Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q (this “Quarterly Report”) and in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 2, 2021. This Quarterly Report contains statements that are not historical in nature, are predictive, or that depend upon or refer to future events or conditions or contain other forward-looking statements. Statements including, but not limited to, statements regarding the extent and timing of future revenues and expenses and customer demand, statements regarding the deployment of our products and services, statements regarding our reliance on third parties, statements regarding the impact on our business of the COVID-19 pandemic and related public health measures or mandates, and other statements using words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “projects,” “should,” “targets,” “will” and “would,” and words of similar import and the negatives thereof, constitute forward-looking statements. These statements are predictions based upon our current expectations about future events. Actual results could vary materially as a result of certain factors, including, but not limited to, those expressed in these statements. We refer you to the “Risk Factors,” “Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” and “Liquidity and Capital Resources” sections contained in this Quarterly Report, and the risks discussed in our other Securities and Exchange Commission (“SEC”) filings, which identify important risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements.

We urge you to consider these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report. All subsequent written or oral forward-looking statements attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this Quarterly Report are made only as of the date of this Quarterly Report. We do not intend, and undertake no obligation, to update these forward-looking statements.

Business Overview

We enable our customers to develop electronic products. Our products and services are designed to give our customers a competitive edge in their development of integrated circuits (“ICs”), systems-on-chip (“SoCs”), and increasingly sophisticated electronic devices and systems. Our products and services do this by optimizing performance, minimizing power consumption, shortening the time to bring our customers’ products to market, improving engineering productivity and reducing their design, development and manufacturing costs. We offer software, hardware, services and reusable IC design blocks, which are commonly referred to as intellectual property (“IP”).

Our strategy, which we call Intelligent System Design™, is to provide the technology necessary for our customers to develop electronic products across a variety of vertical markets including consumer, hyperscale computing, mobile, 5G communications, automotive, aerospace and defense, industrial and healthcare. Our products and services enable our customers to develop complex and innovative electronic products, so demand for our technology is driven by our customers’ investment in new designs and products. Historically, the industry that provided the tools used by IC engineers was referred to as Electronic Design Automation (“EDA”). Today, our offerings include and extend beyond EDA.

We group our products into categories related to major design activities:

Custom IC Design and Simulation;
Digital IC Design and Signoff;
Functional Verification;
IP; and
System Design and Analysis.

During the first three quarters of fiscal 2021, we continued to execute our Intelligent System Design™ strategy with our announcement of the next generation of hardware-software products in our Functional Verification product category, which consists of the integrated Palladium Z2 emulation and Protium X2 prototyping systems, to accelerate hardware debug and software validation. We also completed our acquisitions of Belgium-based NUMECA, a leader in computational fluid dynamics (“CFD”), and Pointwise Inc, a leading provider of CFD Meshing technology. The addition of these technologies and talent broadens our System Design and Analysis portfolio and expertise. We expect these acquisitions will increase expenses, including amortization of acquired intangible assets, more than revenue during fiscal 2021.

For additional information about our products, see the discussion in Item 1, “Business,” under the heading “Products and Product Strategy,” in our Annual Report on Form 10-K for the fiscal year ended January 2, 2021.

Management uses certain performance indicators to manage our business, including revenue, certain elements of operating expenses and cash flow from operations, and we describe these items further below under the headings “Results of Operations” and “Liquidity and Capital Resources.”

During the second quarter of fiscal 2021, we offered a voluntary retirement program to eligible employees in the United States. This program resulted in a one-time charge for voluntary termination and post-employment benefits of $26.8 million, which increased costs and expenses during the three and nine months ended October 2, 2021, as compared to the three and nine months ended September 26, 2020. As of October 2, 2021, liabilities related to the voluntary retirement program were $21.5 million and were included in accounts payable and accrued liabilities and other long-term liabilities on our condensed consolidated balance sheet. We expect to make cash payments to settle these liabilities through fiscal 2023, including $20.5 million that is expected to be paid in the next twelve months.

COVID-19 Impact

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The effects of the ongoing global pandemic have been widespread and have resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders and business limitations and shutdowns. We are unable to accurately predict the full impact that COVID-19 will have on our results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures and the distribution, acceptance and effectiveness of vaccines. Our efforts to comply with these containment measures have impacted our day-to-day operations and could disrupt our business and operations, as well as that of our key customers, suppliers (including contract manufacturers) and other counterparties, for an indefinite period of time. To support the health and well-being of our employees, customers, partners and communities, a vast majority of our employees are still working remotely as of October 25, 2021. However, we have begun a limited pilot program for employees to begin voluntarily returning to work in certain jurisdictions with lower rates of new COVID-19 cases.

