Item 15. Exhibits and Financial Statement Schedules

		Page
(a) 1. Financial Statements
	Report of Independent Registered Public Accounting Firm	43
	Consolidated Balance Sheets as of December 28, 2019 and December 29, 2018	46
	Consolidated Income Statements for the three fiscal years ended December 28, 2019	47
	Consolidated Statements of Comprehensive Income for the three fiscal years ended December 28, 2019	48
	Consolidated Statements of Stockholders’ Equity for the three fiscal years ended December 28, 2019	49
	Consolidated Statements of Cash Flows for the three fiscal years ended December 28, 2019	50
	Notes to Consolidated Financial Statements	51
(a) 2. Financial Statement Schedules
	All financial statement schedules are omitted because they are not applicable, not required or the required information is shown in the consolidated financial statements or notes thereto.
(a) 3. Exhibits		80

The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Annual Report on Form 10-K.

The exhibits filed or incorporated by reference as part of this Annual Report on Form 10-K contain agreements to which Cadence is a party. These agreements are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about Cadence or the other parties to the agreements. Certain of the agreements contain representations and warranties by each of the parties to the applicable agreement, and any such representations and warranties have been made solely for the benefit of the other parties to the applicable agreement as of specified dates, may apply materiality standards that are different than those applied by investors, and may be subject to important qualifications and limitations that are not necessarily reflected in the agreement. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and should not be relied upon as statements of factual information.

_____________

© 2020 Cadence Design Systems, Inc. All rights reserved worldwide. Cadence, the Cadence logo, and the other Cadence marks found at www.cadence.com/go/trademarks are trademarks or registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective holders.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Cadence Design Systems, Inc.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Cadence Design Systems, Inc. and subsidiaries (the Company) as of December 28, 2019 and December 29, 2018, the related consolidated income statements, statements of comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 28, 2019, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 28, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 28, 2019 and December 29, 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 28, 2019, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 28, 2019 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases as of December 30, 2018, due to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (ASU) 2016-02, Leases, and changed its method of accounting for revenue recognition as of December 31, 2017, due to the adoption of FASB ASU 2014-09, Revenue from Contracts with Customers.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting included in Item 9A. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of the allocation of the transaction price to distinct performance obligations

As discussed in Notes 2 and 5 to the consolidated financial statements, the Company’s contracts with customers often include promises to transfer to a customer multiple software or intellectual Property (IP) licenses and services, including professional services, technical support services, and rights to unspecified updates. Determining whether licenses and services are distinct performance obligations that should be accounted for separately, or not distinct and thus accounted for together, requires significant judgment. The accounting for contracts with multiple performance obligations also requires the contract’s transaction price to be allocated to each distinct performance obligation based on relative stand-alone selling price (SSP). Judgment is required to determine SSP for each distinct performance obligation as the Company rarely licenses or sells products on a standalone basis. In instances where the SSP is not directly observable because the Company does not sell the license, product or service separately, the Company determines the SSP using information that maximizes the use of observable inputs and may include market conditions.

We identified the evaluation of the allocation of the transaction price to distinct performance obligations as a critical audit matter. Specifically, with significant software license contracts that include multiple performance obligations, a high degree of auditor judgment was required to evaluate the identification of distinct performance obligations. Revenue for each of the distinct performance obligations may be recognized at different points of time or over different periods of time. In addition, evaluating SSP of the software licenses was challenging as the Company rarely licenses its software on a standalone basis and therefore a higher degree of auditor judgment was required to assess the relevance and reliability of indirect market and observable data used by the Company to determine the SSP. The allocation of the transaction price was sensitive to the determination of the SSP of software licenses.

The primary procedures we performed to address this critical audit matter included the following: We tested certain internal controls related to the identification of distinct performance obligations and the allocation of the transaction price to the performance obligations based on SSP. We selected certain sales contracts and obtained and read contract source documents. We also confirmed the terms of certain arrangements with customers. We then assessed that all distinct performance obligations were properly identified and that the total transaction price was allocated to each distinct performance obligation based on SSPs that relied on and maximized the use of observable inputs. For certain contracts that include a software license, we developed an expectation of the allocation of the transaction price and compared it to the Company’s allocation.

Evaluation of the intercompany transfers of intangible property rights

As discussed in Note 6 to the consolidated financial statements, the Company completed intercompany transfers of certain intangible property rights to its Irish subsidiary during fiscal 2019. These intercompany transfers resulted in the establishment of a deferred tax asset and the recognition of an income tax benefit of $575.6 million. The Company expects to be able to realize the deferred tax asset in future years based on projections of future taxable income and did not provide for a valuation allowance.

We identified the evaluation of the intercompany transfers of intangible property rights to the Irish subsidiary as a critical audit matter. A high degree of auditor judgment was required to evaluate the estimated fair value of the transferred intangible property rights pursuant to the relevant tax regulations. Reasonably possible changes to the key assumptions, in particular the revenue growth rate, operating margin, discount rate and terminal growth rate, could have a significant impact on the fair value. The Company’s projections of future taxable income in Ireland, which supports the recognition of the deferred tax asset, are based on these same key assumptions.

The primary procedures we performed to address this critical audit matter included the following: We tested certain internal controls over the Company’s estimate of the fair value of the transferred intangible property rights. This included controls over the development of the revenue growth rate, operating margin, discount rate and terminal growth rate assumptions. We compared the revenue growth rate and operating margin estimates to historical actual results and compared the estimates to analyst and industry reports. We involved valuation professionals with specialized skills and knowledge who assisted in (1) evaluating the Company’s discount rate by comparing it to a discount rate range that was independently developed using publicly available market data for comparable entities, and (2) developing an estimate of the fair value of the intangible property rights using the Company’s cash flow assumptions and an independently developed discount rate and terminal rate and compared the result to the Company’s fair value estimate.

We also tested certain internal controls over the assessment of the recoverability of the resulting deferred tax asset, including controls over the determination of future taxable income in Ireland. We evaluated management’s ability to accurately estimate taxable income in Ireland by comparing the estimates to historical taxable income in Ireland before the transfers of intangible property rights, forecasted taxable income from the transferred intangible property rights, and management’s history of carrying out its stated plans. We involved income tax professionals with specialized skills and knowledge who assisted in assessing the Company’s application of the relevant tax regulations.

/s/ KPMG LLP

We have served as the Company’s auditor since 2002.

Santa Clara, California

February 24, 2020

CADENCE DESIGN SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

December 28, 2019 and December 29, 2018

(In thousands, except par value)

	As of
	December 28, 2019				December 29, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	705,210			$	533,298
Receivables, net	304,546				297,082
Inventories	55,802				28,162
Prepaid expenses and other	103,785				92,550
Total current assets	1,169,343				951,092
Property, plant and equipment, net	275,855				252,630
Goodwill	661,856				662,272
Acquired intangibles, net	172,375				225,457
Deferred taxes	732,367				154,894
Other assets	345,429				222,309
Total assets	$	3,357,225			$	2,468,654
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Revolving credit facility	$	—			$	100,000
Accounts payable and accrued liabilities	316,908				256,526
Current portion of deferred revenue	355,483				352,456
Total current liabilities	672,391				708,982
Long-term liabilities:
Long-term portion of deferred revenue	73,400				48,718
Long-term debt	346,019				345,291
Other long-term liabilities	162,521				77,262
Total long-term liabilities	581,940				471,271
Commitments and contingencies (Notes 6, 7 and 18)
Stockholders’ equity:
Preferred stock – $0.01 par value; authorized 400 shares, none issued or outstanding	—				—
Common stock – $0.01 par value; authorized 600,000 shares; issued and outstanding shares: 279,855 and 280,015, respectively	2,046,237				1,936,124
Treasury stock, at cost; 49,304 shares and 49,144 shares, respectively	(1,668,105		)		(1,395,652		)
Retained earnings	1,761,688				772,709
Accumulated other comprehensive loss	(36,926		)		(24,780		)
Total stockholders’ equity	2,102,894				1,288,401
Total liabilities and stockholders’ equity	$	3,357,225			$	2,468,654

See notes to consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.

CONSOLIDATED INCOME STATEMENTS

For the three fiscal years ended December 28, 2019

(In thousands, except per share amounts)

	2019				2018				2017
Revenue:
Product and maintenance	$	2,204,615			$	1,997,887			$	1,813,987
Services	131,704				140,135				129,045
Total revenue	2,336,319				2,138,022				1,943,032
Costs and expenses:
Cost of product and maintenance	189,146				173,011				156,676
Cost of service	77,211				85,736				80,714
Marketing and sales	481,673				439,669				419,161
Research and development	935,938				884,816				804,223
General and administrative	139,806				133,406				134,181
Amortization of acquired intangibles	12,128				14,086				14,716
Restructuring and other charges	8,621				11,089				9,406
Total costs and expenses	1,844,523				1,741,813				1,619,077
Income from operations	491,796				396,209				323,955
Interest expense	(18,829		)		(23,139		)		(25,664		)
Other income, net	6,001				3,320				16,755
Income before provision (benefit) for income taxes	478,968				376,390				315,046
Provision (benefit) for income taxes	(510,011		)		30,613				110,945
Net income	$	988,979			$	345,777			$	204,101
Net income per share – basic	$	3.62			$	1.26			$	0.75
Net income per share – diluted	$	3.53			$	1.23			$	0.73
Weighted average common shares outstanding – basic	273,239				273,729				272,097
Weighted average common shares outstanding – diluted	280,515				281,144				280,221

See notes to consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the three fiscal years ended December 28, 2019

(In thousands)

	2019				2018				2017
Net income	$	988,979			$	345,777			$	204,101
Other comprehensive income (loss), net of tax effects:
Foreign currency translation adjustments	(8,642		)		(17,885		)		19,394
Changes in unrealized holding gains or losses on available-for-sale securities, net of reclassification adjustments for realized gains and losses	—				—				1,712
Changes in defined benefit plan liabilities	(3,504		)		(627		)		424
Total other comprehensive income (loss), net of tax effects	(12,146		)		(18,512		)		21,530
Comprehensive income	$	976,833			$	327,265			$	225,631

See notes to consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the three fiscal years ended December 28, 2019

(In thousands)

	Common Stock
				Par Value								Retained				Accumulated
				and Capital								Earnings				Other
				in Excess				Treasury				(Accumulated				Comprehensive
	Shares			of Par				Stock				Deficit)				Income (Loss)				Total
Balance, December 31, 2016	278,099			$	1,820,081			$	(1,190,053	)		$	136,902			$	(25,160	)		$	741,770
Net income	—			—				—				204,101				—				$	204,101
Other comprehensive income, net of taxes	—			—				—				—				21,530				$	21,530
Purchase of treasury stock	(2,495	)		—				(100,025		)		—				—				$	(100,025	)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures	7,905			(111,982		)		160,946				—				—				$	48,964
Stock received for payment of employee taxes on vesting of restricted stock	(1,442	)		(8,172		)		(48,989		)		—				—				$	(57,161	)
Stock-based compensation expense	—			130,023				—				—				—				$	130,023
Balance, December 30, 2017	282,067			$	1,829,950			$	(1,178,121	)		$	341,003			$	(3,630	)		$	989,202
Cumulative effect adjustment	—			—				—				85,929				(2,638		)		$	83,291
Net income	—			—				—				345,777				—				$	345,777
Other comprehensive loss, net of taxes	—			—				—				—				(18,512		)		$	(18,512	)
Purchase of treasury stock	(5,934	)		—				(250,059		)		—				—				$	(250,059	)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures	5,274			(50,570		)		91,478				—				—				$	40,908
Stock received for payment of employee taxes on vesting of restricted stock	(1,392	)		(10,971		)		(58,950		)		—				—				$	(69,921	)
Stock-based compensation expense	—			167,715				—				—				—				$	167,715
Balance, December 29, 2018	280,015			$	1,936,124			$	(1,395,652	)		$	772,709			$	(24,780	)		$	1,288,401
Net income	—			—				—				988,979				—				$	988,979
Other comprehensive loss, net of taxes	—			—				—				—				(12,146		)		$	(12,146	)
Purchase of treasury stock	(4,841	)		—				(306,148		)		—				—				$	(306,148	)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures	5,923			(57,763		)		110,604				—				—				$	52,841
Stock received for payment of employee taxes on vesting of restricted stock	(1,242	)		(13,671		)		(76,909		)		—				—				$	(90,580	)
Stock-based compensation expense	—			181,547				—				—				—				$	181,547
Balance, December 28, 2019	279,855			$	2,046,237			$	(1,668,105	)		$	1,761,688			$	(36,926	)		$	2,102,894

