Cadence Design Systems Annual Report 2018

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FY2018 Annual Report · Cadence Design Systems

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
È

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

For the fiscal year ended December 29, 2018
OR

‘

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the transition period from

Commission file number 000-15867

CADENCE DESIGN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
2655 Seely Avenue, Building 5, San Jose, California
(Address of Principal Executive Offices)

00-0000000
(I.R.S. Employer
Identification No.)
95134
(Zip Code)

(408) 943-1234
(Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Common Stock, $0.01 par value per share

Names of Each Exchange on which Registered
Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes È No ‘

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. Yes ‘ No È

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit such files). Yes È No ‘

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Smaller reporting company ‘
Large accelerated filer È Accelerated filer ‘
Emerging growth company ‘

Non-accelerated filer ‘

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
to

revised financial accounting standards provided pursuant

transition period for complying with any new or
Section 13(a) of the Exchange Act. ‘

Indicate by check mark whether

Act). Yes ‘ No È

the registrant

is a shell company (as defined in Rule 12b-2 of

the

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by
reference to the price at which the common equity was last sold as of the last business day of the registrant’s most
recently completed second fiscal quarter ended June 30, 2018 was approximately $12,248,414,480.

On February 2, 2019, approximately 280,385,000 shares of the Registrant’s Common Stock, $0.01 par value, were

outstanding.

Portions of the definitive proxy statement for Cadence Design Systems, Inc.’s 2019 Annual Meeting of Stockholders

DOCUMENTS INCORPORATED BY REFERENCE

are incorporated by reference into Part III hereof.

CADENCE DESIGN SYSTEMS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 29, 2018

Table of Contents

PART I.

Item 1.

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1A.

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1B.

Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 2.

Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 3.

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 4.

Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II.

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 6.

Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 8.

Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial

Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9A.

Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III.

Item 10.

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 11.

Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 13.

Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . .

Item 14.

Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV.

Item 15.

Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 16.

Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100

PART I.

Item 1. Business

This Annual Report on Form 10-K and the documents incorporated by reference in this Annual Report on
Form 10-K contain 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 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. Important risks and uncertainties that could cause
actual results to differ materially from those contained in the forward-looking statements include, but are not limited
to, those identified in “Proprietary Technology,” “Competition,” “Risk Factors,” “Critical Accounting Estimates,”
“Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk” and “Liquidity and Capital
Resources” contained in this Annual Report on Form 10-K and the risks discussed in our other Securities and
Exchange Commission (“SEC”) filings.

We urge you to consider these factors carefully in evaluating the forward-looking statements contained in this
Annual Report on Form 10-K. All subsequent written or oral
forward-looking statements attributable to our
company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.
The forward-looking statements included in this Annual Report on Form 10-K are made only as of the date of this
Annual Report on Form 10-K. We do not intend, and undertake no obligation, to update these forward-looking
statements.

Overview

We enable our customers to design electronic products. Our products and services are designed to give our
customers a competitive edge in their development of electronic systems, integrated circuits (“ICs”), electronic
devices and increasingly sophisticated manufactured products. Our products and services do this by optimizing
performance, minimizing power consumption, shortening the time to bring our customers’ products to market and
reducing their design, development and manufacturing costs. Our customers create and sell electronic products at
differing levels of completeness. Our electronic systems customers deliver entire devices, such as smartphones,
laptop computers, gaming systems, automobiles and autonomous driving, servers, cloud datacenter infrastructure,
artificial intelligence (“AI”) systems, aerospace and defense, medical equipment and networking products. These
systems companies internally develop, or externally purchase, the sub-components for their products, including
printed circuit boards (“PCBs”), which interconnect all the hardware components, ICs, which are often referred to
as computer chips, and software at various levels which runs on the hardware. Our semiconductor customers
deliver ICs, which include subcategories such as memory chips, systems-on-chip (“SoCs”), analog chips,
processors and other types of chips.

We offer software, hardware, services and reusable IC design blocks, which are commonly referred to as
intellectual property (“IP”). Systems customers use our offerings to develop and integrate software that is key to the
functionality of their products, as well as to design their ICs and PCBs. Our semiconductor customers use our
offerings to design, configure, analyze and verify ICs. Additionally, some customers license our IP, which
accelerates their product development processes by providing pre-designed and verified circuit blocks for their ICs.

Our strategy, which we call System Design Enablement (“SDE”), is to provide the technologies necessary for
our customers to develop a complete and functional electronic product. Our SDE strategy enables us to address
the growing trends of electronic systems companies developing their own ICs as part of their end product systems,
as well as semiconductor companies delivering greater portions of the systems into which their IC products are
integrated. The development of electronic products, or their sub-components, is complex and requires many

engineers using our solutions with specialized knowledge and skill. The rate of technical innovation in electronics
is swift, long driven by a concept known as Moore’s Law, which more than 50 years ago predicted that the
complexity of ICs would double about every 24 months. In order to make our customers successful, our products
must handle this exponential growth rate in complexity, without requiring a corresponding increase in our
customers’ costs. 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 tools to include SDE.

Our SDE solutions facilitate the electronic product creation process at four levels. First, our core EDA
offerings enable engineers to complete tasks associated with the design, analysis and verification of ICs. Core
EDA tools and services are specifically designed to meet the requirements of engineers who develop different
types of ICs. The second level of SDE solutions is IP, which consists of design IP and verification IP (“VIP”).
Design IP is directly integrated into the IC by the customer as part of its development process. VIP consists of
technologies and methodologies useful for verifying how design IP is integrated into the IC, but VIP does not
become part of the IC product. The third level of SDE solutions is System Interconnect, and includes tools and
services used for the design, analysis and verification of PCBs, as well as the packages that encapsulate the ICs
for electrical and physical connection to the PCB. The fourth level of SDE solutions is System Integration, which
includes the engineering tasks associated with designing and analyzing systems, verifying system functionality,
combining software with hardware, or developing new software for an IC or system prior to its manufacture.

Business Drivers

Our products and services enable our customers to design complex and innovative electronic products, so
demand for our products is driven by our customers’ investment in new designs and products. The most promising
new opportunities for us involve enabling the design of electronic systems for machine learning, edge computing,
hyperscale datacenter infrastructure, 5G networks, augmented reality, virtual reality, internet-of-things, aerospace
and defense and autonomous vehicle sub-systems. Large and existing electronics categories, such as datacenter
servers, smartphones and networking products continue to provide business opportunities for us as customers
initiate new design projects.

Underlying the requirements within any particular vertical market sector is the availability of rapidly improving
IC manufacturing technology. In order for our customers to take advantage of such advancements, certain of our
products must first be developed to exploit these new manufacturing capabilities. This dependency means that we
must
to keep pace with the latest manufacturing
technology. The demand for new IC manufacturing technology directly impacts the demand for our newest
products.

invest significantly in product research and development

Another driver for our business is the differentiation, capabilities and benefits provided to our customers by
our products. With the rapid pace of innovation comes the opportunity for our products to address key challenges
associated with electronic product creation, such as power consumption, performance and cost. Our products
have unique attributes that our customers value.
these attributes can be grouped into broader
categories such as quality of results (in terms of power consumption, performance and chip area), engineering
productivity, tool performance, new capabilities or methods and faster time-to-market. Our business opportunities
are significantly enhanced when our offerings address these key factors. We are applying machine learning
techniques within our products to enhance quality of results, productivity, performance and methodology.

In general,

Products and Product Strategy

Our strategy is to provide our customers with the ability to address the broad range of issues that arise as
they develop electronic products. Our SDE solutions are comprised of products that are categorized according to
the role they play in the electronic product design process. We combine our products and technologies into
categories related to major design activities. The following table shows the relationship between our product
categories and the SDE levels to which they relate.

Cadence Product Categories

Functional Verification (including hardware for

emulation and prototyping)

Digital IC Design and Signoff

Custom IC Design and Simulation

System Interconnect and Analysis (PCB and IC

package)

IP (includes design IP and VIP)

System Design Enablement Levels

IC
Development
(Core EDA)

IP
Integration

System
Interconnect

System
Integration

✓

N/A
✓

N/A

✓

N/A

N/A
✓

Functional Verification, including Emulation and Prototyping Hardware

Functional verification products are used by our customers to efficiently and effectively verify that the circuitry
or the software they have designed will perform as intended. Verification takes place before implementing or
manufacturing the circuitry, significantly reducing the risk of discovering an error in the completed product. Our
functional verification offering consists of four primary verification engines:

(cid:129)
(cid:129)
(cid:129)
(cid:129)

JasperGold® formal verification platform
Xcelium™ parallel simulation platform
Palladium® Z1 enterprise emulation platform
Protium™ S1 FPGA-based prototyping platform

These engines are used for early bug detection, verification of block-level

functionality, verification
acceleration and emulation of system-level functionality, system-level power exploration, analysis and optimization
and system-level prototyping for hardware/software co-verification. Our emulation hardware offering--the
Palladium Z1 enterprise emulation system—provides high throughput, capacity, datacenter
reliability and
workgroup productivity to enable global design teams to develop advanced hardware-software systems. The
Protium S1, a prototyping solution based on Field-Programmable Gate Arrays (“FPGAs”), leverages a common
front end with Palladium Z1 in order to move designs rapidly from emulation to the prototyping stage for early
software development.

Also included in our functional verification offering are products that are used for verification planning and
metric tracking, testbench automation, debugging and software-driven tests. These products enable our customers
to coordinate verification activities across multiple teams and various specialists for verification planning and
closure.

Digital IC Design and Signoff

Digital IC design offerings are used by our customers to create logical representations of a digital circuit or an
IC that can be verified for correctness prior to implementation (please refer to the discussion under “Functional
Verification,
the design
including Emulation and Prototyping Hardware” above). Once the logic is verified,
representation is implemented, or converted to a format ready for silicon manufacturing, using additional software
tools within this category. The manufacturing representation is also analyzed and verified. Our digital IC offerings
include three major categories: logic design, physical implementation and signoff.

Our logic design offering is comprised of logic synthesis, test and equivalence checking capabilities and is
typically used by customers to create and verify designs in conjunction with our functional verification capabilities.
This offering provides chip planning, design, verification and test technologies and services to customers. The
offering includes the Genus™ synthesis solution, a logic synthesis offering that provides fast throughput while also
the Stratus™ high-level synthesis solution for system-level synthesis, and the
offering high quality results,
Joules™ RTL power solution, which delivers fast power analysis while preserving near-signoff accuracy. We also
offer the Modus™ design-for-test software solution, which reduces SoC test time.

Our physical

implementation offering comprises tools used near the end of the design process, including
place and route, optimization and multi-patterning preparation. The Innovus™ implementation system is a physical
implementation offering that delivers fast design turnaround time while also delivering improved power,
performance and area characteristics. This offering enables customers to address the technology challenges of
the latest semiconductor advanced process nodes, create a physical representation of logic models and prepare a
design for signoff.

Our signoff offering is comprised of

the design as ready for manufacture by a
semiconductor foundry, which provides certification for this step. This offering includes Tempus™ timing analysis,
Voltus™ power analysis, Quantus™ QRC extraction solutions and Pegasus™ physical verification system. Our
design for manufacturing products are also included in our signoff offering and are used by customers to address
manufacturing and yield issues as early in the product development process as possible.

tools used to signoff

Custom IC Design and Simulation

Custom IC design and simulation offerings are used by our customers to create schematic and physical
representations of circuits down to the transistor level for analog, mixed-signal, custom digital, memory and radio
frequency (“RF”) designs. These representations are verified using simulation tools optimized for each type of
design. The offering includes the design capture environment, simulation and IC layout capabilities within the
Virtuoso® custom design platform. Other tools in the custom IC portfolio are used to prepare the designs for
manufacturing.

Virtuoso Advanced Node adds functionality to the base Virtuoso package to enable the use of

three-
dimensional
transistors (“FinFETs”), multi-patterning and other technologies required for advanced designs.
Virtuoso for Electrically Aware Design introduces a new time-saving paradigm that shortens the loop between
design and verification by verifying designs as they are being created. Spectre® XPS is a Fast SPICE offering that
speeds verification time over previously existing solutions. Liberate™ characterization solution generates electrical
cell views for timing, power and signal integrity. Virtuoso System Design Platform enables engineers to design and
verify concurrently across the chip, package and board. Finally, Legato™ Memory Solution is the industry’s first
integrated solution for memory design and verification, and Legato Reliability is the industry’s first complete analog
IC design-for-reliability solution.

System Interconnect and Analysis

Our System Interconnect and Analysis offerings are used by our customers to develop PCBs and IC
packages. The capabilities in the Allegro® system interconnect design platform include PCB authoring and
implementation, IC package and System-in-Package design and signal and power integrity analysis and PCB
library design management and collaboration. Certain offerings also include the simulation capability within the
Virtuoso custom design platform. Sigrity™ analysis tools have been integrated with our Allegro platform, enabling
a comprehensive front-to-back flow for implementation and full signal and power integrity analysis for designs
featuring high speed interface protocols. These offerings enable engineers who are responsible for the capture,
layout and analysis of advanced PCB and IC packages to design high-performance electronic products across the
domains of ICs, IC packages and PCBs, to increase functional density and to manage design complexity while
reducing cost and time-to-market. The need for compact, high-performance mobile, consumer and automotive
design with advanced serial interconnect is driving technology evolution for our PCB offering. For mainstream PCB
customers, where individual or small team productivity is a focus, we provide the OrCAD® family of offerings that is
primarily marketed worldwide through a network of resellers.

Our design IP offerings consist of pre-verified, customizable functional blocks, which customers integrate into
their ICs to accelerate the development process and to reduce the risk of errors in the design process. We offer
many types of design IP, including Tensilica® configurable digital signal processors vertically targeted subsystems
for AI/machine learning, audio/voice, baseband and vision/imaging applications, controllers and physical interfaces
for standard protocols and analog IP. We have significantly expanded our design IP portfolio in recent years
through acquisitions and internal development. During fiscal 2018, we launched the industry’s first silicon-proven,
long-reach 112 gigabit Serializer/Deserializer (“SerDes”) communications IP at the 7-nanometer process node and
the Tensilica DNA 100 processor, a deep neural-network accelerator targeting on-device neural network inference
applications.

We also offer a broad range of VIP and memory models, which model the expected behavior of many industry
standard protocols when used with verification solutions and are complementary to our design IP offerings. VIP
and accelerated VIP, which is used in emulation, are used across the suite of functional verification engines to
verify the correct interaction with dozens of design IP interface protocols such as DDR, USB and PCI Express. Our
VIP offerings are also used in system-level verification to model correct behavior of full systems interacting with
their environments.

Product Arrangements

We primarily license our software using time-based licenses. Our time-based license arrangements offer
customers the right to access and use all of the products delivered at the outset of an arrangement and updates
throughout the entire term of the arrangement, which is generally two to three years, with no rights to return. Our
updates provide for continued access to our evolving technology as our customers’ designs migrate to more
advanced nodes. In addition, certain time-based license arrangements include:

(cid:129)

the right for the customer to remix among the products delivered at the outset of the arrangement, so
long as the cumulative contractual value of all products in use does not exceed the total license fee
determined at the outset of the arrangement; and
use of unspecified additional products that become commercially available during the term of the
arrangement.

A small portion of our software is licensed under perpetual licenses, which does not include the right to use
new technology. Payment terms for time-based licenses generally provide for payments to be made over the
license period and payment terms for perpetual licenses generally are net 30 days.

During fiscal 2018, we launched the Cadence Cloud portfolio,

the first broad cloud portfolio for the
development of electronic systems and semiconductors. The Cadence Cloud portfolio consists of our managed
and customer-managed environments that enable electronic product developers to use the scalability of the cloud
to securely manage the exponential increase in design complexity. Contractual arrangements with customers for
both environments are time-based, similar to the on-premise software license arrangements described above.
Cadence-managed environment arrangements include hardware resources accessible via cloud offerings provided
by Cadence. Customer-managed environment arrangements do not include cloud hardware offerings because
customers arrange for their own cloud hardware and purchase a special license from Cadence to enable cloud
scalability of their on-premise software.

Our emulation and prototyping hardware products are either sold or leased to our customers. Our emulation

hardware can also be accessed remotely via a Cadence-managed cloud arrangement.

We generally license our design IP under nonexclusive license agreements that provide usage rights for
specific designs. In addition, for certain of our IP license agreements, we collect royalties as our customers ship
their product that includes our IP to their customers.

For a further description of our license agreements, our emulation and prototyping hardware sale or lease
agreements, revenue recognition policies and results of operations, please refer to the discussion under “Critical

Accounting Estimates” under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.”

Technical Support and Maintenance

Customer service and support is critical to the adoption and successful use of our products. We provide our
customers with technical support and maintenance to facilitate their use of our software, hardware and IP
solutions.

Services

We offer a number of services, including services related to methodology, education and hosted design
solutions. These services may be sold separately or sold and performed in conjunction with the license, sale or
lease of our products. As necessary, certain of our design services engineers are assigned to internal research
and development projects associated with our design IP business.

As part of our services offerings, we design advanced ICs, develop custom IP and address industry design
issues that may not be solved adequately by today’s EDA technologies. This enables us to target and accelerate
the development of new software technology and products to satisfy current and future design requirements.

We offer engineering services to collaborate with our customers in the design of complex ICs and the
implementation of key design capabilities, including low power design, IC packaging and board design, functional
verification, digital implementation, analog/mixed-signal design and system-level design. The customers for these
services primarily consist of semiconductor and systems companies developing products for the consumer,
communications, military, aerospace and computing markets. These ICs range from digital SoCs and analog and
RF designs to complex mixed-signal ICs.

In delivering methodology services, we leverage our experience and knowledge of design techniques, our
products, leading practices and different design environments to improve the productivity of our customers’
engineering teams. Depending on the customers’ projects and needs, we work with customers using outsourcing,
consultative and collaborative offerings.

Our education services offerings can be customized and include training programs that are conducted via the
internet or in a classroom setting. The content of these offerings ranges from the latest IC design techniques to
methodologies for using the most recent features of our EDA products. The primary focus of education services is
to accelerate our customers’ path to productivity in the use of our products.

Third-Party Programs and Initiatives

In addition to our products, many customers use design tools that are provided by other EDA companies, as
well as design IP available from multiple suppliers. We support the use of third-party design products and design
IP through our Connections® program and through our participation in industry groups such as the Silicon
Integration Initiative and Accellera System Initiative. We actively contribute to the development and deployment of
industry standards.

Product and Maintenance and Services Revenue

Revenue, and revenue as a percentage of total revenue, from our product and maintenance and services

offerings for the last three fiscal years were as follows:

Product and maintenance

Services

Total revenue

2018

2017
(In millions, except percentages)

2016

1,998 93% $

1,814 93% $

1,684 93%

140

129

132

2,138

1,943

1,816

Our revenue mix is such that approximately 90% of our revenue is recognized over time, and the remainder of

the revenue is recognized at a point in time, typically upon delivery.

For an additional description of our product and maintenance and services revenue, see the discussion under
“Results of Operations” under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.” For our fiscal 2018 results of operations and our financial position as of December 29,
2018, see Part IV, Item 15, “Exhibits and Financial Statement Schedules.”

Remaining Performance Obligations and Backlog

On the first day of fiscal 2018, we adopted Accounting Standards Update (“ASU”) 2014-09, “Revenue from
Contracts with Customers (Topic 606),” which requires us to disclose revenue allocated to remaining performance
obligations. Revenue allocated to remaining performance obligations represents the transaction price allocated to
the performance obligations that are unsatisfied or partially unsatisfied as of December 29, 2018, which includes
deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted but
unsatisfied performance obligations were approximately $2.9 billion as of December 29, 2018, of which we expect
to recognize approximately 60% as revenue over the next 12 months and the remainder thereafter.

Revenue allocated to remaining performance obligations is different from our historical backlog in that it
includes fully executed contracts with future effective dates and excludes committed contracts for which the
deliverables are not fully defined, whereas our historical backlog excluded fully executed contracts with future
effective dates and included contracts for which the deliverables were not fully defined. Our standalone backlog
was $2.7 billion as of December 30, 2017.

The substantial majority of our remaining performance obligations consists of customer contracts for which
product and maintenance revenue is recognized over the contract life. Historically, we have not experienced
significant cancellations of our contracts with customers. For engineering services contracts in backlog, completion
dates are occasionally rescheduled, delaying revenue recognition under those contracts beyond the original
anticipated completion date.

Marketing and Sales

We generally market our products and provide services to existing and prospective customers through a
direct sales force consisting of sales people and applications engineers. Applications engineers provide technical
pre-sales and post-sales support for our products. Due to the complexity of many of our products and the system
design process, the sales cycle is generally long, requiring three to six months or more. During the sales cycle, our
direct sales force generally provides technical presentations, product demonstrations and support for on-site
customer evaluation of our solutions. We also promote our products and services through advertising, marketing
automation, trade shows, public relations and the internet. We selectively utilize value-added resellers to broaden
our reach and reduce cost of sales. Our OrCAD products and certain Allegro products are primarily marketed
through these channels. With respect to international sales, we generally market and support our products and
services through our subsidiaries. We also use a third-party distributor to license our products and services to
certain customers in Japan.

Research and Development

Our future performance depends on our ability to innovate, commercialize newly developed solutions and
enhance and maintain our current products. The primary areas of our research and development align with our
product categories discussed above. We must continuously re-engineer our products to solve new or increased
physics challenges that arise with each successive process node and address the increase in complexity that is
introduced by the resulting much larger designs. We must also keep pace with our customers’
technical
developments, satisfy industry standards and meet our customers’
increasingly demanding performance,
productivity, quality and predictability requirements. Therefore, we expect to continue to invest in research and
development.

Hardware Manufacturing and Software Distribution

Our emulation and prototyping hardware,

individual PCBs, custom ICs and FPGA-based
including all
prototyping products, is manufactured, assembled and tested by subcontractors before delivery to our customers.
Software and documentation are primarily distributed to customers by secure electronic delivery, by way of the
cloud or on DVD.

Proprietary Technology

Our success depends, in part, upon our proprietary technology. We generally rely on patents, copyrights,
trademarks and trade secret laws, licenses and restrictive agreements to establish and protect our proprietary
rights in technology and products. Many of our products include software or other intellectual property licensed
from third parties. We may have to seek new licenses or renew existing licenses for third-party software and other
intellectual property in the future. As part of performing engineering services for customers, our engineering
services business uses certain software and other intellectual property licensed from third parties, including that of
our competitors.

Competition

We compete most frequently with Synopsys, Inc. and Mentor Graphics Corporation, which was acquired by
Siemens AG in 2017, and with numerous other EDA providers, manufacturers of electronic devices that have
developed, acquired or have the capability to develop their own EDA products, electronics design and consulting
Inc., Keysight
companies, and other
Technologies, Inc. and Zuken Ltd.

IP companies. These include Altium Limited, Ansys,

Inc., CEVA,

Certain competitive factors in the engineering services business differ from those of the products businesses.
While we compete with other EDA companies in the engineering services business, our principal competitors
include independent engineering service businesses. Many of these companies are also customers, and therefore
use our product offerings in the delivery of their services or products.

Corporate Information

We were organized as a Delaware corporation in June 1988. Our headquarters is located at 2655 Seely
Avenue, San Jose, California 95134. Our telephone number is (408) 943-1234. We use our website at
www.cadence.com to communicate important
including news releases and
financial information. Our website permits investors to subscribe to e-mail notification alerts when we post new
material information on our website. We also make available on our investor relations webpage, free of charge,
copies of our SEC filings and submissions, which can be found at the SEC’s website, www.sec.gov, as soon as
reasonably practicable after electronically filing or furnishing such documents with the SEC. Stockholders may also
request copies of these documents by writing to our Corporate Secretary at the address above. Information on our
website is not incorporated by reference in this Annual Report on Form 10-K unless expressly noted.

information about our company,

Fiscal Year End

Our fiscal years are 52- or 53-week periods ending on the Saturday closest to December 31. Fiscal 2018,

2017 and 2016 were each 52-week fiscal years. Our next 53-week fiscal year will be fiscal 2020.

Employees

As of December 29, 2018, we had approximately 7,500 full-time employees.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table provides information regarding our executive officers as of February 27, 2019:

Name

Lip-Bu Tan

John M. Wall

Anirudh Devgan

Thomas P. Beckley

James J. Cowie

Surendra Babu Mandava

Chin-Chi Teng

Neil Zaman

Age

Positions and Offices

Chief Executive Officer and Director

Senior Vice President and Chief Financial Officer

President

Senior Vice President, Research and Development

Senior Vice President, General Counsel and Secretary

Senior Vice President, Research and Development

Senior Vice President, Worldwide Field Operations

Our executive officers are appointed by the Board of Directors and serve at the discretion of the Board of

Directors.