Since its inception, the COVID-19 pandemic has caused some volatility in our usual delivery timing for our hardware and IP products to certain customers. Many of our customers’ employees are working remotely, and, in some cases, we have experienced delivery lead times that are longer than normal because of delays in getting access to customer sites to complete our deliveries. In other cases, the amount of our hardware and IP products that we have been able to deliver has been greater than we originally anticipated at the beginning of the respective period. Despite the challenges the COVID-19 pandemic has posed to our operations, it did not have material adverse impact on our results of operations, financial condition, liquidity or cash flows during the first three quarters of fiscal 2021. We will continue to evaluate the nature and extent of the impact of COVID-19 on our business. See Part II, Item 1A, “Risk Factors” for additional information on the impact of COVID-19 on our business.

Critical Accounting Estimates

In preparing our condensed consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. At least quarterly, we evaluate our assumptions, judgments and estimates, and make changes as deemed necessary.

For further information about our critical accounting estimates, see the discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Estimates” in our Annual Report on Form 10-K for the fiscal year ended January 2, 2021.

New Accounting Standards Not Yet Adopted

For additional information about the adoption of new accounting standards, see Note 1 in the notes to condensed consolidated financial statements.

Results of Operations

Financial results for the three and nine months ended October 2, 2021, as compared to the three and nine months ended September 26, 2020, reflect the following:

revenue growth that exceeded the growth of our costs and expenses;
increased product and maintenance revenue, primarily from growth in our software and hardware product offerings;
continued investment in research and development activities focused on expanding and enhancing our product portfolio;
higher selling costs, including additional investment in technical sales support in response to our customers’ increasing technological requirements; and
higher provision for income taxes due to a non-cash tax benefit resulting from the release of valuation allowance during the third quarter of fiscal 2020.

Revenue

We primarily generate revenue from licensing our software and IP, selling or leasing our emulation and prototyping hardware technology, providing maintenance for our software, hardware and IP, providing engineering services and earning royalties generated from the use of our IP. The timing of our revenue is significantly affected by the mix of software, hardware and IP products generating revenue in any given period and whether the revenue is recognized over time or at a point in time, upon completion of delivery.

In any fiscal year, we expect that between 85% and 90% of our annual revenue will be characterized as recurring revenue. Revenue characterized as recurring includes revenue recognized over time from our software arrangements, services, royalties, maintenance on IP licenses and hardware, and operating leases of hardware and revenue recognized at varying points in time over the term of our IP Access Agreements.

The remainder of our revenue is characterized as up-front revenue. Up-front revenue is primarily generated by our sales of emulation and prototyping hardware and individual IP licenses. The percentage of our recurring and up-front revenue and fluctuations in revenue within our geographies are impacted by delivery of hardware and IP products to our customers in any single fiscal period.

Revenue by Period

The following table shows our revenue for the three months ended October 2, 2021 and September 26, 2020 and the change in revenue between periods:


	Three Months Ended				Change
	October 2, 2021		September 26, 2020		Amount		Percentage
	(In millions, except percentages)
Product and maintenance	$	706.2	$	630.3	$	75.9	12	%
Services	44.7		36.3		8.4		23	%
Total revenue	$	750.9	$	666.6	$	84.3	13	%

The following table shows our revenue for the nine months ended October 2, 2021 and September 26, 2020 and the change in revenue between periods:


	Nine Months Ended				Change
	October 2, 2021		September 26, 2020		Amount		Percentage
	(In millions, except percentages)
Product and maintenance	$	2,093.1	$	1,813.4	$	279.7	15	%
Services	122.1		109.6		12.5		11	%
Total revenue	$	2,215.2	$	1,923.0	$	292.2	15	%

Product and maintenance revenue increased during the three and nine months ended October 2, 2021, as compared to the three and nine months ended September 26, 2020, primarily because of increased investments by our customers in new, complex designs for their products that include the design of electronic systems for consumer, hyperscale computing, mobile, 5G communications, automotive, aerospace and defense, industrial and healthcare. Services revenue may fluctuate from period to period based on the timing of fulfillment of our services and IP performance obligations.