See notes to consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three fiscal years ended December 28, 2019

(In thousands)

	2019				2018				2017
Cash and cash equivalents at beginning of year	$	533,298			$	688,087			$	465,232
Cash flows from operating activities:
Net income	988,979				345,777				204,101
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	122,789				118,721				115,524
Amortization of debt discount and fees	1,001				1,196				1,211
Stock-based compensation	181,547				167,715				130,023
(Gain) loss on investments, net	4,090				(2,732		)		(9,454		)
Deferred income taxes	(576,738		)		(11,676		)		79,934
Provisions for losses on receivables	632				5,102				2,623
ROU asset amortization and change in operating lease liabilities	562				—				—
Other non-cash items	428				2,607				653
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables	(4,718		)		(87,083		)		(31,032		)
Inventories	(33,024		)		752				5,034
Prepaid expenses and other	(11,031		)		(19,622		)		(25,793		)
Other assets	(8,011		)		(14,606		)		(26,751		)
Accounts payable and accrued liabilities	33,915				1,553				(25,987		)
Deferred revenue	27,498				100,696				33,614
Other long-term liabilities	1,681				(3,649		)		17,040
Net cash provided by operating activities	729,600				604,751				470,740
Cash flows from investing activities:
Proceeds from the sale of marketable investments	—				—				833
Purchases of non-marketable investments	(33,717		)		(115,839		)		—
Proceeds from the sale of non-marketable investments	2,952				3,497				9,108
Purchases of property, plant and equipment	(74,605		)		(61,503		)		(57,901		)
Cash paid in business combinations and asset acquisitions, net of cash acquired	(338		)		—				(143,249		)
Net cash used for investing activities	(105,708		)		(173,845		)		(191,209		)
Cash flows from financing activities:
Proceeds from revolving credit facility	150,000				100,000				135,000
Payment on revolving credit facility	(250,000		)		(85,000		)		(100,000		)
Principal payments on term loan	—				(300,000		)		—
Payment of debt issuance costs	—				—				(793		)
Proceeds from issuance of common stock	52,842				40,908				48,965
Stock received for payment of employee taxes on vesting of restricted stock	(90,580		)		(69,921		)		(57,161		)
Payments for repurchases of common stock	(306,148		)		(250,059		)		(100,025		)
Change in book overdraft	—				(3,867		)		3,867
Net cash used for financing activities	(443,886		)		(567,939		)		(70,147		)
Effect of exchange rate changes on cash and cash equivalents	(8,094		)		(17,756		)		13,471
Increase (decrease) in cash and cash equivalents	171,912				(154,789		)		222,855
Cash and cash equivalents at end of year	$	705,210			$	533,298			$	688,087
Supplemental cash flow information:
Cash paid for interest	$	17,842			$	23,018			$	24,160
Cash paid for income taxes, net	41,946				68,040				59,072

See notes to consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three fiscal years ended December 28, 2019

NOTE 1. BUSINESS OVERVIEW

Cadence Design Systems, Inc. (“Cadence”) provides solutions that enable its customers to design complex and innovative electronic products. Cadence’s solutions are designed to give its customers a competitive edge in their development of electronic devices and systems, systems-on-chips (“SoCs”) integrated circuits (“ICs”) and increasingly sophisticated manufactured products, by optimizing performance, minimizing power consumption, shortening the time to bring their products to market and reducing their design, development and manufacturing costs. Cadence’s product offerings include software, hardware, services and reusable IC design blocks, which are commonly referred to as intellectual property (“IP”). Cadence also provides maintenance for its software, hardware, and IP product offerings.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Cadence and its subsidiaries after elimination of intercompany accounts and transactions. All consolidated subsidiaries are wholly owned by Cadence.

Cadence’s fiscal years are 52- or 53-week periods ending on the Saturday closest to December 31. Fiscal 2019, 2018 and 2017 were each 52-week fiscal years.

Use of Estimates

Preparation of the consolidated financial statements in conformity with United States 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.

Comparability

Prior period balances for deferred tax assets in Cadence’s consolidated balance sheets have been reclassified to conform to the current period presentation.

Effective the first day of fiscal 2019, Cadence adopted multiple new accounting standards. Prior periods were not retrospectively restated, so the consolidated balance sheet as of December 28, 2019 was prepared using accounting standards that were different than those in effect as of December 29, 2018. Therefore, the consolidated balance sheets as of December 28, 2019 and December 29, 2018 are not directly comparable.

Cadence also adopted multiple new accounting standards on the first day of fiscal 2018, including standards related to revenue recognition and accounting for income taxes. Prior periods were not retrospectively restated, so the consolidated balance sheets as of December 28, 2019 and December 29, 2018, are not directly comparable to the consolidated balance sheet as of December 30, 2017, nor are the results of operations for fiscal 2019 and fiscal 2018 directly comparable to the results of operations for fiscal 2017.

Recently Adopted Accounting Standards

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) 2016-02, “Leases (Topic 842)” (“Topic 842”), which requires the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. The most prominent of the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases.

Cadence adopted the new standard on December 30, 2018, the first day of fiscal 2019, and used the modified retrospective approach with the effective date as the date of initial application. Consequently, prior period balances and disclosures have not been restated. Cadence elected certain practical expedients, which among other things, allowed it to carry forward prior conclusions about lease identification and classification.

Adoption of the standard resulted in the balance sheet recognition of additional lease assets and lease liabilities of approximately $80 million; however, the adoption of the standard did not have an impact on Cadence’s beginning retained earnings, results from operations or cash flows. Additionally, the new standard did not have a material impact on the consolidated financial statements for arrangements in which Cadence is the lessor. For additional information regarding Cadence’s leases, see Note 7 in the notes to consolidated financial statements.

Income Tax Effects within Accumulated Other Comprehensive income

In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows a reclassification of the income tax effects of the U.S. Tax Cuts and Jobs Act (the “Tax Act”) on items within accumulated other comprehensive income to retained earnings. This standard became effective for Cadence on December 30, 2018, the first day of fiscal 2019. The adoption of this standard did not have a material impact on Cadence’s consolidated financial statements.

Foreign Operations

Cadence transacts business in various foreign currencies. The United States dollar is the functional currency of Cadence’s consolidated entities operating in the United States and certain of its consolidated subsidiaries operating outside the United States. The functional currency for Cadence’s other consolidated entities operating outside of the United States is generally the country’s local currency.

Cadence translates the financial statements of consolidated entities whose functional currency is not the United States dollar into United States dollars. Cadence translates assets and liabilities at the exchange rate in effect as of the financial statement date and translates income statement accounts using an average exchange rate for the period. Cadence includes adjustments from translating assets and liabilities into United States dollars, and the effect of exchange rate changes on intercompany transactions of a long-term investment nature in stockholders’ equity as a component of accumulated other comprehensive income. Cadence reports gains and losses from foreign exchange rate changes related to intercompany receivables and payables that are not of a long-term investment nature, as well as gains and losses from foreign currency transactions of a monetary nature in other income, net, in the consolidated income statements.

Concentrations of Credit Risk

Financial instruments, including derivative financial instruments, that may potentially subject Cadence to concentrations of credit risk, consist principally of cash and cash equivalents, accounts receivable, investments and forward contracts. Credit exposure related to Cadence’s foreign currency forward contracts is limited to the realized and unrealized gains on these contracts.

Cash and Cash Equivalents

Cadence considers all highly liquid investments with original maturities of three months or less on the date of purchase to be cash equivalents. Book overdraft balances are recorded in accounts payable and accrued liabilities in the consolidated balance sheets and are reported as a component of cash flows from financing activities in the consolidated statement of cash flows.

Receivables

Cadence’s receivables, net includes invoiced accounts receivable and the current portion of unbilled receivables. Unbilled receivables represent amounts Cadence has recorded as revenue for which payments from a customer are due over time and Cadence has an unconditional right to the payment. Cadence’s accounts receivable and unbilled receivables were initially recorded at the transaction value. Cadence’s long-term receivables balance includes receivable balances to be invoiced more than one year after each balance sheet date.

Allowances for Doubtful Accounts

Each fiscal quarter, Cadence assesses its ability to collect outstanding receivables, and provides allowances for a portion of its receivables when collection is not probable. Cadence analyzes the creditworthiness of its customers, historical experience, changes in customer demand and the overall economic climate in the industries that Cadence serves. Provisions are made based upon a specific review of customer receivables and are recorded in general and administrative expenses.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cadence’s inventories include high technology parts and components for complex emulation and prototyping hardware systems. These parts and components are specialized in nature and may be 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’s policy is to reserve for inventory in excess of 12-month demand or for other known obsolescence or realization issues.

Property, Plant and Equipment

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:

Computer equipment and related software	2-7 years
Buildings	25-32 years
Leasehold improvements	Shorter of the lease term or the estimated useful life
Building improvements and land improvements	Up to 32 years
Furniture and fixtures	3-5 years
Equipment	3-5 years

Cadence capitalizes certain costs of software developed for internal use. Capitalization of software developed for internal use begins at the application development phase of the project. Amortization begins when the computer software is substantially complete and ready for its intended use. Amortization is recorded on a straight-line basis over the estimated useful life. Cadence capitalized costs of software developed for internal use of $2.4 million, $3.6 million, and $2.2 million during fiscal 2019, 2018 and 2017, respectively.

Cadence recorded depreciation and amortization expense of $63.3 million, $60.4 million and $52.9 million during fiscal 2019, 2018 and 2017, respectively, for property, plant and equipment.

Software Development Costs

Software development costs are capitalized beginning when a product’s technological feasibility has been established by completion of a working model of the product and amortization begins when a product is available for general release to customers. The period between the achievement of technological feasibility and the general release of Cadence’s products has typically been of short duration. Costs incurred during fiscal 2019, 2018 and 2017 were not material.

Deferred Sales Commissions

Cadence records an asset for the incremental costs of obtaining a contract with a customer, including direct sales commissions that are earned upon execution of the contract. Cadence uses the portfolio method to recognize the amortization expense related to these capitalized costs related to initial contracts and renewals and such expense is recognized over a period associated with the revenue of the related portfolio, which is generally two to three years for Cadence’s software arrangements and upon delivery for its hardware and IP arrangements. Incremental costs related to initial contracts and renewals are amortized over the period of the arrangement in each case because Cadence pays the same commission rate for both new contracts and renewals. Deferred sales commissions are tested for impairment on an ongoing basis when events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment is recognized to the extent that the amount of deferred sales commission exceeds the remaining expected gross margin (remaining revenue less remaining direct costs) on the goods and services to which the deferred sales commission relates. Total capitalized costs were $31.6 million and $31.2 million as of December 28, 2019, and December 29, 2018, respectively, and are included in other assets in Cadence’s consolidated balance sheet. Amortization of these assets was $29.4 million and $26.5 million during fiscal 2019 and 2018, respectively, and is included in sales and marketing expense in Cadence’s consolidated income statement.

Goodwill

Cadence conducts a goodwill impairment analysis annually and as necessary if changes in facts and circumstances indicate that the fair value of Cadence’s single reporting unit may be less than its carrying amount. Cadence’s goodwill impairment test consists of two steps. The first step requires that Cadence compare the estimated fair value of its single reporting unit to the carrying value of the reporting unit’s net assets, including goodwill. If the fair value of the reporting unit is greater than the carrying value of its net assets, goodwill is not considered to be impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value of its net assets, Cadence would be required to complete the second step of the test by analyzing the fair value of its goodwill. If the carrying value of the goodwill exceeds its fair value, an impairment charge is recorded.

Long-Lived Assets, Including Acquired Intangibles

Cadence’s long-lived assets consist of property, plant and equipment, and acquired intangibles. Acquired intangibles with definite lives are amortized on a straight-line basis over the estimated economic life of the underlying products and technologies, which range from two years to fourteen years. Acquired intangibles with indefinite lives, or in-process technology, consists of projects that had not reached technological feasibility by the date of acquisition. Upon completion of the project, the assets are amortized over their estimated useful lives. If the project is abandoned rather than completed, the asset is written off. In-process technology is tested for impairment annually and as necessary if changes in facts and circumstances indicate that the assets might be impaired.