LIP-BU TAN has served as Chief Executive Officer of Cadence since January 2009. From January 2009 to
November 2017, Mr. Tan also served as President of Cadence. Mr. Tan has been a member of the Cadence
Board of Directors since February 2004. In 1987, Mr. Tan founded Walden International, an international venture
capital firm, and since that time has served as its Chairman. Mr. Tan serves as a director of Aquantia Corp. and
Hewlett Packard Enterprise Company. Mr. Tan has a B.S. from Nanyang University in Singapore, an M.S. in
nuclear engineering from the Massachusetts Institute of Technology and an M.B.A. from the University of San
Francisco.

JOHN M. WALL has served as Senior Vice President and Chief Financial Officer of Cadence since October
2017. From October 2000 to September 2017, Mr. Wall held several positions at Cadence, most recently as
Corporate Vice President and Corporate Controller from April 2016 to October 2017, Vice President, Finance and
Operations, Worldwide Revenue Accounting and Sales Finance from 2015 to 2016 and Vice President, Finance
and Operations, EMEA and Worldwide Revenue Accounting from 2005 to 2015. Mr. Wall has an NCBS from the
Institute of Technology, Tralee and is a Fellow of the Association of Chartered Certified Accountants.

ANIRUDH DEVGAN has served as President of Cadence since November 2017. From May 2012 to
November 2017, Dr. Devgan held several positions at Cadence, most recently as Executive Vice President,
Research and Development from March 2017 to November 2017 and Senior Vice President, Research and
Development from November 2013 to March 2017. Prior to joining Cadence, from May 2005 to March 2012,
Dr. Devgan served as Corporate Vice President and General Manager of the Custom Design Business Unit at
Magma Design Automation, Inc., an electronic design automation company. Dr. Devgan has a B.Tech. in electrical
engineering from the Indian Institute of Technology, Delhi, and an M.S. and Ph.D. in electrical and computer
engineering from Carnegie Mellon University.

THOMAS P. BECKLEY has served as Senior Vice President, Research and Development of Cadence since
September 2012. From April 2004 to September 2012, Mr. Beckley served as Corporate Vice President, Research
and Development of Cadence. Prior to joining Cadence, Mr. Beckley served as President and Chief Executive
Officer of Neolinear, Inc., a developer of auto-interactive and automated analog/RF tools and solutions for mixed-
signal design that was acquired by Cadence in April 2004. Mr. Beckley has a B.S. in mathematics and physics
from Kalamazoo College and an M.B.A. from Vanderbilt University.

JAMES J. COWIE has served as Senior Vice President and General Counsel of Cadence since April 2008
and Secretary of Cadence since May 2008. From August 2000 to March 2008, Mr. Cowie held several positions at
Cadence, most recently as Corporate Vice President—Business Development, Associate General Counsel and
Assistant Secretary. Mr. Cowie has an A.B. in economics from Duke University and a J.D. from Stanford Law
School.

SURENDRA BABU MANDAVA has served as Senior Vice President, Research and Development of Cadence
since January 2017. Prior to joining Cadence, Mr. Mandava served as Chief Executive Officer of Ineda Systems
Inc., a low-power System-on-Chip solutions company, from November 2014 to July 2016, Vice President of
Broadcom Corporation, a provider of semiconductor solutions, from November 2010 to December 2012, and
President and then as Chief Executive Officer of Beceem Communications Inc., a semiconductor company, from
December 2003 until it was acquired by Broadcom in November 2010. Mr. Mandava has a B.Tech. in electronics
and communication engineering from the Regional Engineering College, Trichy, and a M.Tech. in electrical
engineering and computer science from the Indian Institute of Technology, Kanpur.

CHIN-CHI TENG has served as Senior Vice President, Research and Development of Cadence since
September 2018. From January 2002 to September 2018, Dr. Teng held several positions at Cadence, most
recently as Corporate Vice President, Research and Development from June 2015 to September 2018, and Vice
President, Research and Development
in electrical
engineering from the National Taiwan University and a Ph.D. in electrical and computer engineering from the
University of Illinois, Urbana-Champaign.

from March 2009 to June 2015. Dr. Teng has a B.S.

NEIL ZAMAN has served as Senior Vice President, Worldwide Field Operations of Cadence since September
2015. From October 1999 to September 2015, Mr. Zaman held several positions at Cadence, most recently as
Corporate Vice President, North America Field Operations. Prior to joining Cadence, Mr. Zaman held positions at
Phoenix Technologies Ltd. and IBM Corporation. Mr. Zaman has a B.S. in finance from California State University,
Hayward.

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties, including those described
in the sections below, that could adversely affect our business, financial condition, results of operations, cash
flows, and the trading price of our common stock.

Risks Related to Our Business

Any periods of uncertainty in the global economy and international trade relations, and any potential
downturn in the semiconductor and electronics industries, may negatively impact our business and
reduce our bookings levels and revenue.

Purchases of our products and services are dependent upon the commencement of new design projects by
IC manufacturers and electronics systems companies. The IC and electronics systems industries are cyclical and
are characterized by constant and rapid technological change, rapid product obsolescence and price erosion,
evolving standards, short product life cycles and wide fluctuations in product supply and demand.

The IC and electronics systems industries have also experienced significant downturns in connection with, or
in anticipation of, maturing product cycles of both these industries’ and their customers’ products. While spending
on EDA products and services has grown in recent years, the current outlook for the semiconductor industry is
uncertain and may result in a decrease in spending on EDA products and services, which are a part of our overall
SDE offering.

While we cannot predict global economic conditions, uncertainty about

future political and economic
conditions, adverse changes to international trade relationships between countries in which we do business or
future decline in corporate or consumer spending could negatively impact our customers’ businesses, reducing the
number of new chip designs and their overall research and development spending, including their spending on our
products and services, and as a result decrease demand for our products and services. Decreased bookings for
our products and services, customer bankruptcies, consolidation among our customers, or problems or delays with
our hardware suppliers or with the supply or delivery of our hardware products could also adversely affect our
ability to grow our business or adversely affect our future revenues and financial results. Our future business and
financial results, including demand for our products and services, are subject to considerable uncertainty that

could impact our stock price. If economic conditions or international trade relationships between countries in which
we do business deteriorate in the future, or,
if semiconductor or electronics systems industry
revenues do not grow, the ability to export or import products or services by the semiconductor or electronics
systems industry is adversely restricted, or our suppliers of our hardware components and products are subject to
problems or delays, our future revenues and financial results could be adversely affected. Even if economic
conditions improve for our customers after a period of decline, the positive impact on our revenues and financial
results may be deferred due to cautious customer research and development spending and our mix of licenses
that yield revenue recognized over time.

in particular,

Customer consolidation could affect our operating results.

There has been a trend toward customer consolidation in the semiconductor industry through business
combinations, including mergers, asset acquisitions and strategic partnerships. As this trend continues, it could
make us dependent on fewer customers who may be able to exert increased pressure on our prices and other
contract terms and could increase the portion of our total sales concentration for any single customer. Customer
consolidation activity could also reduce the demand for our products and services if such customers streamline
research and development or operations, reduce purchases or delay purchasing decisions. These outcomes could
negatively impact our operating results and financial condition.

Our failure to respond quickly to technological developments or customers’ increasing technological

requirements could make our products uncompetitive and obsolete.

The industries in which we compete experience rapid technology developments, rapid changes in industry
standards and customer requirements, and frequent introductions and improvements of new products. Currently,
the industries we serve are experiencing the following trends:

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changes in the design and manufacturing of ICs, including migration to advanced process nodes and
transistors, such as FinFETs, present major challenges to the semiconductor
three-dimensional
industry, particularly in IC design, design automation, design of manufacturing equipment, and the
manufacturing process itself. With migration to advanced process nodes, the industry must adapt to
more complex physics and manufacturing challenges such as the need to draw features on silicon that
are many times smaller than the wavelength of light used to draw the features via lithography. Models
of each component’s electrical properties and behavior also become more complex as do requisite
analysis, design, verification and manufacturing capabilities. Novel design tools and methodologies
must be invented and enhanced quickly to remain competitive in the design of electronics in the
smallest nanometer ranges;
the ability to design SoCs increases the complexity of managing a design that, at the lowest level, is
In addition, SoCs typically incorporate
represented by billions of shapes on fabrication masks.
microprocessors and digital signal processors that are programmed with software,
requiring
simultaneous design of the IC and the related software embedded on the IC;
with the availability of seemingly endless gate capacity, there is an increase in design reuse, or the
combining of off-the-shelf design IP with custom logic to create ICs or SoCs. The unavailability of a
broad range of high-quality design IP (including our own) that can be reliably incorporated into a
customer’s design with our software products and services could lead to reduced demand for our
products and services;
increased technological capability of
the FPGA, which is a programmable logic chip, creates an
alternative to IC implementation for some electronics companies. This could reduce demand for our IC
implementation products and services;
a growing number of low-cost engineering services businesses could reduce the need for some IC
companies to invest in EDA products; and
adoption of cloud computing technologies with accompanying new business models for an increasing
number of software categories.

If we are unable to respond quickly and successfully to these trends, we may lose our competitive position,
and our products or technologies may become obsolete. To compete successfully, we must develop, acquire or

license new products and improve our existing products and processes on a schedule that keeps pace with
technological developments and the requirements for products addressing a broad spectrum of designers and
designer expertise in our industries. We must provide frequent and relevant updates to our software products in
order to provide substantial benefit to the customer throughout the license periods because of the rapid changes in
our customers’ industries. The market must also accept our new and improved products. Our hardware platforms
must be enhanced periodically to reduce the likelihood that a competitor surpasses the capabilities we offer. Our
introduction of new products could reduce the demand and revenue of our older products or affect their pricing.
We must also be able to support a range of changing computer software, hardware platforms and customer
preferences. A rapid transition by our customers to different business models associated with cloud computing
technologies could result in reduced revenue. We cannot guarantee that we will be successful in keeping pace
with all, or any, of the customer trends.

Competitive pressures may require us to reduce our pricing, which could have an adverse effect on

our results of operations.

The highly competitive markets in which we do business can put pressure on us to reduce the prices of our
software, emulation and prototyping hardware and IP. If our competitors offer significant discounts on certain
products in an effort to recapture or gain market share or to sell other software or hardware products, we may then
need to lower our prices or offer other favorable terms to compete successfully. Any such changes would be likely
to reduce our profit margins and could adversely affect our operating results. Any substantial changes to our prices
and pricing policies could cause revenues to decline or be delayed as our sales force implements and our
customers adjust to the new pricing policies. Some of our competitors bundle products for promotional purposes or
as a long-term pricing strategy or provide guarantees of prices and product implementations. These practices
could, over time, significantly constrain the prices that we can charge for our products. If we cannot offset price
reductions with a corresponding increase in the number of sales or with lower spending, then the reduced
revenues resulting from lower prices could have an adverse effect on our results of operations.

Our System Design Enablement strategy requires the development or acquisition of products and
expertise in new areas of technology. Our inability to develop or acquire these capabilities could impede
our ability to address the technical requirements in technology segments which are expected to
contribute to our growth.

Our SDE strategy is meant to increase our business among electronic systems companies, which are now
designing their own ICs. SDE is also meant to increase our business among semiconductor companies, which are
increasing their contribution to the end products into which their ICs are incorporated. Part of this strategy involves
addressing the needs of new categories of electronic systems, including hyperscale computing and infrastructure,
edge computing, machine learning, augmented reality, virtual reality, internet-of-things and autonomous vehicle
sub-systems, where increased investment is expected by our customers. Each of these categories requires
technologies and expertise that are application-specific. If we are unable to develop or acquire the application-
specific technologies and expertise necessary to address the requirements of these categories, it could impede
our ability to expand our business in these categories and ultimately affect our future growth.

We have experienced varied operating results, and our operating results for any particular fiscal
period are affected by the timing of revenue recognition, particularly for our emulation and prototyping
hardware and IP products.

Various factors affect our operating results, and some of them are not within our control. Our operating results
for any period are affected by the mix of products and services sold in a given period and the timing of revenue
recognition, particularly for our emulation and prototyping hardware and IP products. In addition, we have recorded
net losses in the past and may record net losses in the future. Also, our cash flows from operating activities have
and will continue to fluctuate due to a number of
including the timing of our billings, collections,
disbursements and tax payments.

factors,

A substantial portion of the product revenue related to our hardware business and our IP offerings is
recognized upon delivery, and our forecasted revenue results are based, in part, on our expectations of hardware

and IP to be delivered in a particular quarter. Therefore, changes in hardware and IP bookings or deliveries
relative to expectations will have a more immediate impact on our revenue than changes in software or services
bookings, for which revenue is generally recognized over time.

In recent years, we made significant investments to expand our IP offerings through, among other things,
research and development and acquisitions. As we continue to expand our IP offerings, a portion of the revenue
related to our IP bookings will be deferred until we complete and deliver the licensed IP to our customers. As a
result, costs related to the research and development of the IP may be incurred prior to the recognition of the
related revenue.

Revenue related to our hardware and IP products is inherently difficult to predict because sales of our
hardware and IP products depend on the commencement of new projects for the design and development of
complex ICs and systems by our customers, our customers’ willingness to expend capital to deploy our new and
existing hardware or IP products in those projects and the availability of our new and existing hardware or IP
products for delivery. Therefore, our hardware or IP sales may be delayed or may decrease if our customers delay
or cancel projects because their spending is constrained or if there are problems or delays with the supply or
delivery of our hardware or IP products or our hardware suppliers. Moreover, the hardware and IP markets are
highly competitive, and our customers may choose to purchase a competitor’s hardware or IP product based on
cost, performance or other factors. These factors may result in lower revenue, which would have an adverse effect
on our business, results of operations or cash flows.

A substantial proportion of our software licenses yield revenue recognized over time, which may make it

difficult for us to rapidly increase our revenue in future fiscal periods.

We plan our operating expenses based on forecasted revenue, expected business needs and other factors.
These expenses and the effect of long-term commitments are relatively fixed in the short term. Bookings and the
related revenue are harder to forecast in a difficult economic environment. If we experience a shortfall in bookings,
our operating results could differ from our expectations because we may not be able to quickly reduce our
expenses in response to short-term business changes.

The methods, estimates and judgments that we use in applying our accounting policies have a significant
impact on our results of operations (see “Critical Accounting Estimates” under Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”). Such methods, estimates and
judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise
over time that may lead us to change our methods, estimates and judgments. Changes in those methods,
estimates and judgments could significantly affect our results of operations.

Historical results of operations should not be viewed as reliable indicators of our future performance. If our
revenue, operating results or business outlook for future periods fall short of the levels expected by us, securities
analysts or investors, the trading price of our common stock could decline.

We have invested and expect to continue to invest in research and development efforts for new and
existing products and technologies and technical sales support. Such investments may affect our
operating results, and, if the return on these investments is lower or develops more slowly than we
expect, our revenue and operating results may suffer.

We have invested and expect to continue to invest in research and development for new and existing
products, technologies and services in response to our customers’ increasing technological requirements. Such
investments may be in related areas, such as technical sales support. These investments may involve significant
time, risks and uncertainties, including the risk that the expenses associated with these investments may affect our
margins and operating results and that such investments may not generate sufficient revenues to offset liabilities
assumed and expenses associated with these new investments. We believe that we must continue to invest a
significant amount of time and resources in our research and development efforts and technical sales support to
maintain and improve our competitive position.
If we do not achieve the benefits anticipated from these
investments, if the achievement of these benefits is delayed, or if customers reduce or slow the need to upgrade or
enhance their EDA products and design flows, our revenue and operating results may be adversely affected.

The competition in our industries is substantial, and we may not be able to continue to successfully

compete in our industries.

The industries in which we do business, including software, hardware, IP and services for enabling the design
of electronic products, are highly competitive and require us to identify and develop or acquire innovative and cost-
competitive products, integrate them into platforms and market them in a timely manner. We may not be able to
compete successfully in these industries, which could seriously harm our business, operating results or financial
condition. Factors that could affect our ability to compete successfully include:

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the development by others of competitive products or platforms and engineering services, possibly
resulting in a shift of customer preferences away from our products and services and significantly
decreased revenue;
aggressive pricing competition by some of our competitors may cause us to lose our competitive
position, which could result in lower revenues or profitability and could adversely impact our ability to
realize the revenue and profitability forecasts for our software or emulation and prototyping hardware
systems products;
the challenges of advanced node design may lead some customers to work with more mature, less
risky manufacturing processes that may reduce their need to upgrade or enhance their EDA products
and design flows;
the challenges of developing (or acquiring externally developed) technology solutions that are adequate
and competitive in meeting the rapidly evolving requirements of next-generation design challenges;
intense competition to attract acquisition targets, possibly making it more difficult for us to acquire
companies or technologies at an acceptable price, or at all;
new entrants, including larger electronic systems companies, in our business;
the combination of our competitors or collaboration among many companies to deliver more
comprehensive offerings than they could individually; and
decisions by electronics manufacturers to perform engineering services or IP development internally,
rather than purchase these services from outside vendors due to budget constraints or excess
engineering capacity.

We compete most frequently with Synopsys, Inc. and Mentor Graphics Corporation, which was acquired by
Siemens AG in 2017, and also with numerous other EDA providers, manufacturers of electronic devices that have
developed, acquired or have the capability to develop their own EDA products, electronics design and consulting
companies, and other
Inc., Keysight
Technologies, Inc. and Zuken Ltd.

IP companies. These include Altium Limited, Ansys,

Inc., CEVA,

We have acquired and expect to acquire other companies and businesses and may not realize the

expected benefits of these acquisitions.

We have acquired and expect to acquire other companies and businesses in order to expand our product
offerings. Our future revenue growth and expansion of our business is dependent on our successful integration of
our acquisitions. We may incur significant costs in connection with potential transactions, including acquisitions
that are not consummated. Potential and completed acquisitions involve a number of risks. If any of the following
acquisition-related risks occur, our business, operating results or financial condition could be adversely impacted:

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the failure to realize, or a delay in realizing, anticipated benefits such as cost savings and revenue
enhancements;
overlapping customers and product sets that impact our ability to maintain revenue at historical rates;
the failure to understand, compete and operate effectively in markets where we have limited
experience;
the failure to integrate and manage acquired products and businesses effectively;
the failure to integrate and retain key employees of an acquired company or business;
difficulties in combining previously separate companies or businesses into a single unit;
the substantial diversion of management’s attention from day-to-day business when evaluating and
negotiating these transactions and integrating an acquired company or business;

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the discovery, after completion of the acquisition, of unanticipated liabilities assumed from an acquired
company, business or assets, such that we cannot realize the anticipated value of the acquisition;
difficulties related to integrating the products of an acquired company or business in, for example,
distribution, engineering, licensing models or customer support areas;
unanticipated costs; or
unwillingness of customers of an acquired business to continue licensing or buying products from us
following the acquisition.

In a number of our completed acquisitions, we have agreed to make future payments, either in the form of
employee retention bonuses or contingent purchase price payments, based on the achievement of specified
milestones. The performance goals pursuant to which these future payments may be made generally relate to the
achievement by the acquired company or business, or by the employees who joined us with the acquired company
or business, of certain specified bookings, revenue, run rate, product proliferation, product development or
employee retention goals during a specified period following completion of the applicable acquisition. The specific
performance goal levels and amounts and timing of employee bonuses or contingent purchase price payments
vary with each acquisition. We may continue to use contingent payments in connection with acquisitions in the
future and while we expect to derive value from an acquisition in excess of such contingent payment obligations,
we may be required to make certain contingent payments without deriving the anticipated value.

Future acquisitions may involve issuances of stock as full or partial payment of the purchase price for the
acquired company or business, grants of restricted stock, restricted stock units or stock options to employees of
the acquired companies or businesses (which may be dilutive to existing stockholders), expenditure of substantial
cash resources or the incurrence of a material amount of debt. These arrangements may impact our liquidity,
financial position and results of operations or increase dilution of our stockholders’ equity interests in the company.

We make and expect to make strategic investments and may not realize the expected benefits of

these investments.

We have made and expect to make strategic investments in which we have a minority equity interest and do
not have operational control. These strategic investments may also involve collaboration agreements that further
and complement our strategy and marketing efforts. We may not be able to realize the expected benefits of these
investments, and the related collaborations may be difficult to manage without sole decision-making authority and
the economic or business interests in these collaborations may become inconsistent with our interests. These
challenges could have an adverse effect on our business, operating results or financial condition.

The accounting applied to strategic investments depends on a number of factors, including, but not limited to,
our percentage of ownership and the level of our influence over the entity. Losses experienced by these strategic
investment entities or associated impairment charges could adversely impact our operating results and the value
of our investment. In addition, if these entities fail and cease operations, we may lose the value of our investment
and shared profits.

Failure to obtain export licenses or restrictions on trade imposed by the United States or other
countries could harm our business by rendering us unable to sell or ship products and transfer our
technology outside of the United States.

We must comply with regulations of the United States and of certain other countries in selling or shipping our
products and transferring our technology outside the United States and to foreign nationals. Changes in these
regulations or restrictions due to changes in trade relationships with the United States, including new tariffs, trade
protection measures,
trade embargoes and other trade
barriers, could harm our business, operating results or financial condition.

licensing requirements, sanctions,

import or export

The effect of foreign exchange rate fluctuations may adversely impact our revenue, expenses, cash

flows and financial condition.

We have significant operations outside the United States. Our revenue from international operations as a
percentage of total revenue was approximately 57% during fiscal 2018, 58% during fiscal 2017, and 54% during

fiscal 2016. We expect that revenue from our international operations will continue to account for a significant
portion of our total revenue. We also transact business in various foreign currencies, although the majority of our
revenue contracts worldwide are denominated in U.S. dollars. Volatility of currencies in countries where we
conduct business, most notably the U.S. dollar, Chinese renminbi, Japanese yen, European Union euro, British
pound and Indian rupee have had and may in the future have an effect on our revenue or operating results.

Fluctuations in the rate of exchange between the U.S. dollar and the currencies of other countries where we
conduct business could seriously affect our business, operating results or financial condition. For example, when a
foreign currency declines in value relative to the U.S. dollar, it takes more of the foreign currency to purchase the
same amount of U.S. dollars than before the change. If we price our products and services in the foreign currency,
we receive fewer U.S. dollars than we did before the change. If we price our products and services in U.S. dollars,
the decrease in value of the local currency results in an increase in the price for our products and services
compared to those products of our competitors that are priced in local currency. This could result in our prices
being uncompetitive in markets where business is transacted in the local currency. On the other hand, when a
foreign currency increases in value relative to the U.S. dollar, it takes more U.S. dollars to purchase the same
amount of the foreign currency. As we use the foreign currency to fund payroll costs and other operating expenses
in our international operations, this results in an increase in operating expenses. Approximately 30% of our total
costs and expenses are transacted in foreign currencies. Our attempts to reduce the effect of foreign currency
fluctuations may be unsuccessful, and significant exchange rate movements may adversely impact our results of
operations as expressed in U.S. dollars.

Our operating results could be adversely affected by an increase in our effective tax rate as a result of
U.S. and foreign tax law changes, outcomes of current or future tax examinations, or by material
differences between our forecasted and actual effective tax rates.

Our operations are subject to income and transaction taxes in the United States and in multiple foreign
jurisdictions, with a significant amount of our foreign earnings generated by our subsidiaries organized in Ireland
and Hungary. Any significant change in our future effective tax rates could adversely impact our results of
operations for future periods. Our future effective tax rates could be adversely affected by the following:

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changes in tax laws or the interpretation of such tax laws in the United States, Ireland, Hungary, the
United Kingdom, China, the Republic of Korea, Japan, India or other international locations where we
have operations;
earnings being lower than anticipated in countries where we are taxed at lower rates as compared to
the United States federal and state statutory tax rates;
an increase in expenses not deductible for tax purposes;
an increase in corporate minimum taxes;
changes in tax benefits from stock-based compensation;
changes in the valuation allowance against our deferred tax assets;
changes in judgment from the evaluation of new information that results in a recognition, derecognition
or change in measurement of a tax position taken in a prior period;
increases to interest or penalty expenses classified in the financial statements as income taxes;
new accounting standards or interpretations of such standards; or
results of examinations by the Internal Revenue Service (“IRS”), state, and foreign tax or other
governmental authorities.

The IRS and other tax authorities regularly examine our income tax returns and other non-income tax returns,
such as payroll, sales, use, value-added, net worth or franchise, property, goods and services, consumption,
import, stamp, and excise taxes, in both the United States and foreign jurisdictions. The calculation of our
provision for income taxes and our accruals for other taxes requires us to use significant judgment and involves
dealing with uncertainties in the application of complex tax laws and regulations. In determining the adequacy of
our provision for income taxes, we regularly assess the potential settlement outcomes resulting from income tax
examinations. However, the final outcome of tax examinations, including the total amount payable or the timing of
any such payments upon resolution of these issues, cannot be estimated with certainty. In addition, we cannot be

certain that such amount will not be materially different from the amount that is reflected in our historical income
tax provisions and accruals for other taxes. Should the IRS or other tax authorities assess additional taxes,
penalties or interest as a result of a current or a future examination, we may be required to record charges to
operations in future periods that could have a material impact on our results of operations, financial position or
cash flows in the applicable period or periods.