No one customer accounted for 10% or more of total revenue during the three and nine months ended October 2, 2021 or September 26, 2020.

Revenue by Product Category

The following table shows the percentage of revenue contributed by each of our five product categories and services for the past five consecutive quarters:


	Three Months Ended
	October 2, 2021		July 3, 2021		April 3, 2021		January 2, 2021*		September 26, 2020
Custom IC Design and Simulation	23	%	23	%	23	%	26	%	24	%
Digital IC Design and Signoff	29	%	28	%	27	%	31	%	27	%
Functional Verification, including Emulation and Prototyping Hardware	23	%	25	%	26	%	19	%	23	%
IP	14	%	13	%	14	%	13	%	15	%
System Design and Analysis	11	%	11	%	10	%	11	%	11	%
Total	100	%	100	%	100	%	100	%	100	%

_____________

Our fiscal years are 52- or 53-week periods ending on the Saturday closest to December 31. Fiscal 2020 was a 53-week fiscal year, with an additional week in our fourth quarter of 2020.

Revenue by product category fluctuates from period to period depending on demand for our products and services, our available resources and our ability to deliver and support them. Certain of our licensing arrangements allow customers the ability to remix among software products. Additionally, we have arrangements with customers that include a combination of our products, with the actual product selection and number of licensed users to be determined at a later date. For these arrangements, we estimate the allocation of the revenue to product categories based upon the expected usage of our products. The actual usage of our products by these customers may differ and, if that proves to be the case, the revenue allocation in the table above would differ.

Revenue by Geography


	Three Months Ended				Change
	October 2, 2021		September 26, 2020		Amount		Percentage
	(In millions, except percentages)
United States	$	331.5	$	269.1	$	62.4	23	%
Other Americas	11.5		10.9		0.6		6	%
China	98.3		114.2		(15.9)		(14)	%
Other Asia	136.3		123.2		13.1		11	%
Europe, Middle East and Africa	129.6		107.9		21.7		20	%
Japan	43.7		41.3		2.4		6	%
Total revenue	$	750.9	$	666.6	$	84.3	13	%

Total revenue increased during the three months ended October 2, 2021, as compared to the three months ended September 26, 2020, primarily due to increased revenue from our software offerings in all geographies. Increased revenue from hardware product offerings in the United States during the three months ended October 2, 2021, as compared to the three months ended September 26, 2020 also contributed to the increase in total revenue. The decrease in revenue in China during the three months ended October 2, 2021, as compared to the three months ended September 26, 2020, was primarily due to decreased revenue from hardware and IP offerings.


	Nine Months Ended				Change
	October 2, 2021		September 26, 2020		Amount		Percentage
	(In millions, except percentages)
United States	$	970.9	$	794.5	$	176.4	22	%
Other Americas	31.4		29.9		1.5		5	%
China	287.4		275.2		12.2		4	%
Other Asia	404.5		354.1		50.4		14	%
Europe, Middle East and Africa	384.3		340.2		44.1		13	%
Japan	136.7		129.1		7.6		6	%
Total revenue	$	2,215.2	$	1,923.0	$	292.2	15	%

Total revenue increased during the nine months ended October 2, 2021, as compared to the nine months ended September 26, 2020, primarily due to increased revenue from our software offerings in all geographies. Increased revenue from hardware product offerings in the United States and Other Asia during the nine months ended October 2, 2021, as compared to the nine months ended September 26, 2020 also contributed to the increase in total revenue.

Since the second quarter of fiscal 2019, we have not been able to deliver maintenance or support for certain customers in China due to the U.S. Department of Commerce’s designation of these customers to the “Entity List.” We expect these restrictions and new or expanded trade restrictions to continue to impact revenue from certain customers in China.

Revenue by Geography as a Percent of Total Revenue


	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
United States	44	%	40	%	44	%	41	%
Other Americas	2	%	2	%	2	%	2	%
China	13	%	17	%	13	%	14	%
Other Asia	18	%	19	%	18	%	18	%
Europe, Middle East and Africa	17	%	16	%	17	%	18	%
Japan	6	%	6	%	6	%	7	%
Total	100	%	100	%	100	%	100	%

Most of our revenue is transacted in the United States dollar. However, certain revenue transactions are denominated in foreign currencies. For an additional description of how changes in foreign exchange rates affect our condensed consolidated financial statements, see the discussion under Item 3, “Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Risk.”