Cadence reviews its long-lived assets, including acquired intangibles, for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset or asset group may not be recoverable. Recoverability of an asset or asset group is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset or asset group is expected to generate. If it is determined that the carrying amount of an asset group is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset or asset group exceeds its fair value.

Leases

Lessee Considerations

Cadence has operating leases primarily consisting of facilities with remaining lease terms of approximately one year to eleven years. Cadence has options to terminate many of its leases early. The lease term represents the period up to the early termination date unless it is reasonably certain that Cadence will not exercise the early termination option. For certain leases, Cadence has options to extend the lease term for additional periods ranging from one year to ten years. These renewal options are not considered in the remaining lease term unless it is reasonably certain that Cadence will exercise such options.

At inception of a contract, Cadence determines an arrangement contains a lease if the arrangement conveys the right to use an identified asset and Cadence obtains substantially all of the economic benefits from the asset and has the ability to direct the use of the asset. Leases with an initial term of twelve months or less are not recorded on the balance sheet. For lease agreements entered into or reassessed after the adoption of Topic 842, Cadence combines the lease and non-lease components in determining the lease liabilities and ROU assets. Non-lease components primarily include common-area maintenance and other management fees.

Operating lease expense is generally recognized evenly over the term of the lease. Payments under Cadence's lease agreements are primarily fixed; however, certain agreements contain rental payments that are adjusted periodically based on changes in consumer price and other indices. Changes to payments resulting from changes in indices are expensed as incurred and not included in the measurement of lease liabilities and ROU assets. Cadence’s lease agreements do not provide an implicit borrowing rate, therefore an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments. The incremental borrowing rate represents a comparable rate to borrow on a collateralized basis over a similar term and in the economic environment where the leased asset is located. Cadence used the incremental borrowing rate on the effective date for all leases that commenced prior to that date.

Lessor Considerations

Although most of Cadence’s revenue from its hardware business comes from sales of hardware, Cadence also leases its hardware products to some customers. Cadence determines the existence of a lease when the customer controls the use of the identified hardware for a period of time defined in the lease agreement.

Cadence’s leases range in duration up to three years with payments generally collected in equal quarterly installments. Cadence’s leases do not include termination rights or variable pricing and typically do not include purchase rights at the end of the lease. Short-term leases are usually less than two years and are classified as operating leases with revenue recognized and depreciation expensed on a straight-line basis over the term of the lease. Long-term leases are typically for three years and are classified as sales-type leases with revenue and cost of sales recognized upon delivery.

Cadence’s operating leases and sales-type leases contain both lease and non-lease components. Because the pattern of revenue recognition is the same for both the lease and non-lease components in Cadence’s operating leases, Cadence has elected the practical expedient to not separate lease and related non-lease components and accounts for both components under Topic 842. Cadence allocates value to the lease and non-lease components in its sales-type leases using standalone selling prices (“SSPs”) similar to those used under ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” the current accounting standard governing revenue recognition. When Cadence leases its hardware in the same arrangement as software or IP, Cadence allocates value to each performance obligation using SSPs.

Investments in Equity Securities

Cadence’s investments in marketable equity securities are carried at fair value as a component of prepaid expenses and other in the consolidated balance sheets. Cadence records realized and unrealized holding gains or losses as part of other income, net in the consolidated income statements.

Cadence’s non-marketable investments include its investments in privately held companies. These investments are initially recorded at cost and are included in other assets in the consolidated balance sheets. Cadence accounts for these investments using the measurement alternative when the fair value of the investment is not readily determinable and Cadence does not have the ability to exercise significant influence or the equity method of accounting when it is determined that Cadence has the ability to exercise significant influence. For investments accounted for using the equity method of accounting, Cadence records its proportionate share of the investee’s income or loss, net of the effects of any basis differences, to other income, net on a one-quarter lag in Cadence’s consolidated income statements.

Cadence reviews its non-marketable investments on a regular basis to determine whether its investments in these companies are other-than-temporarily impaired. Cadence considers investee financial performance and other information received from the investee companies, as well as any other available estimates of the fair value of the investee companies in its review. If Cadence determines the carrying value of an investment exceeds its fair value, and that difference is other than temporary, Cadence writes down the value of the investment to its fair value. Cadence records investment write-downs in other income, net, in the consolidated income statements.

Derivative Financial Instruments

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 a hedge by increasing in value when underlying assets decrease in value or underlying liabilities increase in value due to changes in foreign exchange rates. Conversely, a foreign currency forward exchange contract decreases in value when underlying assets increase in value or underlying liabilities decrease in value due to changes in foreign exchange rates. The forward contracts are not designated as accounting hedges and, therefore, the unrealized gains and losses are recognized in other income, net, in advance of the actual foreign currency cash flows. The fair value of these forward contracts is recorded in accrued liabilities or in other current assets. These forward contracts generally have maturities of 90 days or less.

Nonqualified Deferred Compensation Trust

Executive officers, senior management and members of Cadence’s Board of Directors may elect to defer compensation payable to them under Cadence’s Nonqualified Deferred Compensation Plan (“NQDC”). Deferred compensation payments are held in investment accounts and the values of the accounts are adjusted each quarter based on the fair value of the investments held in the NQDC.

The selected investments held in the NQDC accounts are carried at fair value, with the unrealized gains and losses recognized in the consolidated income statements as other income, net. These securities are classified in other assets in the consolidated balance sheets because they are not available for Cadence’s use in its operations.

Cadence’s obligation with respect to the NQDC trust is recorded in other long-term liabilities on the consolidated balance sheets. Increases and decreases in the NQDC trust liability are recorded as compensation expense in the consolidated income statements.

Treasury Stock

Cadence generally issues shares related to its stock-based compensation plans from shares held in treasury. When treasury stock is reissued at an amount higher than its cost, the difference is recorded as a component of capital in excess of par in the consolidated statements of stockholders’ equity. When treasury stock is reissued at an amount lower than its cost, the difference is recorded as a component of capital in excess of par to the extent that gains exist to offset the losses. If there are no accumulated treasury stock gains in capital in excess of par, the losses upon reissuance of treasury stock are recorded as a component of retained earnings in the consolidated statements of stockholders’ equity. There were no losses recorded as a component of retained earnings by Cadence on the reissuance of treasury stock during fiscal 2019, 2018 or 2017.

Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which Cadence expects to be entitled in exchange for promised goods or services. Cadence’s performance obligations are satisfied either over time or at a point in time. Revenue from performance obligations delivered to customers over time accounted for approximately 85% of Cadence’s total revenue for fiscal 2019 and 2018.

Product and maintenance revenue includes Cadence’s licenses of software and IP, sales of emulation hardware and the related maintenance on these licenses and sales.

Service revenue includes revenue received for performing engineering services (which are generally not related to the functionality of other licensed products), customized IP on a fixed fee basis, and sales from cloud-based solutions that provide customers with software and services over a period of time.

Cadence enters into contracts that can include various combinations of licenses, products and services, some of which are distinct and are accounted for as separate performance obligations. For contracts with multiple performance obligations, Cadence allocates the transaction price of the contract to each performance obligation, generally on a relative basis using its SSP. Revenue is recognized net of any taxes collected from customers that are subsequently remitted to governmental authorities.

Software Revenue Recognition

Cadence’s time-based license arrangements grant customers the right to access and use all of the licensed products at the outset of an arrangement and updates are generally made available throughout the entire term of the arrangement, which is generally two to three years. Cadence’s updates provide continued access to evolving technology as customers’ designs migrate to more advanced nodes and as its customers’ technological requirements evolve. In addition, certain time-based license arrangements include remix rights and unspecified additional products that become commercially available during the term of the agreement. Payments are generally received in equal or near equal installments over the term of the agreement.

Multiple software licenses, related updates, and technical support in these time-based arrangements constitute a single, combined performance obligation and revenue is recognized over the term of the license, commencing upon the later of the effective date of the arrangement or transfer of the software license. Remix rights are not an additional promised good or service in the contract, and where unspecified additional software product rights are part of the contract with the customer, such rights are accounted for as part of the single performance obligation that includes the licenses, updates, and technical support because such rights are provided for the same period of time and have the same time-based pattern of transfer to the customer.

Hardware Revenue Recognition

Cadence generally has two performance obligations in arrangements involving the sale or lease of hardware products. The first performance obligation is to transfer the hardware product (which includes software integral to the functionality of the hardware product). The second performance obligation is to provide maintenance on hardware and its embedded software, which includes rights to technical support, hardware repairs and software updates that are all provided over the same term and have the same time-based pattern of transfer to the customer. The transaction price allocated to the hardware product is generally recognized as revenue at the time of delivery because the customer obtains control of the product at that point in time. Cadence has concluded that control generally transfers at that point in time because the customer has title to the hardware, physical possession, and a present obligation to pay for the hardware. The transaction price allocated to maintenance is recognized as revenue ratably over the maintenance term. Payments for hardware contracts are generally received upon delivery of the hardware product. Shipping and handling costs are considered fulfillment costs and are included in cost of product and maintenance in Cadence’s consolidated income statements.

IP Revenue Recognition

Cadence generally licenses IP under nonexclusive license agreements that provide usage rights for specific designs. In addition, for certain of Cadence’s IP license agreements, royalties are collected as customers ship their own products that incorporate Cadence IP. These arrangements generally have two performance obligations—transferring the licensed IP and associated maintenance, which includes rights to technical support, and software updates that are all provided over the maintenance term and have a time-based pattern of transfer to the customer.

Some customers enter into a non-cancellable IP Access Agreement (“IPAA”) whereby the customer commits to a fixed dollar amount over a specified period of time that can be used to purchase from a list of IP products or services. These arrangements do not meet the definition of a revenue contract until the customer executes a separate selection form to identify the products and services that they are purchasing. Each separate selection form under the IPAA is treated as an individual contract and accounted for based on the respective performance obligations.

Revenue allocated to the IP license is recognized at a point in time upon the later of the delivery of the IP or the beginning of the license period and revenue allocated to the maintenance is recognized over the maintenance term. Royalties are recognized as revenue in the quarter in which the applicable Cadence customer ships its products that incorporate Cadence IP. Payments for IP contracts are generally received upon delivery of the IP. Cadence customizes certain IP and revenue related to this customization is recognized as services revenue as described below.

Services Revenue Recognition

Revenue from service contracts is recognized over time, generally using costs incurred or hours expended to measure progress. Cadence has a history of accurately estimating project status and the costs necessary to complete projects. A number of internal and external factors can affect these estimates, including labor rates, utilization and efficiency variances and specification and testing requirement changes. Payments for services are generally due upon milestones in the contract or upon consumption of the hourly resources.

Stock-Based Compensation

Cadence recognizes the cost of awards of equity instruments granted to employees in exchange for their services as stock-based compensation expense. Stock-based compensation expense is measured at the grant date based on the value of the award and is recognized as expense over the requisite service period, which is typically the vesting period. Cadence recognizes stock-based compensation expense on the straight-line method for awards that only contain a service condition and on the graded-vesting method for awards that contain both a service and performance condition. Cadence recognizes the impact of forfeitures on stock-based compensation expense as they occur.

The fair value of stock options and purchase rights issued under Cadence’s Employee Stock Purchase Plan (“ESPP”) are calculated using the Black-Scholes option pricing model. The computation of the expected volatility assumption used for new awards is based on implied volatility when the remaining maturities of the underlying traded options are at least one year. When the remaining maturities of the underlying traded options are less than one year, expected volatility is based on a weighting of historical and implied volatilities. When determining the expected term, Cadence reviews historical employee exercise behavior from options having similar vesting periods. The risk-free interest rate for the period within the expected term of the option is based on the yield of United States Treasury notes for the comparable term in effect at the time of grant. The expected dividend yield used in the calculation is zero because Cadence has not historically paid and currently does not expect to pay dividends in the foreseeable future.

Advertising

Cadence expenses the costs of advertising as incurred. Total advertising expense, including marketing programs and events, was $8.4 million, $7.6 million and $7.4 million during fiscal 2019, 2018 and 2017, respectively, and is included in marketing and sales in the consolidated income statements.

Restructuring Charges

Cadence records personnel-related restructuring charges with termination benefits when the costs are both probable and estimable. Cadence records personnel-related restructuring charges with non-customary termination benefits when the plan has been communicated to the affected employees. Cadence records facilities-related restructuring charges in the period in which the affected facilities are vacated. In connection with facilities-related restructuring plans, Cadence has made a number of estimates and assumptions related to losses on excess facilities that have been 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 certain contractual costs to maintain facilities during the period after abandonment.

