Cadence Design Systems Annual Report 2021

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FY2021 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

‘

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

For the fiscal year ended January 1, 2022
OR

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)

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

Names of Each Exchange on which Registered
Nasdaq Global Select Market

(408)-943-1234
(Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
CDNS
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 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.
Large Accelerated Filer È
Non-accelerated Filer ‘

‘
Accelerated Filer
Smaller Reporting Company ‘
Emerging Growth Company ‘
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 the registrant has filed a report on and attestation to its management’s assessment
of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15
U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. È
the registrant

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

Indicate by check mark whether

the

Act). Yes ‘ No È

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 July 3, 2021 was approximately $38,179,000,000.

On February 5, 2022, approximately 277,336,000 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 2022 Annual Meeting of Stockholders

are incorporated by reference into Part III hereof.

DOCUMENTS INCORPORATED BY REFERENCE

CADENCE DESIGN SYSTEMS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 1, 2022

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.

[Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections . . . . . . . . . . . . . . . . . . .

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Page

101

102

[THIS PAGE INTENTIONALLY LEFT BLANK]

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,
statements regarding the impact on our business of the COVID-19 pandemic and related public health measures
or mandates, and other and 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” sections 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

Cadence is a leader in electronic system design, building upon more than 30 years of computational software
expertise. We apply our underlying Intelligent System Design™ strategy to deliver computational software,
hardware and IP that turn design concepts into reality. Our customers include some of the world’s most innovative
companies that deliver extraordinary electronic products from chips to boards to systems for dynamic market
applications.

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

Our electronic systems customers deliver entire devices, such as smartphones, laptop computers, gaming
systems, automobiles and autonomous driving systems, servers, cloud data center 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 processors, SoCs, AI, memory, analog and other types of chips.

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

Our strategy, which we call Intelligent System Design, is to provide the computational software technologies
necessary for our electronic system and semiconductor customers to develop products across a variety of vertical
markets including consumer, hyperscale computing, mobile, 5G communications, automotive, aerospace and
defense, industrial and healthcare. We address the challenges posed by the needs and trends of electronic
systems companies as well as semiconductor companies delivering greater portions of these systems.

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 approximately 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 to enable computational software for
Intelligent System Design across three layers as illustrated below—starting with IC and SoC design excellence,
followed by system innovation, and then pervasive intelligence.

Cadence Intelligent System Design Strategy
Enabling end-to-end systems from devices to the cloud

Consumer

Hyperscale

Mobile

Communications

Automotive

Aero / Defense

Industrial

Healthcare

PERVASIVE
INTELLIGENCE

SYSTEM
INNOVATION

DESIGN
EXCELLENCE

(cid:129) Machine learning technology
(cid:129) Artificial intelligence enablement

• Multi-level, Multiphysics, and computational fluid dynamics

analysis platforms

(cid:129) 3D-IC, high-speed radio frequency design and analysis platforms
(cid:129) System and embedded software partnerships

(cid:129) Custom IC design and simulation platforms
(cid:129) Digital IC design and signoff platforms
(cid:129) Functional verification platform
(cid:129) Enterprise intellectual property

Cloud Enabled — Partnerships with Ecosystem Leaders

The IC and SoC design excellence requires technologies for custom IC, digital IC design and signoff, and
functional verification, and leverages pre-built semiconductor IP. These tools, IP and associated services are
specifically designed to meet the growing requirements of engineers designing increasingly complex chips across
analog, digital and mixed-signal domains, and perform the associated verification tasks, including validation of
low-level software running on the silicon model, thereby enabling design teams to manage complexity and
verification throughput without commensurately increasing the team size or extending the project schedule, while
reducing technical risks.

The second layer of our strategy centers around system innovation. It includes tools and services used for
system design of the packages that encapsulate the ICs and the PCBs, system simulation which includes
electromagnetic, electro-thermal and other multi-physics analysis necessary as part of optimizing the full system’s
performance, radio frequency (“RF”) and microwave systems, and embedded software.

The third layer of our strategy addresses pervasive intelligence in new electronics. It starts with providing
solutions and services to develop AI-enhanced systems and includes machine learning and deep learning

capabilities being added to the Cadence® technology portfolio to make IP and tools more automated and to
produce optimized results faster.

Our software and emulation products also support cloud access to address the growing computational needs

of our customers.

Recent Acquisitions

During fiscal 2021, we continued to execute our Intelligent System Design strategy and expanded our product
offerings and solutions into computational fluid dynamics (“CFD”) with our acquisitions of Belgium-based NUMECA
International, a leader in CFD technology, and Pointwise, Inc, a leading provider of CFD meshing technology. The
addition of these technologies and talent broadens our System Design and Analysis portfolio and expertise.

Chief Executive Officer Transition

On December 15, 2021, Anirudh Devgan assumed the role of President and Chief Executive Officer of
Cadence, replacing Lip-Bu Tan. Prior to his role as Chief Executive Officer, Dr. Devgan served as President of
Cadence. Concurrently, Mr. Tan transitioned to the role of Executive Chair.

Business Drivers

Our products and services enable our customers to design complex and innovative electronic products that
are accelerated by the growing digital transformation. Demand for our technology and expertise is driven by
increasing complexity and our customers’
investment in new designs and products. The most promising new
opportunities for us involve enabling the design of electronic systems for consumers, including augmented reality
(“AR”), virtual reality (“VR”), and industrial internet of things (“IIoT”), hyperscale computing (including data center
infrastructure), AI, edge computing, mobile, communications (including 5G networks), automotive, aerospace and
defense, and industrial and healthcare subsystems. Large and existing electronics categories, such as data center
infrastructure, mobile, 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, some of our
products need to first incorporate new capabilities such that they can exploit new manufacturing capabilities. This
dependency means that we must invest significantly in product research and development (“R&D”) to keep pace
with the latest manufacturing technology. The demand for new IC manufacturing technology directly impacts the
demand for our newest products.

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 growing key
challenges associated with electronic product creation, such as power consumption, performance, chip area and
cost. Our products and services have unique attributes that our customers value. In general, these attributes can
be grouped into broader categories such as quality of results (“QoR”) (in terms of power consumption,
performance and chip area), engineering productivity, tool performance, manufacturing, reliability, and faster time
to market. Many of these attributes contribute to the sustainability of our planet by enabling our customers to
create innovative products that optimize power, space and energy needs. We are applying machine learning or
computational software techniques within our products to enhance QoR, productivity, performance, manufacturing,
reliability and methodology.

Products and Product Strategy

Our Intelligent System Design strategy enables our customers to address a broad range of challenges that
arise as they develop electronic products. Our solutions are categorized according to the role they play in the
electronic product design process. We group our products into categories related to major design activities,
including Custom IC Design and Simulation, Digital IC Design and Signoff, Functional Verification, IP, and System
Design and Analysis.

Custom IC Design and Simulation

Our 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 RF
designs. These representations are verified using simulation tools optimized for each type of design, including the
design capture environment, simulation and IC layout within the Virtuoso® custom IC design platform. Other tools
in the custom IC portfolio are used to prepare the designs for manufacturing.

The Virtuoso Advanced-Node Platform 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.
The Virtuoso RF Solution addresses the challenges of RF design across chip, package and board. The Spectre®
Simulation Platform provides large-scale verification simulation. The Virtuoso System Design Platform enables
engineers to design and verify concurrently across the chip, package and board.

Digital IC Design and Signoff

Our digital IC design and signoff solutions are used 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” below). Once the logic is verified, the design 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 design and signoff technology suite provides a full flow
to achieve power, performance and area (“PPA”) design targets, and includes 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.
The offering includes the Genus™ Synthesis Solution, a logic synthesis offering that provides fast throughput while
also offering high quality results, and the Joules™ RTL Power Solution, which delivers fast power analysis while
preserving near-signoff accuracy. We also offer the Modus software solution, which reduces SoC design-for-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 PPA
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 the Tempus™ Timing
Signoff Solution, Voltus™ Power
Integrity Solution, Quantus™ Extraction Solution 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 sign off

Functional Verification

Functional verification products are used by our customers to effectively and efficiently verify that the circuitry
or the software they have designed is consistent with the functional specification. Verification is largely done
throughout the design process, with the objective of identifying as many potential functional problems as possible
before manufacturing the circuitry, thereby significantly reducing the risk of discovering a costly error in the
completed product.

Our Verification Suite™ includes four primary verification engines, starting with the JasperGold® Formal
Verification Platform and Xcelium™ Parallel Logic Simulation Platform, which are used in the early stages of design
verification, often at the IP and subsystem level. Once the design is more mature, with early formal and simulation
verification tasks performed, verification engineers deploy our Palladium® Enterprise Emulation Platform and
Protium™ FPGA-Based Prototyping Platforms for more comprehensive chip verification, often running low-level
embedded software on top of a model of the chip, to provide for proper functionality before silicon manufacturing.

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 Palladium platform provides
high throughput, capacity, data center reliability and workgroup productivity to enable global design teams to
develop advanced hardware-software systems. The Protium platform leverages a common front end with the
Palladium environment to move designs rapidly from emulation to the prototyping stage, allowing for software
development to start weeks to months earlier than otherwise possible.

These engines are also supported by other verification tools that provide an environment that allows for
effective verification throughput and management, including verification planning and metric tracking, testbench
automation, debugging and software-driven tests, enabling our customers to coordinate verification activities
across multiple verification engines, teams and locations for effective verification closure.

Our 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 IP, including Tensilica® configurable digital signal processors (“DSPs”), vertically targeted subsystems for
AI, audio/voice, baseband and vision/imaging applications, controllers and physical
interfaces for standard
protocols and analog IP. Our design IP portfolio also includes solutions for high speed SerDes, PCI, USB and
many other standards.

We also offer a broad range of Verification IP (“VIP”) with 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. Our VIP and accelerated VIP are used with our full suite of functional verification engines to
emulate and model the expected behavior and interaction of standard industry system interface protocols including
DDR, USB, and PCI Express® in silicon. Our customers also use our System VIP offerings to perform full system-
level chip verification.

System Design and Analysis

Our system design and analysis offerings are used by our customers to develop PCBs and advanced IC

packages and to analyze electromagnetic, electro-thermal and other multi-physics effects.

The capabilities in the Allegro® System Design Platform include PCB authoring and implementation, IC
package and system-in-package design, signal and power integrity analysis, and PCB library design management
and collaboration. The need for compact, high-performance mobile, consumer and automotive design with
advanced serial
interconnect is driving the technology evolution for our PCB offerings. 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.

The speed and close proximity of signals on silicon, through packages to boards, and through connectors and
cables, exposes these communications to various kinds of interference, generates heat and emits electromagnetic
radiation. Careful analysis is required for these systems to work as designed under a wide range of operating
conditions and within compliance of standards and laws. The complexity of these devices and signal transmissions
requires analysis and simulation throughout the product lifecycle to meet these objectives. Our Clarity™ 3D Solver
for electromagnetic and power electronics analysis and simulation, as well as our Celsius™ Thermal Solver,
provide the foundation for multi-physics analysis technology, with complete electrical-thermal co-simulation for
electronic systems from ICs to physical enclosures.

The addition of our CFD solution expands our ability to meet the growing design challenges of electronic and
systems companies. Our CFD solution enables our customers to extend their multi-physics analysis workflows to
address simulation and analysis challenges for applications such as aerodynamics, hydrodynamics, propulsion,
heat transfer, and combustion.

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 the right for the customer to remix
among the products delivered at the outset of the arrangement and use 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.

The Cadence Cloud portfolio, consisting of Cadence-managed and customer-managed environments for
electronic product developers using the scalability of the cloud, continues to expand, with additional cloud-ready
products added or under development
in fiscal 2021. Contractual arrangements with customers for both
environments are time-based, similar to the on-premises software license arrangements described above, and
may also include usage-based terms.

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. Some customers enter into a non-cancellable IP Access Agreement (“IPAA”), whereby the
customer commits to a fixed dollar amount over a specified period of time that can be used to purchase from a list
of IP products or services. In addition, for certain 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.

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

Our Learning and Support System gives customers easy access to extensive online training and webinar

offerings to support the increase in the number of our customers’ employees working from home.

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, specialized design services engineers are assigned to internal R&D projects
associated with our design IP business.

As part of our services offerings, we design advanced ICs, develop custom IP and help customers address
design challenges. 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,
hyperscale computing, 5G communications, mobile automotive, aerospace and defense, industrial and healthcare
verticals. 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 outsourced,
consultative and collaborative offerings.

Third-Party Programs and Initiatives

In addition to our products, many customers use design tools that are provided by other companies, as well
as design IP available from alternative suppliers. We support the use of third-party design products and design IP
through our Cadence 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.

We also have a strategic partnership with Green Hills Software, an industry leader in embedded safety and

security software solutions.

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

2021

2020
(In millions, except percentages)

2019

2,813 94% $

2,537 95% $

2,204 94%

175

146

132

2,988

2,683

2,336

In any fiscal year, we expect between 85% and 90% of our annual revenue to be characterized as recurring
revenue. Revenue characterized as recurring includes revenue recognized over
time from our software
arrangements, services, royalties, maintenance on IP licenses and hardware, operating leases of hardware and
revenue recognized at varying points in time over
include
non-cancellable commitments from customers.

IP Access Agreements that

the term of our

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

For additional information and analysis on our revenue, including revenue by geography, 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 2021 results of operations and our financial position as of January 1,
2022, see Part IV, Item 15, “Exhibits and Financial Statement Schedules.”

Remaining Performance Obligations

potential
future royalty receipts from the remaining performance obligations. Contracted but unsatisfied
performance obligations were approximately $4.4 billion as of January 1, 2022, which included $119.5 million of
non-cancellable IPAA commitments from customers where actual product selection and quantities of specific
products or services are to be determined by customers at a later date. As of January 1, 2022, we expected to
recognize approximately 55% of the contracted but unsatisfied performance obligations, excluding non-cancellable
IPAA commitments, as revenue over the next 12 months and the remainder thereafter.

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 R&D align with our product categories
discussed above. We must continuously adapt 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 R&D.

Hardware Manufacturing and Software Distribution

Our emulation and prototyping hardware,

prototyping components,
customers. Software and documentation are primarily distributed to customers by secure electronic delivery.

individual PCBs, custom ICs and FPGA-based
is manufactured, assembled and tested by subcontractors before delivery to our

including all

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 IP licensed from third parties.
We may have to seek new licenses or renew existing licenses for third-party software and other IP in the future. As
part of performing engineering services for customers, our engineering services business uses certain software
and other IP licensed from third parties, including that of our competitors.