Forecasts of our annual effective tax rate are complex and subject to uncertainty because our income tax
position for each year combines the effects of estimating our annual income or loss, the mix of profits and losses
earned by us and our subsidiaries in tax jurisdictions with a broad range of income tax rates, as well as benefits
from available deferred tax assets, the impact of various accounting rules, our interpretations of changes in tax
laws and results of tax audits. Forecasts of our annual effective tax rate do not include the anticipation of future tax
law changes. In addition, we account for certain tax benefits from stock-based compensation in the period the
stock compensation vests or is settled, which may cause increased variability in our quarterly effective tax rates. If
there were a material difference between forecasted and actual tax rates, it could have a material impact on our
results of operations.

Tax laws, regulations, and compliance practices are evolving and may have a material adverse effect

on our results of operations, cash flows and financial position.

The U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted in December 2017, and significantly affected
U.S. tax law by changing how the U.S. imposes income tax on multinational corporations. The U.S. Department of
Treasury has broad authority to issue regulations and interpretative guidance that may significantly impact how we
interpretative guidance is issued by the
will apply the law and impact our results of operations. As additional
applicable authorities, we may need to revise our provision (benefit) for income taxes in future periods. These
revisions could materially affect our results of operations, cash flow and financial position. For further discussion
regarding our income taxes, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” under the heading “Income Taxes” and Note 6 in the notes to consolidated
financial statements.

Tax laws, regulations, and administrative practices in various jurisdictions are evolving and may be subject to
significant changes due to economic, political, and other conditions. There are many transactions that occur during
the ordinary course of business for which the ultimate tax determination is uncertain, and significant judgment is
required in evaluating and estimating our provision and accruals for these taxes. Governments are increasingly
focused on ways to increase tax revenues, particularly from multinational corporations, which may lead to an
increase in audit activity and harsher positions taken by tax authorities. We are currently subject to tax audits in
various jurisdictions and these jurisdictions may assess additional tax liabilities against us.

The Organisation for Economic Co-operation and Development (“OECD”), an international association of 36
countries, including the United States, released the final reports from its Base Erosion and Profit Shifting (“BEPS”)
Action Plans, which aim to standardize and modernize global tax policies. The BEPS Action Plans propose
revisions to numerous tax rules, including country-by-country reporting, permanent establishment, hybrid entities
and instruments, transfer pricing, and tax treaties. The BEPS Action Plans have been or are being enacted by
countries where we have operations. The European Commission (“EC”) has conducted investigations in multiple
countries focusing on whether local country tax rulings provide preferential tax treatment that violates European
Union state aid rules and concluded that certain countries, including Ireland, have provided illegal state aid in
certain cases. The EC and OECD have also been evaluating new rules on the taxation of the digital economy
companies. In addition, Taiwan, Italy, the United Kingdom, France, India and Hungary have recently introduced
new rulings or proposals to tax digital
transactions. These developments in tax laws and regulations, and
compliance with these rules, could have a material adverse effect on our operating results, financial position and
cash flows.

Our stock price has been subject to fluctuations and may continue to be subject to fluctuations.

The market price of our common stock has experienced fluctuations and may fluctuate or decline in the
future, and as a result you could lose the value of your investment. The market price of our common stock may be
affected by a number of factors, including:

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quarterly or annual operating or financial results or forecasts that fail to meet or are inconsistent with
earlier projections or the expectations of our securities analysts or investors;
changes in our forecasted bookings, revenue, earnings or operating cash flow estimates;
an increase in our debt or other liabilities;
market conditions in the electronics systems and semiconductor industries;
announcements of a restructuring plan;
changes in management;
repurchases of shares of our common stock or changes to plans to repurchase shares of our common
stock;
a gain or loss of a significant customer or market segment share;
litigation;
announcements of a merger, acquisition or other corporate transaction; and
announcements of new products or acquisitions of new technologies by us, our competitors or our
customers.

In addition, equity markets in general, and the equities of

technology companies in particular, have
experienced and may experience in the future, extreme price and volume fluctuations due to, among other factors,
the actions of market participants or other actions outside of our control. Such price and volume fluctuations may
adversely affect the market price of our common stock for reasons unrelated to our business or operating results.

Our future revenue is dependent in part upon our installed customer base continuing to license or

buy products and purchase services.

Our installed customer base has traditionally generated additional new license, service and maintenance
revenues. In future periods, customers may not necessarily license or buy additional products or contract for
additional services or maintenance. Our customers, many of which are large semiconductor and systems
companies, often have significant bargaining power in negotiations with us. Customer consolidation can reduce
the total level of purchases of our software, hardware, IP and services, and in some cases, increase customers’
bargaining power in negotiations with their suppliers, including us.

We could suffer serious harm to our business because of the infringement of our intellectual property

rights by third parties or because of our infringement of the intellectual property rights of third parties.

There are numerous patents relating to our business and ecosystem. New patents are being issued at a rapid
rate and are owned by EDA companies as well as entities and individuals outside the EDA industry, including
parties whose income is primarily derived from infringement-related licensing and litigation. It is not always
practicable to determine in advance whether a product or any of its components infringes the patent rights of
others. As a result, from time to time, we may be compelled to respond to or prosecute intellectual property
infringement claims to protect our rights or defend a customer’s rights.

Intellectual property infringement claims, including contractual defense reimbursement obligations related to
third-party claims against our customers, regardless of merit, could consume valuable management time, result in
costly litigation or cause product shipment delays, all of which could seriously harm our business, operating results
or financial condition. The risk of infringement and related indemnification claims associated with design IP
products that are incorporated into a customer product broadly used by consumers may be higher than the risk
associated with our software products. In settling these claims, we may be required to enter into royalty or
licensing agreements with the third parties claiming infringement. These royalty or licensing agreements,
if
available, may not have terms favorable to us. Being compelled to enter into a license agreement with unfavorable
terms could seriously harm our business, operating results or financial condition.

Any potential intellectual property litigation could compel us to do one or more of the following:

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pay damages (including the potential for treble damages), license fees or royalties (including royalties
for past periods) to the party claiming infringement;
stop licensing products or providing services that use the challenged intellectual property;
obtain a license from the owner of
technology, which license may not be available on reasonable terms, or at all; or
redesign the challenged technology, which could be time consuming and costly, or impossible.

the infringed intellectual property to sell or use the relevant

If we were compelled to take any of these actions, our business or operating results may suffer.

If our security measures are breached, and an unauthorized party obtains access to customer data,
financial data or assets or our proprietary business information, our information systems may be
perceived as being unsecure, and our business and reputation could be harmed.

the world,

Our products and services involve storage, including cloud-based storage, and transmission of our proprietary
information and that of our customers. We have offices throughout
including key research and
development facilities outside of the United States. Our operations are dependent upon the connectivity of our
operations throughout the world. Despite our security measures, our information technology and infrastructure may
be vulnerable to cyber attacks by unauthorized third parties (which may include nation-states and individuals
sponsored by them) or breaches due to employee error, malfeasance or other disruptions, which could result in
unauthorized disclosure of sensitive information and could significantly interfere with our business operations.
Third parties may attempt to gain unauthorized access through a variety of methods (such as the use of viruses,
malware, ransomware, phishing, denial of service attacks and other cyber attacks) and corrupt the processes of
the products and services that we provide. We may also be a target of malicious attacks in an attempt to gain
access to our network, including our Cadence Cloud portfolio which includes both our managed and customer-
managed environments, or data centers or those of our customers or end users; steal proprietary information
related to our business, products, services or infrastructure; steal financial data or assets or interrupt our systems
and services or those of our customers or others. Breaches of our security measures could expose us to a risk of
loss or misuse of this information, loss of financial assets, litigation and potential liability. Because techniques used
to obtain unauthorized access or to sabotage information systems change frequently and generally are not
launched against a target, we may be unable to anticipate these techniques or to implement
recognized until
adequate preventive measures. In addition, if we select a vendor that uses cloud storage of information as part of
their service or product offerings or are selected as a vendor for our Cadence Cloud portfolio, despite our attempts
to validate the security of such services, our proprietary information may be misappropriated by third parties. In the
event of an actual or perceived breach of our security, or the security of one of our vendors, the market perception
of the effectiveness of our security measures could be harmed, legal or regulatory actions could be initiated
against us and we could suffer damage to our reputation or our business, or lose existing customers and our ability
to obtain new customers, or suffer harm to our financial condition.

Risks associated with our international operations could adversely impact our financial condition.

A significant amount of our revenue is derived from our international operations, and we have offices
the United States. Our

facilities outside of

throughout
international operations may be subject to a number of risks, including:

including key research and development

the world,

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shifts in political, trade or other policies or other governmental dynamics resulting from the results of
certain elections or votes, such as changes in policies pursued by the United States, China or the
Republic of Korea, or changes associated with and the United Kingdom’s withdrawal from the European
Union;
the adoption or expansion of government
regulations, sanctions or other trade barriers;
limitations on repatriation of earnings;
limitations on the conversion of foreign currencies;
reduced protection of intellectual property rights in some countries;

including tariffs, export or

trade restrictions,

import

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performance of national economies;
longer collection periods for receivables and greater difficulty in collecting accounts receivable;
difficulties in managing foreign operations;
political and economic instability;
unexpected changes in regulatory requirements;
inability to continue to offer competitive compensation in certain growing regions;
differing employment practices and labor issues;
United States’ and other governments’
sales cycle or restrict or prohibit the sale or licensing of certain products; and
variations in costs or expenses associated with our international operations, including as a result of
changes in foreign tax laws or devaluation of the U.S. dollar relative to other foreign currencies.

licensing requirements for exports, which may lengthen the

Some of our international research and development and other facilities are in parts of the world where there
may be a greater risk of business interruption as a result of political instability, terrorist acts or military conflicts
than businesses located domestically. Furthermore, this potential harm is exacerbated because damage to or
disruptions at our international research and development facilities could have a more significant adverse effect on
our ability to develop new or improve existing products than other businesses that may only have sales offices or
other less critical operations abroad. We are not insured for losses or interruptions caused by acts of war.
Furthermore, our operations are dependent upon the connectivity of our operations throughout the world. Activities
that interfere with our international connectivity or operations, such as cyber hacking, the introduction of a virus
into our computer systems, natural disasters, civil unrest or terrorism, could significantly interfere with our business
operations.

In addition, internal controls, policies and procedures and employee training and compliance programs that
we have implemented to deter prohibited practices may not prevent our employees, contractors or agents from
violating or circumventing our policies and the laws and regulations applicable to our worldwide operations.

We depend upon our management team and key employees, and our failure to attract, train, motivate
and retain management and key employees may make us less competitive and therefore harm our results
of operations.

including software engineers,

Our business depends upon the continued services, efforts and abilities of our senior management and other
key employees. Competition for highly skilled executive officers and employees can be intense, particularly in
geographic areas recognized as high technology centers such as the Silicon Valley area, where our principal
offices are located, and in other locations where we maintain facilities. In addition, competition for qualified
personnel,
in the EDA, commercial electronics engineering services and IP
industries has intensified. Further, increased uncertainty regarding social, political and immigration policies in the
United States and abroad may make it difficult to recruit employees with adequate experience. We may also
experience increased compensation costs that are not offset by either improved productivity or higher sales. We
may not be successful in recruiting new personnel and in retaining and motivating existing personnel. From time to
time, there may be changes in our management team resulting from the hiring and departure of executive officers,
and as a result, we may experience disruption to our business that may harm our operating results and our
relationships with our employees, customers and suppliers may be adversely affected.

To attract, retain and motivate individuals with the requisite expertise, we may be required to grant large
numbers of stock options or other stock-based incentive awards, which may be dilutive to existing stockholders
and increase compensation expense, and pay significant base salaries and cash bonuses, which could harm our
operating results. The high cost of training new employees, not fully utilizing these employees, or losing trained
employees to competing employers could also reduce our operating margins and harm our business or operating
results.

In addition, applicable rules and regulations require stockholder approval for new equity compensation plans
and significant amendments to existing equity compensation plans (including increases in shares available for
issuance under such plans). These rules and regulations could make it more difficult for us to grant equity

compensation to employees in the future. To the extent that these regulations make it more difficult or expensive
to grant equity compensation to employees, we may incur increased compensation costs or find it difficult to
attract, retain and motivate employees, which could materially and adversely affect our business.

We rely on our proprietary technology, as well as software and other intellectual property rights
licensed to us by third parties, and we cannot assure you that the precautions taken to protect our rights
will be adequate or that we will continue to be able to adequately secure such intellectual property rights
from third parties.

Our success depends, in part, upon our proprietary technology. We generally rely on patents, copyrights,
trademarks, trade secrets, licenses and restrictive agreements to establish and protect our proprietary rights in
technology and products. Despite the precautions we may take to protect our intellectual property, third parties
have tried in the past, and may try in the future, to challenge, invalidate or circumvent these safeguards. Our
patents and other intellectual property rights may not provide us with sufficient competitive advantages. Patents
may not be issued on any of our pending applications and our issued patents may not be sufficiently broad to
protect our technology. Furthermore, the laws of foreign countries may not protect our proprietary rights in those
countries to the same extent as applicable law protects these rights in the United States. The protection of our
intellectual property may require the expenditure of significant financial and managerial resources. Moreover, the
steps we take to protect our intellectual property may not adequately protect our rights, or deter or prevent third
parties from infringing or misappropriating our proprietary rights.

Many of our products include software or other intellectual property licensed from third parties. We may have
to seek new or renew existing licenses for such software and other intellectual property in the future. Our
engineering services business holds licenses to certain software and other intellectual property owned by third
parties, including that of our competitors. Our failure to obtain software, other intellectual property licenses or other
intellectual property rights that are necessary or helpful for our business on favorable terms, or our need to engage
in litigation over these licenses or rights, could seriously harm our business, operating results or financial
condition.

We have substantial cash requirements in the United States, but a significant portion of our cash is
held and generated outside of the United States, and if our cash available in the United States and the
cash available under our revolving credit facility are insufficient to meet our operating expenses and debt
repayment obligations in the United States, then we may be required to raise cash in ways that could
negatively affect our financial condition, results of operations and the market price of our common stock.

We have significant operations outside the United States. As of December 29, 2018, approximately 75% of
our cash and cash equivalents balance was held by subsidiaries outside the United States, with the remainder of
the balance held by us or our subsidiaries in the United States. We believe that the combination of our U.S. cash,
cash equivalents, future U.S. operating cash flows, cash available under our revolving credit facility and other cash
that may be accessible to us on attractive terms are sufficient to meet our ongoing U.S. operating expenses and
debt repayment obligations. Although the Tax Act may have reduced the tax impact of repatriation of foreign
earnings, there are still administrative processes associated with repatriation of foreign earnings that could affect
the timing of returning cash to the U.S. from non-U.S. jurisdictions. Accordingly, if our U.S. cash were insufficient
to meet our future funding obligations in the United States, we could be required to seek funding sources on less
attractive terms, which could negatively impact our results of operations, financial position and the market price of
our common stock.

Litigation could adversely affect our financial condition or operations.

We currently are, and in the future may be, involved in various disputes and litigation that arise in the ordinary
course of business. These include disputes and lawsuits related to intellectual property, including customer
indemnification, mergers and acquisitions, licensing, contracts, distribution arrangements and employee relations
matters. For information regarding the litigation matters in which we are currently engaged, please refer to the
discussion under Part I, Item 3, “Legal Proceedings” and Note 17 in the notes to consolidated financial statements.

We cannot provide any assurances that the final outcome of these lawsuits or any other proceedings that may
arise in the future will not have a material adverse effect on our business, reputation, operating results, financial
condition or cash flows. Litigation can be time consuming and expensive and could divert management’s time and
attention from our business, which could have a material adverse effect on our revenues and operating results.

Errors or defects in our products and services could expose us to liability and harm our business.

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

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loss of customers;
loss of market share;
damage to our reputation;
failure to attract new customers or achieve market acceptance;
diversion of development resources to resolve the problem;
loss of or delay in revenue or payments;
increased service costs; and
liability for damages.

Our operating results and revenue could be adversely affected by customer payment delays,

customer bankruptcies and defaults or modifications of licenses.

Occasionally, our customers file for bankruptcy or face other challenging financial or operating conditions. If
our customers experience adversity in their business, they may delay or default on their payment obligations to us,
request to modify contract terms, or modify or cancel plans to license our products. For instance, if our customers
are not successful in generating sufficient cash or are precluded from securing financing, they may not be able to
pay, or may delay payment of, accounts receivable that are owed to us, although these obligations are generally
not cancelable. Our customers’ inability to fulfill payment obligations, in turn, may adversely affect our revenue,
operating expenses and cash flow. Additionally, our customers have, in the past, sought, and may, in the future,
seek, to renegotiate pre-existing contractual commitments. Payment defaults by our customers or significant
reductions in existing contractual commitments could have a material adverse effect on our financial condition and
operating results.

The long sales cycle of our products and services may cause our operating results to fluctuate

unexpectedly.

Generally, we have a long sales cycle that can extend up to six months or longer. The complexity and
expense associated with our products and services generally require a lengthy customer education, evaluation
and approval process. Consequently, we may incur substantial expenses and devote significant management
effort and expense to develop potential relationships that do not result in agreements or revenue and may prevent
us from pursuing other opportunities.

In addition, sales of our products and services have been and may in the future be delayed if customers delay

approval or commencement of projects because of:

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the timing of customers’ competitive evaluation processes; or
customers’ budgetary constraints and budget cycles.

Long sales cycles for hardware products subject us to a number of significant risks over which we have
limited control, including insufficient, excess or obsolete inventory, variations in inventory valuation and fluctuations
in quarterly operating results.

Our reported financial results may be adversely affected by changes in United States generally
accepted accounting principles, and we may incur significant costs to adjust our accounting systems and
processes to comply with significant changes.

United States generally accepted accounting principles (“U.S. GAAP”) are subject to interpretation by the
Financial Accounting Standards Board (“FASB”), the SEC and various bodies formed to promulgate and interpret
appropriate accounting principles. We are also subject to evolving rules and regulations of the countries in which
we do business. Changes to accounting standards or interpretations thereof may result in different accounting
principles under U.S. GAAP that could have a significant effect on our reported financial results.

In addition, we have in the past and may in the future need to significantly change our customer contracts,
accounting systems and processes when we adopt future or proposed changes in accounting principles. The cost
and effect of these changes may negatively impact our results of operations during the periods of transition.

Our restructuring plans incur substantial costs and may not result in the benefits we have anticipated,

possibly having a negative effect on our future operating results.

In recent fiscal years, we have initiated restructuring plans in an effort to reallocate or decrease costs by
reducing our workforce and by consolidating facilities. We incur substantial costs to implement restructuring plans,
and our restructuring activities may subject us to reputational risks and litigation risks and expenses. Our past
restructuring plans do not provide any assurance that we will realize anticipated cost savings and other benefits or
that additional restructuring plans will not be required or implemented in the future. In addition, our restructuring
plans may have other consequences, such as attrition beyond our planned reduction in workforce, a negative
effect on employee morale and productivity or our ability to attract highly skilled employees. Our competitors may
also use our restructuring plans to seek to gain a competitive advantage over us. As a result, our restructuring
plans may affect our revenue and other operating results in the future.

We depend on sole suppliers for certain hardware components and contract manufacturers for
production of our emulation and prototyping hardware products, making us vulnerable to supply
disruption and price fluctuation.

We depend on sole suppliers for certain hardware components and contract manufacturers for production of
our emulation and prototyping hardware products. Our reliance on sole suppliers and contract manufacturers could
result in product delivery problems and delays and reduced control over product pricing and quality. Though we
prefer to have multiple sources to procure certain key components, in some cases it is not practical or feasible to
do so. We may suffer a disruption in the supply of certain hardware components if we are unable to purchase
sufficient components on a timely basis or at all for any reason. Any supply or manufacturing disruption, including
delay in delivery of components by our suppliers or products by our manufacturers, or the bankruptcy or shutdown
of our suppliers or manufacturers, could delay our production process and prevent us from delivering completed
hardware products to customers or from supplying new evaluation units to customers, which could have a negative
impact on our revenue and operating results.

If we become subject to unfair hiring claims, we could be prevented from hiring needed employees,

incur liability for damages and incur substantial costs in defending ourselves.

When companies in our industry lose employees to competitors, they frequently claim that these competitors
have engaged in unfair hiring practices or that the employment of these persons would involve the disclosure or
use of trade secrets. These claims could prevent us from hiring employees or cause us to incur liability for
damages. We could also incur substantial costs in defending ourselves or our employees against these claims,
regardless of
the attention of our
management away from our operations.

their merits. Defending ourselves from these claims could also divert

Anti-takeover defenses in our certificate of incorporation and bylaws and certain provisions under
Delaware law could prevent an acquisition of our company or limit the price that investors might be willing
to pay for our common stock.

Our certificate of incorporation and bylaws and certain provisions of the Delaware General Corporation Law

that apply to us could make it difficult for another company to acquire control of our company. For example:

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Our certificate of
incorporation allows our Board of Directors to issue, at any time and without
stockholder approval, preferred stock with such terms as it may determine. No shares of preferred stock
are currently outstanding. However, the rights of holders of any of our preferred stock that may be
issued in the future may be superior to the rights of holders of our common stock.
Section 203 of the Delaware General Corporation Law generally prohibits a Delaware corporation from
engaging in any business combination with a person owning 15% or more of its voting stock, or who is
affiliated with the corporation and owned 15% or more of its voting stock at any time within three years
prior to the proposed business combination, for a period of three years from the date the person
became a 15% owner, unless specified conditions are met.

All or any one of these factors could limit the price that certain investors would be willing to pay for shares of
our common stock and could allow our Board of Directors to resist, delay or prevent an acquisition of our
company, even if a proposed transaction were favored by a majority of our independent stockholders.

The investment of our cash is subject to risks that may cause losses and affect the liquidity of these

investments.

Our marketable investments include various money market funds and may include other investments as well.
Weakened financial markets have at times adversely impacted the general credit, liquidity, market prices and
interest rates for these and other types of investments. Additionally, changes in monetary policy by the Federal
Open Market Committee or other relevant regulators and concerns about the rising U.S. government debt level
may cause a decrease in the purchasing power of the U.S. dollar and adversely affect our investment portfolio.
The financial market and monetary risks associated with our investment portfolio may have a material adverse
effect on our financial condition, liquidity, results of operations or cash flows.

We are subject to evolving corporate governance and public disclosure expectations and regulations

that impact compliance costs and risks of noncompliance.

We are subject to changing rules and regulations promulgated by a number of governmental and self-
regulatory organizations, including the SEC, Nasdaq, and the FASB, as well as evolving investor expectations
around corporate governance, executive compensation and environmental and social practices and disclosures.
These rules and regulations continue to evolve in scope and complexity, and many new requirements have been
created in response to laws enacted by the U.S. and foreign governments, making compliance more difficult and
uncertain. The increase in costs to comply with such evolving expectations, rules and regulations, as well as any
risk of noncompliance, could adversely impact us.

Conflict minerals regulations may cause us to continue to incur additional expenses and may

adversely impact our ability to conduct our business.

In August 2012, the SEC adopted new rules establishing disclosure and reporting requirements regarding the
use of certain minerals referred to as “conflict minerals” in products. These rules require us to determine, disclose
and report whether or not such minerals in our products originate from the Democratic Republic of the Congo or
adjoining countries. We have incurred, and expect to continue to incur, costs to comply with these rules, including
costs associated with conducting due diligence on our supply chain and fulfilling our reporting requirements, and
we may incur costs related to changes to our products, processes or sources of supply. In addition, these rules
could affect the availability of certain minerals used in the manufacture of our emulation and prototyping hardware
products and IP boards (the “Covered Products”), and thus impact our ability to source, at competitive prices,
certain materials that are used in the Covered Products. Finally, our customers may prefer to purchase products

from vendors who claim that all minerals in their products are conflict-free, and our revenues may be harmed or we
may face reputational challenges if we are unable to verify that our Covered Products are conflict-free.

Our business is subject to the risk of earthquakes and other natural disasters.

Our corporate headquarters, including certain of our research and development operations and certain of our
distribution facilities, is located in the Silicon Valley area of Northern California, a region known to experience
seismic activity. If significant seismic activity were to occur, our operations may be interrupted, which could
adversely impact our business and results of operations.