Cadence records estimated provisions for termination benefits and outplacement costs along with other personnel-related restructuring costs, asset impairments related to abandoned assets and other costs associated with the restructuring plan. Cadence regularly evaluates the adequacy of its lease loss accruals and severance and related benefits accruals, and adjusts the balances based on actual costs incurred or changes in estimates and assumptions. Subsequent adjustments to restructuring accruals are classified in restructuring and other charges in the consolidated income statements.

Accounting for Income Taxes

Cadence accounts for the effect of income taxes in its consolidated financial statements using the asset and liability method. This process involves estimating actual current tax liabilities together with assessing carryforwards and temporary differences resulting from differing treatment of items, such as depreciation, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, measured using enacted tax rates expected to apply to taxable income in the years when those temporary differences are expected to be recovered or settled. Cadence accounts for the United States global intangible low-taxed income as a period expense.

Cadence then records a valuation allowance to reduce the deferred tax assets to the amount that Cadence believes is more likely than not to be realized based on its judgment of all available positive and negative evidence. The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which the strength of the evidence can be objectively verified. This assessment, which is completed on a taxing jurisdiction basis, takes into account a number of types of evidence, including the following:

•	the nature and history of current or cumulative financial reporting income or losses;

•	sources of future taxable income;

•	the anticipated reversal or expiration dates of the deferred tax assets; and

•	tax planning strategies.

Cadence takes a two-step approach to recognizing and measuring the financial statement benefit of uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement of the audit. Cadence classifies interest and penalties on unrecognized tax benefits as income tax expense or benefit.

For additional discussion of income taxes, see Note 6 in the notes to the consolidated financial statements.

NOTE 3. DEBT

Cadence’s outstanding debt as of December 28, 2019 and December 29, 2018 was as follows:

	December 28, 2019												December 29, 2018
	(In thousands)
	Principal				Unamortized Discount				Carrying Value				Principal				Unamortized Discount				Carrying Value
Revolving Credit Facility	$	—			$	—			$	—			$	100,000			$	—			$	100,000
2024 Notes	350,000				(3,981		)		346,019				350,000				(4,709		)		345,291
Total outstanding debt	$	350,000			$	(3,981	)		$	346,019			$	450,000			$	(4,709	)		$	445,291

Revolving Credit Facility

In January 2017, Cadence entered into a five-year senior unsecured revolving credit facility with a group of lenders led by JPMorgan Chase Bank, N.A., as administrative agent. The credit facility provides for borrowings up to $350.0 million, with the right to request increased capacity up to an additional $250.0 million upon the receipt of lender commitments, for total maximum borrowings of $600.0 million. The credit facility expires on January 28, 2022 and has no subsidiary guarantors. Any outstanding loans drawn under the credit facility are due at maturity on January 28, 2022. Outstanding borrowings may be paid at any time prior to maturity.

Interest accrues on borrowings under the credit facility at either LIBOR plus a margin between 1.250% and 1.875% per annum or at the base rate plus a margin between 0.25% and 0.875% per annum. Interest is payable quarterly. A commitment fee ranging from 0.15% to 0.30% is assessed on the daily average undrawn portion of revolving commitments.

The credit facility contains customary negative covenants that, among other things, restrict Cadence’s ability to incur additional indebtedness, grant liens, make certain investments (including acquisitions), dispose of certain assets and make certain payments, including share repurchases and dividends. In addition, the credit facility contains financial covenants that require Cadence to maintain a funded debt to EBITDA ratio not greater than 3.00 to 1, with a step up to 3.50 to 1 for one year following an acquisition by Cadence of at least $250.0 million that results in a pro forma leverage ratio between 2.75 to 1 and 3.25 to 1. As of December 28, 2019 and December 29, 2018, Cadence was in compliance with all financial covenants associated with the revolving credit facility.

2024 Notes

In October 2014, Cadence issued $350.0 million aggregate principal amount of 4.375% Senior Notes due October 15, 2024 (the “2024 Notes”). Cadence received net proceeds of $342.4 million from the issuance of the 2024 Notes, net of a discount of $1.4 million and issuance costs of $6.2 million. Both the discount and issuance costs are being amortized to interest expense over the term of the 2024 Notes using the effective interest method. Interest is payable in cash semi-annually in April and October. The 2024 Notes are unsecured and rank equal in right of payment to all of Cadence’s existing and future senior indebtedness. The fair value of the 2024 Notes was approximately $378.4 as of December 28, 2019.

Cadence may redeem the 2024 Notes, in whole or in part, at a redemption price equal to the greater of (a) 100% of the principal amount of the notes to be redeemed and (b) the sum of the present values of the remaining scheduled payments of principal and interest, plus any accrued and unpaid interest, as more particularly described in the indenture governing the 2024 Notes.

The indenture governing the 2024 Notes includes customary representations, warranties and restrictive covenants, including, but not limited to, restrictions on Cadence’s ability to grant liens on assets, enter into sale and lease-back transactions, or merge, consolidate or sell assets, and also includes customary events of default.

NOTE 4. RECEIVABLES, NET

Cadence’s current and long-term receivables balances as of December 28, 2019 and December 29, 2018 were as follows:

	As of
	December 28, 2019				December 29, 2018
	(In thousands)
Accounts receivable	$	179,250			$	164,223
Unbilled accounts receivable	126,165				136,795
Long-term receivables	3,082				5,972
Total receivables	308,497				306,990
Less allowance for doubtful accounts	(869		)		(3,936		)
Total receivables, net	$	307,628			$	303,054

Cadence’s customers are primarily concentrated within the semiconductor and electronics systems industries. As of December 28, 2019, no customer accounted for 10% or more of Cadence’s total receivables. As of December 29, 2018, one customer accounted for 11% of Cadence’s total receivables.

Allowance for doubtful accounts

Cadence’s provisions for losses on its accounts receivable during fiscal 2019, 2018 and 2017 were as follows:

		Balance at Beginning of Period				Charged to Costs and Expenses				Uncollectible Accounts Written Off, Net				Balance at End of Period
Year ended December 28, 2019		$	3,936			$	632			$	(3,699	)		$	869
Year ended December 29, 2018		—				5,102				(1,166		)		3,936
Year ended December 30, 2017		$	—			$	2,623			$	(2,623	)		$	—

NOTE 5. REVENUE

Cadence combines its products into five categories related to major design activities. On the first day of fiscal 2018, Cadence adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which provided a new basis of accounting for its revenue arrangements. Because of the adoption, revenue for fiscal 2019 and 2018 is not directly comparable to revenue for fiscal 2017. The following table shows the percentage of product and related maintenance revenue contributed by each of Cadence’s five product categories and services for fiscal 2019 and 2018:

	2019			2018			2017
Functional Verification, including Emulation and Prototyping Hardware*	24	%		24	%		22	%
Digital IC Design and Signoff	29	%		29	%		29	%
Custom IC Design and Simulation	25	%		26	%		27	%
System Interconnect and Analysis	9	%		9	%		10	%
IP	13	%		12	%		12	%
Total	100	%		100	%		100	%

_____________

• Includes immaterial amount of revenue accounted for under leasing arrangements.

Revenue by product category fluctuates from period to period based on demand for products and services, and Cadence’s available resources to deliver them. Certain of Cadence’s licensing arrangements allow customers the ability to remix among software products. Cadence also has arrangements with customers that include a combination of products, with the actual product selection and number of licensed users to be determined at a later date. For these arrangements, Cadence estimates the allocation of the revenue to product groups based upon the expected usage of products.

Significant Judgments

Cadence’s contracts with customers often include promises to transfer to a customer multiple software and/or IP licenses and services, including professional services, technical support services, and rights to unspecified updates. Determining whether licenses and services are distinct performance obligations that should be accounted for separately, or not distinct and thus accounted for together, requires significant judgment. In some arrangements, such as most of Cadence’s IP license arrangements, Cadence has concluded that the licenses and associated services are distinct from each other. In others, like Cadence’s time-based software arrangements, the licenses and certain services are not distinct from each other. Cadence’s time-based software arrangements include multiple software licenses and updates to the licensed software products, as well as technical support, and Cadence has concluded that these promised goods and services are a single, combined performance obligation.

The accounting for contracts with multiple performance obligations requires the contract’s transaction price to be allocated to each distinct performance obligation based on relative SSP. Judgment is required to determine SSP for each distinct performance obligation because Cadence rarely licenses or sells products on a standalone basis. In instances where the SSP is not directly observable because Cadence does not sell the license, product or service separately, Cadence determines the SSP using information that maximizes the use of observable inputs and may include market conditions. Cadence typically has more than one SSP for individual performance obligations due to the stratification of those items by classes of customers and circumstances. In these instances, Cadence may use information such as the size of the customer and geographic region of the customer in determining the SSP.

Revenue is recognized over time for Cadence’s combined performance obligations that include software licenses, updates, technical support and maintenance that are separate performance obligations with the same term. For Cadence’s professional services, revenue is recognized over time, generally using costs incurred or hours expended to measure progress. Judgment is required in estimating project status and the costs necessary to complete projects. A number of internal and external factors can affect these estimates, including labor rates, utilization and efficiency variances and specification and testing requirement changes. For Cadence’s other performance obligations recognized over time, revenue is generally recognized using a time-based measure of progress reflecting generally consistent efforts to satisfy those performance obligations throughout the arrangement term.

If a group of agreements are so closely related that they are, in effect, part of a single arrangement, such agreements are deemed to be one arrangement for revenue recognition purposes. Cadence exercises significant judgment to evaluate the relevant facts and circumstances in determining whether the separate agreements should be accounted for separately or as, in substance, a single arrangement. Cadence’s judgments about whether a group of contracts comprise a single arrangement can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of operations for the periods involved.

Cadence is required to estimate the total consideration expected to be received from contracts with customers. In limited circumstances, the consideration expected to be received is variable based on the specific terms of the contract or based on Cadence’s expectations of the term of the contract. Generally, Cadence has not experienced significant returns or refunds to customers. These estimates require significant judgment and the change in these estimates could have an effect on its results of operations during the periods involved.

Contract Balances

The timing of revenue recognition may differ from the timing of invoicing to customers, and these timing differences result in receivables, contract assets, or contract liabilities (deferred revenue) on Cadence’s consolidated balance sheets. For certain software, hardware and IP agreements with payment plans, Cadence records an unbilled receivable related to revenue recognized upon transfer of control because it has an unconditional right to invoice and receive payment in the future related to those transferred products or services. Cadence records a contract asset when revenue is recognized prior to invoicing and Cadence does not have the unconditional right to invoice or retains performance risk with respect to that performance obligation. Cadence records deferred revenue when revenue is recognized subsequent to invoicing. For Cadence’s time-based software agreements, customers are generally invoiced in equal, quarterly amounts, although some customers prefer to be invoiced in single or annual amounts.

The contract assets indicated below are presented as prepaid expenses and other in the consolidated balance sheet and primarily relate to Cadence’s rights to consideration for work completed but not billed as of the balance sheet date on services and customized IP contracts. The contract assets are transferred to receivables when the rights become unconditional, usually upon completion of a milestone.

Cadence’s contract balances as of December 28, 2019 and December 29, 2018 were as follows:

	As of
	December 28, 2019				December 29, 2018
	(In thousands)
Contract assets	$	10,209			$	10,055
Deferred revenue	428,883				401,174

Cadence recognized revenue of $311.8 million during fiscal 2019, and $284.3 million during fiscal 2018, that was included in the deferred revenue balance at the beginning of each fiscal year. All other activity in deferred revenue is due to the timing of invoices in relation to the timing of revenue as described above.

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, Cadence has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing Cadence’s products and services, and not to facilitate financing arrangements.

Remaining Performance Obligations

Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Cadence has elected to exclude the potential future royalty receipts from the remaining performance obligations. Contracted but unsatisfied performance obligations were approximately $3.6 billion as of December 28, 2019, which included $205.7 million of non-cancellable IPAA commitments from customers where actual product selection and quantities of specific products or services are to be determined by customers at a later date. Contracted but unsatisfied performance obligations were approximately $3.0 billion as of December 29, 2018, which included $60.0 million of non-cancellable IPAA commitments from customers. As of December 28, 2019, Cadence expected to recognize approximately 55% of the revenue included in the contracted but unsatisfied performance obligations, excluding non-cancellable IPAA commitments, over the next 12 months and the remainder thereafter.