Governmental Regulations

We are subject to a variety of federal, state, local and foreign laws and regulations relating to our business
and operations. These include, but are not limited to, laws and regulations related to import and export controls,
anti-corruption, competition, data privacy, and employment. For example, we are subject to the regulations of the
United States and certain other jurisdictions in selling or shipping our products and technology outside the United
licensing
States and to foreign nationals,
requirements, sanctions and other trade regulations, such as the U.S. Export Administration Regulations including
“Entity List” restrictions imposed by the Bureau of Industry and Security (“BIS”) of the U.S. Department of

trade protection measures,

import or export

including tariffs,

Commerce (“DOC”).
Import/export regulations limiting or banning sales into certain countries or to certain
companies have impacted our ability to transact business in certain countries and with certain customers. Future
export regulations may also impact our ability to transact business with certain customers and in certain countries
and may restrict certain non-U.S. person employees from performing their duties at Cadence without first obtaining
appropriate authorization if their duties involve an export, reexport, or transfer of export-controlled technology. In
addition, as a result of our international operations, we are subject to laws and regulations, such as the U.S.
Foreign Corrupt Practices Act,
laws, prohibiting corrupt payments to
governmental officials, as well as anti-competition regulations. We are also subject to laws and regulations
governing data privacy in the U.S. and other jurisdictions, such as the General Data Protection Regulation
(“GDPR”) in the European Union.

the U.K. Bribery Act and other local

These laws and regulations are complex and may change or develop over time, sometimes with limited
notice. We may incur significant expenditures in future periods related to compliance, which could restrict our
business operations. For more information on risks related to these regulations, see the relevant discussions
throughout Item 1A, “Risk Factors.”

Competition

We compete most frequently with Synopsys, Inc., Siemens EDA, and ANSYS, Inc., and also with numerous
other tools providers, electronics device manufacturers with their own EDA capabilities, technical or computational
software companies, electronics design and consulting companies, and other IP companies. These include U.S.
based companies such as Keysight Technologies, Inc. and CEVA, Inc., and foreign companies such as Altium
Limited (Australia), Zuken Ltd. (Japan), and emerging competitors in China like Huada Empyrean, Xpeedic,
X-EPIC, Primarius Technologies and Giga-DA.

Certain competitive factors in the engineering services business differ from those of the products businesses.
While we compete with other computational software 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.

For more information on risks related to competitive factors affecting our business, see the relevant

discussions throughout Item 1A, “Risk Factors.”

Human Capital Resource Management

Our future success is inextricably linked to our ability to attract, retain and develop exceptional talent globally.
To facilitate talent attraction and retention, we invest in key initiatives including, but not limited to, furthering
diversity, equity and inclusion, physical and mental health, and talent development. To measure engagement and
collect feedback from our employees, we administer regular employee engagement surveys. Our cultural tenet is
“One Team – One Cadence.” This culture-first message underpins our belief that a diverse, highly supported and
engaged workforce is critical to the foundation of our business success.

Employees

Our employees represent the best and brightest in our industry, and the talent we select to be a part of our
team defines our culture and success. As of January 1, 2022, we had approximately 9,300 employees. Our global
workforce is highly educated, technical and specialized, with a substantial majority of employees working in
technical roles.

Diversity, Equity and Inclusion

We believe that workforce diversity, equity and inclusion advance high performance and innovation. We
recognize that gender and racial disparities remain a challenge in the technology field, and with a high proportion
of technical employees, we are deeply committed to addressing this issue and have appointed executive sponsors

to drive this commitment throughout our company. Some of our key programs and initiatives aimed at addressing
this issue include:

(cid:129)

(cid:129)
(cid:129)

Regular monitoring of the diversity of our current workforce and candidate pool, with an aim to identify
and address areas where we can improve.
Partnerships with organizations such as National Society of Black Engineers, Society of Hispanic
Professional Engineers, Out in Tech, National GEM Consortium, and Society of Women Engineers to
advance our inclusion efforts. These partnerships allow us to do more targeted recruiting, outreach and
engagement with these communities.
An Advanced Leadership Program for top women, Black and Latinx talent, which provides specialized
coaching, workshops and career opportunities.
An IMPACT mentorship program which gives women, U.S. Black and Latinx employees an opportunity
to choose a meaningful mentor.
Unconscious bias and inclusive leadership training and resources for managers.
Inclusion groups for Black, Latinx, LGBTQ+, Veterans and women employees and allies which host
networking events to foster dialogue and promote awareness.

Health, Safety and Wellness

We strive to create a safe and rewarding environment to enable our employees to develop the innovations

necessary for our sustained success.

To provide for both the physical and mental health of our employees, we offer a variety of benefits that go
beyond traditional health insurance. Our U.S. health and well-being benefits include fertility benefits, coverage for
transgender employees undergoing medical treatment, expanded new parent leave, adoption and surrogacy
benefits, financial planning and coaching services, and legal services. We also provide training and tools for stress
management, time management, conflict resolution and emotional well-being.

The vast majority of our employees continued to work from home during fiscal 2021. To promote health and
well-being during the challenges brought on by the COVID-19 pandemic, we provided employees with additional
time off to focus on themselves and their families and provided global employee assistance programs to connect
employees and their families with resources, information and counseling to address the challenges caused by the
pandemic, such as increased anxiety or stress.

Compensation and Benefits

To inspire and recognize our employees, we offer competitive compensation and benefits programs. Our
compensation programs link employee compensation to our business and individual performance. We also offer a
semi-annual bonus program, 401(k) match, Employee Stock Purchase Plan and equity compensation. In addition,
our employees are eligible to receive monetary awards from their colleagues through our peer-to-peer recognition
program.

Talent Development

To help employees succeed in their current roles, pursue their passions and develop the skills necessary for
advancement, we provide formal training programs and curriculums in addition to on-the-job training. Our High-
Performance Culture portal provides our employees with valuable resources such as a comprehensive online
Learning Management program with training and development tools on a broad range of topics and skills. We also
offer tuition reimbursement opportunities to employees continuing in fields relevant to their job.

Community Outreach

We believe it is important that we create meaningful opportunities for employees to connect and contribute to
their community. We provide opportunities for paid volunteer time off annually, charitable contribution matching,
company-wide volunteer campaigns and international service immersion projects.

During fiscal 2021, we formed the Cadence Giving Foundation with the goal of giving back to the communities
where we live and work. This stand-alone, non-profit foundation will partner with other charitable initiatives to
support critical needs in areas such as diversity, equity and inclusion, environmental sustainability and science,
technology, engineering, and mathematics (“STEM”) education.

Corporate Responsibility

We believe that, in general, the best and brightest talent is inclined to build a career with a responsible
organization that positively impacts society. Among our efforts to be that type of organization, we recognize that
climate change is one of the greatest challenges of our time, and we are committed to doing our part to contribute
to the health of the planet by actively investing in initiatives to reduce our environmental footprint. Through these
initiatives, we plan to reduce our scope 1 and scope 2 greenhouse gas emissions 25% by 2025, over our 2019
baseline. We encourage you to review our 2020 Sustainability Report (located at www.cadence.com), and our
2021 Sustainability Report when released,
for more information on all of our Environmental, Social and
Governance (“ESG”) initiatives.

Corporate Information

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 information about our
company, including news releases and financial information. Our website permits investors to subscribe to email
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. Website references are provided throughout this document for convenience only. The contents
of these websites do not constitute a part of this Annual Report and shall not be deemed incorporated by reference
into this Annual Report unless expressly noted.

Fiscal Year End

Our fiscal years are 52- or 53-week periods ending on the Saturday closest to December 31. Fiscal 2021 was

a 52-week fiscal year, compared to 2020, which was a 53-week fiscal year.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

The following table provides information regarding our executive officers as of February 22, 2022:

Name

Anirudh Devgan

John M. Wall

Age Positions and Offices

52 President and Chief Executive Officer

51 Senior Vice President and Chief Financial Officer

Thomas P. Beckley

64 Senior Vice President and General Manager of the Custom IC and PCB

Group

Paul Cunningham

44 Senior Vice President and General Manager of the System and Verification

Group

Alinka Flaminia

Chin-Chi Teng

60 Senior Vice President, Chief Legal Officer and Corporate Secretary

56 Senior Vice President and General Manager of the Digital and Signoff

Group

Neil Zaman

53 Senior Vice President and Chief Revenue Officer

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

Directors.

ANIRUDH DEVGAN has served as Chief Executive Officer of Cadence since December 2021 and 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 EDA 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.

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.

THOMAS P. BECKLEY has served as Senior Vice President and General Manager of the Custom IC and
PCB Group of Cadence since 2018. From September 2012 to September 2018, Mr. Beckley served as Senior
Vice President, Research and Development of Cadence. 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.

PAUL CUNNINGHAM has served as Senior Vice President and General Manager of

the System and
Verification Group since March 2021. From August 2011 to March 2021, Mr. Cunningham held several positions at
Cadence, most recently as Corporate Vice President of the System Verification Group beginning January 2018.
Prior to joining Cadence, Mr. Cunningham was co-founder and Chief Executive Officer of Azuro, Inc., a clock
concurrent optimization company, that Cadence acquired in July 2011. Mr. Cunningham has an M.A. and Ph.D. in
computer science from the University of Cambridge in the United Kingdom.

ALINKA FLAMINIA has served as Senior Vice President, Chief Legal Officer and Corporate Secretary of
Cadence since June 2020. Prior to joining Cadence, Ms. Flaminia served as Senior Vice President, General
Counsel and Corporate Secretary of Mellanox Technologies Ltd., a supplier of intelligent interconnect solutions,
from September 2016 until
its acquisition by NVIDIA Corporation in April 2020. She also served as General
Counsel and Corporate Secretary of PMC-Sierra, Inc., a semiconductor company, from 2007 until its acquisition by
Microsemi Corporation in 2016. Ms. Flaminia has a B.A. from Yale University, and a J.D. from Colorado University,
School of Law.

CHIN-CHI TENG has served as Senior Vice President and General Manager of the Digital and Signoff Group
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 from March 2009 to June 2015. Dr. Teng has a B.S. in
electrical engineering from the National Taiwan University and a Ph.D. in electrical and computer engineering from
the University of Illinois, Urbana-Champaign.

NEIL ZAMAN has served as Chief Revenue Officer since October 2020 and as Senior Vice President,
Worldwide Field Operations 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., a developer of core system software,
and IBM Corporation, a technology and consulting company. 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, liquidity, revenue, growth, prospects, demand, reputation, and the trading price of our common stock, and
make an investment in us speculative or risky. The following does not summarize all of the risks that we face, and
there may be additional risks or uncertainties that are currently unknown or not believed to be material that occur
or become material.

Business and Operational Risks

The ongoing COVID-19 pandemic could continue to adversely affect our business, results of

operations and financial condition.

We are unable to accurately predict the full impact that the COVID-19 pandemic will have on our results of
operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and
severity of the pandemic, the impact of COVID-19 variants, and the distribution, acceptance and effectiveness of
vaccines and containment measures. Our compliance with these measures has impacted our day-to-day
operations and could disrupt our business and operations, as well as that of our key customers, suppliers
(including contract manufacturers) and other counterparties, for an indefinite period of time. To support the health
and well-being of our employees, customers, partners and communities, a vast majority of our employees are still
working remotely as of February 22, 2022. However, we have begun a limited pilot program for employees to
begin voluntarily returning to work in certain jurisdictions with lower rates of new COVID-19 cases and higher
vaccination rates.

The disruptions to our operations caused by COVID-19 may result in inefficiencies, delays and additional
costs in our product development, sales, marketing and customer service efforts that we cannot fully mitigate
through remote or other alternative work arrangements. In addition, we have experienced, and may continue to
experience, some volatility in our hardware product delivery times due to delays in obtaining access to customer
sites. Volatile surges in demand and in infection rates may also result in the unavailability, delay, or congestion of,
and increased costs for, transportation and the raw materials, inputs, and other matters used in our business and
by our customers. Moreover, access by our employees to our laboratory facilities that are necessary for the
development of certain IP products has been and may in the future be disrupted due to local conditions.

More generally, the impact of the pandemic may increase the possibility of an extended global economic
downturn and extended periods of high inflation, and has caused volatility in financial markets, which could affect
demand for our products and services and impact our results and financial condition even after the pandemic is
contained and local conditions improve. For example, we may be unable to collect receivables from those
customers significantly impacted by COVID-19 and, in fact, have received and may continue to receive, requests
from our customers to delay their payments to us, while we continue to provide services to these customers. Also,
a decrease in orders in a given period could negatively affect our revenues in future periods, particularly if
experienced on a sustained basis, because a substantial proportion of our software licenses yield revenue
recognized over time. The pandemic may also have the effect of heightening many of the other risks described in
this “Risk Factors” section, including risks associated with our customers and supply chain. We will continue to
evaluate the nature and extent of the impact of COVID-19 to our business.

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.

Historical results of operations should not be viewed as reliable indicators of our future performance. 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
disbursements and tax payments.

factors,

including the timing of our billings, collections,

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.

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,
delivery or installation 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, and means that a decrease in orders in a
given period would negatively affect our revenues in future periods.

We plan our operating expenses based on forecasted revenue, expected business needs and other factors
such as changes in inflation. 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. Our operating expenses are also
impacted by economic conditions, such as inflation. Unexpected increases in inflation could cause our expenses to
increase at a rate faster than our product pricing to recover such increases.

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.

Any periods of uncertainty in the global economy and international trade relations, changes in
governmental policies relating to technology, 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. The current
outlook for the global economy is uncertain and may result in a decrease in spending on our products and services
despite recent growth.

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 uncertainties 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, in particular, if semiconductor or electronics systems industry revenues do not grow, including as
a result of the current global semiconductor shortage extending or intensifying, the ability to export or import
products or services by the semiconductor or electronics systems industry is adversely restricted, or our supplies
of hardware components and products are subject to problems or delays, we may be adversely affected.

We are subject to governmental export and import controls that could subject us to liability or impair

our ability to compete in global markets as well as a variety of other laws and regulations.

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,
to foreign nationals or across borders.
Changes in these regulations or restrictions due to changes in trade relationships with the United States, including
new tariffs, trade protection measures, import or export licensing requirements, sanctions, trade embargoes and
other trade barriers, could harm our business, operating results or financial condition.

For example, in fiscal 2019, the DOC placed certain entities who are our customers on the “Entity List,”
limiting our ability to deliver products and services to these entities. When certain customers are on the Entity List
or are subject to new or expanded trade restrictions, such as the expansion in scope by the DOC of the military
end-user and military end-use regulations in April 2020 and the foreign-produced direct product rules in August
2020, it will have a negative effect on our ability to sell products and provide services to these customers without
first obtaining a license from the BIS. In addition, new or expanded trade restrictions, such as the continued
expansion of the military end-user and military end-use rule, the foreign-produced direct product rules, or any
future rule that will prevent a class of technology from export to any specific country or countries without a license,
will
increase our costs or expenses. Entity List restrictions and other trade restrictions may also encourage
customers to seek substitute products from our competitors, including a growing class of foreign competitors and
open source alternatives, that are not subject to these restrictions or to develop their own solutions, thereby
decreasing our long-term competitiveness. In addition, although customers are not prohibited from paying (and we
are not restricted from collecting) for products we previously delivered to them, the credit risks associated with
outstanding receivables from customers on the Entity List – including receivables from anti-piracy enforcement
efforts and litigation settlements – and other trade restrictions could increase as a result of these limitations. In
particular, China’s stated national policy to be a global leader in all segments of the semiconductor industry by
2030 has resulted in and may continue to cause increased competitive capability in China.