Our other offices in the United States and in other countries around the world may be adversely impacted by
natural disasters. If a natural disaster occurs at or near any of our offices, our operations may be interrupted,
which could adversely impact our business and results of operations. If a natural disaster impacts a significant
number of our customers, our business and results of operations could be adversely impacted.

Risks Related to Our Securities and Indebtedness

Our debt obligations expose us to risks that could adversely affect our business, operating results or

financial condition, and could prevent us from fulfilling our obligations under such indebtedness.

As of December 29, 2018, we had total outstanding indebtedness of $445.3 million. We also had the ability to
borrow an additional $250.0 million under our revolving credit facility, 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 under our revolving credit facility. Subject to the limits contained in the credit agreement governing
our revolving credit facility, the indenture that governs the 4.375% Senior Notes due 2024 (the “2024 Notes”) and
our other debt instruments, we may be able to incur substantial additional debt from time to time to finance working
capital, capital expenditures, investments or acquisitions, share repurchases or for other purposes. If we do so, the
risks related to our high level of debt could intensify. Specifically, our high level of debt could have important
consequences, including the following:

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making it more difficult for us to satisfy our obligations to service our debt as described above;
limiting our ability to obtain additional financing to fund future working capital, capital expenditures,
acquisitions or other general corporate requirements;
requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of
other purposes,
thereby reducing the amount of cash flows available for working capital, capital
expenditures, acquisitions and other general corporate purposes;
utilizing large portions of our U.S. cash to service our debt obligations because those payments are
made in the United States, which may require us to repatriate cash from outside the United States;
increasing our vulnerability to general adverse economic and industry conditions;
exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings
under our revolving credit facility, are at variable rates of interest;
limiting our flexibility in planning for and reacting to changes in the industry in which we compete;
placing us at a disadvantage compared to other, less leveraged competitors and competitors that have
greater access to capital resources;
limiting our interest deductions for US income tax purposes; and
increasing our cost of borrowing.

At the option of the holders of our outstanding notes, we may, under certain circumstances, be

required to repurchase such notes.

Under the terms of our 2024 Notes, we may be required to repurchase for cash such notes prior to their
maturity in connection with the occurrence of certain significant corporate events. Specifically, we are required to
offer to repurchase such notes upon a “change of control triggering event” (as defined in the indenture related to
such notes), such as a change of control accompanied by certain downgrades in the credit ratings of such notes.
The repayment obligations under such notes may have the effect of discouraging, delaying or preventing a

takeover of our company. If we were required to pay the 2024 Notes prior to their scheduled maturity, it could have
a significant negative impact on our cash and liquidity and could impact our ability to invest financial resources in
other strategic initiatives.

The terms of the agreement governing our revolving credit facility and the indenture governing our
2024 Notes restrict our current and future operations, particularly our ability to respond to changes or to
take certain actions.

The agreement governing our revolving credit facility contains a number of restrictive covenants that impose
significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our
long-term best interest, including restrictions on our ability to:

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pay dividends or make other distributions or repurchase or redeem capital stock;
prepay, redeem or repurchase certain debt;
issue certain preferred stock or similar equity securities;
make certain investments;
incur liens;
incur additional indebtedness and guarantee indebtedness;
enter into sale and leaseback transactions;
enter into transactions with affiliates;
alter the businesses we conduct;
enter into agreements restricting our subsidiaries’ ability to pay dividends; and
consolidate, merge or sell all or substantially all of our assets.

In addition, the restrictive covenants in the agreement governing our revolving credit facility require us to
maintain specified financial ratios and satisfy other financial condition tests. Our ability to meet those financial
ratios and tests can be affected by events beyond our control, and we may be unable to meet them.

A breach of the covenants or restrictions under the agreement governing our revolving credit facility could
result in an event of default under the applicable indebtedness. Such a default may allow the creditors to
accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or
cross-default provision applies. In addition, an event of default under the credit agreement governing our revolving
credit facility would permit the lenders under our revolving credit facility to terminate all commitments to extend
further credit under that
In the event our lenders or note holders accelerate the repayment of our
borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. As a result of
these restrictions, we may be:

facility.

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limited in how we conduct our business;
unable to raise additional debt or equity financing to operate during general economic or business
downturns; or
unable to compete effectively or to take advantage of new business opportunities.

The indenture governing our 2024 Notes also contains certain restrictive covenants that impose operating and
financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest,
including restrictions on our ability to incur liens and to enter into sale and leaseback transactions.

These restrictions may affect our ability to grow in accordance with our strategy. In addition, our financial
results, our substantial indebtedness and our credit ratings could adversely affect the availability and terms of our
financing.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced

to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or refinance our debt obligations depends on our financial
condition and operating performance, which are subject to prevailing economic and competitive conditions and to
certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to

maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any,
and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face
substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to
dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our
indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially
reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our
scheduled debt service obligations. The agreement governing our revolving credit facility restricts our ability to
dispose of assets and use the proceeds from those dispositions and may also restrict our ability to raise debt or
equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate
those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.

In addition, we conduct a substantial portion of our operations through our subsidiaries, none of which are
currently guarantors of our indebtedness. Accordingly, repayment of our indebtedness is dependent on the
generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt
repayment or otherwise. Unless they become guarantors of our indebtedness, our subsidiaries do not have any
obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Our subsidiaries
may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our
indebtedness. Each subsidiary is a distinct legal entity, and, under certain circumstances, legal and contractual
restrictions may limit our ability to obtain cash from our subsidiaries. While the agreement governing our revolving
credit facility limits the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or
make other intercompany payments to us, these limitations are subject to qualifications and exceptions. In the
event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and
interest payments on our indebtedness.

Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness
on commercially reasonable terms or at all, would materially and adversely affect our financial position and results
of operations and our ability to satisfy our debt obligations.

If we cannot make scheduled payments on our debt, we will be in default and holders of our debt could
declare all outstanding principal and interest to be due and payable, the lenders under our revolving credit facility
could terminate their commitments to loan money and we could be forced into bankruptcy or liquidation. In
addition, a material default on our indebtedness could suspend our eligibility to register securities using certain
registration statement forms under SEC guidelines that permit incorporation by reference of substantial information
regarding us, potentially hindering our ability to raise capital through the issuance of our securities and increasing
our costs of registration.

Despite our current level of indebtedness, we and our subsidiaries may incur substantially more debt.

This could further exacerbate the risks to our financial condition described above.

We and our subsidiaries may incur significant additional indebtedness in the future. Although the agreement
governing our revolving credit facility contains restrictions on the incurrence of additional
indebtedness, these
restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in
compliance with these restrictions could be substantial. If we incur any additional indebtedness that ranks equally
with the 2024 Notes, then subject to any collateral arrangements we may enter into, the holders of that debt will be
entitled to share ratably in any proceeds distributed in connection with any insolvency, liquidation, reorganization,
dissolution or other winding up of our company.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service

obligations to increase significantly.

Borrowings under our revolving credit facility are at variable rates of interest and expose us to interest rate
risk. If interest rates were to increase, our debt service obligations on our variable rate indebtedness would
increase even though the amount borrowed remained the same, and our net income and cash flows, including

loans were fully
cash available for servicing our indebtedness, would correspondingly decrease. Assuming all
drawn, we were to fully exercise our right to increase borrowing capacity under our revolving credit facility, each
quarter point change in interest rates would result in a $1.5 million change in annual interest expense on our
indebtedness under our revolving credit facility. In the future, we may enter into interest rate swaps that involve the
exchange of floating for fixed rate interest payments in order to reduce interest rate volatility. However, we may not
maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we enter into may
not fully mitigate our interest rate risk.

Various factors could increase our future borrowing costs or reduce our access to capital, including a

lowering or withdrawal of the ratings assigned to our 2024 Notes by credit rating agencies.

We may in the future seek additional financing for a variety of reasons, and our future borrowing costs and
access to capital could be affected by factors including the condition of the debt and equity markets, the condition
of the economy generally, prevailing interest rates, our level of indebtedness and our business and financial
condition. In addition, the 2024 Notes currently have an investment grade credit rating, and any credit rating
assigned could be lowered or withdrawn entirely by a credit rating agency if, in that credit rating agency’s
judgment, future circumstances relating to the basis of the credit rating, such as adverse changes, so warrant.
Consequently, real or anticipated changes in our credit ratings will generally affect the market value of the 2024
Notes. Any future lowering of the credit ratings of the 2024 Notes likely would make it more difficult or more
expensive for us to obtain additional debt financing.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We own land and buildings at our headquarters located in San Jose, California. We also own buildings in

India. As of December 29, 2018, the total square footage of our owned buildings was approximately 1,010,000.

We lease additional facilities in the United States and various other countries. We may sublease certain of

these facilities where space is not fully utilized.

We believe that these facilities are adequate for our current needs and that suitable additional or substitute

space will be available as needed to accommodate any expansion of our operations.

Item 3. Legal Proceedings

From time to time, we are 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,
we review the status of each significant matter and assess its potential financial exposure. If the potential loss from
any claim or legal proceeding is considered probable and the amount or the range of loss can be estimated, we
accrue 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 our judgments using the best information
available at the time. As additional information becomes available, we reassess the potential liability related to
pending claims and litigation matters and may revise estimates.

Item 4. Mine Safety Disclosures

Not applicable.

PART II.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities

Our common stock is traded on the Nasdaq Global Select Market under the symbol CDNS. As of February 2,

2019, we had 523 registered stockholders and approximately 56,000 beneficial owners of our common stock.

Stockholder Return Performance Graph

The following graph compares the cumulative 5-year total stockholder return on our common stock relative to
the cumulative total return of the Nasdaq Composite Index, the S&P 500 Index and the S&P 500 Information
Technology Index. The graph assumes that the value of the investment in our common stock and in each index on
December 28, 2013 (including reinvestment of dividends) was $100 and tracks it each year thereafter on the last
day of our fiscal year through December 29, 2018 and, for each index, on the last day of the calendar year.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Cadence Design Systems, Inc., the Nasdaq Composite Index,
the S&P 500 Index and the S&P 500 Information Technology Index

$350

$300

$250

$200

$150

$100

$50

$0
12/28/13

1/3/15

1/2/16

12/31/16

12/30/17

12/29/18

Cadence Design Systems, Inc.

Nasdaq Composite

S&P 500

S&P 500 Information Technology

*$100 invested on 12/28/13 in stock or index, including reinvestment of dividends.
Fiscal year ending December 29.

12/28/2013 1/3/2015 1/2/2016 12/31/2016 12/30/2017 12/29/2018

Cadence Design Systems, Inc.

100.00 $ 135.18 $ 149.39 $

181.05 $

300.22 $

311.13

Nasdaq Composite

S&P 500

100.00

112.60

113.64

100.00

110.28

109.54

S&P 500 Information Technology

100.00

115.49

121.08

133.19

129.05

144.85

172.11

157.22

201.10

165.84

150.33

200.52

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

Issuer Purchases of Equity Securities

In January 2017, our Board of Directors authorized the repurchase of shares of our common stock with a
value of up to $525 million in the aggregate. As of December 29, 2018, $175 million remained available under this
authorization. In February 2019, our Board of Directors authorized the additional repurchase of shares of our
common stock with a value of up to $500.0 million in the aggregate. 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.

The following table presents repurchases made under our current authorization and shares surrendered by

employees to satisfy income tax withholding obligations during the three months ended December 29, 2018:

Period

September 30, 2018 –
November 3, 2018

November 4, 2018 –
December 1, 2018

December 2, 2018 –

December 29, 2018

Total

Total Number
of Shares
Purchased (1)

Average
Price Paid
Per Share (2)

543,900

650,048

1,327,657

2,521,605

42.64

44.49

42.61

43.10

Total Number of
Shares Purchased
as Part of
Publicly Announced
Plan or Program

Maximum Dollar
Value of Shares
Authorized for
Repurchase Under
Publicly Announced
Plan or Program (1)
(In millions)

495,543

623,692

1,203,690

2,322,925

254

226

175

(1) Shares purchased that were not part of our publicly announced repurchase programs represent employee
surrender of shares of restricted stock to satisfy employee income tax withholding obligations due upon
vesting, and do not reduce the dollar value that may yet be purchased under our publicly announced
repurchase programs.

(2) The weighted average price paid per share of common stock does not include the cost of commissions.

Item 6. Selected Financial Data-Unaudited

The following selected consolidated financial data should be read in conjunction with our consolidated
financial statements and the notes thereto and the information contained in Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.” Historical results are not necessarily indicative of
future results. The notes below the table are provided for comparability purposes due to adoptions of accounting
pronouncements or to describe significant transactions that may not occur frequently.

2018

2017

2016
(In millions, except per share amounts)

2015

2014

Revenue (1)

Income from operations (1)

Net income (1) (2)

Net income per share-diluted (1) (2)

Total assets

Debt (3)

Stockholders’ equity (4) (5)

$2,138.0 $1,943.0 $1,816.1 $1,702.1 $1,580.9

396.2

345.8

1.23

324.0

204.1

0.73

244.9

203.1

0.70

285.4

252.4

0.81

206.6

158.9

0.52

2,468.7

2,418.7

2,096.9

2,345.5

3,209.6

445.3

1,288.4

729.4

989.2

693.5

343.3

691.2

741.8

1,376.1

1,333.6

(1) On the first day of fiscal 2018, we adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic
606),” which provided a new basis of accounting for our revenue arrangements during fiscal 2018. Because of
the adoption, results of operations for fiscal 2018 are not comparable to the results of operations for the other
fiscal years presented in the table above. For additional information regarding the adoption of this and other
accounting standards at the beginning of fiscal 2018, see Note 2 in the notes to consolidated financial
statements under the heading “Recently Adopted Accounting Standards.”

(2) During fiscal 2017, we recorded a provisional income tax expense of $96.8 million related to the income tax
effects of the Tax Act, which included $67.2 million related to the one-time transition tax on the mandatory
deemed repatriation of foreign earnings. In accordance with SAB 118, we updated the one-time transition tax
estimate to $65.8 million during fiscal 2018. We finalized our other fiscal 2017 provisional estimates without
change during fiscal 2018.

(3) During fiscal 2018, we prepaid the outstanding principal balance and accrued interest on our $300.0 million

2019 Term Loan.

(4) During fiscal 2016, we repurchased shares of our common stock for a total cost of $960.3 million.

(5) We have never declared or paid any cash dividends on our common stock.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations

The following discussion should be read in conjunction with the consolidated financial statements and notes
thereto included elsewhere in this Annual Report on Form 10-K and with Part I, Item 1A, “Risk Factors.” Please
refer to the cautionary language at the beginning of Part I of this Annual Report on Form 10-K regarding forward-
looking statements.

Business Overview

Our strategy, which we call SDE, is to provide the technologies necessary for our customers to develop a
complete and functional electronic product. Our SDE strategy enables us to address the growing trends of
electronic systems companies developing their own ICs as part of
their end product systems, as well as
semiconductor companies delivering greater portions of the systems into which their IC products are integrated.
Our products and services enable our customers to design complex and innovative electronic products, so
demand for our products 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 EDA. Today, our offerings include and
extend beyond EDA tools to include SDE.

We combine our products and technologies into categories related to major design activities:

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Functional Verification, including Emulation and Prototyping Hardware;
Digital IC Design and Signoff;
Custom IC Design and Simulation;
System Interconnect and Analysis; and
IP.

For additional information about our products, see the discussion in Item 1, “Business,” under the heading

“Products and Product Strategy.”

We have identified certain items that management uses as 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.”

Results of Operations

Financial results for fiscal 2018, as compared to fiscal 2017 and 2016, reflect the following:

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the effects of adopting ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which
provided a new basis of accounting for our revenue arrangements during fiscal 2018;
increased product and maintenance revenue resulting from overall growth in our software, hardware
and IP business, particularly in the United States and Asia; and
continued investment in research and development activities focused on creating and enhancing our
products.

The adoption of Topic 606 limits the comparability of revenue and certain expenses,

including sales
commissions, presented in the results of operations for fiscal 2018, when compared to the fiscal 2017 and fiscal
2016. For additional information regarding the adoption of this and other accounting standards at the beginning of
fiscal 2018, see Note 2 in the notes to consolidated financial statements under the heading “Recently Adopted
Accounting Standards.”

Our fiscal years are 52- or 53-week periods ending on the Saturday closest to December 31. Fiscal 2018,

2017 and 2016 were each 52-week fiscal years.

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.

Approximately 90% of our revenue is recognized over time, and the remainder of the resulting revenue is
recognized at the point in time that control is transferred to the customer. Revenue recognized over time includes
revenue from our software arrangements, services, royalties from certain IP arrangements, maintenance on IP
licenses and hardware, and operating leases of hardware. Revenue recognized at a point in time is primarily
generated by our sales of emulation and prototyping hardware and IP licenses. Our ability to maintain this mix in
any single fiscal period may be impacted primarily by delivery of hardware and IP products to our customers.

During fiscal 2018, we recognized revenue based on ASU 2014-09, “Revenue from Contracts with Customers
(Topic 606),” whereas during fiscal 2017 and fiscal 2016, we recognized revenue based on “Revenue Recognition
(Topic 605).” Therefore, the periods are not directly comparable. For additional information on the impact of the
new accounting standard on our revenue, see Note 2 in the notes to consolidated financial statements under the
heading “Recently Adopted Accounting Standards.”

Revenue by Year

The following table shows our revenue for fiscal 2018, 2017 and 2016 and the change in revenue between

years:

2018

2017

2016

2018 vs. 2017

2017 vs. 2016

(In millions, except percentages)

Change

Product and maintenance

$ 1,997.9 $1,814.0 $1,683.8 $183.9 10% $ 130.2

Services

Total revenue

140.1

129.0

132.3

11.1

(3.3)

(2)%

$ 2,138.0 $1,943.0 $1,816.1 $195.0 10% $ 126.9

Product and maintenance revenue increased during fiscal 2018, as compared to fiscal 2017, primarily
because of increased investments by our customers in new, complex designs for their products resulting in
revenue growth in each of our five product categories. Product and maintenance revenue may fluctuate from
period to period and by geography based on demand for our hardware and IP offerings. Product and maintenance
revenue increased during fiscal 2017, as compared to fiscal 2016, primarily because of growth in our software and
IP businesses, partially offset by lower revenue from emulation and prototyping hardware.

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 fiscal 2018, 2017 or 2016.

Revenue by Product Group

The following table shows the percentage of product and related maintenance revenue contributed by each of

our five product groups and services during fiscal 2018, 2017 and 2016:

Functional Verification, including hardware for emulation and prototyping

Digital IC Design and Signoff

Custom IC Design and Simulation

System Interconnect and Analysis

Total

2018

2017

2016

24% 22% 25%

29% 29% 29%

26% 27% 25%

9% 10% 10%

12% 12% 11%

100% 100% 100%

Revenue by product group fluctuates from period to period based on demand for our products and services
and our available resources 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 groups 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

United States

Other Americas

Asia

Europe, Middle East and Africa

Japan

Total revenue

2018

2017

2016

Change
2018 vs. 2017 2017 vs. 2016

(In millions, except percentages)

$ 924.6 $ 829.4 $ 832.6 $ 95.2

11% $ (3.2) —%

32.5

605.4

406.9

168.6

35.1

526.2

385.7

166.6

31.3

445.5

346.7

160.0

(2.6)

(7)%

3.8 12%

79.2

15%

80.7 18%

21.2

2.0

39.0 11%

6.6

$ 2,138.0 $1,943.0 $1,816.1 $195.0

10% $126.9

For the primary factors contributing to the increase in revenue for the United States, Asia, and Europe, Middle
East and Africa during fiscal 2018, as compared to fiscal 2017, see the general description under “Revenue by
Year” above. Revenue for the United States decreased during fiscal 2017, as compared to fiscal 2016, primarily
due to lower revenue from emulation and prototyping hardware and services, partially offset by growth in revenue
from software and IP. For the primary factors contributing to the increase in revenue for Other Americas, Asia, and
Europe, Middle East and Africa and Japan during fiscal 2017, as compared to fiscal 2016, see the general
description under “Revenue by Year” above.

Revenue by Geography as a Percent of Total Revenue

United States

Other Americas

Asia

Europe, Middle East and Africa

Japan

Total

2018

2017

2016

43% 42% 46%

28% 27% 25%

19% 20% 19%

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 consolidated financial statements, see the discussion under Item 7A, “Quantitative and Qualitative Disclosures
About Market Risk – Foreign Currency Risk.”

Cost of Revenue

2018

2017

2016

Change
2018 vs. 2017 2017 vs. 2016

(In millions, except percentages)

Product and maintenance

$ 173.0 $ 156.7 $ 183.3 $16.3 10% $(26.6)

(15)%

Services

85.7

80.7

73.2

5.0

7.5

10%

Total cost of revenue

$ 258.7 $ 237.4 $ 256.5 $21.3

9% $(19.1)

(7)%

The following table shows cost of revenue as a percentage of related revenue for fiscal 2018, 2017 and 2016:

Product and maintenance

Services

Cost of Product and Maintenance

2018 2017 2016

9% 11%

61% 63% 55%

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. 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.

A summary of cost of product and maintenance for fiscal 2018, 2017 and 2016 is as follows:

2018

2017

2016

2018 vs. 2017

2017 vs. 2016

(In millions, except percentages)

Change

Product and maintenance-related costs

$133.8 $114.9 $140.9 $18.9

16% $(26.0)

(18)%

Amortization of acquired intangibles

39.2

41.8

42.4

(2.6)

(6)%

(0.6)

(1)%

Total cost of product and maintenance

$173.0 $156.7 $183.3 $16.3

10% $(26.6)

(15)%

Cost of product and maintenance depends primarily on our hardware product sales in any given period. Cost
of product and maintenance is also affected by employee salary and benefits and other employee-related costs,
reserves for inventory, as well as the timing and extent to which we acquire intangible assets, acquire or license
third-parties’
intellectual property or technology and sell our products that include such acquired or licensed
intellectual property or technology.

The changes in product and maintenance-related costs were due to the following:

Emulation and prototyping hardware costs

Other items

Change

2018 vs.
2017

2017 vs.
2016

(In millions)

17.7 $ (22.9)

1.2

(3.1)

18.9 $ (26.0)

Costs of emulation and prototyping increased during fiscal 2018, as compared to fiscal 2017, primarily due to
increased sales volume for emulation and prototyping hardware and related costs. Costs of emulation and
prototyping hardware decreased during fiscal 2017, as compared to fiscal 2016, primarily due to decreased sales
volume for emulation and prototyping hardware. Gross margins on our hardware products will fluctuate based on
product life cycle, product competition, product mix and pricing strategies.

Cost of Services

Cost of services primarily includes employee salary, benefits and other employee-related costs to perform
work on revenue-generating projects, costs to maintain the infrastructure necessary to manage a services
organization, and provisions for contract losses, if any. Cost of services will fluctuate from period to period based
on our utilization of design services engineers on revenue-generating projects or on internal development projects.
Cost of services increased during fiscal 2018, as compared to fiscal 2017, and during fiscal 2017, as compared to
fiscal 2016, primarily due to variation in the number of personnel dedicated to deliver and support our services and
custom IP offerings.

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, restructuring activities, foreign exchange rate movements,
stock-based compensation and the impact of our variable compensation programs that are driven by operating
results.

Stock-based compensation included in our operating expenses increased during fiscal 2018, as compared to
fiscal 2017, and fiscal 2017, as compared to fiscal 2016, primarily because successive increases in the price of our
common stock between grant dates have resulted in higher grant date fair values for the mix of stock awards
expensed in each period. We expect stock-based compensation to increase operating expenses during fiscal
2019, as compared to fiscal 2018. For further discussion regarding stock-based compensation, see Note 10 in the
notes to consolidated financial statements.

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 consolidated financial statements, see the discussion in Item 7A,
“Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Risk.”

Our operating expenses for fiscal 2018, 2017 and 2016 were as follows:

2018

2017

2016

2018 vs. 2017

2017 vs. 2016

(In millions, except percentages)

Change

Marketing and sales

$ 439.7 $ 419.2 $ 395.2 $

20.5

5% $

24.0 6%

Research and development

General and administrative

884.8

133.4

804.2

134.2

735.3

125.1

80.6 10%

(0.8)

(1)%

68.9 9%

9.1 7%

$1,457.9 $1,357.6 $1,255.6 $

100.3

7% $

102.0 8%

Our operating expenses, as a percentage of total revenue, for fiscal 2018, 2017 and 2016 were as follows:

Marketing and sales

Research and development

General and administrative

Operating expenses

Marketing and Sales

The changes in marketing and sales expense were due to the following:

Salary, benefits and other employee-related costs

Stock-based compensation

Professional services

Facilities and other infrastructure costs

Other items

2018 2017 2016

21% 22% 22%

41% 41% 40%

68% 70% 69%

Change

2018 vs.
2017

2017 vs.
2016

(In millions)

9.0 $

7.8

2.2

0.8

0.7

18.5

4.1

(1.6)

4.8

(1.8)

20.5 $

24.0

Costs included in marketing and sales increased during fiscal 2018, as compared to fiscal 2017, and during
fiscal 2017, as compared to fiscal 2016, primarily due to additional headcount in fiscal 2018 and an increase in
incentive compensation.