Cadence recognized revenue of $40.4 million during fiscal 2019, and $34.3 million during fiscal 2018, from performance obligations satisfied in previous periods. These amounts represent royalties earned during the period and exclude contracts with nonrefundable prepaid royalties. Nonrefundable prepaid royalties are recognized upon delivery of the IP because Cadence’s right to the consideration is not contingent upon customers’ future shipments.

NOTE 6. INCOME TAXES

Cadence’s income before provision (benefit) for income taxes included income from the United States and from foreign subsidiaries for fiscal 2019, 2018 and 2017, was as follows:

	2019				2018				2017
	(In thousands)
United States	$	139,306			$	58,963			$	81,619
Foreign subsidiaries	339,662				317,427				233,427
Total income before provision (benefit) for income taxes	$	478,968			$	376,390			$	315,046

Cadence’s provision (benefit) for income taxes was comprised of the following items for fiscal 2019, 2018 and 2017:

	2019				2018				2017
	(In thousands)
Current:
Federal	$	15,282			$	902			$	(2,193	)
State and local	2,716				(1,270		)		(2,097		)
Foreign	48,729				42,657				35,301
Total current	66,727				42,289				31,011
Deferred:
Federal	(9,001		)		(10,324		)		76,494
State and local	6,593				886				5,571
Foreign	(574,330		)		(2,238		)		(2,131		)
Total deferred	(576,738		)		(11,676		)		79,934
Total provision (benefit) for income taxes	$	(510,011	)		$	30,613			$	110,945

During the fourth quarter of fiscal 2019, Cadence completed intercompany transfers of certain intangible property rights to its Irish subsidiary, which resulted in the establishment of a deferred tax asset and the recognition of an income tax benefit of $575.6 million. Cadence expects to be able to realize the Irish deferred tax asset in future years and did not provide for a valuation allowance. Cadence considered all available positive and negative evidence, including its past operating results, forecasted earnings, future taxable income, and any prudent and feasible tax planning strategies in making this determination.

The U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted in December 2017 and included several provisions that affected Cadence significantly, such as a one-time, mandatory transition tax on its previously untaxed foreign earnings and a reduction in the federal corporation income tax rate from 35% to 21% as of January 1, 2018, among others.

The provision for income taxes differs from the amount estimated by applying the United States statutory federal income tax rates of 21% to income before provision (benefit) for income taxes for fiscal 2019 and fiscal 2018 and of 35% to income before provision for income taxes for fiscal 2017 as follows:

	2019				2018				2017
	(In thousands)
Provision computed at federal statutory income tax rate	$	100,583			$	79,042			$	110,266
State and local income tax, net of federal tax effect	23,221				15,540				5,867
Intercompany transfers of intangible property rights	(575,618		)		—				—
Foreign income tax rate differential	(37,786		)		(37,031		)		(65,296		)
Deemed repatriation transition tax	—				(1,409		)		67,188
Remeasurement of U.S. deferred tax assets and liabilities	—				—				25,200
U.S. tax on foreign entities	57,225				28,846				—
Stock-based compensation	(29,785		)		(13,539		)		(24,455		)
Change in deferred tax asset valuation allowance	16,796				13,234				4,689
Tax credits	(87,793		)		(72,815		)		(26,789		)
Non-deductible research and development expense	4,363				4,700				—
Tax effects of intra-entity transfer of assets	895				79				(8,450		)
Domestic production activity deduction	—				—				(2,474		)
Withholding taxes	15,865				11,535				11,225
Tax settlements, foreign	458				—				3,086
Increase (decrease) in unrecognized tax benefits	(1,303		)		(1,545		)		4,054
Other	2,868				3,976				6,834
Provision (benefit) for income taxes	$	(510,011	)		$	30,613			$	110,945
Effective tax rate	(106		)%		8		%		35		%

Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, Cadence recorded a provisional $67.2 million expense related to the one-time transition tax during fiscal 2017. In accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 118, this amount was updated to $65.8 million of expense during fiscal 2018.

The components of deferred tax assets and liabilities consisted of the following as of December 28, 2019 and December 29, 2018:

	As of
	December 28, 2019				December 29, 2018
	(In thousands)
Deferred tax assets:
Tax credit carryforwards	$	206,008			$	197,524
Reserves and accruals	47,562				43,522
Intangible assets	583,323				12,096
Capitalized research and development expense for income tax purposes	18,477				6,975
Operating loss carryforwards	6,201				15,347
Deferred income	16,704				6,580
Capital loss carryforwards	17,320				20,342
Stock-based compensation costs	15,097				15,329
Depreciation and amortization	8,721				8,759
Investments	2,459				2,900
Lease liability	25,016				—
Total deferred tax assets	946,888				329,374
Valuation allowance	(125,520		)		(108,724		)
Net deferred tax assets	821,368				220,650
Deferred tax liabilities:
Intangible assets	(24,907		)		(36,194		)
Undistributed foreign earnings	(31,916		)		(27,627		)
ROU assets	(25,016		)		—
Other	(8,350		)		(2,497		)
Total deferred tax liabilities	(90,189		)		(66,318		)
Total net deferred tax assets	$	731,179			$	154,332

During fiscal 2019 and 2018, Cadence maintained valuation allowances of $125.5 million and $108.7 million, respectively, on certain federal, state and foreign deferred tax assets because the realization of these deferred tax assets require future income of a specific character or amount that Cadence considered uncertain. The valuation allowance primarily relates to the following:

•	Tax credits in certain states that are accumulating at a rate greater than Cadence’s capacity to utilize the credits and tax credits in certain states where it is likely the credits will expire unused;

•	Federal, state and foreign deferred tax assets related to investments and capital losses that can only be utilized against gains that are capital in nature; and

•	Foreign tax credits that can only be fully utilized if Cadence has sufficient income of a specific character in the future.

As of December 28, 2019, Cadence’s operating loss carryforwards were as follows:

	Amount				Expiration Periods
	(In thousands)
Federal	$	1,059			from 2021 through 2029
California	28,820				from 2027 through 2036
Other states (tax effected, net of federal benefit)	1,853				from 2020 through 2038
Foreign (tax effected)	2,113				from 2025 through indefinite

As of December 28, 2019, Cadence had tax credit carryforwards of:

	Amount				Expiration Periods
	(In thousands)
Federal*	$	100,128			from 2025 through 2039
California	72,897				indefinite
Other states	11,286				from 2020 through indefinite
Foreign	21,697				from 2035 through indefinite

_____________

*Certain of Cadence’s foreign tax credits have yet to be realized and as a result do not yet have an expiration period.

Examinations by Tax Authorities

Taxing authorities regularly examine Cadence’s income tax returns. As of December 28, 2019, Cadence’s earliest tax years that remain open to examination and the assessment of additional tax include:

Jurisdiction		Earliest Tax Year Open to Examination
United States – Federal		2015
United States – California		2015
Ireland		2015

Unrecognized Tax Benefits

The changes in Cadence’s gross amount of unrecognized tax benefits during fiscal 2019, 2018 and 2017 are as follows:

	2019				2018				2017
	(In thousands)
Unrecognized tax benefits at the beginning of the fiscal year	$	101,857			$	110,179			$	98,540
Gross amount of the increases (decreases) in unrecognized tax benefits of tax positions taken during a prior year*	(3,143		)		(4,183		)		688
Gross amount of the increases in unrecognized tax benefits as a result of tax positions taken during the current year	8,951				2,370				13,141
Amount of decreases in unrecognized tax benefits relating to settlements with taxing authorities, including the utilization of tax attributes	(380		)		—				—
Reductions to unrecognized tax benefits resulting from the lapse of the applicable statute of limitations	(1,692		)		(5,179		)		(3,028		)
Effect of foreign currency translation	448				(1,330		)		838
Unrecognized tax benefits at the end of the fiscal year	$	106,041			$	101,857			$	110,179
Total amounts of unrecognized tax benefits that, if upon resolution of the uncertain tax positions would reduce Cadence’s effective tax rate	$	61,527			$	58,022			$	63,108

_____________

• Includes unrecognized tax benefits of tax positions recorded in connection with acquisitions

It is reasonably possible that the amount of unrecognized tax positions could decrease by approximately $10 million during the next 12 months. The potential decrease could be primarily driven by settlements with tax authorities. The actual amount could vary significantly depending on the ultimate timing and nature of any settlements.

The total amounts of interest, net of tax, and penalties recognized in the consolidated income statements as provision (benefit) for income taxes for fiscal 2019, 2018 and 2017 were as follows:

	2019				2018				2017
	(In thousands)
Interest	$	490			$	585			$	1,865
Penalties	19				342				218

The total amounts of gross accrued interest and penalties recognized in the consolidated balance sheets as of December 28, 2019 and December 29, 2018 were as follows:

	As of
	December 28, 2019				December 29, 2018
	(In thousands)
Interest	$	3,500			$	2,699
Penalties	12				10

NOTE 7. LEASES

Operating lease expense, which includes immaterial amounts of short-term leases, variable lease costs and sublease income, was as follows during fiscal 2019, 2018 and 2017:

	2019				2018				2017
	(In thousands)
Operating lease expense	$	34,709			$	33,717			$	32,089

Additional activity related to Cadence’s leases during fiscal 2019 was as follows:

	2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	34,961
ROU assets obtained in exchange for operating lease obligations	38,090

ROU lease assets and lease liabilities for Cadence’s operating leases were recorded in the consolidated balance sheet as follows:

	As of
	December 28, 2019
	(In thousands)
Other assets	$	100,343
Accounts payable and accrued liabilities	25,558
Other long-term liabilities	84,782
Total lease liabilities	$	110,340
Weighted average remaining lease term (in years)	5.1
Weighted average discount rate	4.5		%

Future lease payments included in the measurement of lease liabilities on the consolidated balance sheet as of December 28, 2019, for the following five fiscal years and thereafter were as follows:

	Operating
	Leases
	(In thousands)
2020	$	29,253
2021	29,185
2022	21,049
2023	15,474
2024	10,500
Thereafter	19,359
Total future lease payments	124,820
Less imputed interest	(14,480		)
Total	$	110,340

As of December 29, 2018, future minimum lease payments, as defined under the previous lease accounting guidance of ASC Topic 840, under non-cancelable operating leases for the following five fiscal years and thereafter were as follows:

	Operating
	Leases
	(In thousands)
2019	$	26,252
2020	23,130
2021	19,778
2022	14,243
2023	11,510
Thereafter	17,100
Total lease payments	$	112,013

NOTE 8. INVESTMENTS

Cadence has a portfolio of equity investments that includes investments in both marketable and non-marketable securities. These investments primarily consist of cash investments in companies with technologies or services that are potentially strategically important to Cadence.

Marketable Equity Investments

Cadence’s investment in marketable equity securities consists of purchased shares of a publicly held company and is included in prepaid expense and other in Cadence’s consolidated balance sheets. During fiscal 2019 and 2018, with the adoption of ASU 2016-01, changes in the fair value of these investments were recorded to other income, net in Cadence’s consolidated income statements.

Non-Marketable Equity Investments

Cadence’s investments in non-marketable equity securities generally consist of stock, convertible debt or other instruments of privately held entities and are included in other assets on Cadence’s consolidated balance sheets. Cadence holds a 16% interest in a privately held company that is accounted for using the equity method of accounting. The carrying value of this investment was $136.3 million and $115.9 million as of December 28, 2019 and December 29, 2018, respectively. During fiscal 2019, Cadence recorded a loss to other income, net in Cadence’s consolidated income statements of $6.9 million, which represented Cadence’s proportionate share of net income from the investee, offset by amortization of basis differences.

Cadence also holds other non-marketable investments in privately held companies where Cadence does not have the ability to exercise significant influence and the fair value of the investments is not readily determinable. The carrying value of these investments was $1.9 million and $2.8 million as of December 28, 2019 and December 29, 2018, respectively. During fiscal 2019, Cadence recognized net gains of $2.1 million, of which a loss of $0.9 million related to equity securities still held as of December 28, 2019. During fiscal 2018, Cadence recognized net gains of $3.3 million, of which a loss of $0.1 million related to equity securities still held as of December 29, 2018.

NOTE 9. ACQUISITIONS

During fiscal 2017, Cadence completed two business combinations for total cash consideration of $142.8 million, after taking into account cash acquired of $4.2 million. The total purchase consideration was allocated to the assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition dates. Cadence recorded a total of $76.4 million of acquired intangible assets (of which $71.5 million represented in-process technology), $90.2 million of goodwill and $19.6 million of net liabilities consisting primarily of deferred tax liabilities. Cadence will make payments to certain employees, subject to continued employment, through the fourth quarter of fiscal 2020.