We cannot predict whether or when any changes will be made that eliminate or decrease these limitations on
our ability to sell products and provide services to these Entity List customers or other customers impacted by
other trade restrictions. We are unable to predict the duration of the export restrictions imposed with respect to any
particular customer or the long-term effects on our business or our customers’ business. Additionally, other
companies may be added to the Entity List and/or be subject to new or expanded trade restrictions and restrictions
may be imposed against specific countries. In addition, there may be indirect impacts to our business which we
cannot reasonably quantify, including that a country-specific export control may limit or prevent our employees
who are nationals of
the restricted country from performing their duties unless a license can be obtained.
Additionally our business may also be impacted by other trade restrictions that may be imposed by the U.S.,
China, or other countries. Restrictions on our ability to sell and ship our products to customers on the Entity List
have had, and may continue to have, an adverse effect on our business, results of operations or financial
condition.

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 or across borders. Although we have implemented policies and procedures to help us comply with
all applicable trade restrictions, we and governmental authorities have had and may in the future have reason to
inquire into particular sales. For example, in February 2021, we received an administrative subpoena from BIS
requesting the production of records in connection with certain sales to China. We are cooperating with BIS and
are in the process of responding to the subpoena as well as conducting an internal review. Such inquiries are
subject to uncertainties and the outcomes of this and other proceedings that may occur are difficult to predict. The
laws and policies of the United States and other countries in this area are evolving and changing, and we have
experienced and may continue to experience challenges in complying with new rules as they become effective.
Any failure or alleged failure to comply with these laws and policies could have negative consequences, including
significant legal costs, government investigations, penalties, denial of export privileges and debarment from
participation in U.S. government contracts, any of which could have a material adverse effect on our operations,
reputation and financial condition.

In addition to export control laws, our global operations are subject to numerous U.S. and foreign laws and
regulations, including those related to anti-corruption, tax, corporate governance, financial and other disclosures,
competition, data privacy and employment. These laws and regulations are complex and may have differing or
conflicting legal standards, making compliance difficult and costly, and changes to these laws may require us to
make significant changes to our business operations that may adversely affect our business overall. The policies
and procedures we have implemented to assist our compliance with these laws and regulations do not provide
complete assurance that our employees, contractors, agents or partners will not violate such laws and regulations.
Any violation individually or in the aggregate could have a material adverse effect on our operations, reputation
and financial condition.

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 and enter into new markets. 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 complete transactions on a timely basis or at all, including as a result of governmental
antitrust approval dynamics;
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, combine or manage acquired products,
businesses effectively;
difficulties in integrating or retaining employees;
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;
unanticipated costs or assumed liabilities, including those incurred to remediate issues of an acquired
company discovered during due diligence or thereafter, such that we cannot realize the anticipated
value of the acquisition; or
unwillingness of customers of an acquired business to continue licensing or buying products from us.

technologies and

infrastructure,

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 use contingent payments in connection with acquisitions in the future, and we
may be required to make certain contingent payments without deriving the value we expect to derive from an
acquisition in excess of such payments.

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.

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 has historically exceeded 50%, and 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 exchange rate 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, including due to
inflation, devaluations and currency controls. For example, if we price our products and services in a foreign
currency, we receive fewer U.S. dollars when this currency declines in value relative to the U.S. dollar. If we price
our products and services in U.S. dollars, the decrease in value of a 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 this 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 34% 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.

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, as
well as any associated efforts to enforce such rights, including through intellectual property litigation.

There are numerous patents relating to our business and ecosystem. New patents are being issued at a rapid
rate and are owned by computational software companies as well as entities and individuals outside the
computational software field,
including parties whose income is primarily derived from infringement-related
licensing and litigation. It is not always practicable or possible 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 may not
be available on terms favorable to us or at all. 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);
stop licensing products or providing services that use the challenged intellectual property;
obtain a license to sell or use the relevant
reasonable terms, or at all; or
redesign the challenged technology, which could be time consuming and costly, or impossible.

technology, which license may not be available on

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

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

Our products and services involve storage, including cloud-based storage, and transmission of our proprietary
information technology and
information and that of our customers. Despite our security measures, our
infrastructure, as well as our products and services, 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 vulnerabilities or disruptions, which could result in unauthorized disclosure of sensitive
information and could significantly interfere with our business operations or those of our customers. Third parties
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 or vulnerabilities in our products or
services could expose us to a risk of loss or misuse of this information, loss of financial assets, business
interruption,
liability. Because techniques used to obtain unauthorized access or to
sabotage information systems change frequently and generally are not recognized until launched against a target,

litigation and potential

we may be unable to anticipate these techniques or to implement adequate preventive measures. In recent years,
we have observed, and expect to continue to see, far reaching vulnerabilities, such as the remote code execution
vulnerability in Log4j, an open source component of the Apache Software Foundation, that was widely reported in
December 2021 as impacting many systems globally. Furthermore, we have and may continue to acquire
companies with less sophisticated security measures and that have had or may experience in the future
cybersecurity incidents causing business or financial harm. 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 (including government 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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government trade restrictions, including tariffs, export or import regulations, sanctions or other trade
barriers, including licensing requirements for exports, which may lengthen the sales cycle or restrict or
prohibit the sale or licensing of certain products;
country-specific export controls could impact our employees who are nationals of the restricted country,
preventing these foreign nationals from performing their technology-focused roles which may slow our
pace of innovation and/or impact our ability to service customers unless an export license is granted;
limitations on repatriation of earnings and on the conversion of foreign currencies;
reduced protection of intellectual property rights and heightened exposure to intellectual property theft;
longer collection periods for receivables and greater difficulty in collecting accounts receivable;
difficulties in managing foreign operations;
political and economic instability;
unexpected changes in legal and regulatory requirements;
differing employment practices and labor
issues or
compensation in certain growing regions;
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; and
public health emergencies and related public health measures, including restrictions on travel between
jurisdictions in which we and our customers and suppliers operate.

inability to continue to offer competitive

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
terrorism, could
into our computer systems, natural disasters, public health emergencies, civil unrest or
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.

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. In addition, competition for qualified personnel, including
software engineers, 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; and governmental policies resulting in
increased funding of domestic technology companies, such as China’s stated national policy to be a global leader
in all segments of the semiconductor industry by 2030, has caused and may continue to cause difficulty in
retaining and attracting local talent. 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 training,
retaining and motivating existing personnel. Our ability to do so also depends on how well we maintain a strong
workplace culture that is attractive to employees, particularly as we transition employees back to the office, and
hiring and training of new employees may be adversely impacted by global economic uncertainty and office
closures. In October 2021, we expanded our vaccine policy to require that U.S. employees be fully vaccinated
against COVID-19, or obtain an accommodation, by December 2021, and the implementation of this policy may
result in difficulty attracting or retaining employees. 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.

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 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, and we may encounter
difficulties in our attempts to protect our intellectual property in foreign jurisdictions, including as a result of impacts
from changes in international trade relationships. The protection of our intellectual property may require the
expenditure of significant
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.

financial and managerial resources. Moreover,

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 is
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 January 1, 2022, approximately 55% 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. While we believe that the combination of our current
U.S. cash and cash equivalents, future U.S. operating cash flows 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, we
cannot accurately predict the full impact that COVID-19 may have on our cash flows. In addition, although the U.S.
Tax Cuts and Jobs Act (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.

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 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 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 better align our resources with our
business strategy. 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.

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.

Our business is subject to the risk of natural disasters and global climate change.

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 and wildfires. If significant seismic activity or wildfires were to occur or reoccur, our operations may
be interrupted, which could adversely impact our business and results of operations.

Our offices around the world may also be adversely impacted by natural disasters, including those intensified
by climate change. Our offices, and those of our customers and suppliers, can be disrupted by droughts, extreme
temperatures, fires, flooding and other climate change-related risks, as well as earthquakes, actions by utility
providers, and other catastrophic events such as an actual or threatened public health emergency.
If a
catastrophic event occurs at or near any of our offices, or utility providers or public health officials take certain
actions (e.g., shut off power to our facilities or impose travel restrictions), our operations may be interrupted, which
could adversely impact our business and results of operations. If a catastrophic event impacts a significant number
of our customers, resulting in decreased demand for their and our products, or our ability to provide services and
maintenance to our customers, our business and results of operations could be adversely impacted.

Risks Related to Customers, Suppliers and Industry Competition

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. If this trend continues, it could
make us more 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 and to continue to develop or acquire technological capabilities could make our products
uncompetitive and obsolete and impede our ability to address the requirements in technology segments
that are expected to contribute to our growth.

Our strategy is designed to increase our business among electronic systems companies, which are now
developing their own ICs and other electronic subsystems. Our strategy is also intended to increase our business
among semiconductor companies, which are increasing their contribution to the end products into which their ICs
and other electronic subsystems are incorporated. Part of this strategy involves addressing the needs across a
variety of vertical markets including consumer, hyperscale computing, mobile, 5G communications, automotive,
aerospace and defense, industrial and healthcare, where increased investment is expected by our customers.
Each of these markets require technologies, expertise, and marketing and operations infrastructure that are
application-specific. Our inability to develop or acquire these application-specific capabilities could impede our
ability to expand our business in these categories and ultimately affect our future growth. 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
represented by billions of shapes on fabrication masks.
In addition, SoCs typically incorporate
microprocessors and DSPs 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 logic chip, which creates an alternative to IC
implementation for some companies and could reduce demand for our IC implementation products and
services;
a growing number of low-cost engineering service businesses could reduce the need for some IC
companies to invest in EDA products;
adoption of cloud computing technologies with accompanying new engagement models for an
increasing number of software categories may impact our business;
integration and optimization of solutions for system design with core EDA technologies could result in
reduced demand for our broad portfolio;
with Moore’s Law slowing, the trend towards more on-chip integration and advanced system level 3D
package design may change the requirements for the design, multi-physics analysis, and verification of
complex homogeneous and heterogeneous systems; and
changing end-user dynamics in our eight target technology verticals—consumer, hyperscale computing,
mobile, 5G communications, automotive, aerospace and defense, industrial and healthcare—could
advance the need from simple ICs to full-system design and analysis capabilities that require
increasingly complex computational software-based solutions.

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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 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.

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, and may include increases in employee
headcount. 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 computational software products and design
flows, our revenue and operating results may be adversely affected.

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

customer bankruptcies and defaults or modifications of licenses.

Our customers have and may continue to face challenging financial or operating conditions, including due to
macroeconomic conditions or catastrophic events, and delay or default on their payment commitments to us,
request to modify contract terms, or modify or cancel plans to license our products. Our customers’ inability to fulfill
payment commitments,
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.

in turn, could adversely affect our

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

successfully 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, including through significant discounts, may
cause us to reduce the prices of our products, offer terms that are unfavorable to us or lose our
competitive position, any of 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 and could, over time, significantly constrain the prices that we
can charge for our 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 industry;
the combination of our competitors or collaboration among many companies to deliver more
comprehensive offerings than they could individually;
our entry into new product categories or technology verticals, including those in which success depends
on absolute or relative scale;
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;

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actions by regulators to limit the contractual terms that either we or our customers can apply to product
and service offerings; and
events or circumstances that damage the reputation of our company, leadership, products, services or
technologies.

For more information about our specific competitors, see “Competition” under Item 1 of Part I of this Annual

Report on Form 10-K.

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, services 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 depend on a single supplier or a limited number of 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.

Our reliance on single or a limited number of suppliers and contract manufacturers for certain hardware
components and contract manufacturers for production of our emulation and prototyping hardware products could
result in product delivery problems and delays and reduced control over contractual terms and quality. In some
cases, it may not be practical or feasible to have multiple sources to procure certain key components. 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, shutdown or
upstream supply chain issues 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. For example, the global
semiconductor shortage in 2021 has negatively impacted and may continue to negatively impact multiple
segments of the semiconductor industry, including our customers.

Tax, Regulatory and Litigation Risks

Our 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.

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 including the fiscal
impacts caused by the
COVID-19 pandemic. Governments, including the United States, are increasingly focused on ways to increase tax
revenues, particularly from multinational corporations, which may lead to changes in tax laws, 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.

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, cash flows and financial position. Our future effective tax rates could be adversely affected by factors
that include, but are not limited to, changes in tax laws or the interpretation of such tax laws in jurisdictions in
which we have business activity, earnings being lower than anticipated in jurisdictions with low statutory tax rates,
changes in tax benefits from stock-based compensation, changes in the valuation of our deferred tax assets and

liabilities, changes in our recognition or measurement of a tax position taken in a prior period, increases to interest
or penalty expenses, 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.
In addition,
beginning in fiscal 2022, for United States corporation income tax purposes, we are required to capitalize and
amortize R&D costs rather than expense these costs as incurred. To the extent this requirement stays in effect, it
will significantly increase our fiscal 2022 effective tax rate and cash tax payments compared to fiscal 2021.

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 cannot be estimated with certainty and could 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.

The current U.S. presidential administration and Congress have proposed several changes to corporate tax
rules that, if enacted, could increase our future tax liability. In October 2021, the Organisation for Economic
Co-operation and Development (“OECD”) announced an agreement among 137 countries, including Ireland and
Hungary, to adopt new rules to provide greater taxing rights to jurisdictions where customers or users are located
and the introduction of a corporate global minimum tax rate of 15% with a target effective date of fiscal 2023.
Furthermore, many countries have enacted or proposed new laws 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.

Forecasts of our annual effective tax rate do not include the anticipation of future tax law changes, and are
complex and subject to uncertainty because our income tax position for each year combines the effects of
estimating the amount and composition of our annual income or loss in jurisdictions with varying 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. 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.

Litigation, government investigations or regulatory proceedings could adversely affect our financial

condition or operations.

We currently are, and in the future may be, involved in various disputes and legal proceedings that arise in
the ordinary course of business. These include disputes and legal proceedings related to intellectual property,
indemnification, mergers and acquisitions,
licensing, contracts, customers, products, distribution and other
commercial arrangements and employee relations matters. Governments and regulatory agencies in the
jurisdictions in which we operate may also open or initiate investigations or regulatory proceedings. For information
regarding legal proceedings in which we are currently engaged, please refer to the discussion under Part I, Item 3,
“Legal Proceedings” and Note 18 in the notes to consolidated financial statements. We cannot provide any
assurances that the final outcome of these legal proceedings 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. Legal proceedings 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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reputational damage;
failure to attract new or retain existing customers or market share and acceptance;
diversion of development resources to resolve the problem;
loss of or delay in revenue or payments and increased service costs; and
liability for damages.