Research and Development

The changes in research and development expense were due to the following:

Salary, benefits and other employee-related costs

Stock-based compensation

Depreciation

Facilities and other infrastructure costs

Materials and other pre-production costs

Software license and maintenance costs

Professional services

Other items

Change

2018 vs.
2017

2017 vs.
2016

(In millions)

52.5 $

27.1

2.7

0.4

(1.9)

(1.7)

(0.1)

1.6

44.4

13.2

(0.5)

9.8

0.3

0.6

3.2

(2.1)

80.6 $

68.9

We must invest significantly in product research and development to keep pace with the latest manufacturing
technology. The demand for new IC manufacturing technology directly impacts the demand for our newest
products and we must keep pace with our customers’ technical developments, satisfy industry standards and meet
our customers’ increasingly demanding performance, productivity, quality and predictability requirements. Costs
included in research and development increased during fiscal 2018, as compared to fiscal 2017, and during fiscal
2017, as compared to fiscal 2016, primarily due to incremental investments in research and development as a
result of additional hiring and incremental costs resulting from our fiscal 2017 acquisitions.

General and Administrative

The changes in general and administrative expense were due to the following:

Salary, benefits and other employee-related costs

Professional services

Bad debt expense

Stock-based compensation

Acquisition-related costs

Other items

Change

2018 vs.
2017

2017 vs.
2016

(In millions)

(4.6) $

(1.9)

2.5

1.8

—

1.4

(0.8) $

3.3

4.4

2.3

3.0

(4.9)

1.0

9.1

General and administrative costs decreased during fiscal 2018, as compared to fiscal 2017, primarily due to
decreases in expense related to our nonqualified deferred compensation plan that are included in salary, benefits
and other employee-related costs, partially offset by increases in reserves on receivables from our customers.
General and administrative costs increased during fiscal 2017, as compared to fiscal 2016, primarily due to an
increase in accounting and tax services and an increase in employee salaries and benefits.

Amortization of Acquired Intangibles

2018

2017

2016

2018 vs. 2017

2017 vs. 2016

(In millions, except percentages)

Change

Amortization of acquired intangibles

$14.1 $14.7 $18.1 $

(0.6)

(4)% $

(3.4)

(19)%

The changes in amortization of acquired intangibles were due to the following:

Increase due to additions of acquired intangibles

Decrease due to completed amortization of acquired intangibles

Change

2018 vs.
2017

2017 vs.
2016

(In millions)

0.6 $

0.3

(1.2)

(0.6) $

(3.7)

(3.4)

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.

The following table presents restructuring and other charges, net for our restructuring plans:

Severance and Benefits

Excess Facilities

Total

2018

2017
(In millions)

2016

$ 10.3 $ 9.0 $ 40.4

0.8

0.4

0.6

$ 11.1 $ 9.4 $ 41.0

For an additional description of our restructuring plans, see Note 12 in the notes to consolidated financial

statements.

Interest Expense

Interest expense for fiscal 2018, 2017 and 2016 was comprised of the following:

Contractual cash interest expense:

2019 Term Loan

2024 Notes

Revolving credit facility

Amortization of debt discount:

2019 Term Loan

2024 Notes

Other

Total interest expense

2018

2017
(In millions)

2016

5.3 $

7.6 $

5.6

15.3

1.1

0.2

0.7

0.5

15.3

1.3

0.2

0.7

0.6

15.3

1.6

0.2

0.6

0.4

$ 23.1 $ 25.7 $ 23.7

During fiscal 2018, we prepaid the outstanding principal balance and accrued interest on our $300.0 million
2019 Term Loan. For an additional description of our debt arrangements, see Note 3 in the notes to consolidated
financial statements.

Income Taxes

The following table presents the provision for income taxes and the effective tax rate for fiscal 2018, 2017 and

2016:

Provision for income taxes

Effective tax rate

2018

2017

2016

(In millions, except percentages)

30.6

110.9

34.1

8.1%

35.2%

14.4%

Our provision for income taxes for fiscal 2018 primarily resulted from the federal income tax effects of the Tax
Act and state and foreign income taxes on fiscal 2018 income, partially offset by $21.3 million of tax benefit related
to stock-based compensation that vested or was exercised during the year.

During fiscal 2018, we finalized our fiscal 2017 deemed repatriation transition tax calculation and reduced our
estimate from $67.2 million to $65.8 million. We finalized our other fiscal 2017 provisional estimates without
change. For further discussion regarding our accounting for the Tax Act, see Note 6 in the notes to the
consolidated financial statements.

Our provision for income taxes for fiscal 2017 is primarily attributable to income tax effects of the Tax Act. The
provisional amount related to the transition tax was $67.2 million and the provisional amount related to the
re-measurement of our U.S. deferred tax assets and liabilities for the U.S. tax rate reduction was $25.2 million. Our
provision for income taxes for fiscal 2017 included $32.0 million of tax benefit related to stock-based compensation
that vested or settled during the period.

Our provision for income taxes for fiscal 2016 is primarily attributable to federal, state and foreign income
taxes on our fiscal 2016 income and includes the tax benefit resulting from the permanent reinstatement of the
United States research tax credit in December 2015. During fiscal 2016, we adopted a new accounting standard
related to the accounting for stock-based compensation that required all income tax effects of stock-based awards
to be recognized in our consolidated income statement as the awards vest or are settled. Our provision for income
taxes for fiscal 2016 includes $17.2 million of tax benefit related to stock-based compensation that vested or
settled during the period.

Our future effective tax rates may be materially impacted by 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, changes in valuation allowance and changes in tax law. 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 2019 effective tax rate will be approximately 10%. We expect that our quarterly
effective tax rates will vary from our fiscal 2019 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. We may also revise our fiscal 2019 effective tax rate as a result of further analyzing the implications of
the Tax Act, including future guidance issued by the U.S. Department of Treasury and the IRS. For additional
discussion about how our effective tax rate could be affected by various risks, see Part I, Item 1A, “Risk Factors.”
For further discussion regarding our income taxes, see Note 6 in the notes to consolidated financial statements.

Liquidity and Capital Resources

December 29,
2018

As of
December 30,
2017

Change

December 31,
2016

2018 vs.
2017

2017 vs.
2016

(In millions)

Cash and cash equivalents

Net working capital

533.3 $

242.1 $

688.1 $

337.6 $

465.2 $ (154.8) $ 222.9

116.5 $ (95.5) $ 221.1

Cash and Cash Equivalents

As of December 29, 2018, our principal sources of liquidity consisted of $533.3 million of cash and cash

equivalents as compared to $688.1 million as of December 30, 2017.

Our primary sources of cash and cash equivalents during fiscal 2018 were cash generated from operations,
proceeds from borrowings under our revolving credit facility, proceeds from the exercise of stock options and
proceeds from stock purchases under our employee stock purchase plan.

Our primary uses of cash and cash equivalents during fiscal 2018 were payments related to salaries and
benefits, operating expenses, principal payments on the 2019 Term Loan, repurchases of our common stock,
purchases of non-marketable investments, payments on our revolving credit facility, tax payments and purchases
of property, plant and equipment.

Approximately 75% of our cash and cash equivalents were held by our

foreign subsidiaries as of
December 29, 2018. We expect that current cash and cash equivalent balances, cash flows that are generated
from operations and cash borrowings available under our revolving credit facility will be sufficient to meet our
domestic and international working capital needs, and other capital and liquidity requirements,
including
acquisitions and share repurchases 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 consolidated
balance sheets. The decrease in our net working capital as of December 29, 2018, as compared to December 30,
2017, is primarily due to a decrease in cash and cash equivalents and increases in current liabilities, partially offset
by an increase in accounts receivable.

Cash Flows from Operating Activities

Cash flows from operating activities during fiscal 2018, 2017 and 2016 were as follows:

Cash provided by operating activities

$604.8 $470.7 $444.9 $ 134.1 $

25.8

2018

2017

2016

Change

2018 vs.
2017

2017 vs.
2016

(In millions)

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 during fiscal 2018, as compared to fiscal 2017, and fiscal 2017, as compared to
fiscal 2016, was primarily due to the improved results from operations and timing of cash receipts from customers
and disbursements made to vendors.

Cash Flows from Investing Activities

Cash flows provided by (used for) investing activities during fiscal 2018, 2017 and 2016 were as follows:

2018

2017

2016

Change

2018 vs.
2017

2017 vs.
2016

(In millions)

Cash provided by (used for) investing activities

$(173.8) $(191.2) $ 1.4 $

17.4 $ (192.6)

The decrease in cash used for investing activities during fiscal 2018, as compared to fiscal 2017, was
primarily because we did not acquire any businesses in fiscal 2018, offset by payments to acquire equity
instruments of other entities. The increase in cash used for investing activities during fiscal 2017, as compared to
fiscal 2016, was primarily due to an increase in cash paid for business combinations and a decrease in net
proceeds from our investment portfolio. 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

Cash flows used for financing activities during fiscal 2018, 2017 and 2016 were as follows:

2018

2017

2016

Change

2018 vs.
2017

2017 vs.
2016

(In millions)

Cash used for financing activities

$(567.9) $(70.1) $(592.7) $ (497.8) $ 522.6

The increase in cash used for financing activities during fiscal 2018, as compared to fiscal 2017, was primarily
due to the prepayment of the outstanding principal balance on our $300.0 million 2019 Term Loan, an increase in
repurchases of common stock and a decrease in net proceeds on our revolving credit facility. The decrease in
cash used for financing activities during fiscal 2017, as compared to fiscal 2016, was primarily due to a decrease
in payments made to repurchase shares of our common stock, partially offset by a net decrease in proceeds from
borrowings.

Other Factors Affecting Liquidity and Capital Resources

Stock Repurchase Program

In January 2017, our Board of Directors authorized the repurchase of shares of our common stock with a
value of up to $525.0 million in the aggregate. As of December 29, 2018, approximately $175.0 million remained
available under this authorization. In February 2019, our Board of Directors authorized the additional repurchase of
shares of our common stock with a value of up to $500.0 million in the aggregate. The actual timing and amount of
future repurchases are subject to business and market conditions, corporate and regulatory requirements, stock
price, acquisition opportunities and other factors. See Part II, Item 5, “Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities” for additional information.

Revolving Credit Facility

Our senior unsecured revolving 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 currently 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. As of December 29, 2018, there were
$100.0 million of borrowings outstanding under our revolving credit facility, and we were in compliance with all
financial covenants associated with the revolving credit facility.

2024 Notes

In October 2014, we issued $350.0 million aggregate principal amount of 4.375% Senior Notes due
October 15, 2024. 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
December 29, 2018, we were in compliance with all covenants associated with the 2024 Notes.

For additional information relating to our debt arrangements, see Note 3 in the notes to consolidated financial

statements.

Contractual Obligations

A summary of our contractual obligations as of December 29, 2018 is as follows:

Payments Due by Period

Less
Than 1
Year

Total

1-3
Years

3-5
Years

(In millions)

More
Than 5
Years

Operating lease obligations

$ 112.0 $

26.3 $

42.9 $

25.7 $

17.1

Purchase obligations(1)

Long-term debt

Revolving credit facility

Contractual interest payments

Current income tax payable

Other long-term contractual obligations(2)

24.7

350.0

100.0

97.4

5.1

37.7

18.1

—

100.0

19.7

5.1

0.1

5.8

—

31.7

—

23.0

0.7

—

30.7

—

3.1

0.1

350.0

—

15.3

—

11.5

Total

$ 726.9 $

169.3 $

103.4 $

60.2 $ 394.0

(1) With respect to purchase obligations that are cancelable by us, this table includes the amount that would
have been payable if we had canceled the obligation as of December 29, 2018 or the earliest cancellation
date.

(2)

Included in other long-term contractual obligations are long-term income tax liabilities of $18.7 million
related to unrecognized tax benefits. Of the $18.7 million, we estimate $17.5 million will be paid or settled
within 1 to 3 years and $1.2 million within 3 to 5 years. The remaining portion of other long-term
retirement plans and
contractual obligations is primarily liabilities associated with defined benefit
acquisitions.

Off-Balance Sheet Arrangements

As of December 29, 2018, we did not have any significant off-balance sheet arrangements, as defined in Item

303(a)(4)(ii) of SEC Regulation S-K.

Critical Accounting Estimates

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

We believe that the assumptions, judgments and estimates involved in the accounting for income taxes,
revenue recognition and business combinations have the greatest potential impact on our consolidated financial
statements; therefore, we consider these to be our critical accounting estimates. For information on our significant
accounting policies, see Note 2 in the notes to consolidated financial statements.

Accounting for Income Taxes

We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment
is required in evaluating and estimating our provision for these taxes. There are many transactions that occur
during the ordinary course of business for which the ultimate tax determination is uncertain. The Tax Act has many
provisions that require additional guidance on specific interpretations of the tax law changes. Our provision for
income taxes could be adversely affected by our earnings being lower than anticipated in countries where we have
lower statutory rates and higher than anticipated in countries where we have higher statutory rates, losses incurred
in jurisdictions for which we are not able to realize the related tax benefit, changes in foreign currency exchange
rates, entry into new businesses and geographies and changes to our existing businesses, acquisitions and
investments, changes in our deferred tax assets and liabilities including changes in our assessment of valuation
allowances, changes in the relevant tax laws or interpretations of these tax laws, and developments in current and
future tax examinations.

We only recognize the tax benefit of an income tax position if we judge that it is more likely than not that the
tax position will be sustained, solely on its technical merits, in a tax audit including resolution of any related
appeals or litigation processes. To make this judgment, we must interpret complex and sometimes ambiguous tax
laws, regulations and administrative practices. If we judge that an income tax position meets this recognition
threshold, then we must measure the amount of the tax benefit to be recognized by estimating the largest amount
of tax benefit that has a greater than 50% cumulative probability of being realized upon settlement with a taxing
authority that has full knowledge of all of the relevant facts. It is inherently difficult and subjective to estimate such
amounts, as this requires us to determine the probability of various possible settlement outcomes. We must
reevaluate our income tax positions on a quarterly basis to consider factors such as changes in facts or
circumstances, changes in tax law, effectively settled issues under audit, the lapse of applicable statute of
limitations, and new audit activity. Such a change in recognition or measurement would result in recognition of a
tax benefit or an additional charge to the tax provision. For a more detailed description of our unrecognized tax
benefits, see Note 6 in the notes to consolidated financial statements.

Revenue Recognition

Our contracts with customers often include promises to transfer multiple software and/or IP licenses,
hardware and services, including professional services, technical support services, and rights to unspecified
updates to a customer. 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 our IP license arrangements, we have concluded that the licenses and associated
services are distinct from each other. In other arrangements, like our time-based software arrangements, the
licenses and certain services are not distinct from each other. Our time-based software arrangements include
multiple software licenses and updates to the licensed software products, as well as technical support, and we
have concluded that these promised goods and services are a single, combined performance obligation.

Judgment is required to determine the stand-alone selling prices (“SSPs”) for each distinct performance
obligation. We rarely license or sell products on a standalone basis, so we are required to estimate the SSP for
each performance obligation. In instances where the SSP is not directly observable because we do not sell the
license, product or service separately, we determine the SSP using information that may include market conditions
and other observable inputs. We typically have more than one SSP for individual performance obligations due to
the stratification of those items by classes of customers and circumstances. In these instances, we 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 our combined performance obligations that include software licenses,
updates, and technical support as well as for maintenance and professional services that are separate
performance obligations. For our 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 our 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. We exercise 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. Our judgments about whether a
the allocation of consideration to the distinct
group of contracts comprise a single arrangement can affect
performance obligations, which could have an effect on results of operations for the periods involved.

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

Business Combinations

When we acquire businesses, we allocate the purchase price to the acquired tangible assets and assumed
liabilities, including deferred revenue, liabilities associated with the fair value of contingent consideration and
acquired identifiable intangible assets. Any residual purchase price is recorded as goodwill. The allocation of the
purchase price requires us to make significant estimates in determining the fair values of these acquired assets
and assumed liabilities, especially with respect to intangible assets and goodwill. These estimates are based on
information obtained from management of the acquired companies, our assessment of this information, and
historical experience. These estimates can include, but are not limited to, the cash flows that an acquired business
is expected to generate in the future, the cash flows that specific assets acquired with that business are expected
to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be
derived from acquiring an asset. These estimates are inherently uncertain and unpredictable, and if different
estimates were used, the purchase price for the acquisition could be allocated to the acquired assets and
assumed liabilities differently from the allocation that we have made to the acquired assets and assumed liabilities.
In addition, unanticipated events and circumstances may occur that may affect the accuracy or validity of such
estimates, and if such events occur, we may be required to adjust the value allocated to acquired assets or
assumed liabilities.

We also make significant judgments and estimates when we assign useful lives to the definite-lived intangible
assets identified as part of our acquisitions. These estimates are inherently uncertain and if we used different
estimates, the useful life over which we amortize intangible assets would be different. In addition, unanticipated
life assigned to our intangible assets, which
events and circumstances may occur that may impact the useful
would impact our amortization of intangible assets expense and our results of operations.

New Accounting Standards

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” requiring, among other things, the
recognition of lease liabilities and corresponding right-of-use assets on the balance sheet by lessees for all leases
with a term longer than 12 months. The new standard is effective for us in the first quarter of fiscal 2019. A
modified retrospective approach is required, applying the new standard to leases existing as of the date of initial
application. An entity may choose to apply the standard as of either its effective date or the beginning of the
earliest comparative period presented in the financial statements. We adopted the new standard on December 30,
2018, the first day of fiscal 2019, and used the effective date as our date of initial application. Consequently,
financial information will not be updated, and the disclosures required under the new standard will not be provided
for dates and periods prior to the first quarter of fiscal 2019. We elected certain practical expedients permitted
under the transition guidance within the new standard, which among other things, allowed us to carry forward our
prior conclusions about lease identification and classification.

We estimate the key change upon adoption of the standard will result in balance sheet recognition of
additional lease assets and lease liabilities ranging from $75 to $85 million as of December 30, 2018, which is
based on the present value of committed lease payments. We do not expect the adoption of the new standard to
have a material impact on the recognition, measurement or presentation of lease expenses within our consolidated
income statements, consolidated statements of comprehensive income or consolidated statements of cash flows.

The new standard also provides updated guidance for lessor accounting; however, we do not expect the new

standard to have a material effect on our financial statements for arrangements in which we are the lessor.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,”
which supersedes current guidance requiring recognition of credit losses when it is probable that a loss has been
incurred. The new standard requires the establishment of an allowance for estimated credit losses on financial
assets, including trade and other receivables, at each reporting date. The new standard will result in earlier
recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash.
The new standard will be effective for us in the first quarter of fiscal 2020, and early adoption is permitted. We are
currently reviewing this standard to assess the impact on our consolidated financial statements and the related
disclosures.

Goodwill Impairment

In January 2017,

the FASB issued ASU 2017-04, “Simplifying the Test

Impairment,” that
eliminates “Step 2” from the goodwill impairment test. The new standard is effective for us in the first quarter of
fiscal 2020, and early adoption is permitted. The new guidance must be applied on a prospective basis. We do not
anticipate that the adoption of this standard will have a significant impact on our consolidated financial statements
or the related disclosures.

for Goodwill

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 Tax Act on items
within accumulated other comprehensive income to retained earnings. The new guidance may be applied at the
beginning of the period of adoption or retrospectively to each period in which the effect of the change in federal
income tax rate from the Tax Act is recognized. The new standard became effective for us in the first quarter of
impact our consolidated financial
fiscal 2019. We do not anticipate that
statements or the related disclosures.

this standard will

the adoption of

Stock-based Compensation

In June 2018,

the FASB issued ASU 2018-07, “Improvements to Nonemployee Share-Based Payment
Accounting,” to simplify the accounting for share-based transactions with nonemployees in which the grantor

acquires goods or services to be used or consumed. Under the new standard, most of the guidance on recording
share-based compensation granted to nonemployees will be aligned with the requirements for share-based
compensation granted to employees. This standard became effective for us in the first quarter of fiscal 2019, and
early adoption is permitted. We do not expect the adoption of this standard to have a material
impact on our
consolidated financial statements.

Fair Value Measurements

In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework — Changes to the Disclosure
Requirements for Fair Value Measurement,” which modifies the disclosure requirements on fair value
measurements. The new standard is effective for us in the first quarter of fiscal 2020, and early adoption is
permitted. While we continue to assess the potential impact of this standard, we do not expect the adoption of this
standard to have a material impact on our condensed consolidated financial statements.

Internal-use Software

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in
a Cloud Computing Arrangement That Is a Service Contract,” which clarifies the accounting for implementation
costs in cloud computing arrangements. The new standard is effective for us in the first quarter of fiscal 2020, and
early adoption is permitted. We are currently reviewing this standard to assess the impact on our condensed
consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Risk

A material portion of our revenue, expenses and business activities are transacted in the U.S. dollar. In
certain foreign countries where we price our products and services in U.S. dollars, a decrease in value of the local
currency relative to the U.S. dollar results in an increase in the prices for our products and services compared to
those products of our competitors that are priced in local currency. This could result
in our prices being
uncompetitive in certain markets.

In certain countries where we may invoice customers in the local currency our revenues benefit from a
weaker dollar and are adversely affected by a stronger dollar. The opposite impact occurs in countries where we
record expenses in local currencies. In those cases, our costs and expenses benefit from a stronger dollar and are
adversely affected by a weaker dollar. The fluctuations in our operating expenses outside the United States
resulting from volatility in foreign exchange rates are not generally moderated by corresponding fluctuations in
revenues from existing contracts.

We enter into foreign currency forward exchange contracts 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. These forward contracts are not designated as accounting hedges, so the unrealized gains and
losses are recognized in other income, net, in advance of the actual foreign currency cash flows with the fair value
of these forward contracts being recorded as accrued liabilities or other current assets.

We do not use forward contracts for trading purposes. Our forward contracts generally have maturities of 90
days or less. We enter into foreign currency forward exchange contracts based on estimated future asset and
liability exposures, and the effectiveness of our hedging program depends on our ability to estimate these future
asset and liability exposures. Recognized gains and losses with respect to our current hedging activities will
ultimately depend on how accurately we are able to match the amount of foreign currency forward exchange
contracts with actual underlying asset and liability exposures.

The following table provides information about our foreign currency forward exchange contracts as of
December 29, 2018. The information is provided in United States dollar equivalent amounts. The table presents
the notional amounts, at contract exchange rates, and the weighted average contractual
foreign currency
exchange rates expressed as units of the foreign currency per United States dollar, which in some cases may not
be the market convention for quoting a particular currency. All of these forward contracts matured during February
2019.

Forward Contracts:

European Union euro

British pound

Japanese yen

Israeli shekel

Swedish krona

Indian rupee

Chinese renminbi

South Korean won

Other

Total

Estimated fair value

Weighted
Average
Contract
Rate

0.88

0.77

112.11

3.69

8.98

72.39

6.95

1,125.29

N/A

Notional
Principal
(In millions)

120.0

97.8

68.4

48.4

26.5

25.7

15.0

12.4

16.4

430.6

0.1

We actively monitor our

foreign currency hedging activities may not
substantially offset the impact of fluctuations in currency exchange rates on our results of operations, cash flows
and financial position.

foreign currency risks, but our

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our portfolio of cash and cash
equivalents and balances outstanding on our revolving credit facility, if any. We are exposed to interest rate
fluctuations in many of the world’s leading industrialized countries, but our interest income and expense is most
sensitive to fluctuations in the general level of United States interest rates. In this regard, changes in United States
interest rates affect the interest earned on our cash and cash equivalents and the costs associated with foreign
currency hedges.

All highly liquid securities with a maturity of three months or less at the date of purchase are considered to be
interest-bearing instruments approximated fair value as of

cash equivalents. The carrying value of our
December 29, 2018.

Interest rates under our revolving credit facility are variable, so interest expense could be adversely affected
by changes in interest rates, particularly for periods when we maintain a balance outstanding under the revolving
credit facility. Interest rates for our revolving credit facility can fluctuate based on changes in market interest rates
and in an interest rate margin that varies based on our consolidated leverage ratio. As of December 29, 2018,
there were $100.0 million borrowings outstanding under our revolving credit facility. For an additional description of
the revolving credit facility, see Note 3 in the notes to consolidated financial statements.