A trust for the benefit of the children of Lip-Bu Tan, Cadence’s Chief Executive Officer (“CEO”) and director, owned less than 3% of nusemi inc, one of the companies acquired in 2017. Mr. Tan and his wife serve as co-trustees of the trust and disclaim pecuniary and economic interest in the trust. The Board of Directors of Cadence reviewed the transactions and concluded that it was in the best interests of Cadence to proceed with the transactions. Mr. Tan recused himself from the Board of Directors’ discussion of the valuation of nusemi inc and on whether to proceed with the transaction.

Acquisition-Related Transaction Costs

Transaction costs associated with acquisitions were $2.3 million, $0.6 million and $1.1 million during fiscal 2019, 2018 and 2017, respectively. These costs consist of professional fees and administrative costs and were expensed as incurred in Cadence’s consolidated income statements.

NOTE 10. GOODWILL AND ACQUIRED INTANGIBLES

Goodwill

The changes in the carrying amount of goodwill during fiscal 2019 and 2018 were as follows:

	Gross Carrying Amount
	(In thousands)
Balance as of December 30, 2017	$	666,009
Effect of foreign currency translation	(3,737		)
Balance as of December 29, 2018	662,272
Effect of foreign currency translation	(416		)
Balance as of December 28, 2019	$	661,856

Cadence completed its annual goodwill impairment test during the third quarter of fiscal 2019 and determined that the fair value of Cadence’s single reporting unit substantially exceeded the carrying amount of its net assets and that no impairment existed.

Acquired Intangibles, Net

Acquired intangibles as of December 28, 2019 were as follows, excluding intangibles that were fully amortized as of December 29, 2018:

	Gross Carrying Amount				Accumulated Amortization				Acquired Intangibles, Net
	(In thousands)
Existing technology	$	363,142			$	(245,902	)		$	117,240
Agreements and relationships	146,395				(112,565		)		33,830
Tradenames, trademarks and patents	7,600				(5,795		)		1,805
Total acquired intangibles with definite lives	517,137				(364,262		)		152,875
In-process technology	19,500				—				19,500
Total acquired intangibles	$	536,637			$	(364,262	)		$	172,375

In-process technology as of December 28, 2019 consisted of acquired projects that, if completed, will contribute to Cadence’s design IP offerings. As of December 28, 2019, these projects were expected to be completed in approximately three months. During fiscal 2019, Cadence completed certain projects previously included in in-process technology and transferred $52.0 million to existing technology.

Acquired intangibles as of December 29, 2018 were as follows, excluding intangibles that were fully amortized as of December 30, 2017:

	Gross Carrying Amount				Accumulated Amortization				Acquired Intangibles, Net
	(In thousands)
Existing technology	$	330,500			$	(225,383	)		$	105,117
Agreements and relationships	146,426				(100,211		)		46,215
Tradenames, trademarks and patents	10,718				(8,093		)		2,625
Total acquired intangibles with definite lives	487,644				(333,687		)		153,957
In-process technology	71,500				—				71,500
Total acquired intangibles	$	559,144			$	(333,687	)		$	225,457

Amortization expense from existing technology and maintenance agreements is included in cost of product and maintenance. Amortization expense for fiscal 2019, 2018 and 2017, by consolidated income statement caption, was as follows:

	2019				2018				2017
	(In thousands)
Cost of product and maintenance	$	40,951			$	39,247			$	41,781
Amortization of acquired intangibles	12,128				14,086				14,716
Total amortization of acquired intangibles	$	53,079			$	53,333			$	56,497

As of December 28, 2019, the estimated amortization expense for intangible assets with definite lives was as follows for the following five fiscal years and thereafter:

	(In thousands)
2020	$	49,419
2021	44,758
2022	26,453
2023	13,967
2024	12,618
Thereafter	5,660
Total estimated amortization expense	$	152,875

NOTE 11. STOCK COMPENSATION PLANS AND STOCK-BASED COMPENSATION

Equity Incentive Plans

Cadence’s Omnibus Plan provides for the issuance of both incentive and non-qualified options, restricted stock awards, restricted stock units, stock bonuses and the rights to acquire restricted stock to both executive and non-executive employees. During fiscal 2019, Cadence’s stockholders approved an amendment to the Omnibus Plan to increase the number of shares of common stock authorized for issuance by 4.0 million. As of December 28, 2019, the total number of shares available for future issuance under the Omnibus Plan was 9.4 million. Options granted under the Omnibus Plan have an exercise price not less than the fair market value of the stock on the date of grant. Options and restricted stock generally vest over a period of three years to four years. Options granted under the Omnibus Plan expire seven years from the date of grant. Vesting of restricted stock awards granted under the Omnibus Plan may require the attainment of specified performance criteria.

Cadence’s 1995 Directors Stock Incentive Plan (the “Directors Plan”) provides for the issuance of non-qualified options, restricted stock awards and restricted stock units to its non-employee directors. Options granted under the Directors Plan have an exercise price not less than the fair market value of the stock on the date of grant. As of December 28, 2019, the total number of shares available for future issuance under the Directors Plan was 0.5 million. Options granted under the Directors Plan expire after ten years, and options, restricted stock awards and restricted stock units vest one year from the date of grant.

Cadence has assumed certain options granted to employees of acquired companies (“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 plans of the acquired companies. All of the Acquired Options have been adjusted for the price conversion under the terms of the acquisition agreement between Cadence and the relevant acquired company. If the Acquired Options are canceled, forfeited or expire, they do not become available for future grant.

Stock-Based Compensation

Stock-based compensation expense and the related income tax benefit recognized in connection with stock options, restricted stock and the ESPP during fiscal 2019, 2018 and 2017 were as follows:

	2019				2018				2017
	(In thousands)
Stock options	$	6,806			$	5,581			$	5,417
Restricted stock	164,078				153,348				117,797
ESPP	10,663				8,786				6,809
Total stock-based compensation expense	$	181,547			$	167,715			$	130,023
Income tax benefit	$	30,118			$	32,830			$	36,664

Stock-based compensation expense is reflected in Cadence’s consolidated income statements during fiscal 2019, 2018 and 2017 as follows:

	2019				2018				2017
	(In thousands)
Cost of product and maintenance	$	2,759			$	2,631			$	2,218
Cost of services	3,510				3,714				3,232
Marketing and sales	39,088				34,665				26,838
Research and development	114,656				104,353				77,222
General and administrative	21,534				22,352				20,513
Total stock-based compensation expense	$	181,547			$	167,715			$	130,023

Stock Options

The exercise price of each stock option granted under Cadence’s employee equity incentive plans is equal to or greater than the closing price of Cadence’s common stock on the date of grant. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The weighted-average grant date fair value of options granted and the weighted-average assumptions used in the model for fiscal 2019, 2018 and 2017 were as follows:

	2019				2018				2017
Dividend yield	None				None				None
Expected volatility	24.4		%		24.3		%		21.2		%
Risk-free interest rate	2.47		%		2.54		%		2.01		%
Expected term (in years)	4.8				4.8				4.8
Weighted-average fair value of options granted	$	14.58			$	10.24			$	6.86

A summary of the changes in stock options outstanding under Cadence’s equity incentive plans during fiscal 2019 is presented below:

				Weighted- Average				Weighted- Average Remaining Contractual Terms		Aggregate Intrinsic
	Shares			Exercise Price				(Years)		Value
	(In thousands)									(In thousands)
Options outstanding as of December 29, 2018	5,414			$	20.51
Granted	595			56.57
Exercised	(1,076	)		13.52
Forfeited	—			—
Options outstanding as of December 28, 2019	4,933			$	26.38			3.4		$	216,599
Options vested as of December 28, 2019	3,772			$	21.00			2.8		$	185,923

Cadence had total unrecognized compensation expense related to stock option grants of $12.7 million as of December 28, 2019, which will be recognized over the remaining vesting period. The remaining weighted-average vesting period of unvested awards is 2.3 years.

The total intrinsic value of and cash received from options exercised during fiscal 2019, 2018 and 2017 was:

	2019				2018				2017
	(In thousands)
Intrinsic value of options exercised	$	51,625			$	31,109			$	45,643
Cash received from options exercised	14,553				11,748				22,255

Restricted Stock

Generally, restricted stock, which includes restricted stock awards and restricted stock units, vests over three years to four years and is subject to the employee’s continuing service to Cadence. Stock-based compensation expense is recognized ratably over the vesting term. The vesting of certain restricted stock grants is subject to attainment of specified performance criteria. Each fiscal quarter, Cadence estimates the probability of the achievement of these performance goals and recognizes any related stock-based compensation expense using the graded-vesting method. The amount of stock-based compensation expense recognized in any one period can vary based on the attainment or expected attainment of the various performance goals. If such performance goals are not ultimately met, no compensation expense is recognized and any previously recognized compensation expense is reversed.

Certain long-term, market-based performance stock awards granted to executives vest over three to five years and are subject to certain market conditions and the executive’s continuing service to Cadence. Stock-based compensation expense is recognized straight-line over the vesting term. If the market-based performance conditions are not ultimately met, compensation expense previously recognized is not reversed. As of December 28, 2019, Cadence had 2.2 million shares of unvested long-term, market-based performance stock awards outstanding.

Stock-based compensation expense related to performance-based and market-based performance restricted stock grants for fiscal 2019, 2018 and 2017 was as follows:

	2019				2018				2017
	(In thousands)
Stock-based compensation expense related to performance-based restricted stock	$	12,640			$	12,868			$	8,224
Stock-based compensation expense related to market-based performance stock awards	7,019				2,300				1,979

A summary of the changes in restricted stock outstanding under Cadence’s equity incentive plans during fiscal 2019 is presented below:

				Weighted- Average Grant Date				Weighted- Average Remaining Vesting Terms		Aggregate Intrinsic
	Shares			Fair Value				(Years)		Value
	(In thousands)									(In thousands)
Unvested shares as of December 29, 2018	9,702			$	32.67
Granted	4,028			53.11
Vested	(4,799	)		31.75
Forfeited	(538	)		39.66
Unvested shares as of December 28, 2019	8,393			$	42.55			1.1		$	589,937

Cadence had total unrecognized compensation expense related to restricted stock grants of $287.7 million as of December 28, 2019, which will be recognized over the remaining vesting period. The remaining weighted-average vesting period of unvested awards is 2.1 years.

The total fair value realized by employees upon vesting of restricted stock during fiscal 2019, 2018 and 2017 was:

	2019				2018				2017
	(In thousands)
Fair value of restricted stock realized upon vesting	$	298,320			$	232,099			$	174,548

Employee Stock Purchase Plan

Cadence provides an ESPP, as amended from time to time. A majority of Cadence employees are eligible to participate in the ESPP. Under the terms of the ESPP, for the offering period that commenced August 1, 2018, eligible employees may purchase Cadence’s common stock at a price equal to 85% of the lower of the fair market value at the beginning or the end of the applicable offering period, in an amount not to exceed 10% of their annual base earnings plus bonuses and commissions, and subject to a limit in any calendar year of $10,000. Each offering period has a duration of six months beginning on either February 1 or August 1. The purchase dates fall on the last days of the six-month offering periods. Under the ESPP and through the July 31, 2018 purchase date, participating employees could contribute up to 7% of their annual base earnings plus bonuses and commissions, subject to a limit in any calendar year of $8,000. As of December 28, 2019, the total number of shares available for future issuance under the ESPP was 6.0 million.

Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes option pricing model. The weighted-average grant date fair value of purchase rights granted under the ESPP and the weighted-average assumptions used in the model for fiscal 2019, 2018 and 2017 were as follows:

	2019				2018				2017
Dividend yield	None				None				None
Expected volatility	27.9		%		21.1		%		20.4		%
Risk-free interest rate	2.23		%		2.05		%		0.92		%
Expected term (in years)	0.5				0.5				0.5
Weighted-average fair value of options granted	$	14.37			$	9.24			$	6.64

Shares of common stock issued under the ESPP for fiscal 2019, 2018 and 2017 were as follows:

	2019				2018				2017
	(In thousands, except per share amounts)
Cadence shares purchased under the ESPP	988				892				1,270
Cash received for the purchase of shares under the ESPP	$	38,290			$	29,160			$	26,709
Weighted-average purchase price per share	$	38.74			$	32.69			$	21.04

Reserved for Future Issuance

As of December 28, 2019, Cadence had reserved the following shares of authorized but unissued common stock for future issuance:

	Shares
	(In thousands)
Employee equity incentive plans*	15,898
Employee stock purchase plans	6,039
Directors stock plans*	905
Total	22,842

_____________

*Includes shares reserved for: (i) issuance upon exercise of future option grants, (ii) issuance upon vesting of future restricted stock grants, (iii) outstanding but unexercised options to purchase common stock, or (iv) unvested restricted stock units.