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.

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

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 and stakeholder
expectations around corporate governance, executive compensation and environmental and social practices and
disclosures. These rules, regulations and expectations 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. Our disclosures and public
positions or commitments on these matters may change from time to time, as may corresponding internal controls
and external reporting standards, which can expose us to reputational, legal, and other risks, including as a result
of a failure or perceived failure to achieve publicly disclosed aspirations, targets, or goals, such as our greenhouse
gas emissions reduction target, or a failure to report accurately.

Risks Related to Our Securities and Indebtedness

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

Our stock price is subject to changes in recommendations or earnings estimates by financial analysts,
changes in investors’ or analysts’ valuation measures for our stock, our credit ratings and market trends unrelated
to our performance. Furthermore, speculation in the press or investment community about our strategic position,
financial condition, results of operations, business or security of our products, can cause changes in our stock
price. In addition to these factors and industry and general economic and political conditions, our stock price may
to meet or are
be adversely impacted by announcements related to financial results or forecasts that
inconsistent with earlier projections or the expectations of our securities analysts or investors, announcements of
new products or acquisitions of new technologies by us, our competitors or our customers, or announcements by
us of acquisitions, major transaction or litigation developments, or management changes. A significant drop in our
stock price could expose us to the risk of securities class action or shareholder derivative lawsuits, which may
result in substantial costs and divert management’s attention and resources, which may adversely affect our
business.

fail

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, our
certificate of
incorporation allows our Board of Directors to designate and issue, at any time and without
stockholder approval up to 400,000 shares of preferred stock in one or more series. All 400,000 shares of
preferred stock are currently designated as Series A Preferred, but because no such shares are outstanding or
reserved for issuance, our Board of Directors may reduce the number of shares of preferred stock designated as
Series A Preferred to zero. Subject to the Delaware General Corporation Law, our Board of Directors may, as to
any shares of preferred stock the terms of which have not then been designated, fix the rights, preferences,
privileges and restrictions on these shares, fix the number of shares and designation of any series, and increase or
decrease the number of shares of any series if not below the number of outstanding shares plus the number of
shares reserved for issuance. Our Board of Directors has the power to issue shares of Series A Preferred with
dividend, voting and liquidation rights superior to our common stock at a rate of 1,000-to-1 without further vote or
action by the common stockholders.

In addition, 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.

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.

We have significant outstanding indebtedness, as well as the ability to access additional borrowings 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 October 15, 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 level of debt could intensify. Specifically, our 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 (including U.S. cash) 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 and potentially
requiring repatriation of cash from outside the United States;
increasing our vulnerability to 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 U.S. 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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incur liens or additional indebtedness and guarantee indebtedness;
enter into transactions with affiliates;
alter the businesses we conduct; 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. Our ability to meet those financial ratios 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
In the event our lenders or note holders accelerate the repayment of our
further credit under that

facility.

borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. As a result of
these restrictions, we may be:

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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. 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 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. 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. 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.

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
indebtedness, these
governing our revolving credit facility contains restrictions on the incurrence of additional
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
cash available for servicing our indebtedness, would correspondingly decrease. 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.

Our revolving credit facility utilizes, at our option, either (1) LIBOR, plus a margin of between 0.750% and
1.250%, determined by reference to the credit rating of our unsecured debt, or (2) base rate plus a margin of
0.000% to 0.250%, determined by reference to the credit rating of our unsecured debt, to calculate the amount of
accrued interest on any borrowings. Regulators in certain jurisdictions including the United Kingdom and the
United States have begun to phase out the use of LIBOR, ceasing publication for certain tenors of the U.S. dollar
(and other) LIBOR at the end of 2021, with plans to cease publication for the remaining tenors of U.S. dollar
LIBOR beginning June 30, 2023. Our revolving credit facility contains provisions that contemplate the transition
from LIBOR under specified events; however, the transition from LIBOR to a new replacement benchmark remains
uncertain at this time and the consequences of such developments cannot be entirely predicted, but could result in
an increase in the cost of our borrowings under our existing credit facility and any future borrowings.

In addition, our revolving credit facility uses a pricing grid based on our credit ratings. If our credit ratings are
downgraded or other negative action is taken, the interest rate payable by us under our revolving credit facility
would increase. Credit rating downgrades could also restrict our ability to obtain additional financing in the future
and affect the terms of any such financing.

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

lowering or withdrawal of the ratings assigned to us and 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, terms
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, our credit rating and our
business and financial condition. In addition, the 2024 Notes currently have an investment grade credit rating,
which could be lowered or withdrawn entirely by a credit
rating agency based on adverse changes to
circumstances relating to the basis of the credit rating. 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 January 1, 2022, 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 legal proceedings that arise in the ordinary course
indemnification
of business. These include disputes and legal proceedings related to intellectual property,
obligations, mergers and acquisitions, licensing, contracts, customers, products, distribution and other commercial
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 legal proceedings 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 5,

2022, we had 384 registered stockholders and approximately 340,000 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 31, 2016 (including reinvestment of dividends) was $100 and tracks it each year thereafter on the last
day of our fiscal year through January 1, 2022 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 Information Technology Index

$800

$700

$600

$500

$400

$300

$200

$100

$0
12/31/16

12/30/17

12/29/18

12/28/19

1/2/21

1/1/22

Cadence Design Systems, Inc.

Nasdaq Composite

S&P 500

S&P Information Technology

*$100 invested on 12/31/16 in stock or index, including reinvestment of dividends.
Indexes calculated on month-end basis.

12/31/2016 12/30/2017 12/29/2018 12/28/2019 1/2/2021 1/1/2022

Cadence Design Systems, Inc.

100.00 $

165.82 $

171.85 $

278.71 $ 540.96 $ 738.90

Nasdaq Composite

S&P 500

S&P 500 Information Technology

100.00

129.64

121.83

138.83

125.96

116.49

138.43

172.17

249.51

304.85

153.17

181.35

233.41

208.05

299.37

402.73

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

Issuer Purchases of Equity Securities

As of the end of fiscal 2020, approximately $739 million remained available under the previously announced
authorization to repurchase shares of our common stock. In August 2021, our Board of Directors increased the
prior authorization to repurchase shares of our common stock by authorizing an additional $1 billion. The actual
timing and amount of repurchases are subject to business and market conditions, corporate and regulatory
requirements, stock price, acquisition opportunities and other factors. As of January 1, 2022, approximately
$1.1 billion of the share repurchase authorization remained available to repurchase shares of our common stock.

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 January 1, 2022:

Total Number
of Shares
Purchased (1)

Average
Price Paid
Per Share (2)

Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or Programs

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

273,361

$ 160.04

258,000

$ 1,195

206,571

$ 182.03

188,200

$ 1,161

202,711

$ 182.44

188,800

$ 1,126

Period

October 3, 2021 –

November 6, 2021

November 7, 2021 –
December 4, 2021

December 5, 2021 –
January 1, 2022

Total

682,643

$ 173.34

635,000

(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. [Reserved]

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

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

Intelligent System Design,

Our strategy, which we call

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

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

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

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

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

“Products and Product Strategy.”

Management uses certain performance indicators to manage our business,

including revenue, certain
elements of operating expenses and cash flow from operations, and we describe these items further below under
the headings “Results of Operations” and “Liquidity and Capital Resources.”

During the second quarter of fiscal 2021, we offered a voluntary retirement program to eligible employees in
the United States. This program resulted in a one-time charge for voluntary termination and post-employment
benefits of $26.8 million. As of January 1, 2022, liabilities related to the voluntary retirement program were
$17.5 million and were included in accounts payable and accrued liabilities and other long-term liabilities on our
consolidated balance sheet. We expect to make cash payments to settle these liabilities through fiscal 2023,
including $17.0 million that is expected to be paid in the next twelve months.

COVID-19 Impact

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The effects of
the ongoing global pandemic have been widespread and have resulted in authorities implementing numerous
measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders and
business limitations and shutdowns. We are unable to accurately predict the full impact that COVID-19 will have
on our results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including
the duration and severity of the pandemic and containment measures and the distribution, acceptance and
effectiveness of vaccines. Our efforts to comply with these containment measures have impacted our day-to-day
operations and could disrupt our business and operations, as well as that of our key customers, suppliers
(including contract manufacturers) and other counterparties, for an indefinite period of time. To support the health
and well-being of our employees, customers, partners and communities, a vast majority of our employees are still
working remotely as of January 1, 2022. However, we have begun a limited pilot program for employees to begin
voluntarily returning to work in certain jurisdictions with lower rates of new COVID-19 cases and higher vaccination
rates.

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

Results of Operations

The discussion of our fiscal 2021 consolidated results of operations include year-over-year comparisons to
fiscal 2020 for revenue, cost of revenue, operating expenses, operating margin, other non-operating expenses,
income taxes and cash flows. For a discussion of the fiscal 2020 changes compared to fiscal 2019, see the
discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in
our Annual Report on Form 10-K for the fiscal year ended January 2, 2021, filed on February 22, 2021.

Our fiscal years are 52- or 53-week periods ending on the Saturday closest to December 31. Fiscal 2021 was
a 52-week fiscal year, compared to 2020, which was a 53-week fiscal year. The additional week in fiscal 2020
resulted in additional revenue of approximately $45 million and additional expense,
including stock-based
compensation and amortization of acquired intangibles, of approximately $35 million.

Results of operations for fiscal 2021, as compared to fiscal 2020, reflect the following:

(cid:129)
(cid:129)

(cid:129)

revenue growth that exceeded the growth of our costs and expenses;
increased product and maintenance revenue, primarily from growth in our software and hardware
product offerings;
continued investment in research and development activities focused on expanding and enhancing our
product portfolio; and
higher selling costs, including additional
customers’ increasing technological requirements.

investment in technical sales support in response to our

Revenue

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

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

Revenue by Year

The following table shows our revenue for fiscal 2021 and 2020 and the change in revenue between years:

Product and maintenance

Services

Total revenue

2021

2020

Change
2021 vs. 2020

(In millions, except percentages)

$ 2,812.9 $ 2,536.6 $

276.3

175.3

146.3

29.0

$ 2,988.2 $ 2,682.9 $

305.3

11%

20%

11%

Product and maintenance revenue increased during fiscal 2021, as compared to fiscal 2020, primarily
because of increased revenue from each of our five product categories. This growth is driven by our customers
investing in new, complex designs for their products including electronic systems for consumer, hyperscale
computing, 5G communications, automotive, aerospace and defense, industrial and healthcare.

Services revenue increased during fiscal 2021, as compared to fiscal 2020, primarily due to the timing of
performance obligations being fulfilled for certain customer contracts during fiscal 2021. 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 2021 or 2020.

Revenue by Product Category

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

our five product categories and services during fiscal 2021 and 2020:

Custom IC Design and Simulation

Digital IC Design and Signoff

Functional Verification, including Emulation and Prototyping Hardware

System Design and Analysis

Total

2021

2020

23%

29%

24%

13%

11%

25%

29%

22%

14%

10%

100%

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

Revenue by Geography

United States

Other Americas

China

Other Asia

Europe, Middle East and Africa

Japan

Total revenue

2021

2020

Change
2021 vs. 2020

(In millions, except percentages)

$ 1,293.0 $ 1,096.3 $

196.7

42.1

378.1

566.8

523.4

184.8

43.6

406.6

487.4

469.8

179.2

(1.5)

(28.5)

79.4

53.6

5.6

$ 2,988.2 $ 2,682.9 $

305.3

18%

(3)%

(7)%

16%

11%

The increase in revenue in the United States and Other Asia during fiscal 2021, as compared to fiscal 2020,

was attributable to growth in revenue from each of our five product categories.

The decrease in revenue in China during fiscal 2021, as compared to fiscal 2020, was due to higher-than-
typical volume in China during fiscal 2020. During fiscal 2020, we experienced an increase in demand for our
emulation and prototyping hardware and IP product offerings from our customers in China that resulted in a larger
percentage of total revenue coming from that geography.

The increase in revenue in Europe, Middle East and Africa during fiscal 2021, as compared to fiscal 2020,
was attributable to growth in revenue from System Design and Analysis, Digital IC Design and Custom IC Design
product offerings.

Revenue by Geography as a Percent of Total Revenue

United States

Other Americas

China

Other Asia

Europe, Middle East and Africa

Japan

Total

2021

2020

43%

13%

19%

17%

41%

15%

18%

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

Cost of product and maintenance

222.6 $

231.0 $

(8.4)

Cost of services

Total cost of revenue

84.4

74.5

307.0 $

305.5 $

9.9

1.5

(4)%

13%

—%

2021

2020

Change
2021 vs. 2020

(In millions, except percentages)

The following table shows cost of revenue as a percentage of related revenue for fiscal 2021 and 2020:

Cost of product and maintenance

Cost of services

Cost of Product and Maintenance

2021

2020

48%

51%

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

A summary of cost of product and maintenance for fiscal 2021 and 2020 is as follows:

2021

2020

Change
2021 vs. 2020

(In millions, except percentages)

Product and maintenance-related costs

175.0 $

184.8 $

(9.8)

Amortization of acquired intangibles

47.6

46.2

1.4

Total cost of product and maintenance

222.6 $

231.0 $

(8.4)

(5)%

(4)%

Product and maintenance-related costs decreased during fiscal 2021, when compared to fiscal 2020, due to

the following:

Emulation and prototyping hardware costs

Salary, benefits and other employee-related costs

Other items

Total change in product and maintenance-related costs

Change
2021 vs. 2020
(In millions)

(12.3)

2.6

(0.1)

(9.8)

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. The decrease in
emulation and prototyping hardware costs during fiscal 2021, as compared to fiscal 2020, was primarily due to the
mix of products generating revenue and a decrease in charges related to previous generations of our emulation
hardware.

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

Cost of Services

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

Operating Expenses

Our operating expenses include marketing and sales,

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

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 2021 and 2020 were as follows:

Marketing and sales

Research and development

General and administrative

Total operating expenses

2021

2020

Change
2021 vs. 2020

(In millions, except percentages)

560.3 $

516.5 $

43.8

1,134.3

1,033.7

189.0

154.4

100.6

34.6

$ 1,883.6 $ 1,704.6 $

179.0

10%

22%

11%

Our operating expenses, as a percentage of total revenue, for fiscal 2021 and 2020 were as follows:

Marketing and sales

Research and development

General and administrative

Total operating expenses

Marketing and Sales

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

Salary, benefits and other employee-related costs

Voluntary retirement program

Professional services

Home office-related expenses

Other items

Total change in marketing and sales expense

2021

2020

19%

38%

63%

19%

39%

64%

Change
2021 vs. 2020
(In millions)

35.2

6.7

3.8

(2.0)

0.1

43.8

Salary, benefits and other employee-related costs included in marketing and sales increased during fiscal
2021, as compared to fiscal 2020, primarily due to additional headcount from hiring and acquisitions and increased
variable compensation. This increase was partially offset by reduced home office-related expenses associated
with the transition to a remote work environment during fiscal 2020 due to the COVID-19 pandemic.