Equity Price Risk

Equity Investments

We have a portfolio of equity investments that

includes marketable equity securities and non-marketable
investments. Our equity investments are made primarily in connection with our strategic investment program. Under our
strategic investment program, from time to time, we make cash investments in companies with technologies that are
potentially strategically important to us. See Note 7 in the notes to consolidated financial statements for an additional
description of these investments.

Item 8. Financial Statements and Supplementary Data

The financial statements required by Item 8 are submitted as a separate section of this Annual Report on Form

10-K. See Part IV, Item 15, “Exhibits and Financial Statement Schedules.”

Summary Quarterly Data-Unaudited

2018

2017

4th

3rd

2nd

1st

4th

3rd

2nd

1st

(In thousands, except per share amounts)

Revenue (1)

$569,850 $532,468 $518,391 $517,313 $501,722 $485,398 $479,001 $476,911

Cost of revenue (1)

Net income (loss) (1) (2)

Net income (loss) per
share – basic (1) (2)

Net income (loss) per
share – diluted (1) (2)

76,124

98,425

60,454

99,318

58,960

75,149

63,209

60,284

54,482

72,885

(14,442)

81,157

60,832

69,127

61,792

68,259

0.36

0.27

(0.05)

0.30

0.25

0.35

0.27

0.26

(0.05)

0.29

0.25

(1) On the first day of fiscal 2018, we adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),”
which provided a new basis of accounting for our revenue arrangements during fiscal 2018. Because of the adoption,
results of operations for fiscal 2018 are not comparable to the results of operations for the other fiscal years presented
in the table above. For additional information regarding the adoption of this and other accounting standards at the
beginning of fiscal 2018, see Note 2 in the notes to consolidated financial statements under the heading “Recently
Adopted Accounting Standards.”

(2) During fiscal 2017, we recorded a provisional income tax expense of $96.8 million related to the income tax effects of
the Tax Act, which included $67.2 million related to the one-time transition tax on the mandatory deemed repatriation
of foreign earnings. In accordance with SAB 118, we updated the one-time transition tax estimate to $65.8 million
during fiscal 2018. We finalized our other fiscal 2017 provisional estimates without change during fiscal 2018.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) under the
supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief
Financial Officer (“CFO”), we evaluated the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 29, 2018.

The evaluation of our disclosure controls and procedures included a review of our processes and the effect on
the information generated for use in this Annual Report on Form 10-K. In the course of this evaluation, we sought
to identify any material weaknesses in our disclosure controls and procedures, to determine whether we had
identified any acts of
fraud involving personnel who have a significant role in our disclosure controls and
procedures, and to confirm that any necessary corrective action, including process improvements, was taken. This
type of evaluation is done every fiscal quarter so that our conclusions concerning the effectiveness of these
controls can be reported in our periodic reports filed with the SEC. The overall goals of these evaluation activities
are to monitor our disclosure controls and procedures and to make modifications as necessary. We intend to
maintain these disclosure controls and procedures, modifying them as circumstances warrant.

Based on their evaluation as of December 29, 2018, our CEO and CFO have concluded that our disclosure
controls and procedures were effective to provide reasonable assurance that the information required to be
disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to
our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended
December 29, 2018 that materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures
or our internal control over financial reporting will prevent or detect all errors and all fraud. Internal control over
financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of internal control are met. Further, the design of internal control must reflect the fact
that there are resource constraints, and the benefits of the control must be considered relative to their costs. While
our disclosure controls and procedures and internal control over financial reporting are designed to provide
limitations in all control systems, no
reasonable assurance of
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within
Cadence, have been detected.

their effectiveness, because of

the inherent

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management assessed the effectiveness of
our internal control over financial reporting as of December 29, 2018. In making this assessment, our management
used the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Our management has concluded that, as of
December 29, 2018, our internal control over financial reporting is effective based on these criteria. Our
independent registered public accounting firm, KPMG LLP, has issued an attestation report on our internal control
over financial reporting, which is included in Part IV, Item 15, “Exhibits and Financial Statement Schedules.”

Item 9B. Other Information

None.

PART III.

Item 10. Directors, Executive Officers and Corporate Governance

The information required by Item 10 as to directors is incorporated herein by reference from the sections
entitled “Proposal 1 — Election of Directors” and “Security Ownership of Certain Beneficial Owners and
Management — Section 16(a) Beneficial Ownership Reporting Compliance” in Cadence’s definitive proxy
statement for its 2019 Annual Meeting of Stockholders. The executive officers of Cadence are listed at the end of
Item 1 of Part I of this Annual Report on Form 10-K.

The information required by Item 10 as to Cadence’s code of ethics is incorporated herein by reference from
the section entitled “Corporate Governance — Code of Business Conduct” in Cadence’s definitive proxy statement
for its 2019 Annual Meeting of Stockholders.

The information required by Item 10 as to the director nomination process and Cadence’s Audit Committee is
incorporated by reference from the section entitled “Board of Directors — Committees of the Board” in Cadence’s
definitive proxy statement for its 2019 Annual Meeting of Stockholders.

Item 11. Executive Compensation

The information required by Item 11 is incorporated herein by reference from the sections entitled “Board of
Directors — Components of Director Compensation,” “Board of Directors — Director Compensation for Fiscal
2018,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Compensation Committee
Interlocks and Insider Participation,” “Compensation of Executive Officers,” “Potential Payments Upon Termination
or Change In Control,” and “Pay Ratio Disclosure” in Cadence’s definitive proxy statement for its 2019 Annual
Meeting of Stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters

The information required by Item 12 is incorporated herein by reference from the sections entitled “Security
Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in
Cadence’s definitive proxy statement for its 2019 Annual Meeting of Stockholders.

Item 13. Certain Relationships and Related Transactions and Director Independence

The information required by Item 13 is incorporated herein by reference from the sections entitled “Certain
Transactions” and “Board of Directors — Director Independence” in Cadence’s definitive proxy statement for its
2019 Annual Meeting of Stockholders.

Item 14. Principal Accountant Fees and Services

The information required by Item 14 is incorporated herein by reference from the section entitled “Fees Billed
to Cadence by KPMG LLP During Fiscal 2018 and 2017” in Cadence’s definitive proxy statement for its 2019
Annual Meeting of Stockholders.

PART IV.

Item 15. Exhibits and Financial Statement Schedules

(a) 1. Financial Statements

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheets as of December 29, 2018 and December 30, 2017 . . . . . . . . . . . . . . .

Consolidated Income Statements for the three fiscal years ended December 29, 2018 . . . . . . . . . . .

Consolidated Statements of Comprehensive Income for the three fiscal years ended December 29,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Stockholders’ Equity for the three fiscal years ended December 29,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for the three fiscal years ended December 29, 2018 . . . . .

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

(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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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.

© 2019 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

The Board of Directors and Stockholders
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 29, 2018 and December 30, 2017, 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 29, 2018, and the related notes (collectively, the “consolidated financial
statements”). We also have audited the Company’s internal control over financial reporting as of December 29,
2018, 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 29, 2018 and December 30, 2017, and the results of its
operations and its cash flows for each of the years in the three-year period ended December 29, 2018, 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 29, 2018 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 has changed its method of
accounting for revenue recognition on December 31, 2017 due to the adoption of FASB ASU 2014-09, “Revenue
from Contracts with Customers (Topic 606).”

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.

/s/ KPMG LLP

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

Santa Clara, California
February 27, 2019

CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
December 29, 2018 and December 30, 2017
(In thousands, except par value)

ASSETS

Current assets:

Cash and cash equivalents

Receivables, net

Inventories

Prepaid expenses and other

Total current assets

Property, plant and equipment, net

Goodwill

Acquired intangibles, net

Long-term receivables

Other assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Revolving credit facility

Accounts payable and accrued liabilities

Current portion of deferred revenue

Total current liabilities

Long-term liabilities:

Long-term portion of deferred revenue

Long-term debt

Other long-term liabilities

Total long-term liabilities

Commitments and contingencies (Notes 6 and 17)

Stockholders’ equity:

As of

December 29,
2018

December 30,
2017

533,298

297,082

28,162

92,550

951,092

252,630

662,272

225,457

5,972

371,231

688,087

190,426

33,209

68,266

979,988

251,342

666,009

278,835

12,239

230,301

2,468,654

$ 2,418,714

100,000

256,526

352,456

708,982

48,718

345,291

77,262

471,271

85,000

221,101

336,297

642,398

61,513

644,369

81,232

787,114

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: 280,015 and 282,067, respectively

1,936,124

1,829,950

Treasury stock, at cost; 49,144 shares and 47,092 shares, respectively

(1,395,652)

(1,178,121)

Retained earnings

Accumulated other comprehensive loss

Total stockholders’ equity

Total liabilities and stockholders’ equity

772,709

(24,780)

341,003

(3,630)

1,288,401

989,202

2,468,654

$ 2,418,714

See notes to consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
For the three fiscal years ended December 29, 2018
(In thousands, except per share amounts)

Revenue:

Product and maintenance

Services

Total revenue

Costs and expenses:

Cost of product and maintenance

Cost of service

Marketing and sales

Research and development

General and administrative

Amortization of acquired intangibles

Restructuring and other charges

Total costs and expenses

Income from operations

Interest expense

Other income, net

Income before provision for income taxes

Provision for income taxes

Net income

Net income per share – basic

Net income per share – diluted

2018

2017

2016

1,997,887 $

1,813,987 $ 1,683,771

140,135

129,045

132,312

2,138,022

1,943,032

1,816,083

173,011

85,736

439,669

884,816

133,406

14,086

11,089

156,676

80,714

419,161

804,223

134,181

14,716

9,406

183,291

73,201

395,194

735,340

125,106

18,095

40,955

1,741,813

1,619,077

1,571,182

396,209

(23,139)

3,320

376,390

30,613

323,955

244,901

(25,664)

16,755

315,046

110,945

(23,670)

15,922

237,153

34,067

345,777 $

204,101 $

203,086

1.26 $

1.23 $

0.75 $

0.73 $

0.71

0.70

Weighted average common shares outstanding – basic

Weighted average common shares outstanding – diluted

273,729

281,144

272,097

284,502

280,221

291,256

See notes to consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three fiscal years ended December 29, 2018
(In thousands)

Net income

Other comprehensive income (loss), net of tax effects:

2018

2017

2016

345,777 $

204,101 $

203,086

Foreign currency translation adjustments

(17,885)

19,394

(12,801)

Changes in unrealized holding gains or losses on

available-for-sale securities, net of reclassification
adjustments for realized gains and losses

Changes in defined benefit plan liabilities

—

(627)

1,712

424

716

(650)

Total other comprehensive income (loss), net of tax effects

(18,512)

21,530

(12,735)

Comprehensive income

327,265 $

225,631 $

190,351

See notes to consolidated financial statements.

Balance, December 31, 2016

278,099 $ 1,820,081 $ (1,190,053) $ 136,902 $ (25,160) $ 741,770

— 204,101

— $ 204,101

CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the three fiscal years ended December 29, 2018
(In thousands)

Common Stock

Par Value
and Capital
in Excess
of Par

Treasury
Stock

Retained
Earnings
(Accumulated
Deficit)

Accumulated
Other
Comprehensive
Income
(Loss)

Total

Balance, January 2, 2016

309,392 $ 1,863,086 $ (400,555) $ (73,991) $ (12,425) $ 1,376,115

—
—

—
(40,493)

364
—

—
—

—
(960,289)

—
7,807
— 203,086

— $
8,171
— $ 203,086

Cumulative effect adjustment
Net income
Other comprehensive loss, net of

taxes

Purchase of treasury stock
Issuance of common stock and

reissuance of treasury stock under
equity incentive plans, net of
forfeitures

Stock received for payment of

employee taxes on vesting of
restricted stock

Stock-based compensation expense

Net income
Other comprehensive income, net of

taxes

Purchase of treasury stock
Issuance of common stock and

reissuance of treasury stock under
equity incentive plans, net of
forfeitures

Stock received for payment of

employee taxes on vesting of
restricted stock

Stock-based compensation expense

Cumulative effect adjustment
Net income
Other comprehensive loss, net of

taxes

Purchase of treasury stock
Issuance of common stock and

reissuance of treasury stock under
equity incentive plans, net of
forfeitures

Stock received for payment of

employee taxes on vesting of
restricted stock

Stock-based compensation expense

10,587

(147,074)

202,506

(1,387)
—

(5,512)
109,217

(31,715)
—

—

—
(2,495)

—

—
—

—
(100,025)

7,905

(111,982)

160,946

(1,442)
—

(8,172)
130,023

(48,989)
—

—
—

—
(5,934)

—
—

—
(250,059)

5,274

(50,570)

91,478

(1,392)
—

(10,971)
167,715

(58,950)
—

—
—

—

—
—

(12,735) $

(12,735)
— $ (960,289)

— $

55,432

— $
(37,227)
— $ 109,217

—
—

—

—
—

21,530 $

21,530
— $ (100,025)

— $

48,964

— $
(57,161)
— $ 130,023

—
—

—

—
—

(18,512) $

(18,512)
— $ (250,059)

— $

40,908

— $
(69,921)
— $ 167,715

Balance, December 30, 2017

282,067 $ 1,829,950 $ (1,178,121) $ 341,003 $

(3,630) $ 989,202

—
85,929
— 345,777

(2,638) $

83,291
— $ 345,777

Balance, December 29, 2018

280,015 $ 1,936,124 $ (1,395,652) $ 772,709 $ (24,780) $ 1,288,401

See notes to consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three fiscal years ended December 29, 2018
(In thousands)

Cash and cash equivalents at beginning of year

Cash flows from operating activities:

Net income

Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation and amortization
Amortization of debt discount and fees
Stock-based compensation
Gain on investments, net
Gain on sale of property, plant and equipment
Deferred income taxes
Provisions for losses on receivables
Other non-cash items
Changes in operating assets and liabilities, net of effect of acquired

businesses:
Receivables
Inventories
Prepaid expenses and other
Other assets
Accounts payable and accrued liabilities
Deferred revenue
Other long-term liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Purchases of available-for-sale securities
Proceeds from the sale of available-for-sale securities
Proceeds from the maturity of available-for-sale securities
Purchases of non-marketable investments
Proceeds from the sale of non-marketable investments
Proceeds from the sale of property, plant and equipment
Purchases of property, plant and equipment
Cash paid in business combinations and asset acquisitions, net of cash

acquired

Net cash provided by (used for) investing activities

Cash flows from financing activities:

Proceeds from revolving credit facility
Payment on revolving credit facility
Proceeds from term loan
Principal payments on term loan
Payment of debt issuance costs
Proceeds from issuance of common stock
Stock received for payment of employee taxes on vesting of restricted

stock

Payments for repurchases of common stock
Change in book overdraft

Net cash used for financing activities

Effect of exchange rate changes on cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at end of year

Supplemental cash flow information:

Cash paid for interest
Cash paid for income taxes, net

2018

2017

2016

688,087

465,232

616,686

345,777

204,101

203,086

118,721
1,196
167,715
(1,261)
—
(11,676)
5,102
1,136

(87,083)
752
(19,622)
(16,077)
1,553
100,696
(2,178)

604,751

—
—
—
(115,839)
3,497
—
(61,503)

—

(173,845)

100,000
(85,000)
—
(300,000)
—
40,908

(69,921)
(250,059)
(3,867)

(567,939)

(17,756)

(154,789)

533,298

23,018
68,040

115,524
1,211
130,023
(13,869)
—
79,934
2,623
5,068

(31,032)
5,034
(25,793)
(22,336)
(25,987)
33,614
12,625

119,588
1,069
109,217
(4,725)
(923)
(4,869)
308
4,027

(3,607)
4,934
(6,903)
(6,566)
2,655
30,742
(3,154)

470,740

444,879

—
833
—
—
9,108
—
(57,901)

(143,249)

(191,209)

135,000
(100,000)
—
—
(793)
48,965

(57,161)
(100,025)
3,867

(20,525)
55,619
57,762
—
2,917
923
(53,712)

(41,627)

1,357

115,000
(65,000)
300,000
—
(622)
55,440

(37,226)
(960,289)
—

(70,147)

(592,697)

13,471

222,855

688,087

24,160
59,072

(4,993)

(151,454)

465,232

21,024
36,823

See notes to consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three fiscal years ended December 29, 2018

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 systems,
integrated circuits (“ICs”) and electronic devices 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. Certain
prior period balances have been reclassified to conform to the current period presentation.

Cadence’s fiscal years are 52- or 53-week periods ending on the Saturday closest to December 31. Fiscal

2017, 2016 and 2015 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

Effective on the first day of fiscal 2018, Cadence adopted multiple new accounting standards. Prior periods
were not retrospectively restated, so the consolidated balance sheet as of December 29, 2018 and the
consolidated income statements for fiscal 2018 were prepared using accounting standards that were different than
those in effect for fiscal 2017 and fiscal 2016. Therefore, the consolidated balance sheets as of December 29,
2018 are not directly comparable to the consolidated balance sheets as of December 30, 2017, nor are the results
of operations for fiscal 2018 comparable to the results of operations for fiscal 2017 and fiscal 2016.

Recently Adopted Accounting Standards

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from
Contracts with Customers (Topic 606),” which supersedes the revenue recognition requirements in “Revenue
Recognition (Topic 605)” and Subtopic 985-605 “Software-Revenue Recognition.” Topic 605 and Subtopic
985-605 are collectively referred to as “Topic 605” or “prior GAAP.” Under Topic 606, revenue is recognized when
a customer obtains control of promised goods or services in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. In addition, Topic 606 requires enhanced
disclosures, including disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising
from contracts with customers. The FASB issued several amendments to the standard, including updates on
accounting for licenses of IP and identifying performance obligations.

Cadence adopted Topic 606 on the first day of fiscal 2018 using the modified retrospective transition method.
Under this method, Cadence evaluated contracts that were in effect at the beginning of fiscal 2018 as if those
contracts had been accounted for under Topic 606. Cadence did not evaluate individual modifications for those
periods prior to the adoption date, but the aggregate effect of all modifications as of the adoption date and such
effects are provided below. Under the modified retrospective transition approach, periods prior to the adoption date
were not adjusted and continue to be reported in accordance with historical, pre-Topic 606 accounting. A
cumulative catch up adjustment was recorded to beginning retained earnings to reflect the impact of all existing
arrangements under Topic 606.

The most significant impacts of the adoption of Topic 606 were as follows:

(cid:129)

At the adoption date, Cadence increased retained earnings by $85.4 million for uncompleted contracts
for which revenue will not be recognized in future periods under Topic 606. This revenue would
otherwise have been recognized in prior periods, so the beginning balance of unbilled receivables
increased by $47.3 million, contract assets were established at $4.0 million, deferred revenue
decreased by $57.4 million and accrued liabilities increased by $23.3 million;
Revenue generated under Topic 606 was slightly lower than revenue would have been under Topic 605
in fiscal 2018. This is the result of a combination of factors, including the elimination of deferred revenue
that, under Topic 605, would have continued to be recognized into revenue in 2018 and beyond, as well
as changes in the timing of revenue recognition as discussed below. The actual effects on revenue
recognized for fiscal 2018 are reported in the table below; and
Cadence capitalized $27.3 million of incremental sales commission costs at the adoption date directly
related to obtaining customer contracts and is amortizing these costs over the life of the contract.

Notwithstanding the shift from recognizing revenue under Topic 605 to doing so under Topic 606, Cadence
continues to recognize revenue over time for its time-based software arrangements, which generate a majority of
total revenue. Under Topic 605, Cadence could not establish vendor specific objective evidence (“VSOE”) for its
undelivered elements and therefore was not able to separate its delivered software licenses from those
undelivered elements, such as technical support and unspecified (when-and-if available) update rights. Topic 606
no longer requires separability of promised goods or services, such as software licenses, technical support, or
unspecified update rights on the basis of VSOE. Rather, Topic 606 requires Cadence to identify the performance
obligations in the contract — that is, those promised goods and services (or bundles of promised goods or
services) that are distinct — and allocate the transaction price of the contract to those performance obligations on
the basis of stand-alone selling prices (“SSPs”). The transaction price allocated to each performance obligation is
then recognized either at a point in time or over time using an appropriate measure of progress. Under Topic 606,
Cadence has concluded that its software licenses in time-based arrangements are not distinct from each other, or
from its obligation to provide unspecified software updates to the licensed software throughout the license term,
because the multiple software licenses represent inputs to a single, combined offering, and timely, relevant
software updates are integral to maintaining the utility of the software licenses. Cadence will recognize revenue for
the combined performance obligation, which also includes the coterminous technical support provided to the
customer, ratably over the term of the arrangement.

In contrast to the similar accounting result for time-based software arrangements, revenue related to certain
IP licenses are now recognized upon delivery under Topic 606, as opposed to over time under Topic 605, because
the requirement to have VSOE for undelivered elements under prior GAAP is eliminated under Topic 606. Certain
perpetual software licenses are now recognized over time under Topic 606, as opposed to upon delivery under
Topic 605, because these software licenses and the when-and-if available updates provided to the customer are
accounted for together as one performance obligation and recognized over time.

More judgments and estimates are required under Topic 606 than were required under Topic 605. Due to the
the actual revenue recognition treatment required under Topic 606 for the

complexity of certain contracts,
Company’s arrangements may be dependent on contract-specific terms and may vary in some instances.

The timing of revenue recognition for hardware and professional services remained substantially unchanged.
Cadence’s overall mix of revenue recognized at a point in time versus over time remained relatively constant, with
approximately 90% recognizable over time.

The following table summarizes the effects of adopting Topic 606 on Cadence’s consolidated balance sheet

as of December 29, 2018:

Receivables, net

Prepaid expenses and other

Long-term receivables

Other assets

Accounts payable and accrued liabilities*

Current portion of deferred revenue

Long-term portion of deferred revenue

Retained earnings

Accumulated other comprehensive loss

As reported

under Topic 606 Adjustments
(In thousands)

Balances under
Prior GAAP

297,082 $

(12,099) $

284,983

92,550

5,972

371,231

256,526

352,456

48,718

772,709

(24,780)

(10,055)

(623)

(17,013)

(17,438)

45,119

17,637

(86,120)

1,012

82,495

5,349

354,218

239,088

397,575

66,355

686,589

(23,768)

* Cadence has certain arrangements under which consideration is received from customers prior to identifying the
specific goods or services to be delivered under the contract. Cadence records an accrued liability on a
contract-by-contract basis at the end of each reporting period for cash consideration received.

The following table summarizes the effects of adopting Topic 606 on Cadence’s consolidated income

statement for fiscal 2018:

Product and maintenance revenue

1,997,887 $

1,031 $

1,998,918

As reported

under Topic 606 Adjustments

Balances under
Prior GAAP

(In thousands, except per share amounts)

Services revenue

Cost of product and maintenance

Marketing and sales expense

Provision for income taxes

Net income

Net income per share-basic

Net income per share-diluted

140,135

173,011

439,669

30,613

345,777

1.26

1.23

6,643

571

3,947

(2,364)

5,520

0.02

146,778

173,582

443,616

28,249

351,297

1.28

1.25

Cadence’s net cash provided by operating activities for fiscal 2018 did not change due to the adoption of
Topic 606. The following table summarizes the effects of adopting Topic 606 on the financial statement line items
of Cadence’s consolidated statement of cash flows for fiscal 2018:

Net income

Adjustments to reconcile net income to net cash provided by

operating activities:

Deferred income taxes

Changes in operating assets and liabilities:

Receivables

Prepaid expenses and other

Other assets

Accounts payable and accrued liabilities

Deferred revenue

Financial Instruments

As reported

under Topic 606 Adjustments
(In thousands)

Balances under
Prior GAAP

345,777 $

5,520 $

351,297

(11,676)

(2,213)

(13,889)

(87,083)

(19,622)

(16,077)

1,553

100,696

(28,226)

(115,309)

5,968

3,461

10,100

5,390

(13,654)

(12,616)

11,653

106,086

In January 2016,

the FASB issued ASU 2016-01, “Financial

Instruments—Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities.” Cadence adopted this standard on
the first day of fiscal 2018, modifying its accounting and required disclosures for investments in equity securities,
other than those accounted for using the equity method of accounting.

Prior to the adoption of the updated standard, Cadence’s investment in marketable equity securities was
classified as available-for-sale, and changes in the fair value of
the underlying securities were reported in
accumulated other comprehensive loss in the consolidated balance sheets. The new standard eliminated the
available-for-sale classification for equity securities and requires changes in the fair value of Cadence’s investment
to be recognized through net income for fiscal 2018 and each subsequent reporting period. Upon adoption,
Cadence recorded a cumulative-effect adjustment to increase retained earnings in the amount of $2.6 million
related to unrealized holding gains previously recorded in accumulated other comprehensive loss.