NOTE 12. STOCK REPURCHASE PROGRAMS

At the end of fiscal 2018, approximately $175 million remained available under Cadence’s previously announced authorization to repurchase shares of its common stock. In February 2019, Cadence’s Board of Directors authorized the repurchase of an additional $500 million. The actual timing and amount of repurchases are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors. As of December 28, 2019, approximately $369 million remained available to repurchase shares of Cadence common stock.

The shares repurchased under Cadence’s repurchase authorizations and the total cost of repurchased shares, including commissions, during fiscal 2019, 2018 and 2017 were as follows:

	2019				2018				2017
	(In thousands)
Shares repurchased	4,841				5,934				2,495
Total cost of repurchased shares	$	306,148			$	250,059			$	100,025

NOTE 13. RESTRUCTURING AND OTHER CHARGES

Cadence has initiated restructuring plans in an effort to better align its resources with its business strategy. These restructuring plans have primarily been comprised of severance payments and termination benefits related to headcount reductions, estimated lease losses related to facilities vacated and charges related to abandoned assets. During the fourth quarter of fiscal 2019, Cadence initiated a restructuring plan (the “2019 Restructuring Plan”) and recorded restructuring and other charges of $9.9 million related to severance payments and termination benefits. As of December 28, 2019, total liabilities related to the 2019 Restructuring Plan were $9.1 million.

Cadence has also initiated restructuring plans in prior years, including both fiscal 2018 and fiscal 2017 (the “prior restructuring plans”). During fiscal 2019, Cadence revised certain estimates made in connection with the prior restructuring plans and recorded credits of $1.3 million. As of December 28, 2019, total liabilities related to the prior restructuring plans were $0.5 million.

The following table presents activity for Cadence’s restructuring plans during fiscal 2019, 2018 and 2017:

	Severance and Benefits				Excess Facilities				Total
	(In thousands)
Balance, December 31, 2016	$	24,402			$	58			$	24,460
Restructuring and other charges, net	9,027				379				9,406
Cash payments	(20,170		)		(186		)		(20,356		)
Effect of foreign currency translation	276				(2		)		274
Balance, December 30, 2017	$	13,535			$	249			$	13,784
Restructuring and other charges, net	10,268				821				11,089
Cash payments	(12,688		)		(192		)		(12,880		)
Effect of foreign currency translation	61				(30		)		31
Balance, December 29, 2018	$	11,176			$	848			$	12,024
Restructuring and other charges (credits), net	8,649				(28		)		8,621
Cash payments	(10,714		)		(420		)		(11,134		)
Effect of foreign currency translation	118				9				127
Balance, December 28, 2019	$	9,229			$	409			$	9,638

The remaining liability for Cadence’s restructuring plans is recorded in the consolidated balance sheet as follows:

	As of
	December 28, 2019
	(In thousands)
Accounts payable and accrued liabilities	$	9,520
Other long-term liabilities	118
Total liabilities	$	9,638

All liabilities for severance and related benefits under Cadence’s restructuring plans are included in accounts payable and accrued liabilities on Cadence’s consolidated balance sheet as of December 28, 2019. Restructuring liabilities included in other long-term liabilities represent liabilities from vacated facilities, and Cadence expects to make cash payments to settle these liabilities through fiscal 2022.

NOTE 14. OTHER INCOME, NET

Cadence’s other income, net, for fiscal 2019, 2018 and 2017 was as follows:

	2019				2018				2017
	(In thousands)
Interest income	$	9,509			$	8,070			$	3,879
Gains (losses) on marketable equity investments	713				(551		)		520
Gains (losses) on non-marketable equity investments	(4,802		)		3,300				8,934
Gains (losses) on securities in NQDC trust	5,402				(1,471		)		6,145
Losses on foreign exchange	(4,111		)		(5,557		)		(2,920		)
Other income (loss), net	(710		)		(471		)		197
Total other income, net	$	6,001			$	3,320			$	16,755

NOTE 15. NET INCOME PER SHARE

Basic net income per share is computed by dividing net income during the period by the weighted-average number of shares of common stock outstanding during that period, less unvested restricted stock awards. Diluted net income per share is impacted by equity instruments considered to be potential common shares, if dilutive, computed using the treasury stock method of accounting.

The calculations for basic and diluted net income per share for fiscal 2019, 2018 and 2017 are as follows:

	2019				2018				2017
	(In thousands, except per share amounts)
Net income	$	988,979			$	345,777			$	204,101
Weighted-average common shares used to calculate basic net income per share	273,239				273,729				272,097
Stock-based awards	7,276				7,415				8,124
Weighted-average common shares used to calculate diluted net income per share	280,515				281,144				280,221
Net income per share – basic	$	3.62			$	1.26			$	0.75
Net income per share – diluted	$	3.53			$	1.23			$	0.73

The following table presents shares of Cadence’s common stock outstanding for fiscal 2019, 2018 and 2017 that were excluded from the computation of diluted net income per share because the effect of including these shares in the computation of diluted net income per share would have been anti-dilutive:

	2019			2018			2017
	(In thousands)
Long-term market-based awards	1,097			50			152
Options to purchase shares of common stock	359			637			303
Non-vested shares of restricted stock	727			290			77
Total potential common shares excluded	2,183			977			532

NOTE 16. BALANCE SHEET COMPONENTS

A summary of certain balance sheet components as of December 28, 2019 and December 29, 2018 is as follows:

	As of
	December 28, 2019				December 29, 2018
	(In thousands)
Inventories:
Raw materials	$	36,637			$	16,392
Finished goods	19,165				11,770
Inventories	$	55,802			$	28,162
Property, plant and equipment:
Computer equipment and related software	$	554,874			$	574,333
Buildings	126,795				126,927
Land	55,820				55,802
Leasehold, building and land improvements	106,456				108,529
Furniture and fixtures	23,425				27,087
Equipment	38,955				52,088
In-process capital assets	4,706				6,357
Total cost	911,031				951,123
Less: Accumulated depreciation and amortization	(635,176		)		(698,493		)
Property, plant and equipment, net	$	275,855			$	252,630
Other assets:
Non-marketable investments	$	138,212			$	118,734
ROU lease assets*	100,343				—
Other long-term assets	106,874				103,575
Other assets	$	345,429			$	222,309
Accounts payable and accrued liabilities:
Payroll and payroll-related accruals	$	200,163			$	192,887
Other accrued operating liabilities	116,745				63,639
Accounts payable and accrued liabilities	$	316,908			$	256,526
Other long-term liabilities:
Operating lease liabilities*	$	84,782			$	—
Other accrued liabilities	77,739				77,262
Other long-term liabilities	$	162,521			$	77,262

_____________

• Cadence adopted Topic 842, the new accounting standard for leasing arrangements on December 30, 2018, the first day of fiscal 2019. For additional information regarding Cadence’s leases, see Note 7 in the notes to consolidated financial statements.

NOTE 17. FAIR VALUE

Inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Cadence’s market assumptions. These two types of inputs have created the following fair value hierarchy:

•	Level 1 – Quoted prices for identical instruments in active markets;

•	Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

•	Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The valuation techniques used to determine the fair value of Cadence’s 2024 Notes are classified within Level 2 of the fair value hierarchy. For additional information relating to Cadence’s debt arrangements, see Note 3 in the notes to consolidated financial statements.

This hierarchy requires Cadence to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. Cadence recognizes transfers between levels of the hierarchy based on the fair values of the respective financial instruments at the end of the reporting period in which the transfer occurred. There were no transfers between levels of the fair value hierarchy during fiscal 2019.

On a quarterly basis, Cadence measures at fair value certain financial assets and liabilities. The fair value of financial assets and liabilities was determined using the following levels of inputs as of December 28, 2019 and December 29, 2018:

	Fair Value Measurements as of December 28, 2019:
	Total				Level 1				Level 2				Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	445,942			$	445,942			$	—			$	—
Marketable equity securities	4,600				4,600				—				—
Securities held in NQDC trust	34,096				34,096				—				—
Foreign currency exchange contracts	3,557				—				3,557				—
Total Assets	$	488,195			$	484,638			$	3,557			$	—
As of December 28, 2019, Cadence did not have any financial liabilities requiring a recurring fair value measurement.

	Fair Value Measurements as of December 29, 2018:
	Total				Level 1				Level 2				Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	327,841			$	327,841			$	—			$	—
Marketable equity securities	3,887				3,887				—				—
Securities held in NQDC trust	27,767				27,767				—				—
Foreign currency exchange contracts	101				—				101				—
Total Assets	$	359,596			$	359,495			$	101			$	—
As of December 29, 2018, Cadence did not have any financial liabilities requiring a recurring fair value measurement.

NOTE 18. COMMITMENTS AND CONTINGENCIES

Purchase Obligations

Cadence had purchase obligations of $42.7 million as of December 28, 2019 that were associated with agreements or commitments for purchases of goods or services.

Legal Proceedings

From time to time, Cadence is involved in various disputes and litigation that arise in the ordinary course of business. These include disputes and lawsuits related to intellectual property, indemnification obligations, mergers and acquisitions, licensing, contracts, distribution arrangements and employee relations matters. At least quarterly, 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 or the range of loss can be estimated, Cadence accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on Cadence’s judgments using the best information available at the time. As additional information becomes available, Cadence reassesses the potential liability related to pending claims and litigation matters and may revise estimates.

Other Contingencies

Cadence provides its customers with a warranty on sales of hardware products, generally for a 90-day period. Cadence did not incur any significant costs related to warranty obligations during fiscal 2019, 2018 or 2017.

Cadence’s product license and services agreements typically include a limited indemnification provision for claims from third parties relating to Cadence’s intellectual property. If the potential loss from any indemnification claim is considered probable and the amount or the range of loss can be estimated, Cadence accrues a liability for the estimated loss. The indemnification is generally limited to the amount paid by the customer. Cadence did not incur any significant losses from indemnification claims during fiscal 2019, 2018 or 2017.

NOTE 19. EMPLOYEE AND DIRECTOR BENEFIT PLANS

Cadence maintains various defined contribution plans for its eligible U.S. and non-U.S. employees. For employees in the United States, Cadence maintains a 401(k) savings plan to provide retirement benefits through tax-deferred salary deductions and 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’s total contributions made to these plans during fiscal 2019, 2018 and 2017 were as follows:

	2019				2018				2017
	(In thousands)
Contributions to defined contribution plans	$	25,269			$	25,731			$	26,010

Executive Officers and Directors may also elect to defer compensation payable to them under Cadence’s NQDC. Deferred compensation payments are held in investment accounts and the values of the accounts are adjusted each quarter based on the fair value of the investments held in the NQDC. These investments are classified in other assets in the consolidated balance sheets and gains and losses are recognized as other income, net in the consolidated income statements.

Certain of Cadence’s international subsidiaries sponsor defined benefit retirement plans. The unfunded projected benefit obligation for Cadence’s defined benefit retirement plans is recorded in other long-term liabilities in the consolidated balance sheets.

NOTE 20. ACCUMULATED OTHER COMPREHENSIVE LOSS

Cadence’s accumulated other comprehensive loss is comprised of the aggregate impact of foreign currency translation gains and losses and changes in defined benefit plan liabilities and is presented in Cadence’s consolidated statements of comprehensive income.

Accumulated other comprehensive loss was comprised of the following as of December 28, 2019, and December 29, 2018:

	As of
	December 28, 2019				December 29, 2018
	(In thousands)
Foreign currency translation loss	$	(29,503	)		$	(20,861	)
Changes in defined benefit plan liabilities	(7,423		)		(3,919		)
Total accumulated other comprehensive loss	$	(36,926	)		$	(24,780	)

For fiscal 2019, 2018 and 2017, there were no significant amounts related to foreign currency translation loss or changes in defined benefit plan liabilities reclassified to net income from accumulated other comprehensive loss.