Research and Development

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

Change
2021 vs. 2020
(In millions)

Salary, benefits and other employee-related costs

Voluntary retirement program

Facilities and other infrastructure costs

Stock-based compensation

Professional services

Home office-related costs

Other items

75.9

14.7

7.7

6.2

2.7

(5.3)

(1.3)

Total change in research and development expense

100.6

Salary, benefits and other employee-related costs included in research and development expense increased
during fiscal 2021, as compared to fiscal 2020, due primarily to additional headcount from hiring and acquisitions
as we continue to expand and enhance our product portfolio. This increase was partially offset by reduced home
office-related expenses associated with the transition to a remote work environment during fiscal 2020 due to the
COVID-19 pandemic.

General and Administrative

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

Contributions to non-profit organizations

Salary, benefits and other employee-related costs

Stock-based compensation

Professional services

Voluntary retirement program

Other items

Change
2021 vs. 2020
(In millions)

15.0

5.9

4.5

3.2

2.2

3.8

Total change in general and administrative expense

34.6

The increase in contributions to non-profit organizations is the result of our continued commitment to support
charitable initiatives. During the fourth quarter of fiscal 2021, we launched the Cadence Giving Foundation, a
stand-alone, non-profit organization that was established to partner with other charitable initiatives to give back to
the communities where we live and work. The Cadence Giving Foundation will also support critical needs in areas
such as diversity, equity and inclusion, environmental sustainability and STEM education.

Salary, benefits and other employee-related costs included in general and administrative expense increased

during fiscal 2021, as compared to fiscal 2020, due primarily to additional headcount from hiring and acquisitions.

Amortization of Acquired Intangibles

Amortization of acquired intangibles consists primarily of amortization of customer relationships, acquired
backlog, trade names, trademarks and patents. Amortization in any given period depends primarily on the timing
and extent to which we acquire intangible assets.

Amortization of acquired intangibles

2021

2020

Change
2021 vs. 2020

(In millions, except percentages)

19.6 $

18.0 $

1.6

Amortization of acquired intangibles increased during fiscal 2021, as compared to fiscal 2020, primarily due to

intangibles assets acquired from Pointwise and Numeca during fiscal 2021.

Restructuring

We have initiated restructuring plans in recent years, most recently in fiscal 2020,

to better align our
resources with our business strategy. Because the restructuring charges and related benefits are derived from
management’s estimates made during the formulation of the restructuring plans, based on then-currently available
information, our restructuring plans may not achieve the benefits anticipated on the timetable or at the level
contemplated. Additional actions, including further restructuring of our operations, may be required in the future.
For additional
information about our restructuring plans, see Note 16 in the notes to consolidated financial
statements.

Operating margin

Operating margin represents income from operations as a percentage of total revenue. Our operating margin

for fiscal 2021 and 2020 was as follows:

Operating margin

2021

2020

26%

24%

Operating margin increased during fiscal 2021, as compared to fiscal 2020, primarily because revenue growth

in each of our five product categories exceeded growth in operating expenses.

Interest Expense

Interest expense for fiscal 2021 and 2020 was comprised of the following:

Contractual cash interest expense:

2024 Notes

Revolving credit facility

Amortization of debt discount:

2024 Notes

Other

Total interest expense

2021

2020

(In millions)

15.3 $

15.5

0.7

0.8

0.2

4.4

0.8

—

17.0 $

20.7

Interest expense decreased during fiscal 2021, as compared to fiscal 2020, primarily due to a decrease in
outstanding borrowing under our revolving credit facility. During the first quarter of fiscal 2020, we had outstanding
borrowings of $350 million under our revolving credit facility as a precautionary measure to provide additional
liquidity in light of global economic uncertainty that was present at that time. All outstanding borrowings under our
revolving credit facility were repaid in the fourth quarter of fiscal 2020. For an additional description of our debt
arrangements, including our revolving credit facility, 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 2021 and 2020:

Provision for income taxes

Effective tax rate

2021
2020
(In millions, except
percentages)

$ 72.5

$ 42.1

9.4%

6.7%

Our provision for fiscal 2021 was primarily attributable to federal, state and foreign income taxes on our fiscal
2021 income, partially offset by the tax benefit of $22.1 million related to our foreign-derived intangible income,
and the tax benefit of $64.3 million related to stock-based compensation that vested or was exercised during the
period. We also recognized a tax benefit of $10.5 million related to the release of the valuation allowance on our
Massachusetts R&D tax credits because we expect to utilize these tax credits prior to expiration based on strong
current earnings and future taxable income projections.

Our provision for fiscal 2020 was primarily attributable to federal, state and foreign income taxes on our fiscal
2020 income, partially offset by the tax benefit of $22.2 million related to the partial release of the valuation
allowance on our California R&D tax credit deferred tax assets and the tax benefit of $60.1 million related to stock-
based compensation that vested or was exercised during fiscal 2020.

The United States enacted the Tax Cuts and Jobs Act in December 2017 that requires companies to
capitalize all of their R&D costs, including software development costs, incurred in tax years beginning after
December 31, 2021. Beginning in fiscal 2022, we must capitalize and amortize R&D costs over five years for
domestic research and 15 years for international research rather than expensing these costs as incurred. If the
United States doesn’t repeal or defer the effective date of the law in the future, then we expect our fiscal 2022
effective tax rate and our cash tax payments to increase significantly as compared to fiscal 2021. We also expect
to recognize increases to our deferred tax assets as we begin to capitalize domestic research costs.

Our future effective tax rates may also 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 2022 effective tax rate will be approximately 25%. We expect that our
quarterly effective tax rates will vary from our fiscal 2022 effective tax rate as a result of recognizing the income tax
effects of stock-based awards in the quarterly periods that the awards vest or are settled and other items that we
cannot anticipate. For additional discussion about how our effective tax rate could be affected by various risks, see
Part I, Item 1A, “Risk Factors.” For further discussion regarding our income taxes, see Note 8 in the notes to
consolidated financial statements.

Liquidity and Capital Resources

Cash and cash equivalents

Net working capital

Cash and Cash Equivalents

As of

Change

January 1,
2022

January 2,
2021

2021 vs. 2020

(In millions)

$ 1,088.9 $

928.4 $

744.5

681.8

160.5

62.7

As of January 1, 2022, our principal sources of liquidity consisted of $1,088.9 million of cash and cash

equivalents as compared to $928.4 million as of January 2, 2021.

Our primary sources of cash and cash equivalents during fiscal 2021 were cash generated from operations,
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 2021 were payments related to salaries and
benefits, operating expenses, repurchases of our common stock, payments for business combinations, net of cash
acquired, payments for income taxes, purchases of inventory, payment of employee taxes on vesting of restricted
stock and purchases of property, plant and equipment.

Approximately 55% of our cash and cash equivalents were held by our foreign subsidiaries as of January 1,
2022. Our cash and cash equivalents held by our foreign subsidiaries may vary from period to period due to the
timing of collections and repatriation of foreign earnings.

Net Working Capital

Net working capital

is comprised of current assets less current liabilities, as shown on our consolidated
balance sheets. The increase in our net working capital as of January 1, 2022, as compared to January 2, 2021, is
primarily due to improved results from operations, the timing of cash receipts from customers and disbursements
made to vendors.

Cash Flows from Operating Activities

Cash flows from operating activities during fiscal 2021 and 2020 were as follows:

2021

2020

(In millions)

Change
2021 vs. 2020

Cash provided by operating activities

$ 1,101.0 $

904.9 $

196.1

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 2021, as compared to fiscal 2020, was primarily due to improved
results from operations and timing of cash receipts from customers and disbursements made to vendors.

Cash Flows from Investing Activities

Cash flows used for investing activities during fiscal 2021 and 2020 were as follows:

2021

2020

(In millions)

Change
2021 vs. 2020

Cash used for investing activities

(293.0) $

(292.2) $

(0.8)

Cash used for investing activities during fiscal 2021 and fiscal 2020, consisted primarily of cash paid in
business combinations, net of cash acquired, and payments for purchases of property, plant and equipment. We
expect
including purchasing property, plant and equipment, purchasing
intangible assets, business combinations, purchasing software licenses, and making strategic investments.

to continue our investing activities,

Cash Flows from Financing Activities

Cash flows used for financing activities during fiscal 2021 and 2020 were as follows:

2021

2020

(In millions)

Change
2021 vs. 2020

Cash used for financing activities

(643.8) $

(415.3) $

(228.5)

The increase in cash used for financing activities during fiscal 2021, as compared to fiscal 2020, was primarily

due to an increase in payments for repurchases of our common stock.

Other Factors Affecting Liquidity and Capital Resources

Stock Repurchase Program

As of the end of fiscal 2020, approximately $739 million remained available under the previously announced
authorization to repurchase shares of our common stock. In August 2021, our Board of Directors increased the prior
authorization to repurchase shares of our common stock by authorizing an additional $1 billion. The actual timing
and amount of repurchases are subject to business and market conditions, corporate and regulatory requirements,
stock price, acquisition opportunities and other factors. As of January 1, 2022, approximately $1.1 billion remained
available to repurchase shares of our common stock. 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

On June 30, 2021, we terminated our then-existing revolving credit facility, dated January 30, 2017, and
entered into a five-year senior unsecured revolving credit facility with a group of lenders led by Bank of America,
N.A., as administrative agent (the “2021 Credit Facility”). The 2021 Credit Facility provides for borrowings up to
$700.0 million, with the right to request increased capacity up to an additional $350.0 million upon receipt of lender
commitments, for total maximum borrowings of $1.05 billion. The 2021 Credit Facility expires on June 30, 2026.
Any outstanding loans drawn under the 2021 Credit Facility are due at maturity on June 30, 2026, subject to an
option to extend the maturity date. Outstanding borrowings may be repaid at any time prior to maturity. As of
January 1, 2022, there were no borrowings outstanding under the 2021 Credit Facility, and we were in compliance
with all financial covenants associated with such credit facility.

2024 Notes

In October 2014, we issued $350.0 million aggregate principal amount of 4.375% Senior Notes due
October 15, 2024. 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
January 1, 2022, 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.

Other Liquidity Requirements

A summary of other capital and liquidity requirements as of January 1, 2022 is as follows:

Operating lease obligations (1)

Purchase obligations

Contractual interest payments

Voluntary retirement program

Income tax payable

Other long-term contractual obligations (2)

Total

Due in Less
Than 1 Year

(In millions)

$ 171.1 $

62.4

48.7

17.5

8.0

47.9

32.0

50.9

15.9

17.0

8.0

—

$ 355.6 $

123.8

(1) This table includes future payments under leases that had commenced as of January 1, 2022 as well as leases

that had been signed but not yet commenced as of January 1, 2022.

(2)

Included in other long-term contractual obligations are long-term income tax liabilities of $23.1 million related to
unrecognized tax benefits. The remaining portion of other long-term contractual obligations is primarily liabilities
associated with defined benefit retirement plans and acquisitions.

We expect that current cash and cash equivalent balances, cash flows that are generated from operations
and financing activities will be sufficient to meet the needs of our domestic and international operating activities,
and other capital and liquidity requirements, including acquisitions and share repurchases for at least the next
12 months and thereafter for the foreseeable future.

Off-Balance Sheet Arrangements

As of January 1, 2022, we did not have any significant off-balance sheet arrangements that are reasonably

likely to have a material current or future effect on our operating results or financial condition.

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.

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. These contracts require us to apply judgment in identifying and evaluating any terms and
conditions in contracts which may impact revenue recognition. 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
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.

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.

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. 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 8 in the notes to consolidated financial statements.

During fiscal 2019, we completed intercompany transfers of certain intangible property rights to our Irish
subsidiary, which resulted in the establishment of a deferred tax asset and the recognition of an income tax benefit
of $575.6 million. To determine the value of the deferred tax asset, we were required to make significant estimates
in determining the fair value of the transferred IP rights. These estimates included, but are not limited to, the
income and cash flows that the IP rights are expected to generate in the future, the appropriate discount rate to
apply to the income and cash flow projections, and the useful lives of the IP rights. These estimates are inherently
uncertain and unpredictable, and if different estimates were used, it would impact the fair value of the IP rights and
the related value of the deferred tax asset and the income tax benefit recognized in fiscal 2019 and in future
periods when the deferred tax asset is realized. In addition, we reviewed the need to establish a valuation

allowance on the deferred tax asset of $575.6 million by evaluating whether there is a greater than 50% likelihood
that some portion or all of the deferred tax asset will not be realized. To make this judgment, we must make
significant estimates and predictions of the amount and category of future taxable income from various sources
and weigh all available positive and negative evidence about these possible sources of taxable income. We give
greater weight to evidence that can be objectively verified. Based on our evaluation and weighting of the positive
and negative evidence, we concluded that it is greater than 50% likely that the deferred tax asset of $575.6 million
will be realized in future periods and that a valuation allowance was not currently required. If, in the future, we
evaluate that this deferred tax asset is not likely to be realized, an increase in the related valuation allowance
could result in a material income tax expense in the period such a determination is made.

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
events and circumstances may occur that may impact the useful
life assigned to our intangible assets, which
would impact our amortization of intangible assets expense and our results of operations.

During fiscal 2021, we acquired intangible assets of $88.9 million with our acquisition of NUMECA and
Pointwise. The fair value of the definite-lived intangible assets acquired with these acquisitions was determined
using variations of the income approach.

For acquired existing technology, the fair value was determined by applying the relief-from-royalty method.
This method is based on the application of a royalty rate to forecasted revenue to quantify the benefit of owning
the intangible asset rather than paying a royalty for use of the asset. To estimate royalty savings over time, we
projected revenue from the acquired existing technology over the estimated remaining life of the technology,
including the effect of assumed technological obsolescence, before applying an assumed royalty rate. For
NUMECA, we assumed technological obsolescence at a rate of 6.7% annually, before applying an assumed
royalty rate of 22%. For Pointwise, we assumed technological obsolescence at a rate of 10.0% annually, before
applying an assumed royalty rate of 25%. The present value of after-tax royalty savings were determined using
discount rates ranging from 10.5% to 12.0%.

The fair value for acquired agreements and relationships was determined by using the multi-period excess
earnings method. This method reflects the present value of the projected cash flows that are expected to be
generated from existing customers, less charges representing the contribution of other assets to those cash flows.
Projected income from existing customer relationships considered a customer retention rate of 95% for both
NUMECA and Pointwise. The present value of operating cash flows from existing customers was determined
using discount rates ranging from 10.5% to 12.0%.