Cadence’s non-marketable investments in equity securities consist of investments in privately-held companies
and are presented as other assets in the consolidated balance sheets. Prior to the adoption of the updated
standard, non-marketable investments that were not accounted for using the equity method of accounting were
recorded at cost, less impairment. The new standard eliminated the cost method of accounting for investments in
equity securities that do not have readily determinable fair values and permits the election of a measurement
alternative that allows such securities to be recorded at cost, less impairment, if any, plus or minus changes
resulting from observable price changes in market-based transactions for an identical or similar investment of the
same issuer. Cadence adopted the provisions of the new standard applicable to its investments in equity securities
without a readily determinable fair value on a prospective basis and elected the measurement alternative for
non-marketable investments previously accounted for under the cost method of accounting. Gains and losses
resulting from observable price changes or impairment will be recorded through net income in the period incurred.
For additional information regarding Cadence’s investments in equity securities, see Note 7 to the consolidated
financial statements.

Income Tax

In October 2016, the FASB issued ASU 2016-16, “Income taxes (Topic 740): Intra-entity Transfers of Assets
Other Than Inventory.” The new guidance requires the recognition of the income tax consequences of an intra-
entity asset transfer when the transfer occurs rather than when the asset has been sold to a third party. For intra-

entity transfers of inventory, the income tax effects will continue to be deferred until the inventory has been sold to
a third party. Cadence adopted the new standard on the first day of fiscal 2018 using the modified retrospective
transition approach and recorded a cumulative-effect adjustment to decrease retained earnings in the amount of
$8.3 million. The cumulative-effect adjustment includes the write-off of income tax consequences deferred from
prior intra-entity transfers involving assets other than inventory and new deferred tax assets for amounts not
recognized under U.S. GAAP. We anticipate the potential for increased volatility in future effective tax rates from
the adoption of this guidance.

Stock-based Compensation

In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of
Modification Accounting,” that provides guidance about which changes to the terms or conditions of a share-based
payment award require an entity to apply modification accounting. Cadence adopted the standard on the first day
of fiscal 2018. The adoption of this standard did not impact Cadence’s consolidated financial statements or the
related disclosures.

Cumulative Effect Adjustments to Retained Earnings

The following table presents the cumulative effect adjustments, net of income tax effects, to beginning

retained earnings for new accounting standards adopted by Cadence on the first day of fiscal 2018:

Balance, December 30, 2017, as previously reported

Cumulative effect adjustment from the adoption of new accounting standards:

Revenue from Contracts with Customers (Topic 606)*

Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of

Financial Assets and Financial Liabilities

Income taxes (Topic 740): Intra-entity Transfers of Assets Other Than Inventory

Balance, December 30, 2017, as adjusted

Net Income

Balance, December 29, 2018

Retained
Earnings
(In thousands)

341,003

91,640

2,638

(8,349)

426,932

345,777

772,709

* The cumulative effect adjustment from the adoption of Revenue from Contracts with Customers (Topic 606) is

presented net of the related income tax effect of $17.5 million.

New Accounting Standards Not Yet Adopted

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” requiring, among other things, the
recognition of lease liabilities and corresponding right-of-use assets on the balance sheet by lessees for all leases
with a term longer than 12 months. The new standard is effective for Cadence in the first quarter of fiscal 2019. A
modified retrospective approach is required, applying the new standard to leases existing as of the date of initial
application. An entity may choose to apply the standard as of either its effective date or the beginning of the
earliest comparative period presented in the financial statements. Cadence adopted the new standard on
December 30, 2018, the first day of fiscal 2019, and used the effective date as the date of initial application.
Consequently, financial information will not be updated and the disclosures required under the new standard will
not be provided for dates and periods prior to the first quarter of fiscal 2019. Cadence elected certain practical
expedients permitted under the transition guidance within the new standard, which among other things, allowed
Cadence to carry forward its prior conclusions about lease identification and classification.

Cadence estimates the key change upon adoption of the standard will result in balance sheet recognition of
additional lease assets and lease liabilities ranging from $75 to $85 million as of December 30, 2018, which is
based on the present value of committed lease payments. Cadence does not expect the adoption of the new
standard to have a material impact on the recognition, measurement or presentation of lease expenses within its
consolidated income statements, consolidated statements of comprehensive income or consolidated statements of
cash flows.

The new standard also provides updated guidance for lessor accounting; however, Cadence does not expect
the new standard to have a material effect on its consolidated financial statements for arrangements in which it is
the lessor.

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 operating 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

Buildings

Leasehold improvements

2-7 years

25-32 years

Shorter of the lease term or the estimated
useful life

Building improvements and land improvements

Estimated useful life up to 32 years

Furniture and fixtures

Equipment

3-5 years

Cadence capitalizes certain costs of software developed for internal use. Capitalization of software developed
for internal use begins at
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
$3.6 million, $2.2 million, and $3.5 million during fiscal 2018, 2017 and 2016, respectively.

the application development phase of

Cadence recorded depreciation and amortization expense of $60.4 million, $52.9 million and $52.7 million

during fiscal 2018, 2017 and 2016, 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 2018, 2017 and
2016 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 as
of December 29, 2018 were $31.2 million and are included in other assets in Cadence’s consolidated balance
sheet. Amortization of these assets during fiscal 2018 was $26.5 million 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 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.

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

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.

to the NQDC trust

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 by Cadence on the reissuance of treasury
stock during fiscal 2018, 2017 or 2016.

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 that transferred to customers over time accounted for approximately 90% of Cadence’s
total revenue for the fiscal year ended December 29, 2018.

Product and maintenance revenue includes Cadence’s licenses of time-based and perpetual software, sales

of emulation hardware, licenses of per-use IP, 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 standalone selling price. The stated contract value is generally the
transaction price to be allocated to the separate performance obligations. 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 our 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
in time because the customer has title to the hardware, physical
control generally transfers at
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.

that point

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. 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 $7.6 million, $7.4 million and $8.4 million during fiscal 2018, 2017 and 2016,
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
lease buyout costs and certain
applicable estimated sublease income after the facilities are abandoned,
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, long-term 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 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:

(cid:129)
(cid:129)
(cid:129)
(cid:129)

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 29, 2018 and December 30, 2017 was as follows:

December 29, 2018

December 30, 2017

Principal

Unamortized
Discount

Carrying
Value

Principal

Unamortized
Discount

Carrying
Value

(In thousands)

Revolving Credit Facility

100,000 $

— $ 100,000 $

85,000 $

— $ 85,000

2019 Term Loan

2024 Notes

—

350,000

(4,709)

345,291

300,000

350,000

(226)

299,774

(5,405)

344,595

Total outstanding debt

450,000 $

(4,709) $ 445,291 $

735,000 $

(5,631) $ 729,369

Revolving Credit Facility

On January 30, 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. As of December 29,
2018, the interest rate on Cadence’s credit facility was 4.07%. 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 29, 2018 and December 30,
2017, Cadence was in compliance with all financial covenants associated with the revolving credit facility.

2019 Term Loan

In January 2016, Cadence entered into a $300.0 million three-year senior unsecured non-amortizing term
loan facility due on January 28, 2019 (the “2019 Term Loan”) with a group of lenders led by JPMorgan Chase
Bank, N.A., as administrative agent.
In July 2018, Cadence prepaid the outstanding principal amount of
$300.0 million and all accrued interest.

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 carrying value of the 2024 Notes
approximates the estimated fair value as of December 29, 2018.

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 29, 2018 and December 30, 2017

were as follows:

Accounts receivable

Unbilled accounts receivable

Long-term receivables

Total receivables

Less allowance for doubtful accounts

As of

December 29,
2018

December 30,
2017

(In thousands)

164,223 $

119,325

136,795

5,972

306,990

(3,936)

71,101

12,239

202,665

—

Total receivables, net

303,054 $

202,665

Cadence’s customers are primarily concentrated within the semiconductor and electronics systems industries.
As of December 29, 2018, one customer accounted for 11% of Cadence’s total receivables. As of December 30,
2017, one customer accounted for 17% of Cadence’s total receivables.

Allowance for doubtful accounts

Cadence’s provisions for losses on its accounts receivable during fiscal 2018, 2017 and 2016 were as follows:

Year ended December 29, 2018

Year ended December 30, 2017

Year ended December 31, 2016

NOTE 5. REVENUE

Balance at
Beginning of
Period

Charged to
Costs and
Expenses

Uncollectible
Accounts
Written Off, Net

Balance
at End of
Period

— $

—

— $

5,102

2,623

308

(1,166)

$ 3,936

(2,623)

(308)

—

Cadence combines its products and technologies into five product groups related to major design activities.
The following table shows the percentage of product and related maintenance revenue contributed by each of
Cadence’s five product groups and services for fiscal 2018, 2017 and 2016:

Functional Verification, including Emulation and Prototyping Hardware

Digital IC Design and Signoff

Custom IC Design and Simulation

System Interconnect and Analysis

Total

2018

2017

2016

24%

29%

26%

12%

22%

29%

27%

10%

12%

25%

29%

25%

10%

11%

100%

Revenue by product group 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
In some
for separately, or not distinct and thus accounted for
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.

requires significant

judgment.

together,

Judgment is required to determine the SSP for each distinct performance obligation. Cadence rarely licenses
or sells products on a standalone basis, so Cadence is required to estimate the SSP for each performance
obligation. 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. 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

in receivables, contract assets, or contract

The timing of revenue recognition may differ from the timing of invoicing to customers, and these timing
differences result
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
to invoicing. For Cadence’s time-based
records deferred revenue when revenue is recognized subsequent
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
December 29, 2018 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 29, 2018 and December 30, 2017 were as follows:

Contract assets

Deferred revenue

As of

December 29,
2018

December 30,
2017
As Adjusted

(In thousands)

10,055 $

3,964

401,174

336,060

During fiscal 2018, Cadence recognized revenue of $284.3 million that was included in the deferred revenue
balance, as adjusted for Topic 606, as of December 30, 2017. All other activity in deferred revenue is due to the
timing of invoices in relation to the timing of revenue as described above.

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. The Company has elected to exclude
the future royalty payments from the remaining performance obligations. Contracted but unsatisfied performance
obligations were approximately $2.9 billion as of December 29, 2018, of which Cadence expects to recognize
approximately 60% of the revenue over the next 12 months and the remainder thereafter.

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.

During fiscal 2018, Cadence recognized revenue of $34.3 million 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 for income taxes included income from the United States and from foreign

subsidiaries for fiscal 2018, 2017 and 2016, was as follows:

United States

Foreign subsidiaries

2018

2017
(In thousands)

2016

58,963 $

81,619 $ 84,694

317,427

233,427

152,459

Total income before provision for income taxes

$ 376,390 $

315,046 $ 237,153

Cadence’s provision for income taxes was comprised of the following items for fiscal 2018, 2017 and 2016:

Current:

Federal

State and local

Foreign

Total current

Deferred:
Federal

State and local

Foreign

Total deferred

2018

2017
(In thousands)

2016

902 $

(2,193) $

4,839

(1,270)

42,657

42,289

(2,097)

35,301

31,011

34,047

38,936

(10,324)

886

76,494

5,571

(5,291)

6,006

(2,238)

(2,131)

(5,584)

(11,676)

79,934

(4,869)

Total provision for income taxes

30,613 $

110,945 $ 34,067

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 for income taxes for fiscal 2018 and of 35% to income
before provision for income taxes for fiscal 2017 and 2016 as follows:

Provision computed at federal statutory income tax rate

79,042 $

110,266 $ 83,003

2018

2017

2016

(In thousands)

State and local income tax, net of federal tax effect

Foreign income tax rate differential

Deemed repatriation transition tax

Remeasurement of U.S. deferred tax assets and liabilities

U.S. tax on foreign entities

Stock-based compensation

Change in deferred tax asset valuation allowance

Tax credits

Repatriation of foreign earnings

Non-deductible research and development expense

Tax effects of intra-entity transfer of assets

Domestic production activity deduction

Withholding taxes

Tax settlements, foreign

Increase in unrecognized tax benefits not included in tax

settlements

Other

15,540

5,867

5,534

(37,031)

(65,296)

(36,098)

(1,409)

—

28,846

67,188

25,200

—

(13,539)

(24,455)

(13,132)

13,234

4,689

1,243

(72,815)

(26,789)

(39,765)

—

4,700

—

11,535

—

(8,450)

(2,474)

11,225

3,086

25,145

—

(7,661)

(2,826)

9,870

5,620

(1,545)

3,976

4,054

6,834

614

2,520

Provision for income taxes

30,613 $

110,945 $ 34,067

Effective tax rate

35%

14%

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.

Cadence is required to recognize the effect of tax law changes in the period of enactment, which in the case
of the Tax Act was December 2017, even though the effective date for most provisions of the Tax Act was
January 1, 2018. The Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”),
which allowed registrants to record reasonable estimates or to apply tax laws in effect prior to the enactment of the
Tax Act for a period of up to one year from the date of enactment when it did not have the necessary information
available, prepared or analyzed in reasonable detail to complete its accounting for the changes in taxation.

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 SAB 118, this amount was updated to $65.8 million of expense during fiscal 2018. For purposes
of SAB 118, the accounting for the tax effects of the Tax Act is complete.

Cadence adopted the new accounting standard related to stock-based compensation in fiscal 2016, which
required the excess tax benefits or deficiencies to be reflected in the consolidated income statements as a
component of the provision for income taxes, whereas these income tax effects were previously recognized in
stockholders’ equity in the consolidated balance sheets. Total excess tax benefits recognized in the provision for
income taxes in fiscal 2018, fiscal 2017 and fiscal 2016, were $21.3 million, $32.0 million and $17.2 million,
respectively.

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

December 30, 2017:

Deferred tax assets:

Tax credit carryforwards

Reserves and accruals

Intangible assets

Capitalized research and development expense for income tax purposes

Operating loss carryforwards

Deferred income

Capital loss carryforwards

Stock-based compensation costs

Depreciation and amortization

Investments

Total deferred tax assets

Valuation allowance

Net deferred tax assets

Deferred tax liabilities:

Intangible assets

Undistributed foreign earnings

Other

Total deferred tax liabilities

Total net deferred tax assets

As of

December 29,
2018

December 30,
2017

(In thousands)

197,524 $

164,687

43,522

12,096

6,975

15,347

6,580

20,342

15,329

8,759

2,900

42,357

13,112

10,621

20,650

12,178

20,266

15,782

7,665

3,201

329,374

(108,724)

310,519

(95,491)

220,650

215,028

(36,194)

(27,627)

(2,497)

(36,683)

(23,563)

(2,730)

(66,318)

(62,976)

154,332 $

152,052

During fiscal 2018 and 2017, Cadence maintained valuation allowances of $108.7 million and $95.5 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:

(cid:129)

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 29, 2018, Cadence’s operating loss carryforwards were as follows:

Federal

California

Other states (tax effected, net of federal benefit)

Foreign (tax effected)

Amount
(In thousands)

Expiration Periods

1,374 from 2021 through 2029

175,541 from 2019 through 2037

2,333 from 2019 through 2037

293 from 2025 through indefinite

As of December 29, 2018, Cadence had tax credit carryforwards of:

Federal*

California

Other states

Foreign

Amount
(In thousands)

Expiration Periods

108,934 from 2023 through 2038

61,473 indefinite

10,445 from 2019 through 2038

16,672 from 2019 through 2038

* 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 29, 2018 Cadence’s

earliest tax years that remain open to examination and the assessment of additional tax include:

Jurisdiction

United States - Federal

United States - California

Unrecognized Tax Benefits

Earliest Tax Year
Open to
Examination

2015

2014

The changes in Cadence’s gross amount of unrecognized tax benefits during fiscal 2018, 2017 and 2016 are

as follows:

2018

2017
(In thousands)

2016

Unrecognized tax benefits at the beginning of the fiscal year

$ 110,179 $

98,540 $ 87,820

Gross amount of the increases (decreases) in unrecognized tax

benefits of tax positions taken during a prior year*

(4,183)

688

(155)

Gross amount of the increases in unrecognized tax benefits as a

result of tax positions taken during the current year

2,370

13,141

11,342

Reductions to unrecognized tax benefits resulting from the lapse of

the applicable statute of limitations

Effect of foreign currency translation

(5,179)

(1,330)

(3,028)

838

(149)

(318)

Unrecognized tax benefits at the end of the fiscal year

$ 101,857 $ 110,179 $ 98,540

Total amounts of unrecognized tax benefits that, if upon resolution of

the uncertain tax positions would reduce Cadence’s effective tax rate

58,022 $

63,108 $ 56,248

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

The total amounts of interest, net of tax, and penalties recognized in the consolidated income statements as

provision for income taxes for fiscal 2018, 2017 and 2016 were as follows:

Interest

Penalties

2018

2017
(In thousands)

2016

585 $

1,865 $ 1,166

342

218

The total amounts of gross accrued interest and penalties recognized in the consolidated balance sheets as

of December 29, 2018 and December 30, 2017 were as follows:

Interest

Penalties

NOTE 7. INVESTMENTS

As of

December 29,
2018

December 30,
2017

(In thousands)

2,699 $

2,511

151

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 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
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. During fiscal 2017 and fiscal 2016, changes in fair
value of these investments were recorded to accumulated other comprehensive loss in Cadence’s consolidated
balance sheets. For additional information regarding the adoption of ASU 2016-01, see Note 2 to the consolidated
financial statements under the heading “Recently Adopted Accounting Standards.”

Non-Marketable 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. For investments accounted for using the equity method of accounting, Cadence records its proportionate
share of 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.

In December 2018, Cadence made a minority investment in a privately held company for approximately
$116 million. The investment
is being accounted for using the equity method of accounting. Cadence’s
investments in non-marketable equity securities that are accounted for using the equity method of accounting
ranged from approximately 12% to 35% equity ownership and had an aggregate carrying value of $118.2 million
and $2.5 million as of December 29, 2018 and December 30, 2017, respectively.

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.
These investments are recorded at cost, less impairment, if any, plus or minus changes resulting from observable
price changes in market-based transactions for identical or similar investments of the same issuer. During the
fiscal year ended December 29, 2018,
there were no observable price changes or impairments related to
Cadence’s non-marketable investments in equity securities without a readily determinable fair value. The carrying
value of these investments was $0.5 million as of December 29, 2018 and December 30, 2017.

NOTE 8. 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
represents in-process technology), $90.2 million of goodwill and $19.6 million of net liabilities consisting primarily
of deferred tax liabilities. Cadence will also make payments to certain employees, subject
to continued
employment and other performance-based conditions, through the fourth quarter of fiscal 2020.

During fiscal 2016, Cadence completed two business combinations for

total cash consideration of
$42.4 million, after taking into account cash acquired of $1.8 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 $23.6 million of goodwill, $23.2 million of acquired intangible assets
and $2.6 million of net liabilities consisting primarily of deferred revenue. Cadence will also make payments to
certain employees, subject to continued employment and other conditions, through the second quarter of fiscal
2019.

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, and less than 2% of Rocketick
Technologies Ltd., one of the companies acquired in 2016. 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 Rocketick Technologies
Ltd. and on whether to proceed with the transactions.

Acquisition-related Transaction Costs

There were no direct transaction costs associated with acquisitions during fiscal 2018. Transaction costs
associated with acquisitions were $0.6 million and $1.1 million during fiscal 2017 and 2016, respectively. These
fees and administrative costs and were expensed as incurred in Cadence’s
costs consist of professional
consolidated income statements.

NOTE 9. GOODWILL AND ACQUIRED INTANGIBLES

Goodwill

The changes in the carrying amount of goodwill during fiscal 2018 and 2017 were as follows:

Balance as of December 31, 2016

Goodwill resulting from acquisitions

Effect of foreign currency translation

Balance as of December 30, 2017

Effect of foreign currency translation

Balance as of December 29, 2018

Gross Carrying
Amount
(In thousands)

572,764

90,218

3,027

666,009

(3,737)

662,272

Cadence completed its annual goodwill impairment test during the third quarter of fiscal 2018 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 29, 2018 were as follows, excluding intangibles that were fully amortized

as of December 30, 2017:

Existing technology

Agreements and relationships

Tradenames, trademarks and patents

Total acquired intangibles with definite lives

In-process technology

Gross Carrying
Amount

Accumulated
Amortization
(In thousands)

Acquired
Intangibles, Net

330,500 $

(225,383) $

105,117

146,426

(100,211)

10,718

(8,093)

487,644

(333,687)

71,500

—

46,215

2,625

153,957

71,500

Total acquired intangibles

559,144 $

(333,687) $

225,457

In-process technology as of December 29, 2018 consisted of acquired projects that, if completed, will
contribute to Cadence’s design IP offerings. As of December 29, 2018, these projects were expected to be
completed in approximately three to twelve months. During fiscal 2018, there were no transfers from in-process
technology to existing technology.

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

as of December 31, 2016:

Existing technology

Agreements and relationships

Tradenames, trademarks and patents

Total acquired intangibles with definite lives

In-process technology

Gross Carrying
Amount

Accumulated
Amortization
(In thousands)

Acquired
Intangibles, Net

342,810 $

(199,529) $

143,281

151,063

10,918

(90,675)

(7,252)

504,791

(297,456)

71,500

—

60,388

3,666

207,335

71,500

Total acquired intangibles

576,291 $ (297,456) $

278,835

Amortization expense from existing technology and maintenance agreements is included in cost of product
and maintenance. Amortization expense for fiscal 2018, 2017 and 2016, by consolidated income statement
caption, was as follows:

Cost of product and maintenance

Amortization of acquired intangibles

Total amortization of acquired intangibles

2018

2017
(In thousands)

2016

39,247 $

41,781 $

42,387

14,086

14,716

18,095

53,333 $

56,497 $

60,482

Estimated amortization expense for intangible assets with definite lives for the following five fiscal years and

thereafter was as follows:

2019

2020

2021

2022

2023

Thereafter

(In thousands)

46,217

40,612

36,115

17,810

5,325

7,878

Total estimated amortization expense

153,957

NOTE 10. 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 2018, Cadence’s stockholders approved an amendment to the Omnibus
Plan to increase the number of shares of common stock authorized for issuance by 2.0 million. As of
December 29, 2018, 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 three- to four-year period.
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 29, 2018, 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 2018, 2017 and 2016 were as follows:

Stock options

Restricted stock

ESPP

Total stock-based compensation expense

Income tax benefit

2018

2017
(In thousands)

2016

5,581 $

5,417 $

5,649

153,348

117,797

8,786

6,809

96,989

6,579

167,715 $

130,023 $ 109,217

32,830 $

36,664 $

30,980

Stock-based compensation expense is reflected in Cadence’s consolidated income statements during fiscal

2018, 2017 and 2016 as follows:

2018

2017
(In thousands)

2016

Cost of product and maintenance

2,631 $

2,218 $

Cost of services

Marketing and sales

Research and development

General and administrative

3,714

34,665

104,353

22,352

3,232

26,838

77,222

20,513

1,995

2,911

22,700

64,061

17,550

Total stock-based compensation expense

167,715 $

130,023 $ 109,217

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 2018, 2017
and 2016 were as follows:

2018

None

2017

None

24.3%

2.54%

4.8

2016

None

31.5%

1.21%

4.8

5.84

21.2%

2.01%

4.8

6.86

Dividend yield

Expected volatility

Risk-free interest rate

Expected term (in years)

Weighted-average fair value of options granted

10.24

A summary of the changes in stock options outstanding under Cadence’s equity incentive plans during fiscal

2018 is presented below:

Weighted-
Average
Remaining
Contractual
Terms
(Years)

Weighted-
Average
Exercise Price

Aggregate
Intrinsic
Value
(In thousands)

Shares
(In thousands)

Options outstanding as of December 30, 2017

5,783 $

Granted

Exercised

Canceled and forfeited

736

(993)

(112)

16.56

39.57

11.84

18.83

Options outstanding as of December 29, 2018

5,414 $

20.51

3.6 $

120,215

Options vested as of December 29, 2018

4,029 $

16.68

3.0 $

104,852

Cadence had total unrecognized compensation expense related to stock option grants of $10.8 million as of
December 29, 2018, 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 2018, 2017 and 2016 was:

Intrinsic value of options exercised

Cash received from options exercised

Restricted Stock

2018

2017
(In thousands)

2016

$ 31,109 $ 45,643 $ 44,835

11,748

22,255

30,984

Generally, restricted stock, which includes restricted stock awards and restricted stock units, vests over three
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, performance-based 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 conditions are not ultimately
met, compensation expense previously recognized is not reversed. As of December 29, 2018, Cadence had
granted a total of 1.53 million shares of long-term, performance-based stock awards to executives.