Cost of Revenue


	Three Months Ended				Change
	October 2, 2021		September 26, 2020		Amount		Percentage
	(In millions, except percentages)
Cost of product and maintenance	$	54.2	$	64.8	$	(10.6)	(16)	%
Cost of services	22.4		17.5		4.9		28	%


	Nine Months Ended				Change
	October 2, 2021		September 26, 2020		Amount		Percentage
	(In millions, except percentages)
Cost of product and maintenance	$	174.9	$	175.9	$	(1.0)	(1)	%
Cost of services	62.4		56.0		6.4		11	%

Cost of Product and Maintenance

Cost of product and maintenance includes costs associated with the sale and lease of our emulation and prototyping hardware and licensing of our software and IP products, certain employee salary and benefits and other employee-related costs, cost of our customer support services, amortization of technology-related and maintenance-related acquired intangibles, costs of technical documentation and royalties payable to third-party vendors. Cost of product and maintenance depends primarily on our hardware product sales in any given period, but is also affected by employee salary and benefits and other employee-related costs, reserves for inventory, and the timing and extent to which we acquire intangible assets, license third-party technology or IP, and sell our products that include such acquired or licensed technology or IP.

A summary of cost of product and maintenance is as follows:


	Three Months Ended				Change
	October 2, 2021		September 26, 2020		Amount		Percentage
	(In millions, except percentages)
Product and maintenance-related costs	$	42.4	$	53.4	$	(11.0)	(21)	%
Amortization of acquired intangibles	11.8		11.4		0.4		4	%
Total cost of product and maintenance	$	54.2	$	64.8	$	(10.6)	(16)	%


	Nine Months Ended				Change
	October 2, 2021		September 26, 2020		Amount		Percentage
	(In millions, except percentages)
Product and maintenance-related costs	$	139.1	$	142.1	$	(3.0)	(2)	%
Amortization of acquired intangibles	35.8		33.8		2.0		6	%
Total cost of product and maintenance	$	174.9	$	175.9	$	(1.0)	(1)	%

The changes in product and maintenance-related costs for the three and nine months ended October 2, 2021, as compared to the three and nine months ended September 26, 2020, were due to the following:


	Change
	Three Months Ended		Nine Months Ended
	(In millions)
Emulation and prototyping hardware costs	$	(12.8)	$	(6.1)
Salary, benefits and other employee-related costs	1.5		3.0
Other items	0.3		0.1
Total change in product and maintenance-related costs	$	(11.0)	$	(3.0)

Costs associated with our emulation and prototyping hardware products include components, assembly, testing, applicable reserves and overhead. These costs make our cost of emulation and prototyping hardware products higher, as a percentage of revenue, than our cost of software and IP products. Emulation and prototyping hardware costs decreased during the three months ended October 2, 2021, as compared to the three months ended September 26, 2020, primarily due to the mix of products generating revenue.

The decrease in emulation and prototyping hardware costs during the nine months ended October 2, 2021, as compared to the nine months ended September 26, 2020, was primarily due to the mix of products generating revenue and decreased reserves on inventory resulting from the transition to the next generation of our hardware products.

Amortization of acquired intangibles included in cost of product and maintenance increased during the three and nine months ended October 2, 2021, as compared to the three and nine months ended September 26, 2020, primarily due to technology-related intangible assets acquired with our acquisitions of NUMECA and Pointwise during the first half of fiscal 2021 and in-process technology being placed into service during the second quarter of fiscal 2020. This increase was partially offset by certain technology-related intangible assets becoming fully amortized during the three and nine months ended October 2, 2021 and during fiscal 2020.

Cost of Services

Cost of services primarily includes employee salary, benefits and other employee-related costs to perform work on revenue-generating projects and costs to maintain the infrastructure necessary to manage a services organization. Cost of services may fluctuate from period to period based on our utilization of design services engineers on revenue-generating projects rather than internal development projects.

Operating Expenses

Our operating expenses include marketing and sales, research and development, and general and administrative expenses. Factors that tend to cause our operating expenses to fluctuate include changes in the number of employees due to hiring and acquisitions, our annual merit cycle, stock-based compensation, restructuring and other employment separation activities (such as the voluntary retirement program), foreign exchange rate movements, and the impact of our variable compensation programs that are driven by operating results.