We believe that our estimates and assumptions related to the fair value of its acquired intangible assets are

reasonable, but significant judgment is involved.

New Accounting Standards

For additional

information about the adoption of new accounting standards, see Note 2 in the notes to

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
January 1, 2022. 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, 2022.

Forward Contracts:

European Union euro

British pound

Israeli shekel

Japanese yen

Indian rupee

Swedish krona

Canadian dollar

Chinese renminbi

Taiwan dollar

Other

Total

Estimated fair value

Weighted
Average
Contract
Rate

0.88

0.74

3.10

114.50

75.23

9.01

1.26

6.43

27.62

N/A

Notional
Principal
(In millions)

140.8

104.3

84.1

57.5

29.4

22.3

11.7

7.3

5.6

6.4

469.4

(0.3)

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
cash equivalents. The carrying value of our interest-bearing instruments approximated fair value as of January 1,
2022.

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. Assuming all loans were fully
drawn and 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 $2.6 million change in annual interest expense on our
indebtedness under our revolving credit facility. As of January 1, 2022, there were no 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 8 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.”

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 January 1,
2022.

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
fraud involving personnel who have a significant role in our disclosure controls and
identified any acts of
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 January 1, 2022, 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
January 1, 2022 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 January 1, 2022. 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
January 1, 2022, our internal control over financial reporting is effective based on these criteria. Our independent
registered public accounting firm, PricewaterhouseCoopers LLP, has issued an attestation report on our internal
Item 15, “Exhibits and Financial Statement
control over financial reporting, which is included in Part
Schedules.”

IV,

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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, as applicable, “Security Ownership of Certain Beneficial Owners
and Management — Delinquent Section 16(a) Reports” in Cadence’s definitive proxy statement for its 2022
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 2022 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 2022 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
2021,” “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 2022 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 2022 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
2022 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 the Independent Registered Public Accounting Firm During Fiscal 2021 and 2020” in Cadence’s
definitive proxy statement for its 2022 Annual Meeting of Stockholders.

PART IV.

Item 15. Exhibits and Financial Statement Schedules

(a) 1. Financial Statements

Reports of Independent Registered Public Accounting Firms (Auditor Firm IDs 238 & 185) . . . . . . . .

Consolidated Balance Sheets as of January 1, 2022 and January 2, 2021 . . . . . . . . . . . . . . . . . . . . .

Consolidated Income Statements for the three fiscal years ended January 1, 2022 . . . . . . . . . . . . . .

Consolidated Statements of Comprehensive Income for the three fiscal years ended January 1,
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Stockholders’ Equity for the three fiscal years ended January 1,
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for the three fiscal years ended January 1, 2022 . . . . . . . .

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.

© 2022 Cadence Design Systems, Inc. All rights reserved worldwide. Cadence, the Cadence logo, and the
other Cadence marks found at www.cadence.com/go/trademarks are trademarks or registered trademarks of
Cadence Design Systems, Inc. All other trademarks are the property of their respective holders.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Cadence Design Systems, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Cadence Design Systems, Inc. and its
subsidiaries (the “Company”) as of January 1, 2022 and January 2, 2021, and the related consolidated statements
of income, of comprehensive income, of stockholders’ equity and of cash flows for the years then ended, including
the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the
Company’s internal control over financial reporting as of January 1, 2022, based on criteria established in Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of January 1, 2022 and January 2, 2021, and the results of its operations
and its cash flows for the years then ended in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of January 1, 2022, based on criteria established in Internal Control—Integrated
Framework (2013) issued by the COSO.

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 Management’s Report on Internal Control Over Financial Reporting appearing
under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and
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
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.

the consolidated financial statements. Our audits of

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 (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) provide reasonable
the
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
company’s assets that could have a material effect on the financial statements.

its inherent

Because of

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.

limitations,

Critical Audit Matters

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

Revenue Recognition—Identifying and Evaluating Terms and Conditions in Contracts

As described in Note 2 and Note 5 to the consolidated financial statements, the Company 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,
management allocates the transaction price of
to each performance obligation and recognizes
the contract
revenue upon transfer of control of promised products or services to customers. Management applies judgment in
identifying and evaluating any terms and conditions in contracts which may impact revenue recognition. For the
year ended January 1, 2022, the Company’s total revenue was $2.988 billion.

The principal considerations for our determination that performing procedures relating to revenue recognition,
specifically the identification and evaluation of terms and conditions in contracts, is a critical audit matter are the
significant judgment by management in identifying and evaluating terms and conditions in contracts that impact
revenue recognition, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing
procedures and evaluating whether terms and conditions in contracts were appropriately identified and evaluated
by management.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with
forming our overall opinion on the consolidated financial statements. These procedures included testing the
effectiveness of controls relating to the revenue recognition process, including controls related to the identification
and evaluation of terms and conditions in contracts that impact revenue recognition. These procedures also
included, among others (i) testing management’s process of identifying and evaluating the terms and conditions in
contracts,
those terms and conditions on revenue
recognition and (ii) testing the completeness and accuracy of management’s identification and evaluation of the
terms and conditions in contracts by examining revenue arrangements on a test basis.

including management’s determination of

the impact of

/s/ PricewaterhouseCoopers LLP

San Jose, California

February 22, 2022
We have served as the Company’s auditor since 2020.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Cadence Design Systems, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of

income, comprehensive income,
stockholders’ equity, and cash flows for the year ended December 28, 2019, and the related notes (collectively,
the consolidated financial statements) of Cadence Design Systems, Inc. and subsidiaries (the Company). In our
opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results
of the Company’s operations and its cash flows for the year ended December 28, 2019, in conformity with U.S.
generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of

the Company’s management. Our
responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement, whether due to error or fraud. Our audit 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 audit 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 also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provided a reasonable basis for our opinion.

/s/ KPMG LLP

We served as the Company’s auditor from 2002 to 2020.

Santa Clara, California
February 24, 2020

CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
January 1, 2022 and January 2, 2021
(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

Deferred taxes

Other assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

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 8, 12 and 18)

Stockholders’ equity:

As of

January 1,
2022

January 2,
2021

1,088,940 $

337,596

115,721

173,512

928,432

338,487

75,956

135,712

1,715,769

1,478,587

305,911

928,358

233,265

763,770

439,226

311,125

782,087

210,590

732,290

436,106

4,386,299 $

3,950,785

417,283 $

553,942

971,225

101,148

347,588

225,663

674,399

349,951

446,857

796,808

107,064

346,793

207,102

660,959

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: 276,796 and 278,941, respectively

2,467,701

2,217,939

Treasury stock, at cost; 52,363 shares and 50,219 shares, respectively

(2,740,003)

(2,057,829)

Retained earnings

Accumulated other comprehensive loss

Total stockholders’ equity

Total liabilities and stockholders’ equity

3,046,288

2,350,333

(33,311)

(17,425)

2,740,675

2,493,018

4,386,299 $

3,950,785

See notes to consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
For the three fiscal years ended January 1, 2022
(In thousands, except per share amounts)

Revenue:

Product and maintenance

Services

Total revenue

Costs and expenses:

Cost of product and maintenance

Cost of services

Marketing and sales

Research and development

General and administrative

Amortization of acquired intangibles

Restructuring

Total costs and expenses

Income from operations

Interest expense

Other income, net

Income before provision (benefit) for income taxes

Provision (benefit) for income taxes

Net income

Net income per share – basic

Net income per share – diluted

2021

2020

2019

2,812,947 $

2,536,617 $ 2,204,615

175,297

146,274

131,704

2,988,244

2,682,891

2,336,319

222,647

84,359

560,262

231,026

74,472

516,460

1,134,277

1,033,732

189,018

154,425

19,640

(1,048)

18,009

9,215

189,146

77,211

481,673

935,938

139,806

12,128

8,621

2,209,155

2,037,339

1,844,523

779,089

(16,980)

6,326

768,435

72,480

645,552

491,796

(20,749)

(18,829)

7,945

6,001

632,748

478,968

42,104

(510,011)

695,955 $

590,644 $

988,979

2.54 $

2.50 $

2.16 $

2.11 $

3.62

3.53

Weighted average common shares outstanding – basic

Weighted average common shares outstanding – diluted

273,504

278,858

273,728

273,239

279,641

280,515

See notes to consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three fiscal years ended January 1, 2022
(In thousands)

Net income

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

Foreign currency translation adjustments

Changes in defined benefit plan liabilities

2021

2020

2019

695,955 $

590,644 $

988,979

(15,423)

(463)

18,373

1,128

(8,642)

(3,504)

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

(15,886)

19,501

(12,146)

Comprehensive income

680,069 $

610,145 $

976,833

See notes to consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the three fiscal years ended January 1, 2022
(In thousands)

Common Stock

Par Value and
Capital in
Excess of Par

Treasury
Stock

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total

Balance, December 29, 2018

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

280,015 $ 1,936,124 $ (1,395,652) $
—

—

—
(4,841)

—
—

—
(306,148)

5,923

(57,763)

110,604

(1,242)

(13,671)

(76,909)

—

181,547

—

772,709 $
988,979

(24,780) $ 1,288,401
988,979

— $

—
—

—

(12,146) $

(12,146)
— $ (306,148)

— $

52,841

— $

(90,580)

— $

181,547

Balance, December 28, 2019

279,855 $ 2,046,237 $ (1,668,105) $ 1,761,688 $

(36,926) $ 2,102,894

(1,999)
590,644

—

$
— $

(1,999)
590,644

Cumulative effect adjustment
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

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

—

—
(4,247)

—

—
—

—
(380,064)

4,352

(7,934)

82,736

(1,019)

(17,632)

(92,396)

—

197,268

—

—
(4,401)

—

—
—

—
(612,297)

2,978

55,505

32,272

(722)

(15,833)

(102,149)

—

210,090

—

—
—

—

19,501 $

19,501
— $ (380,064)

— $

74,802

— $ (110,028)

— $

197,268

—
—

—

(15,886) $

(15,886)
— $ (612,297)

— $

87,777

— $ (117,982)

— $

210,090

Balance, January 2, 2021

278,941 $ 2,217,939 $ (2,057,829) $ 2,350,333 $

(17,425) $ 2,493,018

—

695,955

— $

695,955

Balance, January 1, 2022

276,796 $ 2,467,701 $ (2,740,003) $ 3,046,288 $

(33,311) $ 2,740,675

See notes to consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three fiscal years ended January 1, 2022
(In thousands)

Cash and cash equivalents at beginning of year

928,432

705,210

533,298

2021

2020

2019

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) loss on investments, net
Deferred income taxes
Provisions for losses on receivables
ROU asset amortization and change in operating lease

liabilities

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

695,955

590,644

988,979

142,308
1,219
210,090
(580)
(43,178)
525

(11,606)
427

2,014
(39,027)
(34,342)
(7,133)
67,356
100,731
16,199

—
128
(65,298)
(1,583)

145,653
1,053
197,268
4,954
(26,117)
1,628

4,483
773

(25,934)
(25,685)
(31,167)
(71,606)
18,394
110,173
10,408

904,922

—
217
(94,813)
—

122,789
1,001
181,547
4,090
(576,738)
632

562
428

(4,718)
(33,024)
(11,031)
(8,011)
33,915
27,498
1,681

729,600

(33,717)
2,952
(74,605)
—

Net cash provided by operating activities

1,100,958

Cash flows from investing activities:

Purchases of non-marketable investments
Proceeds from the sale of non-marketable investments
Purchases of property, plant and equipment
Purchases of intangible assets
Cash paid in business combinations and asset acquisitions, net of

cash acquired

(226,201)

(197,562)

(338)

Net cash used for investing activities

(292,954)

(292,158)

(105,708)

Cash flows from financing activities:

Proceeds from revolving credit facility
Payment on revolving credit facility
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

—
—
(1,285)
87,772

(117,982)
(612,297)

350,000
(350,000)
—
74,803

(110,028)
(380,064)

150,000
(250,000)
—
52,842

(90,580)
(306,148)

Net cash used for financing activities

(643,792)

(415,289)

(443,886)

Effect of exchange rate changes on cash and cash equivalents

Increase 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

(3,704)

160,508
1,088,940

15,950
146,424

25,747

223,222
928,432

19,778
105,917

(8,094)

171,912
705,210

17,842
41,946

See notes to consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three fiscal years ended January 1, 2022

NOTE 1. BUSINESS OVERVIEW

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

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Cadence and its subsidiaries after elimination

of intercompany accounts and transactions. All consolidated subsidiaries are wholly owned by Cadence.

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

2021 and 2019 were 52- week fiscal years, while 2020 was a 53-week fiscal year.

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.

Recently Adopted Accounting Standards

Accounting for Income Taxes

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2019-12, “Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes,
eliminates certain exceptions within Accounting Standards Codification 740, Income Taxes, and clarifies certain
aspects of the current guidance to promote consistency among reporting entities. Cadence adopted the standard
on January 3, 2021,
impact Cadence’s
consolidated financial statements during fiscal 2021.

fiscal 2021. The adoption of

this standard did not

the first day of

New Accounting Standards Not Yet Adopted

Lessors — Certain Leases with Variable Lease Payments

In July 2021, the FASB issued ASU 2021-05, “Lessors — Certain Leases with Variable Lease Payments,”
which allows lessors to classify and account for a lease with variable payments that do not depend on a reference
index or a rate as an operating lease if both of the following criteria are met: (1) the lease would have been
classified as a sales-type lease or a direct financing lease in accordance with the classification criteria as defined
in ASC Topic 842 and (2) the lessor would have otherwise recognized a day-one loss on the lease arrangement.
This standard better aligns the accounting with the underlying economics of these arrangements as lessors are not
permitted to include most variable payments which do not depend on a reference index or a rate in the lease
receivable while assets are derecognized at lease commencement. This standard is effective for fiscal years

beginning after December 15, 2021, including interim periods within those fiscal years. Cadence adopted this
standard on January 2, 2022, the first day of fiscal 2022, on a prospective basis. This standard is not expected to
have a material impact on Cadence’s consolidated financial statements and related disclosures.

Business Combinations

In October 2021, the FASB issued ASU 2021-08, “Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers,” which that requires contract assets and contract liabilities acquired in a business
combination to be recognized and measured by the acquirer on the acquisition date in accordance with “Revenue
from Contracts with Customers (Topic 606)” as if the acquiring entity had originated the contracts. This approach
differs from the current requirement to measure contract assets and contract liabilities acquired in a business
combination at fair value. The standard is effective for fiscal years beginning after December 15, 2022, including
interim periods within those fiscal years, and early adoption is permitted. Cadence adopted this standard on
January 2, 2022, the first day of fiscal 2022. The impact of the standard on Cadence’s consolidated financial
statements is dependent on the size and frequency of future acquisitions and does not affect contract assets or
contract liabilities related to acquisitions completed prior to the adoption date.