NOTE 21. SEGMENT REPORTING

Segment reporting is based on the “management approach,” following the method that management organizes the company’s reportable segments for which separate financial information is made available to, and evaluated regularly by, the chief operating decision maker in allocating resources and in assessing performance. Cadence’s chief operating decision maker is its CEO, who reviews Cadence’s consolidated results as one operating segment. In making operating decisions, the CEO primarily considers consolidated financial information, accompanied by disaggregated information about revenues by geographic region.

Outside the United States, Cadence markets and supports its products and services primarily through its subsidiaries. Revenue is attributed to geography based upon the country in which the product is used, or services are delivered. Property, plant and equipment assets are attributed to geography based on the country where the assets are located.

The following table presents a summary of revenue by geography for fiscal 2019, 2018 and 2017:

	2019				2018				2017
	(In thousands)
Americas:
United States	$	982,380			$	924,644			$	829,436
Other Americas	43,473				32,531				35,067
Total Americas	1,025,853				957,175				864,503
Asia:
China	241,474				210,194				173,107
Other Asia	459,028				395,221				353,094
Total Asia	700,502				605,415				526,201
Europe, Middle East and Africa	433,314				406,877				385,705
Japan	176,650				168,555				166,623
Total	$	2,336,319			$	2,138,022			$	1,943,032

The following table presents a summary of property, plant and equipment assets by geography as of December 28, 2019, December 29, 2018 and December 30, 2017:

	As of
	December 28, 2019				December 29, 2018				December 30, 2017
	(In thousands)
Americas:
United States	$	220,023			$	200,025			$	198,744
Other Americas	728				475				611
Total Americas	220,751				200,500				199,355
Asia:
China	15,729				9,608				3,005
Other Asia	27,890				30,021				34,673
Total Asia	43,619				39,629				37,678
Europe, Middle East and Africa	10,474				11,784				13,615
Japan	1,011				717				694
Total	$	275,855			$	252,630			$	251,342

NOTE 22. SUBSEQUENT EVENT

On January 15, 2020, Cadence acquired all of the outstanding equity of AWR Corporation (“AWR”). On February 6, 2020, Cadence also acquired all of the outstanding equity of Integrand Software, Inc. (“Integrand”). These acquisitions enhance Cadence’s technology portfolio to address growing RF/microwave design activity, driven by expanding use of 5G communications. The aggregate cash consideration for these acquisitions of approximately $195 million will be allocated to the assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition dates. Cadence will also make payments to certain employees over a period of up to three years, subject to continued employment and other performance-based conditions. Cadence expects to complete the initial accounting for its acquisition of AWR and Integrand during the first quarter of fiscal 2020.

EXHIBIT INDEX

						Incorporated by Reference
Exhibit								Exhibit		Filing		Provided
Number		Exhibit Title		Form		File No.		No.		Date		Herewith
3.01		The Registrant's Restated Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on May 3, 2019.		10-Q		000-15867		3.01		7/22/2019
3.02		The Registrant’s Amended and Restated Bylaws, effective as of February 5, 2020.		8-K		000-15867		3.01		2/11/2020
4.01		Specimen Certificate of the Registrant’s Common Stock.		S-4		033-43400		4.01		10/17/1991
4.02		Base Indenture, dated October 9, 2014, between the Registrant and Wells Fargo Bank, N.A., as trustee.		8-K		000-15867		4.01		10/9/2014
4.03		First Supplemental Indenture, dated October 9, 2014, between the Registrant and Wells Fargo Bank, N.A., as trustee (including the Form of 4.375% Senior Notes due 2024).		8-K		000-15867		4.02		10/9/2014
4.04		Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.										X
10.01*		The Registrant’s Amended and Restated 1987 Stock Incentive Plan.		S-8		333-174201		99.1		5/13/2011
10.02*		Form of Stock Option Agreement and Form of Stock Option Exercise Request under the Registrant’s 1987 Stock Incentive Plan, as amended and restated.		10-Q		001-10606		10.02		8/10/2004
10.03*		Form of Nonstatutory Incentive Stock Award Agreement under the Registrant’s 1987 Stock Incentive Plan, as amended and restated.		10-K		001-10606		10.03		3/16/2005
10.04*		Form of Incentive Stock Award Agreement for performance-based Incentive Stock Awards granted prior to July 29, 2008, as amended and restated, under the Registrant’s 1987 Stock Incentive Plan, as amended and restated.		10-Q		001-10606		10.02		12/11/2008
10.05*		Form of Incentive Stock Award Agreement for performance-based Incentive Stock Awards to be granted subsequent to July 29, 2008 under the Registrant’s 1987 Stock Incentive Plan, as amended and restated.		10-Q		001-10606		10.03		12/11/2008
10.06*		Form of Stock Option Agreement under the Registrant’s 1987 Stock Incentive Plan, as amended and restated.		10-Q		001-10606		10.01		5/1/2009
10.07*		Form of Incentive Stock Award Agreement for performance-based Incentive Stock Awards under the Registrant’s 1987 Stock Incentive Plan, as amended and restated.		10-Q		001-10606		10.02		5/1/2009
10.08*		The Registrant’s 1995 Directors Stock Incentive Plan.		10-Q		001-15867		10.01		7/26/2012
10.09*		Form of Stock Option Agreement, as currently in effect under the Registrant’s 1995 Directors Stock Incentive Plan.		10-K		000-15867		10.76		2/21/2013
10.10*		Form of Incentive Stock Award Agreement, as currently in effect under the Registrant’s 1995 Directors Stock Incentive Plan.		10-K		000-15867		10.77		2/21/2013
10.11*		The Registrant’s Amended and Restated 2000 Equity Incentive Plan.		S-8		333-174200		99.1		5/13/2011

10.12*		Form of Incentive Stock Award Agreement under the Registrant’s Amended and Restated 2000 Equity Incentive Plan.		10-Q		001-10606		10.02		10/28/2011
10.13*		Form of Restricted Stock Unit Award Agreement under the Registrant’s Amended and Restated 2000 Equity Incentive Plan.		10-Q		001-10606		10.03		10/28/2011
10.14*		Form of Stock Option Agreement under the Registrant’s Amended and Restated 2000 Equity Incentive Plan.		10-Q		001-10606		10.04		10/28/2011
10.15*		The Registrant’s Omnibus Equity Incentive Plan, as amended and restated.		S-8		333-232761		99.01		7/23/2019
10.16*		Form of Incentive Stock Award Agreement for Non-Executive Employees and Consultants, as currently in effect under the Registrant’s Omnibus Equity Incentive Plan.		S-8		333-195771		99.02		5/7/2014
10.17*		Form of Restricted Stock Unit Agreement for Non-Executive Employees and Consultants, as currently in effect under the Registrant’s Omnibus Equity Incentive Plan.		S-8		333-195771		99.03		5/7/2014
10.18*		Form of Stock Option Agreement for Non-Executive Employees and Consultants, as currently in effect under the Registrant’s Omnibus Equity Incentive Plan.		S-8		333-195771		99.04		5/7/2014
10.19*		Form of Incentive Stock Award Agreement for Executives, as currently in effect under the Registrant’s Omnibus Equity Incentive Plan.		S-8		333-195771		99.05		5/7/2014
10.20*		Form of Restricted Stock Unit Agreement for Executives, as currently in effect under the Registrant’s Omnibus Equity Incentive Plan.		S-8		333-195771		99.06		5/7/2014
10.21*		Form of Stock Option Agreement for Executives, as currently in effect under the Registrant’s Omnibus Equity Incentive Plan.		S-8		333-195771		99.07		5/7/2014
10.22*		The Registrant’s Amended and Restated Employee Stock Purchase Plan.		S-8		333-226293		99.01		7/23/2018
10.23*		The Registrant’s 1996 Deferred Compensation Venture Investment Plan, as amended and restated effective January 1, 2001.		10-K		001-10606		10.09		3/12/2002
10.24*		The Registrant’s 2002 Deferred Compensation Venture Investment Plan, as amended.		10-Q		001-10606		10.32		8/10/2004
10.25*		The Registrant’s 1994 Deferred Compensation Plan, as amended and restated effective November 20, 2003 (409A Grandfathered Plan).		10-K		001-10606		10.10		2/26/2008
10.26*		The Registrant’s 2009 Deferred Compensation Plan, as amended and restated on February 5, 2019.										X
10.27*		The Senior Executive Bonus Plan.		8-K		000-15867		10.01		2/8/2019
10.28*		The Registrant’s Executive Severance Plan.		8-K		001-15867		10.01		5/11/2016
10.29*		Director Medical and Prescription Benefits Coverage Reimbursement Plan.		10-Q		001-10606		10.02		4/29/2011
10.30		Altos Design Automation, Inc. 2006 Stock Plan, as amended December 23, 2009.		S-8		333-174202		99.1		5/13/2011
10.31		Tensilica, Inc. 2007 Stock Incentive Plan.		S-8		333-188452		99.01		5/8/2013
10.32		C2 Design Automation (d/b/a/ Forte Design Systems) 2010 Stock Option Plan.		S-8		333-194102		99.01		2/24/2014
10.33*		Form of Indemnity Agreement between the Registrant and its directors and executive officers, as amended and restated.		10-Q		000-15867		10.01		7/25/2016

10.34*		Employment Agreement, effective as of July 29, 2008, between the Registrant and James J. Cowie.		10-K		001-10606		10.92		3/2/2009
10.35*		Employment Agreement, effective as of January 8, 2009, between the Registrant and Lip-Bu Tan.		10-K		001-10606		10.93		3/2/2009
10.36*		Employment Agreement, effective as of February 23, 2009, between the Registrant and Nimish H. Modi.		10-K		001-10606		10.96		3/2/2009
10.37*		Form of First Amendment to Employment Agreement between the Registrant and the Registrant’s named executive officers.		10-Q		001-10606		10.02		7/31/2009
10.38*		Form of Second Amendment to Employment Agreement between the Registrant and the Registrant’s named executive officers.		10-K		001-10606		10.94		2/26/2010
10.39*		Second Amendment to Employment Agreement, effective as of March 1, 2010, between the Registrant and Lip-Bu Tan.		10-K		001-10606		10.95		2/26/2010
10.40*		Employment Agreement, effective as of September 20, 2012, between the Registrant and Thomas P. Beckley.		10-K		000-15867		10.44		2/20/2014
10.41*		Employment Agreement, effective as of March 16, 2015, between the Registrant and Anirudh Devgan.		10-Q		000-15867		10.01		4/27/2015
10.42*		Letter, dated September 1, 2015, between the Registrant and Neil Zaman.		10-K		000-15867		10.49		2/18/2016
10.43*		Offer Letter, dated January 12, 2017, between the Registrant and Surendra Babu Mandava.		10-K		000-15867		10.51		2/10/2017
10.44*		First Amendment to Employment Agreement, effective November 16, 2017, between the Registrant and Anirudh Devgan.		8-K		000-15867		10.01		11/17/2017
10.45		Credit Agreement, dated as of January 30, 2017, by and among the Registrant, JPMorgan Chase Bank, N.A. and other lenders party thereto.		8-K		000-15867		10.01		2/1/2017
10.46*		Third Amendment to Employment Agreement, effective as of March 22, 2018, between the Registrant and Lip-Bu Tan.		10-Q		000-15867		10.01		4/25/2018
10.47*		nusemi inc. 2015 Equity Incentive Plan.		S-8		333-226294		99.01		7/23/2018
21.01		Subsidiaries of the Registrant.										X
23.01		Independent Registered Public Accounting Firm’s Consent.										X
31.01		Certification of the Registrant’s Chief Executive Officer, Lip-Bu Tan, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.										X
31.02		Certification of the Registrant’s Chief Financial Officer, John M. Wall, pursuant to Rule 13a-14 of the Securities Exchange Act of 1934.										X
32.01		Certification of the Registrant’s Chief Executive Officer, Lip-Bu Tan, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.										X
32.02		Certification of the Registrant’s Chief Financial Officer, John M. Wall, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.										X
101.INS		Inline XBRL Instance Document.										X
101.SCH		Inline XBRL Taxonomy Extension Schema Document.										X

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.										X
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.										X
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.										X
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.										X
104		Cover Page Interactive Data File - The cover page from the Registrant’s Annual Report on Form 10-K for the year ended December 28, 2019 is formatted in iXBRL.

• Indicates management contract or compensatory plan or arrangement covering executive officers or directors of the Registrant.