Many of our operating expenses are transacted in various foreign currencies. We recognize lower expenses in periods when the United States dollar strengthens in value against other currencies and we recognize higher expenses when the United States dollar weakens against other currencies. For an additional description of how changes in foreign exchange rates affect our condensed consolidated financial statements, see the discussion in Item 3, “Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Risk.”

Our operating expenses for the three and nine months ended October 2, 2021 and September 26, 2020 were as follows:


	Three Months Ended				Change
	October 2, 2021		September 26, 2020		Amount		Percentage
	(In millions, except percentages)
Marketing and sales	$	143.4	$	123.7	$	19.7	16	%
Research and development	289.1		250.9		38.2		15	%
General and administrative	43.0		35.9		7.1		20	%
Total operating expenses	$	475.5	$	410.5	$	65.0	16	%


	Nine Months Ended				Change
	October 2, 2021		September 26, 2020		Amount		Percentage
	(In millions, except percentages)
Marketing and sales	$	412.2	$	370.0	$	42.2	11	%
Research and development	845.3		743.4		101.9		14	%
General and administrative	123.3		105.2		18.1		17	%
Total operating expenses	$	1,380.8	$	1,218.6	$	162.2	13	%

Our operating expenses, as a percentage of total revenue, for the three and nine months ended October 2, 2021 and September 26, 2020 were as follows:


	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Marketing and sales	19	%	19	%	19	%	19	%
Research and development	39	%	38	%	38	%	39	%
General and administrative	6	%	5	%	6	%	5	%
Total operating expenses	64	%	62	%	63	%	63	%

Marketing and Sales

The increase in marketing and sales expense for the three and nine months ended October 2, 2021, as compared to the three and nine months ended September 26, 2020, was due to the following:


	Change
	Three Months Ended		Nine Months Ended
	(In millions)
Salary, benefits and other employee-related costs	$	16.1	$	34.5
Voluntary retirement program	—		6.7
Stock-based compensation	1.1		2.5
Professional services	1.0		2.1
Home office-related expenses	—		(2.0)
Marketing programs and events	(0.3)		(2.4)
Other items	1.8		0.8
Total change in marketing and sales expense	$	19.7	$	42.2

During the three and nine months ended October 2, 2021, as compared to the three and nine months ended September 26, 2020, salary, benefits and other employee-related costs included in marketing and sales expense increased due primarily to additional headcount from hiring and acquisitions and increased variable compensation. This increase was partially offset by reduced costs for marketing programs and events and reduced home office-related expenses associated with the COVID-19 pandemic. We expect marketing and sales expense to increase during the remainder of fiscal 2021, as compared to fiscal 2020, due to increased employee-related costs attributed to additional headcount from hiring and acquisitions.

Research and Development

The increase in research and development expense for the three and nine months ended October 2, 2021, as compared to the three and nine months ended September 26, 2020, was due to the following:


	Change
	Three Months Ended		Nine Months Ended
	(In millions)
Salary, benefits and other employee-related costs	$	28.4	$	76.1
Voluntary retirement program	—		14.7
Facilities and other infrastructure costs	6.2		10.8
Stock-based compensation	4.3		9.4
Professional services	0.4		1.9
Product development costs	(1.1)		(4.5)
Home office-related expenses	—		(5.3)
Other items	—		(1.2)
Total change in research and development expense	$	38.2	$	101.9

During the three and nine months ended October 2, 2021, as compared to the three and nine months ended September 26, 2020, salary, benefits and other employee-related costs included in research and development expense increased due primarily to additional headcount from hiring and acquisitions. We expect research and development expense to increase during the remainder of fiscal 2021, as compared to fiscal 2020, due to increased employee-related costs attributed to additional headcount from hiring and acquisitions.

General and Administrative

The increase in general and administrative expense for the three and nine months ended October 2, 2021, as compared to the three and nine months ended September 26, 2020, was due to the following:


	Change
	Three Months Ended		Nine Months Ended
	(In millions)
Salary, benefits and other employee-related costs	$	2.6	$	6.4
Stock-based compensation	1.5		4.1
University endowment	3.0		3.0
Voluntary retirement program	—		2.2
Other items	—		2.4
Total change in general and administrative expense	$	7.1	$	18.1

Restructuring and Other Charges

We have initiated restructuring plans in recent years to better align our resources with our business strategy. Because the restructuring charges and related benefits are derived from management’s estimates made during the formulation of the restructuring plans, based on then-currently available information, our restructuring plans may not achieve the benefits anticipated on the timetable or at the level contemplated. Additional actions, including further restructuring of our operations, may be required in the future. For additional information about our restructuring plans, see Note 9 in the notes to condensed consolidated financial statements.