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.

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

Cadence assesses its ability to collect outstanding receivables and provides customer-specific allowances,
allowances for credit losses and general allowances for the portion of its receivables that are estimated to be
uncollectible. The allowances are based on the current creditworthiness of its customers, historical experience,
expected credit losses, changes in customer demand and the overall economic climate in the industries that
Cadence serves. Provisions for these allowances are recorded in general and administrative expense in
Cadence’s consolidated income statements.

Inventories

Inventories are computed at standard costs which approximate actual costs and are valued at the lower of
cost or net realizable value based on the first-in, first-out method. 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 manage 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

Building improvements and land improvements

Furniture and fixtures

Equipment

2-7 years

25-32 years

Shorter of the lease term or the estimated
useful life

Up to 32 years

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. Capitalized costs were not material during fiscal 2021, 2020 or 2019.

the application development phase of

Cadence recorded depreciation and amortization expense of $71.2 million, $67.6 million and $63.3 million

during fiscal 2021, 2020 and 2019, 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 2021, 2020 and
2019 were not material.

Deferred Sales Commissions

Cadence records an asset for the incremental costs of obtaining a contract with a customer, including direct
sales commissions that are earned upon execution of
the contract. Cadence uses the portfolio method to
recognize the amortization expense related to these capitalized costs related to initial contracts and renewals and

such expense is recognized over a period associated with the revenue of the related portfolio, which is generally
two to three years for Cadence’s software arrangements and upon delivery for its hardware and IP arrangements.
Incremental costs related to initial contracts and renewals are amortized over the period of the arrangement in
each case because Cadence pays the same commission rate for both new contracts and renewals. Deferred sales
commissions are tested for impairment on an ongoing basis when events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment is recognized to the extent that the amount of
deferred sales commission exceeds the remaining expected gross margin (remaining revenue less remaining
direct costs) on the goods and services to which the deferred sales commission relates. Total capitalized costs
were $43.9 million and $36.7 million as of January 1, 2022, and January 2, 2021, respectively, and are included in
other assets in Cadence’s consolidated balance sheet. Amortization of
these assets was $40.1 million,
$34.6 million and $29.4 million during fiscal 2021, 2020 and 2019, respectively, and is included in sales and
marketing expense in Cadence’s consolidated income statement.

Goodwill

Cadence conducts a goodwill

impairment analysis annually and as necessary if changes in facts and
circumstances indicate that the fair value of Cadence’s single reporting unit may be less than its carrying amount.
To assess for impairment, Cadence compares 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 analysis 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 record
an impairment charge.

Long-Lived Assets, Including Acquired Intangibles

Cadence’s long-lived assets consist of property, plant and equipment, and acquired intangibles. Acquired
intangibles consist of acquired technology, certain contract rights, customer relationships, trademarks and trade
names, capitalized software, and in-process research and development. These acquired intangibles are acquired
through business combinations or direct purchases. 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
three years to fifteen years. Acquired intangibles with indefinite lives, or in-process technology, consists of projects
that had not reached technological feasibility by the date of acquisition. Upon completion of the project, the assets
are amortized over their estimated useful lives. If the project is abandoned rather than completed, the asset is
written off. In-process technology is tested for impairment annually and as necessary if changes in facts and
circumstances indicate that the assets might be impaired.

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

Leases

Lessee Considerations

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

At inception of a contract, Cadence determines an arrangement contains a lease if the arrangement conveys
the right to use an identified asset and Cadence obtains substantially all of the economic benefits from the asset

and has the ability to direct the use of the asset. Leases with an initial term of twelve months or less are not
recorded on the balance sheet. For lease agreements entered into or reassessed after the adoption of Topic 842,
Cadence combines the lease and non-lease components in determining the lease liabilities and right-of-use
(“ROU”) assets. Non-lease components primarily include common-area maintenance and other management fees.

Operating lease expense is generally recognized evenly over the term of

the lease. Payments under
Cadence’s lease agreements are primarily fixed; however, certain agreements contain rental payments that are
adjusted periodically based on changes in consumer price and other indices. Changes to payments resulting from
changes in indices are expensed as incurred and not included in the measurement of lease liabilities and ROU
assets. Cadence’s lease agreements do not provide an implicit borrowing rate, therefore an internal incremental
borrowing rate is determined based on information available at lease commencement date for purposes of
determining the present value of lease payments. The incremental borrowing rate represents a comparable rate to
borrow on a collateralized basis over a similar term and in the economic environment where the leased asset is
located. Cadence used the incremental borrowing rate on the effective date of adoption of Topic 842 for all leases
that commenced prior to that date.

Lessor Considerations

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

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

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

Investments in Equity Securities

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

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

Cadence reviews its non-marketable investments on a regular basis to determine whether its investments in
these companies are 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, the book value of
the investment is adjusted 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 as a component of retained earnings by
Cadence on the reissuance of treasury stock during fiscal 2021, 2020 or 2019.

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. In any fiscal year,
between 85% and 90% of revenue is characterized as recurring revenue. Revenue characterized as recurring
includes revenue recognized over time from Cadence’s software arrangements, services, royalties, maintenance
on IP licenses and hardware, and operating leases of hardware and revenue recognized at varying points in time
over the term of our IP Access Agreements (“IPAA”) that include non-cancellable commitments from customers.
The remainder of Cadence’s revenue is recognized at a point in time and is characterized as up-front revenue.
Up-front revenue is primarily generated by sales of emulation and prototyping hardware and individual IP licenses.

Product and maintenance revenue includes Cadence’s licenses of software and IP, sales of emulation

hardware and the related maintenance on these licenses and sales.

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

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

Software Revenue Recognition

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

Multiple software licenses, related updates, and technical support

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

Hardware Revenue Recognition

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

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.

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

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

Services Revenue Recognition

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

Stock-Based Compensation

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

The fair value of stock options and purchase rights issued under Cadence’s Employee Stock Purchase Plan
(“ESPP”) are calculated using the Black-Scholes option pricing model. The computation of the expected volatility
assumption used for new awards is based on 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 $7.5 million, $7.1 million and $8.4 million during fiscal 2021, 2020 and 2019,
respectively, and is included in marketing and sales in the consolidated income statements.

Restructuring

Cadence records personnel-related restructuring charges with termination benefits when the costs are both
probable and estimable. Cadence records personnel-related restructuring charges with non-customary termination
benefits when the plan has been communicated to the affected employees. Cadence records facilities-related
restructuring charges in the period in which the affected facilities are vacated. In connection with facilities-related
restructuring plans, Cadence has made a number of estimates and assumptions related to losses on excess
facilities that have been vacated or consolidated, particularly the timing of subleases and sublease terms. Closure
and space reduction costs included in the restructuring charges include payments required under leases less any
applicable estimated sublease income after the facilities are abandoned,
lease buyout costs and certain
contractual costs to maintain facilities during the period after abandonment.

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

Accounting for Income Taxes

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

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

(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 8 in the notes to the consolidated financial statements.

NOTE 3. DEBT

Cadence’s outstanding debt as of January 1, 2022 and January 2, 2021 was as follows:

January 1, 2022

January 2, 2021

Principal

Unamortized
Discount

Carrying
Value

Principal

Unamortized
Discount

Carrying
Value

(In thousands)

Revolving Credit Facility

— $

—

2024 Notes

350,000

(2,412)

347,588

350,000

(3,207)

346,793

Total outstanding debt

350,000 $

(2,412) $ 347,588 $

350,000 $

(3,207) $

346,793

Revolving Credit Facility

In June 2021, Cadence terminated its existing revolving credit facility, dated January 30, 2017, and entered
into a five-year senior unsecured revolving credit facility with a group of lenders led by Bank of America, N.A., as
(the “2021 Credit Facility”). The 2021 Credit Facility provides for borrowings up
administrative agent
to $700 million, with the right to request increased capacity up to an additional $350 million upon the receipt of
lender commitments, for total maximum borrowings of $1.05 billion. The 2021 Credit Facility expires on June 30,

2026. Any outstanding loans drawn under such credit facility are due at maturity on June 30, 2026, subject to an
option to extend the maturity date. Outstanding borrowings may be repaid at any time prior to maturity. Debt
issuance costs of $1.3 million were recorded to other assets in Cadence’s consolidated balance sheet at the
inception of the agreement and are being amortized to interest expense over the term of the 2021 Credit Facility.

Interest accrues on borrowings under the 2021 Credit Facility at a rate equal to, at Cadence’s option, either
(1) LIBOR plus a margin between 0.750% and 1.250% per annum, determined by reference to the credit rating of
Cadence’s unsecured debt, or (2) the base rate plus a margin between 0.000% and 0.250% per annum,
determined by reference to the credit rating of Cadence’s unsecured debt. Interest is payable quarterly. A
commitment fee ranging from 0.070% to 0.175% is assessed on the daily average undrawn portion of revolving
commitments. The 2021 Credit Facility also includes provisions addressing the potential transition from LIBOR to a
new replacement benchmark.

The 2021 Credit Facility contains customary negative covenants that, among other things, restrict Cadence’s
ability to incur additional
indebtedness and grant liens. In addition, the 2021 Credit Facility contains financial
covenants that require Cadence to maintain a funded debt to EBITDA ratio not greater than 3.25 to 1, with a step
up to 3.75 to 1 for one year following an acquisition by Cadence of at least $250 million that results in a pro forma
leverage ratio between 3.00 to 1 and 3.50 to 1. As of January 1, 2022, Cadence was in compliance with all
financial covenants associated with the 2021 Credit Facility.

2024 Notes

In October 2014, Cadence issued $350.0 million aggregate principal amount of 4.375% Senior Notes due
October 15, 2024 (the “2024 Notes”). Cadence received net proceeds of $342.4 million from the issuance of the
2024 Notes, net of a discount of $1.4 million and issuance costs of $6.2 million. Both the discount and issuance
costs are being amortized to interest expense over the term of the 2024 Notes using the effective interest method.
Interest is payable in cash semi-annually in April and October. The 2024 Notes are unsecured and rank equal in
right of payment to all of Cadence’s existing and future senior indebtedness. The fair value of the 2024 Notes was
approximately $376.4 million as of January 1, 2022.

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 January 1, 2022 and January 2, 2021 were as

follows:

Accounts receivable

Unbilled accounts receivable

Long-term receivables

Total receivables

Less allowance for doubtful accounts

Total receivables, net

As of

January 1,
2022

January 2,
2021

(In thousands)

$ 185,599 $

196,990

155,689

144,364

5,098

3,655

346,386

345,009

(3,692)

(2,867)

$ 342,694 $

342,142

Cadence’s customers are primarily concentrated within the semiconductor and electronics systems industries.
As of January 1, 2022 and January 2, 2021, no customer accounted for 10% or more of Cadence’s total
receivables.

Allowance for doubtful accounts

Cadence’s provisions for losses on its accounts receivable during fiscal 2021, 2020 and 2019 were as follows:

Balance at
Beginning of
Period*

Charged to
Costs and
Expenses

Charged
to Other
Accounts

Uncollectible
Accounts
Written Off, Net

Balance
at End of
Period

Year ended January 1, 2022

Year ended January 2, 2021

Year ended December 28, 2019

2,867

2,868

3,936

525

1,628

632

780

225

(480)

$ 3,692

(1,854)

2,867

— $

(3,699)

869

* Beginning balance for the year ended January 2, 2021 reflects the cumulative-effect adjustment recorded in
connection with the adoption of ASU 2016-13, “Measurement of Credit Losses on Financial Instruments” on the
first day of fiscal 2020.

NOTE 5. REVENUE

Cadence groups its products into five categories 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
categories and services for fiscal 2021, 2020 and 2019:

Custom IC Design and Simulation

Digital IC Design and Signoff

Functional Verification, including Emulation and Prototyping Hardware*

System Design and Analysis

Total

2021

2020

2019

23%

29%

24%

13%

11%

25%

29%

22%

14%

10%

25%

30%

23%

13%

100%

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

Cadence generates revenue from contracts with customers and applies judgment in identifying and evaluating
any terms and conditions in contracts which may impact revenue recognition. 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 categories based upon the expected usage of products. Revenue by product category fluctuates from
period to period based on demand for products and services, and Cadence’s available resources to deliver them.
No one customer accounted for 10% or more of total revenue during fiscal 2021, 2020 or 2019.

Significant Judgments

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

requires significant

judgment.

together,

include multiple software licenses and updates to the licensed software products, as well as technical support, and
Cadence has concluded that these promised goods and services are a single, combined performance obligation.

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

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

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

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

Contract Balances

in receivables, contract assets, or contract

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

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

Cadence’s contract balances as of January 1, 2022 and January 2, 2021 were as follows:

Contract assets

Deferred revenue

As of

January 1,
2022

January 2,
2021

(In thousands)

6,811 $

9,709

655,090

553,921

Cadence recognized revenue of $430.2 million, $345.9 million and $311.8 million during fiscal 2021, 2020 and
2019, respectively, that was included in the deferred revenue balance at the beginning of each fiscal year. All other
activity in deferred revenue is due to the timing of invoices in relation to the timing of revenue as described above.

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

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

Remaining Performance Obligations

Revenue allocated to remaining performance obligations represents the transaction price allocated to the
performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and
amounts that will be invoiced and recognized as revenue in future periods. Cadence has elected to exclude the
potential
future royalty receipts from the remaining performance obligations. Contracted but unsatisfied
performance obligations were approximately $4.4 billion as of January 1, 2022, which included $119.5 million of
non-cancellable IPAA commitments from customers where actual product selection and quantities of specific
products or services are to be determined by customers at a later date. As of January 1, 2022, Cadence expected
to recognize approximately 55% of
the contracted but unsatisfied performance obligations, excluding
non-cancellable IPAA commitments, as revenue over the next 12 months and the remainder thereafter.

Cadence recognized revenue of $47.1 million, $51.2 million and $40.4 million during fiscal 2021, 2020 and
2019, respectively, 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. ACQUISITIONS

2021 Acquisitions

On February 23, 2021, Cadence acquired all of

the outstanding equity of Belgium-based Numerical
Mechanics Applications International SA (“NUMECA”). The addition of NUMECA’s technologies and talent
supports Cadence’s Intelligent System Design™ strategy, servicing the computational fluid dynamics (“CFD”)
market segment as part of System Design and Analysis. The aggregate cash consideration for Cadence’s
acquisition of NUMECA, net of cash acquired of $9.6 million, was $188.6 million. Cadence expects to recognize
expense for consideration paid to certain former NUMECA shareholders that is subject to service and other
conditions, through the first quarter of fiscal 2023.

