited                                Canada
Cadence Design Systems (Cyprus) Limited                                Cyprus
Cadence Design Systems (India) Private Ltd.                            India
Cadence Design Systems (Ireland) Limited                               Ireland
Cadence Design Systems (Israel) Limited                                Israel
Cadence Design Systems (Japan) B.V.                                    Netherlands
Cadence Design Systems (S) Pte Ltd.                                    Singapore
Cadence Design Systems (Taiwan) B.V.                                   Netherlands
Cadence Design Systems AB                                              Sweden
Cadence Design Systems Asia Ltd.                                       Hong Kong
Cadence Design Systems B.V.                                            Netherlands
Cadence Design Systems GmbH                                            Germany
Cadence Design Systems IB.V                                            Netherlands
Cadence Design Systems Limited                                         United Kingdom
Cadence Design Systems S.A.s.                                          France
Cadence Design Systems Business Services Limited Liability Company     Hungary
Cadence International Sales Corporation                                U.S. Virgin Islands
Cadence Korea Ltd.                                                     Korea
Cadence Netherlands B.V.                                               Netherlands
Cadence Nippon Finance, LLC                                            Delaware, U.S.A
Cadence Receivables Consolidation Corporation                          Delaware, U.S.A
Cadence Receivables Corporation                                        Delaware, U.S.A
Cadence Receivables Credit YK                                          Japan
Cadence Taiwan, Inc.                                                   Taiwan
Cadence Technology, Inc.                                               Delaware, U.S.A
Cadence Technology Limited                                             Ireland
Castlewilder                                                           Ireland
Celestry Design Technologies, Inc.                                     California, U.S.A
Celestry Design Technologies (Singapore) Pte Ltd.                      Singapore
Celestry Design Technologies (Taiwan) Co., Ltd.                        Taiwan
</TABLE>
<PAGE>
<TABLE>
<S>                                                                  <C>
Celestry Design Technologies GmbH                                    Germany
Celestry Design Technologies Beijing Co., Ltd.                       China
Cooper & Chyan Technology, Inc.                                      Delaware, U.S.A
Daffodil Acquisition II, Inc.                                        Delaware, U.S.A
Daffodil Acquisition LLC                                             California, U.S.A
Daffodil Acquisition, Inc.                                           Delaware, U.S.A
Design Acceleration, Inc.                                            California, U.S.A
Detente Technology, Inc.                                             California, U.S.A
Diablo Lighting, Inc.                                                California, U.S.A
Diablo Research Company LLC                                          California, U.S.A
Get2Chip.com, Inc.                                                   California, U.S.A
Get2Chip.com.GmbH                                                    Germany
JTA Research Incorporated                                            California, U.S.A
K2 Technologies, Inc.                                                Utah, U.S.A
Microsim Corporation                                                 California, U.S.A
Orcad, Inc.                                                          Delaware, U.S.A
QDA, Inc.                                                            California, U.S.A
Quickturn Design Systems Asia, Inc.                                  California, U.S.A
Quickturn Design Systems GmbH                                        Germany
Quickturn Design Systems International, Inc.                         California, U.S.A
Quickturn Design Systems, Inc.                                       Delaware, U.S.A
River Oak Place Associates                                           California, U.S.A
Seely Avenue Corp.                                                   California, U.S.A
Seely Properties, Inc.                                               California, U.S.A
Silicon Perspective Corporation Canada                               Canada
Silicon Perspective (Holding) Corporation                            California, U.S.A
Silicon Perspective S.A.R.L.                                         France
Simon Software, Inc.                                                 California, U.S.A
Simplex Solutions GmbH                                               Germany
Simplex Solutions Ltd.                                               Israel
Simplex Solutions UK Ltd.                                            United Kingdom
Simplex Special Purpose, Inc.                                        Delaware, U.S.A
Speedsim, Inc.                                                       Delaware, U.S.A
SpinCircuit, Inc.                                                    Delaware, U.S.A
Symbionics Group Limited                                             United Kingdom
Synthesia AB                                                         Sweden
Tality, LP                                                           Delaware, U.S.A
Tality Canada B.V.                                                   Netherlands
Tality Canada Corporation                                            Canada
Tality Holdings BV                                                   Netherlands
Tality Holdings, Inc.                                                Delaware, U.S.A
Tality India Services Private Ltd.                                   India
Unicad, Inc.                                                         Massachusetts, U.S.A
Verplex International, Inc.                                          California, U.S.A
Verplex Systems, Inc.                                                California, U.S.A
Verplex Systems Limited                                              United Kingdom
Verplex Systems GmbH                                                 Germany
Verplex (Israel) Ltd.                                                Israel
</TABLE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.01
<SEQUENCE>14
<FILENAME>f93607exv23w01.txt
<DESCRIPTION>EXHIBIT 23.01
<TEXT>
<PAGE>