Operating Margin

Operating margin represents income from operations as a percentage of total revenue. Our operating margin for the three and nine months ended October 2, 2021, and the three and nine months ended September 26, 2020 was as follows:


	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
Operating margin	26	%	25	%	26	%	24	%

Operating margin increased during the three and nine months ended October 2, 2021, and the three and nine months ended September 26, 2020, because revenue growth exceeded the growth of our costs and expenses. Our operating margin in any given period may be affected by recent acquisitions having a greater impact on expenses than revenue and incremental costs associated with new and existing employees.

Interest Expense


	Three Months Ended				Nine Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
	(In millions)
Contractual interest expense:
2024 Notes	3.8		3.8		11.4		11.4
Revolving credit facility	0.2		1.3		0.5		3.8
Amortization of debt discount:
2024 Notes	0.2		0.2		0.6		0.7
Other	—		—		0.2		—
Total interest expense	$	4.2	$	5.3	$	12.7	$	15.9

Interest expense decreased during the three and nine months ended October 2, 2021, as compared to the three and nine months ended September 26, 2020, due to borrowings of $350 million under our previous revolving credit facility during the first quarter of fiscal 2020. All outstanding borrowings under the prior revolving credit facility were repaid in the fourth quarter of fiscal 2020. For an additional description of our debt arrangements, see Note 2 in the notes to condensed consolidated financial statements.

Income Taxes

The following table presents the provision for income taxes and the effective tax rate for the three and nine months ended October 2, 2021 and September 26, 2020:


	Three Months Ended						Nine Months Ended
	October 2, 2021			September 26, 2020			October 2, 2021			September 26, 2020
							(In millions, except percentages)
Provision for income taxes	$	12.4		$	4.1		$	55.0		$	29.7
Effective tax rate	6.6		%	2.5		%	9.6		%	6.6		%

Our provision for income taxes for the three and nine months ended October 2, 2021 was primarily attributable to federal, state and foreign income taxes on our anticipated fiscal 2021 income, partially offset by the tax benefit of $13.7 million for the three and nine months ended October 2, 2021, related to an increase in our foreign-derived intangible income, and the tax benefits of $14.3 million and $59.1 million for the three and nine months ended October 2, 2021, respectively, related to stock-based compensation that vested or was exercised during the period.

Our provision for income taxes for the three and nine months ended September 26, 2020 was primarily attributable to federal, state and foreign income taxes on our then-anticipated fiscal 2020 income, partially offset by the tax benefit of $19.0 million for the three and nine months ended September 26, 2020, related to the partial release of the valuation allowance on our California research and development tax credit deferred tax assets, and the tax benefits of $19.3 million and $49.0 million for the three and nine months ended September 26, 2020, respectively, related to stock-based compensation that vested or was exercised during the period.

Our future effective tax rates may be materially impacted by changes in tax laws, tax amounts associated with our foreign earnings at rates different from the United States federal statutory rate, research credits, the tax impact of stock-based compensation, accounting for uncertain tax positions, business combinations, closure of statutes of limitations or settlement of tax audits, and changes in valuation allowance. A significant amount of our foreign earnings is generated by our subsidiaries organized in Ireland and Hungary. Our future effective tax rates may be adversely affected if our earnings were to be lower in countries where we have lower statutory tax rates. We currently expect that our fiscal 2021 effective tax rate will be approximately 12%. We expect that our quarterly effective tax rates will vary from our fiscal 2021 effective tax rate as a result of recognizing the income tax effects of stock-based awards in the quarterly periods that the awards vest or are settled and other items that we cannot anticipate. For additional discussion about how our effective tax rate could be affected by various risks, see Part II, Item 1A, “Risk Factors.”

Liquidity and Capital Resources


	As of
	October 2, 2021		January 2, 2021		Change
	(In millions)
Cash and cash equivalents	$	1,013.8	$	928.4	$	85.4
Net working capital	635.8		681.8		(46.0)

Cash and Cash Equivalents

As of October 2, 2021, our principal sources of liquidity consisted of $1,013.8 million of cash and cash equivalents as compared to $928.4 million as of January 2, 2021.

Our primary sources of cash and cash equivalents during the nine months ended October 2, 2021 were cash generated from operations and proceeds from the issuance of common stock resulting from stock purchases under our employee stock purchase plan and stock options exercised during the period.