Stock-based compensation expense related to performance-based restricted stock grants for fiscal 2018,

2017 and 2016 was as follows:

Stock-based compensation expense related to performance-based grants

$ 12,868 $ 8,224 $ 9,195

2018

2017
(In thousands)

2016

A summary of the changes in restricted stock outstanding under Cadence’s equity incentive plans during

fiscal 2018 is presented below:

Weighted-
Average
Remaining
Vesting
Terms
(Years)

Weighted-
Average
Grant Date
Fair Value

Aggregate
Intrinsic
Value

(In thousands)

Unvested shares as of December 30, 2017

11,968 $

Granted

Vested

Forfeited

3,940

(5,457)

(749)

27.11

42.88

28.49

28.15

Unvested shares as of December 29, 2018

9,702 $

32.67

1.1 $

420,464

Cadence had total unrecognized compensation expense related to restricted stock grants of $261.6 million as
of December 29, 2018, which will be recognized over the remaining vesting period. The remaining weighted-
average vesting period of unvested awards is 1.9 years.

The total fair value realized by employees upon vesting of restricted stock during fiscal 2018, 2017 and 2016

was:

2018

2017
(In thousands)

2016

Fair value of restricted stock realized upon vesting

$ 232,099 $ 174,548 $ 113,114

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 six-month duration 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. During fiscal 2018, Cadence’s stockholders approved an
amendment to Cadence’s Employee Stock Purchase Plan to increase the number of shares of common stock
authorized for issuance by 4.0 million. As of December 29, 2018, the total number of shares available for future
issuance under the ESPP was 7.0 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 2018, 2017 and 2016 were as follows:

Dividend yield

Expected volatility

Risk-free interest rate

Expected term (in years)

Weighted-average fair value of options granted

2018

None

2017

None

2016

None

21.1%

2.05%

0.5

9.24

20.4%

0.92%

0.5

6.64

24.4%

0.43%

0.5

4.85

Shares of common stock issued under the ESPP for fiscal 2018, 2017 and 2016 were as follows:

2018

2017
(In thousands, except per share amounts)

2016

Cadence shares purchased under the ESPP

892

1,270

1,471

Cash received for the purchase of shares under the ESPP

Weighted-average purchase price per share

29,160 $

26,709 $

24,450

32.69 $

21.04 $

16.62

Reserved for Future Issuance

As of December 29, 2018, Cadence had reserved the following shares of authorized but unissued common

stock for future issuance:

Employee equity incentive plans*

Employee stock purchase plans

Directors stock plans*

Total

Shares
(In thousands)

16,819

7,027

1,138

24,984

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

future restricted stock grants,
(iv) unvested restricted stock units.

NOTE 11. STOCK REPURCHASE PROGRAMS

In January 2017, Cadence’s Board of Directors authorized the repurchase of shares of Cadence common
stock with a value of up to $525.0 million in the aggregate. The actual timing and amount of repurchases are
to business and market conditions, corporate and regulatory requirements, stock price, acquisition
subject
opportunities and other factors. As of December 29, 2018, $175.0 million remained available to repurchase shares
of Cadence common stock under the current authorization.

The shares repurchased under Cadence’s repurchase authorizations and the total cost of repurchased

shares, including commissions, during fiscal 2018, 2017 and 2016 were as follows:

Shares repurchased

2018

2017

2016

(In thousands)

5,934

2,495

40,493

Total cost of repurchased shares

250,059 $

100,025 $

960,289

NOTE 12. 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 2018, Cadence initiated a restructuring plan (the “2018 Restructuring
Plan”) and recorded restructuring and other charges of $13.8 million related to severance payments, termination
benefits and estimated lease losses related to vacated facilities. As of December 29, 2018, total liabilities related
to the 2018 Restructuring Plan were $11.5 million.

Cadence also initiated restructuring plans during both fiscal 2017 and fiscal 2016 (the “prior restructuring
plans”). During fiscal 2018, Cadence revised certain estimates made in connection with the prior restructuring

plans and recorded credits of $2.7 million. As of December 29, 2018,
restructuring plans were $0.5 million.

total

liabilities related to the prior

The following table presents activity for Cadence’s restructuring plans during fiscal 2018, 2017 and 2016:

Balance, January 2, 2016

Restructuring and other charges, net

Non-cash charges

Cash payments

Effect of foreign currency translation

Balance, December 31, 2016

Restructuring and other charges, net

Cash payments

Effect of foreign currency translation

Balance, December 30, 2017

Restructuring and other charges, net

Cash payments

Effect of foreign currency translation

Balance, December 29, 2018

Severance
and
Benefits

Excess
Facilities
(In thousands)

Total

751 $

386 $ 1,137

40,411

—

(16,890)

130

544

40,955

(159)

(679)

(17,569)

(34)

24,402 $

58 $ 24,460

9,027

(20,170)

276

379

9,406

(186)

(20,356)

(2)

274

13,535 $

249 $ 13,784

10,268

(12,688)

821

11,089

(192)

(12,880)

(30)

11,176 $

848 $ 12,024

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

follows:

Accounts payable and accrued liabilities

Other long-term liabilities

Total liabilities

As of
December 29, 2018
(In thousands)

11,597

427

12,024

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 29, 2018. 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 13. OTHER INCOME, NET

Cadence’s other income, net, for fiscal 2018, 2017 and 2016 was as follows:

2018

2017
(In thousands)

2016

Interest income

8,070 $

3,879 $

Gains (losses) on marketable equity investments

Gains on non-marketable equity investments

Gains (losses) on securities in NQDC trust

Gains (losses) on foreign exchange

Gain on sale of property, plant and equipment

Other income (loss), net

Total other income, net

NOTE 14. NET INCOME PER SHARE

(551)

3,300

(1,471)

(5,557)

—

(471)

520

8,934

6,145

(2,920)

—

197

2,917

263

2,668

1,741

6,879

923

531

3,320 $

16,755 $

15,922

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 2018, 2017 and 2016 are as follows:

2018

2017
(In thousands, except per share amounts)

2016

Net income

$ 345,777

$ 204,101

$ 203,086

Weighted-average common shares used to calculate basic net

income per share

Stock-based awards

Weighted-average common shares used to calculate diluted net

income per share

Net income per share—basic

Net income per share—diluted

273,729

272,097

284,502

7,415

8,124

6,754

281,144

280,221

291,256

1.26

1.23

0.75

0.73

0.71

0.70

The following table presents shares of Cadence’s common stock outstanding for fiscal 2018, 2017 and 2016
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:

Long-term performance-based awards

Options to purchase shares of common stock

Non-vested shares of restricted stock

Total potential common shares excluded

2018

2017
(In thousands)

2016

637

290

977

152

303

532

1,069

581

1,677

NOTE 15. BALANCE SHEET COMPONENTS

A summary of certain balance sheet components as of December 29, 2018 and December 30, 2017 is as

follows:

Inventories:

Raw materials

Finished goods

Inventories

Property, plant and equipment:

Computer equipment and related software

Buildings

Land

Leasehold, building and land improvements

Furniture and fixtures

Equipment

In-process capital assets

Total cost

Less: Accumulated depreciation and amortization

Property, plant and equipment, net

Other assets:

Deferred income taxes

Non-marketable investments

Other long-term assets

Other assets

Accounts payable and accrued liabilities:

Payroll and payroll-related accruals

Accounts payable

Accrued operating liabilities

As of

December 29,
2018

December 30,
2017

(In thousands)

16,392 $

11,770

17,491

15,718

28,162 $

33,209

574,333 $

537,144

126,927

55,802

108,529

27,087

52,088

6,357

127,478

55,840

106,173

27,590

50,340

5,154

951,123

909,719

(698,493)

(658,377)

252,630 $

251,342

154,894 $

152,501

118,734

97,603

2,992

74,808

371,231 $

230,301

192,466 $

164,310

5,484

58,576

4,825

51,966

Accounts payable and accrued liabilities

256,526 $

221,101

NOTE 16. 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:

(cid:129)

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

(cid:129)

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

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 2018.

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 our debt arrangements, see Note 3 in the
notes to consolidated financial statements.

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 29, 2018 and
December 30, 2017:

Fair Value Measurements as of December 29, 2018:
Level 3
Total

Level 1

Level 2

Assets

Cash equivalents:

Money market funds

Marketable equity securities

Securities held in NQDC trust

Foreign currency exchange contracts

(In thousands)

327,841 $

— $

3,887

27,767

101

3,887

27,767

—

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.

Fair Value Measurements as of December 30, 2017:
Level 3
Total

Level 1

Level 2

Assets

Cash equivalents:

Money market funds

Marketable equity securities

Securities held in NQDC trust

Foreign currency exchange contracts

(In thousands)

503,934 $

— $

4,455

31,473

2,937

4,455

31,473

—

2,937

Total Assets

542,799 $

539,862 $

2,937 $

—

As of December 30, 2017, Cadence did not have any financial liabilities requiring a recurring fair value

measurement.

NOTE 17. COMMITMENTS AND CONTINGENCIES

Lease Commitments

Facilities, equipment and vehicles are leased under various operating leases expiring at various dates
through 2030. Certain of these leases contain renewal options and escalating rent payments. Rental expense is
recognized on a straight-line basis and was as follows during fiscal 2018, 2017 and 2016:

Rent expense

2018

2017
(In thousands)

2016

33,717

32,089

28,216

As of December 29, 2018, future minimum lease payments under non-cancelable operating leases for the

following five fiscal years and thereafter were as follows:

2019

2020

2021

2022

2023

Thereafter

Total lease payments

Purchase Obligations

Operating
Leases

(In thousands)

26,252

23,130

19,778

14,243

11,510

17,100

112,013

Cadence had purchase obligations of $24.7 million as of December 29, 2018 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 2018, 2017 or 2016.

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 2018, 2017 or 2016.

NOTE 18. 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 2018, 2017 and 2016 were as follows:

2018

2017
(In thousands)

2016

Contributions to defined contribution plans

25,731 $

26,010 $

24,185

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. Net recognized gains (losses) of these securities during fiscal
2018, 2017 and 2016 were as follows:

Gains (losses) on securities held in NQDC trust

(1,471) $

6,145 $

1,741

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. The unfunded projected benefit obligation for these retirement plans as of
December 29, 2018, December 30, 2017 and December 31, 2016 was as follows:

2018

2017
(In thousands)

2016

December 29,
2018

December 30,
2017
(In thousands)

December 31,
2016

Unfunded projected benefit obligation–defined benefit retirement

plans

7,990 $

6,976 $

6,164

NOTE 19. 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. Aggregate changes in unrealized holding gains on
available-for-sale securities net of reclassifications for realized gains and losses were also included through
December 30, 2017.

On the first day of fiscal 2018, Cadence reclassified unrealized holding gains on available-for-sale securities
to retained earnings in connection with the adoption of ASU 2016-01, “Financial Instruments—Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” For additional information
regarding the adoption of
this accounting standard, refer to Note 2 under the heading “Recently Adopted
Accounting Standards.”

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

December 30, 2017:

Foreign currency translation loss

Changes in defined benefit plan liabilities

Unrealized holding gains on available-for-sale securities

Total accumulated other comprehensive loss

As of

December 29,
2018

December 30,
2017

(In thousands)

(20,861) $

(3,919)

—

(2,976)

(3,292)

2,638

(24,780) $

(3,630)

For fiscal 2018, 2017 and 2016, 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 20. SEGMENT REPORTING

Segment reporting is based on the “management approach,” following the method that management
organizes the company’s operating 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. Long-lived 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 2018, 2017 and 2016:

Americas:

United States

Other Americas

Total Americas

Asia

Europe, Middle East and Africa

Japan

Total

2018

2017
(In thousands)

2016

924,644 $

829,436 $

832,583

32,531

35,067

31,296

957,175

605,415

406,877

168,555

864,503

526,201

385,705

166,623

863,879

445,500

346,701

160,003

$ 2,138,022 $ 1,943,032 $ 1,816,083

The following table presents a summary of long-lived assets by geography as of December 29, 2018,

December 30, 2017 and December 31, 2016:

December 29,
2018

As of
December 30,
2017
(In thousands)

December 31,
2016

200,025 $

198,744 $

193,750

475

611

757

200,500

199,355

194,507

39,629

11,784

717

37,678

13,615

694

30,564

12,692

844

252,630 $

251,342 $

238,607

Americas:

United States

Other Americas

Total Americas

Asia

Europe, Middle East and Africa

Japan

Total

NOTE 21. SUBSEQUENT EVENTS

Non-Marketable investments

In January 2019, Cadence made an additional minority equity investment

in a private company for
investment to approximately $149 million. For additional

approximately $34 million, bringing Cadence’s total
information regarding Cadence’s investments, see Note 7 to the consolidated financial statements.

Stock Repurchase Authorization

In February 2019, Cadence’s Board of Directors authorized the additional repurchase of shares of Cadence’s
common stock with a value of up to $500 million in the aggregate. The actual timing and amount of future
repurchases are subject to business and market conditions, corporate and regulatory requirements, stock price,
acquisition opportunities and other factors.

EXHIBIT INDEX

Exhibit
Number

3.01

3.02

3.03

4.01

4.02

4.03

10.01*

10.02*

10.03*

10.04*

10.05*

10.06*

10.07*

10.08*

Exhibit Title

Restated Certificate of Incorporation, as filed
with the Secretary of State of the State of
Delaware on May 13, 1998.
Certificate of Designation for the Series A
Junior Participating Preferred Stock, as
amended on February 1, 2000.
The Registrant’s Amended and Restated
Bylaws, effective as of February 6, 2019.
Specimen Certificate of the Registrant’s
Common Stock.
Base Indenture, dated October 9, 2014,
between the Registrant and Wells Fargo
Bank, N.A., as trustee.
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).
The Registrant’s Amended and Restated
1987 Stock Incentive Plan.
Form of Stock Option Agreement and Form
of Stock Option Exercise Request under the
Registrant’s 1987 Stock Incentive Plan, as
amended and restated.
Form of Nonstatutory Incentive Stock Award
Agreement under the Registrant’s 1987
Stock Incentive Plan, as amended and
restated.
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.
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.
Form of Stock Option Agreement under the
Registrant’s 1987 Stock Incentive Plan, as
amended and restated.
Form of Incentive Stock Award Agreement
for performance-based Incentive Stock
Awards under the Registrant’s 1987 Stock
Incentive Plan, as amended and restated.
The Registrant’s 1995 Directors Stock
Incentive Plan.

Incorporated by Reference
Exhibit
No.

Filing Date

Form File No.

Provided
Herewith

10-Q 001-10606

3.01(j)

8/18/1998

10-K

001-10606

4.02

3/27/2000

8-K

000-15867

3.01

2/8/2019

S-4

033-43400

4.01

10/17/1991

8-K

000-15867

4.01

10/9/2014

8-K

000-15867

4.02

10/9/2014

S-8

333-174201

99.1

5/13/2011

10-Q 001-10606

10.02

8/10/2004

10-K

001-10606

10.03

3/16/2005

10-Q 001-10606

10.02

12/11/2008

10-Q 001-10606

10.03

12/11/2008

10-Q 001-10606

10.01

5/1/2009

10-Q 001-10606

10.02

5/1/2009

10-Q 001-15867

10.01

7/26/2012

Incorporated by Reference
Exhibit
No.

Filing Date

Form File No.

Provided
Herewith

10-K

000-15867

10.76

2/21/2013

10-K

000-15867

10.77

2/21/2013

S-8

333-174200

99.1

5/13/2011

10-Q 001-10606

10.02

10/28/2011

10-Q 001-10606

10.03

10/28/2011

10-Q 001-10606

10.04

10/28/2011

S-8

333-226292

99.01

7/23/2018

S-8

333-195771

99.02

5/7/2014

S-8

333-195771

99.03

5/7/2014

S-8

333-195771

99.04

5/7/2014

S-8

333-195771

99.05

5/7/2014

S-8

333-195771

99.06

5/7/2014

S-8

333-195771

99.07

5/7/2014

S-8

333-226293

99.01

7/23/2018

10-K

001-10606

10.09

3/12/2002

Exhibit
Number

10.09*

10.10*

10.11*

10.12*

10.13*

10.14*

10.15*

10.16*

10.17*

10.18*

10.19*

10.20*

10.21*

10.22*

10.23*

Exhibit Title

Form of Stock Option Agreement, as
currently in effect under the Registrant’s
1995 Directors Stock Incentive Plan.
Form of Incentive Stock Award Agreement,
as currently in effect under the Registrant’s
1995 Directors Stock Incentive Plan.
The Registrant’s Amended and Restated
2000 Equity Incentive Plan.
Form of Incentive Stock Award Agreement
under the Registrant’s Amended and
Restated 2000 Equity Incentive Plan.
Form of Restricted Stock Unit Award
Agreement under the Registrant’s Amended
and Restated 2000 Equity Incentive Plan.
Form of Stock Option Agreement under the
Registrant’s Amended and Restated 2000
Equity Incentive Plan.
The Registrant’s Omnibus Equity Incentive
Plan, as amended and restated.
Form of Incentive Stock Award Agreement
for Non-Executive Employees and
Consultants, as currently in effect under the
Registrant’s Omnibus Equity Incentive Plan.
Form of Restricted Stock Unit Agreement for
Non-Executive Employees and Consultants,
as currently in effect under the Registrant’s
Omnibus Equity Incentive Plan.
Form of Stock Option Agreement for
Non-Executive Employees and Consultants,
as currently in effect under the Registrant’s
Omnibus Equity Incentive Plan.
Form of Incentive Stock Award Agreement
for Executives, as currently in effect under
the Registrant’s Omnibus Equity Incentive
Plan.
Form of Restricted Stock Unit Agreement for
Executives, as currently in effect under the
Registrant’s Omnibus Equity Incentive Plan.
Form of Stock Option Agreement for
Executives, as currently in effect under the
Registrant’s Omnibus Equity Incentive Plan.
The Registrant’s Amended and Restated
Employee Stock Purchase Plan.
The Registrant’s 1996 Deferred
Compensation Venture Investment Plan, as
amended and restated effective January 1,
2001.

Exhibit
Number

10.24*

10.25*

10.26*

10.27*

10.28*
10.29*
10.30*

10.31

10.32
10.33

10.34*

10.35*

10.36*

10.37*

10.38*

10.39*

10.40*

10.41*

10.42*

Exhibit Title

The Registrant’s 2002 Deferred
Compensation Venture Investment Plan, as
amended.
The Registrant’s 1994 Deferred
Compensation Plan, as amended and
restated effective November 20, 2003
(409A Grandfathered Plan).
The Registrant’s 2009 Deferred
Compensation Plan.
Amendments Number One, Two, Three and
Four of the Registrant’s 2009 Deferred
Compensation Plan.
The Senior Executive Bonus Plan.
The Registrant’s Executive Severance Plan.
Director Medical and Prescription Benefits
Coverage Reimbursement Plan.
Altos Design Automation, Inc. 2006 Stock
Plan, as amended December 23, 2009.
Tensilica, Inc. 2007 Stock Incentive Plan.
C2 Design Automation (d/b/a/ Forte Design
Systems) 2010 Stock Option Plan.
Form of Indemnity Agreement between the
Registrant and its directors and executive
officers, as amended and restated.
Employment Agreement, effective as of
July 29, 2008, between the Registrant and
James J. Cowie.
Employment Agreement, effective as of
January 8, 2009, between the Registrant and
Lip-Bu Tan.
Employment Agreement, effective as of
February 23, 2009, between the Registrant
and Nimish H. Modi.
Form of First Amendment to Employment
Agreement between the Registrant and the
Registrant’s named executive officers.
Form of Second Amendment to Employment
Agreement between the Registrant and the
Registrant’s named executive officers.
Second Amendment to Employment
Agreement, effective as of March 1, 2010,
between the Registrant and Lip-Bu Tan.
Employment Agreement, effective as of
October 21, 2011, between the Registrant
and Geoffrey G. Ribar.
Employment Agreement, effective as of
September 20, 2012, between the Registrant
and Thomas P. Beckley.

Incorporated by Reference
Exhibit
No.

Filing Date

Form File No.

Provided
Herewith

10-Q 001-10606

10.32

8/10/2004

10-K

001-10606

10.10

2/26/2008

10-K

001-10606

10.13

2/26/2008

10-K

000-15867

10.27

2/20/2018

000-15867
8-K
8-K
001-15867
10-Q 001-10606

10.01
10.01
10.02

2/8/2019
5/11/2016
4/29/2011

S-8

333-174202

99.1

5/13/2011

S-8
S-8

333-188452
333-194102

99.01
99.01

5/8/2013
2/24/2014

10-Q 000-15867

10.01

7/25/2016

10-K

001-10606

10.92

3/2/2009

10-K

001-10606

10.93

3/2/2009

10-K

001-10606

10.96

3/2/2009

10-Q 001-10606

10.02

7/31/2009

10-K

001-10606

10.94

2/26/2010

10-K

001-10606

10.95

2/26/2010

10-K

001-10606

10.77

2/24/2012

10-K

000-15867

10.44

2/20/2014

Incorporated by Reference
Exhibit
No.

Filing Date

Form File No.

10-Q 000-15867

10.01

4/27/2015

10-K

000-15867

10.49

2/18/2016

10-K

000-15867

10.51

2/10/2017

8-K

000-15867

10.01

11/17/2017

8-K

000-15867

10.01

2/1/2017

8-K

000-15867

10.01

2/3/2016

8-K

000-15867

10.02

2/1/2017

10-Q 000-15867

10.01

4/25/2018

S-8

333-226294

99.01

7/23/2018

Provided
Herewith

Exhibit
Number

10.43*

10.44*

10.45*

10.46*

10.47*

10.48*

10.49*

10.50*

10.51*
21.01
23.01

31.01

31.02

32.01

Exhibit Title

Employment Agreement, effective as of
March 16, 2015, between the Registrant and
Anirudh Devgan.
Letter, dated September 1, 2015, between
the Registrant and Neil Zaman.
Offer Letter, dated January 12, 2017,
between the Registrant and Surendra Babu
Mandava.
First Amendment to Employment
Agreement, effective November 16, 2017,
between the Registrant and Anirudh Devgan.
Credit Agreement, dated as of January 30,
2017, by and among the Registrant,
JPMorgan Chase Bank, N.A. and other
lenders party thereto.
Term Loan Agreement, dated as of
January 28, 2016, by and among the
Registrant, J.P. Morgan Securities LLC,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated, JPMorgan Chase Bank, N.A.,
and other lenders party thereto.
Amendment No. 1 to Loan Agreement, dated
as of January 30, 2017, by and among the
Registrant, JPMorgan Chase Bank, N.A. and
other lenders party thereto.
Third Amendment to Employment
Agreement, effective as of March 22, 2018,
between the Registrant and Lip-Bu Tan.
nusemi inc. 2015 Equity Incentive Plan.
Subsidiaries of the Registrant.
Independent Registered Public Accounting
Firm’s Consent.
Certification of the Registrant’s Chief
Executive Officer, Lip-Bu Tan, pursuant to
Rule 13a-14 of the Securities Exchange Act
of 1934.
Certification of the Registrant’s Chief
Financial Officer, John M. Wall, pursuant to
Rule 13a-14 of the Securities Exchange Act
of 1934.
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.

Exhibit Title

Form

File
No.

Exhibit
No.

Filing Date

Provided
Herewith

Incorporated by
Reference

Exhibit
Number

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.

101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase

Document.

101.DEF XBRL Taxonomy Extension Definition Linkbase

Document.

101.LAB XBRL Taxonomy Extension Label Linkbase

Document.

101.PRE XBRL Taxonomy Extension Presentation Linkbase

Document.

X
X
X

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

Item 16. Form 10-K Summary

Not applicable.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has

duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

CADENCE DESIGN SYSTEMS, INC.

/s/ Lip-Bu Tan

Lip-Bu Tan
Chief Executive Officer and Director
Dated: February 27, 2019

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by

the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Lip-Bu Tan

Lip-Bu Tan

Chief Executive Officer and Director

/s/ John M. Wall

John M. Wall

Senior Vice President and Chief Financial Officer

DATE: February 27, 2019

100

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS,

that each person whose signature appears below
constitutes and appoints Lip-Bu Tan, John M. Wall and James J. Cowie, and each of them, as his or her true and
lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their, his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by

the following persons on behalf of the registrant and in the capacities and on the dates indicated:

/s/ Dr. John B. Shoven

Dr. John B. Shoven, Chairman of the Board of Directors

/s/ Mark W. Adams

Mark W. Adams, Director

/s/ Susan L. Bostrom

Susan L. Bostrom, Director

/s/ Dr. James D. Plummer

Dr. James D. Plummer, Director

/s/ Dr. Alberto Sangiovanni-Vincentelli

Dr. Alberto Sangiovanni-Vincentelli, Director

/s/ Roger S. Siboni

Roger S. Siboni, Director

/s/ Young K. Sohn

Young K. Sohn, Director

/s/ Mary Agnes Wilderotter

Mary Agnes Wilderotter, Director

101

February 27, 2019