                                                                   EXHIBIT 23.01


                          INDEPENDENT AUDITORS' CONSENT


The Board of Directors
Cadence Design Systems, Inc.:

We consent to the incorporation by reference in the registration statements
(No.s 333-108251, 333-105492, 333-105488, 333-105481, 333-104720, 333-103657,
333-103250, 333-102648, 333-101693, 333-101692, 333-88390, 333-87674, 333-85080,
333-82044, 333-75874, 333-65116, 333-56898, 333-69589, 333-33330, 333-93609,
333-85591, 333-69589, 333-71717, 333-65529, 333-61029, 333-40047, 333-34599,
333-27109, 333-18963, 333-53913, 33-48371, 33-43025, 33-34910, 33-32373,
33-22652, 33-17722) on Form S-8 of Cadence Design Systems, Inc., of our report
dated March 24, 2004, relating to the consolidated balance sheets of Cadence
Design Systems, Inc., as of January 3, 2004 and December 28, 2002 and the
consolidated statement of operations, stockholders' equity and comprehensive
income and cash flows for the years then ended, and the Fiscal 2003 and Fiscal
2002 financial statement schedules, appearing elsewhere in this Form 10-K.

Our report dated March 24, 2004, contains an explanatory paragraph that states
that the Company's consolidated balance sheet as of December 28, 2003, and the
related consolidated statements of operations, stockholders' equity and
comprehensive income and cash flows for the year then ended, have been restated.

Our report also refers to our audit of the adjustments and revised disclosures
that were applied to restate the Fiscal 2001 consolidated financial statements
as more fully described in Note 2 to the consolidated financial statements.
However, we were not engaged to audit, review, or apply any procedures to the
Fiscal 2001 consolidated financial statements of Cadence Design Systems, Inc.,
other than with respect to such adjustments and revised disclosures.

Our report refers to the adoption of Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets.

/s/ KPMG LLP

Mountain View, California
April 2, 2004



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.02
<SEQUENCE>15
<FILENAME>f93607exv23w02.txt
<DESCRIPTION>EXHIBIT 23.02
<TEXT>
<PAGE>

                                                                   EXHIBIT 23.02

              INFORMATION REGARDING CONSENT OF ARTHUR ANDERSEN LLP

         Section 11(a) of the Securities Act of 1933, as amended (the
"Securities Act"), provides that if any part of a registration statement at the
time such part becomes effective contains an untrue statement of a material fact
or an omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, any person acquiring a
security pursuant to such registration statement (unless it is proved that at
the time of such acquisition such person knew of such untruth or omission) may
assert a claim against, among others, every accountant who has consented to be
named as having prepared or certified any part of the registration statement, or
as having prepared or certified any report or valuation which is used in
connection with the registration statement, with respect to the statement in
such registration statement, report or valuation which purports to have been
prepared or certified by the accountant.

         On March 22, 2002, Cadence Design Systems, Inc. ("Cadence") determined
not to renew the engagement of Arthur Andersen LLP ("Andersen") as its
independent auditor and retained KPMG LLP as Cadence's independent auditors with
respect to the audit of Cadence's consolidated financial statements for its
fiscal year ending December 28, 2002. This Form 10-K is incorporated by
reference into Cadence's previously filed registration statements on Form S-8
(File Nos. 33-17722, 33-22652, 33-32373, 33-34910, 33-36110, 33-36674, 33-43025,
33-45001, 33-48371, 33-53913, 333-18963, 333-27109, 333-34599, 333-40047,
333-61029, 333-65529, 333-71717, 333-85591, 333-93609, 333-69589, 333-56898,
333-33330, 333-65116, 333-75874, 333-82044, 333-85080, 333-87674, 333-88390,
333-101692, 333-101693, 333-102648, 333-103250, 333-103657, 333-104720,
333-105481, 333-105488, 333-105492 and 333-108251) (the "Registration
Statements") and, for purposes of determining liability under the Securities
Act, is deemed a new registration statement for each Registration Statement into
which it is incorporated by reference. After reasonable efforts, Cadence has
been unable to obtain Andersen's written consent to the incorporation by
reference into the Registration Statements of Andersen's audit report with
respect to Cadence's consolidated financial statements for the fiscal years
ended December 30, 2000 and December 29, 2001. Under these circumstances, Rule
437a under the Securities Act permits Cadence to file this Form 10-K without a
written consent from Andersen. As a result, Andersen will not have any liability
under Section 11(a) of the Securities Act for any untrue statements of material
fact contained in the financial statements audited by Andersen or any omissions
of a material fact required to be stated therein. Accordingly, you would be
unable to assert a claim against Andersen under Section 11(a) of the Securities
Act for any purchases of securities under the Registration Statements made on or
after the date of this Form 10-K. In addition, the ability of Andersen to
satisfy any claims (including claims arising from Andersen's provision of
auditing and other services to Cadence) may be limited as a practical matter due
to recent events regarding Andersen. To the extent provided in Section
11(b)(3)(C) of the Securities Act, however, other persons who are liable under
Section 11(a) of the Securities Act, including Cadence's officers and directors,
may still rely on Andersen's original audit reports as being made by an expert
for purposes of establishing a due diligence defense under Section 11(b) of the
Securities Act.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.01
<SEQUENCE>16
<FILENAME>f93607exv31w01.txt
<DESCRIPTION>EXHIBIT 31.01
<TEXT>
<PAGE>