Our primary uses of cash and cash equivalents during the nine months ended October 2, 2021 were payments related to employee salaries and benefits, operating expenses, repurchases of our common stock, cash paid in business combinations, payment of taxes on vesting of restricted stock held by employees, and purchases of property, plant and equipment.

Approximately 64% of our cash and cash equivalents were held by our foreign subsidiaries as of October 2, 2021. Our cash and cash equivalents held by our foreign subsidiaries may vary from period to period due to the timing of collections and repatriation of foreign earnings. We expect that current cash and cash equivalent balances and cash flows that are generated from operations will be sufficient to meet our domestic and international working capital needs and other capital and liquidity requirements for at least the next 12 months.

Net Working Capital

Net working capital is comprised of current assets less current liabilities, as shown on our condensed consolidated balance sheets. The decrease in our net working capital as of October 2, 2021, as compared to January 2, 2021, is primarily due to the timing of cash receipts from customers and disbursements made to vendors.

Cash Flows from Operating Activities


	Nine Months Ended
	October 2, 2021		September 26, 2020		Change
	(In millions)
Cash provided by operating activities	$	885.1	$	769.4	$	115.7

Cash flows from operating activities include net income, adjusted for certain non-cash items, as well as changes in the balances of certain assets and liabilities. Our cash flows from operating activities are significantly influenced by business levels and the payment terms set forth in our customer agreements. The increase in cash flows from operating activities for the nine months ended October 2, 2021, as compared to the nine months ended September 26, 2020, was primarily due to the timing of cash receipts from customers and disbursements made to vendors.

Cash Flows from Investing Activities


	Nine Months Ended
	October 2, 2021		September 26, 2020		Change
	(In millions)
Cash used for investing activities	$	(269.9)	$	(261.3)	$	(8.6)

Cash used for investing activities increased during the nine months ended October 2, 2021, as compared to the nine months ended September 26, 2020, primarily due to an increase in payments for business combinations, partially offset by a decrease in purchases of property, plant and equipment. We expect to continue our investing activities, including purchasing property, plant and equipment, purchasing intangible assets, business combinations, purchasing software licenses, and making strategic investments.

Cash Flows from Financing Activities


	Nine Months Ended
	October 2, 2021		September 26, 2020		Change
	(In millions)
Cash provided by (used for) financing activities	$	(528.1)	$	85.9	$	(614.0)

Cash flows from financing activities decreased during the nine months ended October 2, 2021, as compared to the nine months ended September 26, 2020, primarily due to a decrease in borrowings under our revolving credit facility and increased payments for repurchases of our common stock and employee taxes on vesting of restricted stock.

Other Factors Affecting Liquidity and Capital Resources

Stock Repurchase Program

In August 2021, our Board of Directors increased the prior authorization to repurchase shares of our common stock by authorizing an additional $1 billion. 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 October 2, 2021, approximately $1.2 billion of the share repurchase authorization remained available to repurchase shares of our common stock. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” for additional information on share repurchases.

Revolving Credit Facility

On June 30, 2021, we terminated our then-existing revolving credit facility, dated January 30, 2017, and entered into a five-year senior unsecured revolving credit facility with a group of lenders led by Bank of America, N.A., as administrative agent (the “2021 Credit Facility”). The 2021 Credit Facility provides for borrowings up to $700.0 million, with the right to request increased capacity up to an additional $350.0 million upon receipt of lender commitments, for total maximum borrowings of $1.05 billion. The 2021 Credit Facility expires on June 30, 2026. Any outstanding loans drawn under the 2021 Credit Facility are due at maturity on June 30, 2026, subject to an option to extend the maturity date. Outstanding borrowings may be repaid at any time prior to maturity. As of October 2, 2021, there were no borrowings outstanding under the 2021 Credit Facility, and we were in compliance with all financial covenants associated with such credit facility.

2024 Notes

In October 2014, we issued $350.0 million aggregate principal amount of 4.375% Senior Notes due October 15, 2024 (the “2024 Notes”). We 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. Interest is payable in cash semi-annually. The 2024 Notes are unsecured and rank equal in right of payment to all of our existing and future senior indebtedness. As of October 2, 2021, we were in compliance with all covenants associated with the 2024 Notes.

For additional information relating to our debt arrangements, see Note 2 in the notes to condensed consolidated financial statements.

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