                                                                   EXHIBIT 31.01

                                 CERTIFICATIONS

I, H. Raymond Bingham, certify that:

      1.    I have reviewed this Annual Report on Form 10-K of Cadence Design
            Systems, Inc.;

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer(s) and I are responsible
            for establishing and maintaining disclosure controls and procedures
            (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and have:

            (a) Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

            (b) Evaluated the effectiveness of the registrant's disclosure
            controls and procedures and presented in this report our conclusions
            about the effectiveness of the disclosure controls and procedures,
            as of the end of the period covered by this report based on such
            evaluation; and

            (c) Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter (the registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

      5.    The registrant's other certifying officer(s) and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors (or persons
            performing the equivalent functions):

            (a) All significant deficiencies and material weaknesses in the
            design or operation of internal control over financial reporting
            which are reasonably likely to adversely affect the registrant's
            ability to record, process, summarize and report financial
            information; and

            (b) Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal control over financial reporting.

Date: April 2, 2004

By:  /s/ H. Raymond Bingham
     ------------------------------------------------
     H. Raymond Bingham
     President, Chief Executive Officer, and Director



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.02
<SEQUENCE>17
<FILENAME>f93607exv31w02.txt
<DESCRIPTION>EXHIBIT 31.02
<TEXT>
<PAGE>
                                                                   EXHIBIT 31.02

                                 CERTIFICATIONS

I, William Porter, certify that:

      1.    I have reviewed this Annual Report on Form 10-K of Cadence Design
            Systems, Inc.;

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer(s) and I are responsible
            for establishing and maintaining disclosure controls and procedures
            (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and have:

            (a) Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

            (b) Evaluated the effectiveness of the registrant's disclosure
            controls and procedures and presented in this report our conclusions
            about the effectiveness of the disclosure controls and procedures,
            as of the end of the period covered by this report based on such
            evaluation; and

            (c) Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter (the registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

      5.    The registrant's other certifying officer(s) and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors (or persons
            performing the equivalent functions):

            (a) All significant deficiencies and material weaknesses in the
            design or operation of internal control over financial reporting
            which are reasonably likely to adversely affect the registrant's
            ability to record, process, summarize and report financial
            information; and

            (b) Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal control over financial reporting.

Date: April 2, 2004

By:  /s/ William Porter

     ------------------------------------------------
     William Porter

     Senior Vice President and Chief Financial Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.01
<SEQUENCE>18
<FILENAME>f93607exv32w01.txt
<DESCRIPTION>EXHIBIT 32.01
<TEXT>
<PAGE>
                                                                   EXHIBIT 32.01

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Annual Report on Form 10-K for the fiscal year
ended January 3, 2004 of Cadence Design Systems, Inc. (the "Company") as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, H. Raymond Bingham, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:

      1.    The Report fully complies with the requirements of Section 13(a) or
            15(d) of the Securities Exchange Act of 1934; and

      2.    The information contained in the Report fairly presents, in all
            material respects, the financial condition and results of operations
            of the Company.

                                           /s/ H. Raymond Bingham
                                           -----------------------------------
                                           H. Raymond Bingham
                                           President and Chief Executive Officer
                                           Date:  April 2, 2004

A signed original of this written statement required by Section 906 has been
provided to Cadence Design Systems, Inc. and will be retained by Cadence and
furnished to the Securities and Exchange Commission or its staff upon request.



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.02
<SEQUENCE>19
<FILENAME>f93607exv32w02.txt
<DESCRIPTION>EXHIBIT 32.02
<TEXT>
<PAGE>
                                                                   EXHIBIT 32.02

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Annual Report on Form 10-K for the fiscal year
ended January 3, 2004 of Cadence Design Systems, Inc. (the "Company") as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, William Porter, Senior Vice President and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:

      1.    The Report fully complies with the requirements of Section 13(a) or
            15(d) of the Securities Exchange Act of 1934; and

      2.    The information contained in the Report fairly presents, in all
            material respects, the financial condition and results of operations
            of the Company.

                               /s/ William Porter

                               -------------------------------------------------
                                 William Porter

                               Senior Vice President and Chief Financial Officer
                               Date:  April 2, 2004

A signed original of this written statement required by Section 906 has been
provided to Cadence Design Systems, Inc. and will be retained by Cadence and
furnished to the Securities and Exchange Commission or its staff upon request.

</TEXT>
</DOCUMENT>
</SUBMISSION>