The total purchase consideration was allocated to the assets acquired and liabilities assumed with Cadence’s

acquisition of NUMECA based on their respective estimated fair values on the acquisition date as follows:

Current assets

Goodwill

Acquired intangibles

Other long-term assets

Total assets acquired

Current liabilities

Long-term liabilities

Total liabilities assumed

Total purchase consideration

Acquisition Date
Fair Value
(In thousands)

16,423

133,077

72,200

6,928

228,628

9,951

20,475

30,426

198,202

The recorded goodwill is attributed to intangible assets that do not qualify for separate recognition, including
the acquired assembled workforce and expected synergies from combining operations of NUMECA with Cadence.
Cadence expects all of the goodwill related to the acquisition of NUMECA to be deductible for tax purposes.

On April 14, 2021, Cadence acquired all of the outstanding equity of Pointwise, Inc. (“Pointwise”), a leader in
mesh generation for CFD for cash consideration of approximately $31.4 million, net of cash acquired. The addition
of Pointwise’s technologies and experienced team supports Cadence’s Intelligent System Design strategy and
further broadens its System Design and Analysis portfolio, complementing its acquisition of NUMECA. 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 $16.7 million of definite-lived intangible assets
and $16.7 million of goodwill with its acquisition of Pointwise. All of the goodwill related to Cadence’s acquisition of
Pointwise is expected to be deductible for tax purposes.

Cadence completed two additional acquisitions during fiscal 2021. These acquisitions are not material to the

consolidated financial statements.

Definite-lived intangible assets acquired with Cadence’s fiscal 2021 acquisitions were as follows:

Existing technology

Agreements and relationships

Tradenames, trademarks and patents

Total acquired intangibles with definite lives

2020 Acquisitions

Acquisition Date
Fair Value
(In thousands)

Weighted
Average
Amortization Period
(in years)

59,100

28,900

4,600

92,600

13.7 years

14.3 years

13.7 years

In fiscal 2020, Cadence acquired all of the outstanding equity of AWR Corporation (“AWR”) and Integrand
Software, Inc. (“Integrand”). These acquisitions enhanced Cadence’s technology portfolio to address growing radio
frequency design activity, driven by expanding use of 5G communications.

The aggregate cash consideration for these acquisitions was $195.6 million, after taking into account cash
acquired of $1.5 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 will also make
payments to certain employees, subject
to continued employment and other performance-based conditions,
through the first quarter of fiscal 2023.

With its acquisitions of AWR and Integrand, Cadence recorded $101.3 million of definite-lived intangible
assets with a weighted average amortization period of approximately nine years. The definite-lived intangible
assets related primarily to existing technology and customer agreements and relationships. Cadence also
recorded $119.4 million of goodwill and $25.1 million of net liabilities, consisting primarily of deferred tax liabilities,
assumed deferred revenue and trade accounts receivable. The recorded goodwill was primarily related to the
acquired assembled workforce and expected synergies from combining operations of the acquired companies with
Cadence. None of the goodwill related to the acquisitions of AWR and Integrand is deductible for tax purposes.

Cadence completed one additional acquisition during fiscal 2020 that was not material to the consolidated

financial statements.

Pro Forma Financial Information

Cadence has not presented pro forma financial information for any of the businesses it acquired during fiscal
2021 and fiscal 2020 because the results of operations for these businesses are not material to Cadence’s
consolidated financial statements.

Acquisition-Related Transaction Costs

Transaction costs associated with acquisitions, which consist of professional fees and administrative costs,
were not material during fiscal 2021, 2020 or 2019 and were expensed as incurred in Cadence’s consolidated
income statements.

NOTE 7. GOODWILL AND ACQUIRED INTANGIBLES

Goodwill

The changes in the carrying amount of goodwill during fiscal 2021 and 2020 were as follows:

Balance as of December 28, 2019

Goodwill resulting from acquisitions

Effect of foreign currency translation

Balance as of January 2, 2021

Goodwill resulting from acquisitions

Effect of foreign currency translation

Balance as of January 1, 2022

Gross Carrying
Amount
(In thousands)

661,856

120,564

(333)

782,087

154,362

(8,091)

928,358

Cadence completed its annual goodwill impairment test during the third quarter of fiscal 2021 and determined
that the fair value of Cadence’s single reporting unit exceeded the carrying amount of its net assets and that no
impairment existed.

Acquired Intangibles, Net

Acquired intangibles as of January 1, 2022 were as follows, excluding intangibles that were fully amortized as

of January 2, 2021:

Existing technology

Agreements and relationships

Tradenames, trademarks and patents

Gross Carrying
Amount

Accumulated
Amortization
(In thousands)

Acquired
Intangibles, Net

405,481 $

(254,599) $

150,882

205,057

10,666

(130,187)

(3,153)

74,870

7,513

Total acquired intangibles

621,204 $

(387,939)

233,265

Acquired intangibles as of January 2, 2021 were as follows, excluding intangibles that were fully amortized as

of December 28, 2019:

Existing technology

Agreements and relationships

Tradenames, trademarks and patents

Gross Carrying
Amount

Accumulated
Amortization
(In thousands)

Acquired
Intangibles, Net

370,838 $

(230,654) $

140,184

180,023

10,590

(113,629)

(6,578)

66,394

4,012

Total acquired intangibles

561,451 $

(350,861) $

210,590

Amortization expense from existing technology and maintenance agreements is included in cost of product
and maintenance. Amortization expense for fiscal 2021, 2020 and 2019, by consolidated income statement
caption, was as follows:

Cost of product and maintenance

Amortization of acquired intangibles

Total amortization of acquired intangibles

2021

2020
(In thousands)

2019

47,576 $

46,184 $

19,640

18,009

67,216 $

64,193 $

40,951

12,128

53,079

As of January 1, 2022, the estimated amortization expense for intangible assets with definite lives was as

follows for the following five fiscal years and thereafter:

2022

2023

2024

2025

2026

Thereafter

(In thousands)

50,673

35,142

33,383

22,741

17,661

73,665

Total estimated amortization expense

233,265

NOTE 8. INCOME TAXES

Cadence’s income before provision (benefit) for income taxes included income from the United States and

from foreign subsidiaries for fiscal 2021, 2020 and 2019, was as follows:

United States

Foreign subsidiaries

Total income before provision (benefit) for income taxes

2021

2020
(In thousands)

2019

376,037 $

256,032 $

392,398

376,716

139,306

339,662

768,435 $

632,748 $

478,968

Cadence’s provision (benefit) for income taxes was comprised of the following items for fiscal 2021, 2020 and

2019:

Current:

Federal

State and local

Foreign

Total current

Deferred:

Federal

State and local

Foreign

Total deferred

2021

2020
(In thousands)

2019

19,957 $

15,083 $

15,282

25,246

70,455

115,658

6,401

46,737

68,221

2,716

48,729

66,727

(16,415)

(30,406)

3,643

(11,155)

(24,186)

(9,001)

6,593

9,224

(574,330)

(43,178)

(26,117)

(576,738)

Total provision (benefit) for income taxes

72,480 $

42,104 $(510,011)

During the fourth quarter of fiscal 2021, Cadence recognized a tax benefit of approximately $10.5 million due
to a release of the valuation allowance on our Massachusetts research and development tax credit deferred tax
assets. Cadence expects to utilize these tax credits prior to expiration based on strong current earnings and future
taxable income projections.

During the third quarter of fiscal 2020, Cadence recognized a tax benefit of approximately $22.2 million due to
a partial release of the valuation allowance on our California research and development tax credit deferred tax
assets as a result of certain tax elections made in Cadence’s 2019 California tax return.

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

The provision for income taxes differs from the amount estimated by applying the United States statutory
federal income tax rates of 21% to income before provision (benefit) for income taxes for fiscal 2021, 2020, and
2019 as follows:

2021

2020
(In thousands)

2019

Provision computed at federal statutory income tax rate

161,880 $

132,877 $

100,583

State and local income tax, net of federal tax effect

24,640

20,936

23,221

Intercompany transfers of intangible property rights

—

(575,618)

Foreign income tax rate differential

(26,887)

(32,589)

(37,786)

Foreign-derived intangible income deduction

(22,050)

(3,762)

(1,201)

U.S. tax on foreign entities

Stock-based compensation

51,112

43,615

57,225

(55,091)

(51,226)

(29,785)

Change in deferred tax asset valuation allowance

(8,262)

(9,101)

16,796

Tax credits

Non-deductible research and development expense

Withholding taxes

Other

(90,054)

(89,684)

(87,793)

4,443

23,495

9,254

5,163

17,189

8,686

4,363

15,865

4,119

Provision (benefit) for income taxes

72,480 $

42,104 $ (510,011)

Effective tax rate

(106)%

The components of deferred tax assets and liabilities consisted of the following as of January 1, 2022 and

January 2, 2021:

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

Lease liability

Prepaid expenses

Total deferred tax assets

Valuation allowance

Net deferred tax assets

Deferred tax liabilities:

Intangible assets

Undistributed foreign earnings

ROU assets

Other

Total deferred tax liabilities

Total net deferred tax assets

As of

January 1,
2022

January 2,
2021

(In thousands)

147,248 $

197,436

72,287

568,199

60,272

578,267

34,467

6,630

42,753

16,957

17,690

5,005

6,833

27,362

53,893

39,427

5,935

21,170

16,944

14,656

4,402

2,521

31,278

—

999,324

972,308

(108,158)

(116,419)

891,166

855,889

(55,178)

(45,460)

(27,362)

(8,528)

(44,549)

(41,957)

(31,278)

(10,749)

(136,528)

(128,533)

754,638 $

727,356

During fiscal 2021, 2020 and 2019 Cadence maintained valuation allowances of $108.2 million,
$116.4 million, and $125.5 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.

The valuation allowance decreased by $8.3 million during fiscal 2021, decreased by $9.1 million during fiscal
2020 and increased by $16.8 million during fiscal 2019. The valuation allowance activity was primarily related to
state research and development tax credits and certain foreign tax credits.

As of January 1, 2022, 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

428 from 2027 through 2033

27,044 from 2025 through 2038

1,174 from 2022 through 2037

3,478 from 2030 through indefinite

As of January 1, 2022, Cadence had tax credit carryforwards of:

Federal*

California

Other states

Foreign

Amount
(In thousands)

Expiration Periods

46,743 from 2029 through 2041

77,651 indefinite

14,361 from 2025 through indefinite

27,814 from 2037 through indefinite

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

period.

Examinations by Tax Authorities

Taxing authorities regularly examine Cadence’s income tax returns. As of January 1, 2022, Cadence’s

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

Jurisdiction

United States – Federal

United States – California

Ireland

Israel

Korea

Earliest Tax Year
Open to
Examination

2017

2015

2017

2016

Unrecognized Tax Benefits

The changes in Cadence’s gross amount of unrecognized tax benefits during fiscal 2021, 2020 and 2019 are

as follows:

2021

2020
(In thousands)

2019

Unrecognized tax benefits at the beginning of the fiscal year

$ 113,021 $ 106,041 $ 101,857

Gross amount of the increases (decreases) in unrecognized tax

benefits of tax positions taken during a prior year*

15,414

5,037

(3,143)

Gross amount of the increases in unrecognized tax benefits as a

result of tax positions taken during the current year

5,100

3,344

8,951

Amount of decreases in unrecognized tax benefits relating to

settlements with taxing authorities, including the utilization of tax
attributes

Reductions to unrecognized tax benefits resulting from the lapse of

the applicable statute of limitations

Effect of foreign currency translation

(270)

(1,316)

(380)

(2,778)

(676)

591

(1,692)

448

Unrecognized tax benefits at the end of the fiscal year

$ 130,530 $ 113,021 $ 106,041

Total amounts of unrecognized tax benefits that, if upon resolution of
the uncertain tax positions would reduce Cadence’s effective tax
rate

79,654 $

66,010 $

61,527

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

Cadence is currently under examination or contesting proposed adjustments by various domestic and
international taxing authorities. It is reasonably possible that the amount of unrecognized tax positions could
decrease by approximately $20.6 million during the next 12 months. The potential decrease could be primarily
driven by settlements with tax authorities. The actual amount could vary significantly depending on the ultimate
timing and nature of any settlements.

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

provision (benefit) for income taxes for fiscal 2021, 2020 and 2019 were as follows:

Interest

Penalties

2021

2020
(In thousands)

2019

1,171 $

473 $

490

(11)

(3)

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

of January 1, 2022 and January 2, 2021 were as follows:

Interest

Penalties

As of

January 1,
2022

January 2,
2021

(In thousands)

4,921 $

3,555

—

NOTE 9. 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 2020, Cadence’s stockholders approved an amendment to the Omnibus
Plan to increase the number of shares of common stock authorized for issuance by 9.0 million. As of January 1,
2022, the total number of shares available for future issuance under the Omnibus Plan was 14.4 million. Options
granted under the Omnibus Plan have an exercise price not less than the fair market value of the stock on the date
of grant. Options and restricted stock generally vest over a period of three years to four years. Options granted
under the Omnibus Plan expire seven years from the date of grant. Vesting of restricted stock awards granted
under the Omnibus Plan may require the attainment of specified performance criteria.

Cadence’s 1995 Directors Stock Incentive Plan (the “Directors Plan”) provides for

the issuance of
non-qualified options, restricted stock awards and restricted stock units to its non-employee directors. Options
granted under the Directors Plan have an exercise price not less than the fair market value of the stock on the date
of grant. As of January 1, 2022, 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”).
its stock option plans, and each option is
The Acquired Options were assumed by Cadence outside of
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 2021, 2020 and 2019 were as follows:

Stock options

Restricted stock

ESPP

2021

2020
(In thousands)

2019

9,051 $

8,062 $

6,806

181,946

173,193

164,078

19,093

16,013

10,663

Total stock-based compensation expense

$ 210,090 $ 197,268 $ 181,547

Income tax benefit

$ 33,958 $ 31,857 $ 30,118

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

2021, 2020 and 2019 as follows:

2021

2020
(In thousands)

2019

Cost of product and maintenance

4,161 $

2,922 $

Cost of services

Marketing and sales

Research and development

General and administrative

3,375

43,264

131,247

28,043

3,720

42,096

2,759

3,510

39,088

124,999

114,656

23,531

21,534

Total stock-based compensation expense

210,090 $

197,268 $ 181,547

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 2021, 2020
and 2019 were as follows:

Dividend yield

Expected volatility

Risk-free interest rate

Expected term (in years)

2021

None

2020

None

31.7%

1.02%

4.8

25.1%

1.36%

4.8

2019

None

24.4%

2.47%

4.8

Weighted average fair value of options granted

46.10

19.38

14.58

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

2021 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 January 2, 2021

3,934 $

Granted

Exercised

Forfeited

612

(1,066)

(61)

Options outstanding as of January 1, 2022

3,419 $

36.72

159.25

22.37

61.38

62.69

3.5 $

422,830

Options vested as of January 1, 2022

2,425 $

39.16

2.7 $

356,981

Cadence had total unrecognized compensation expense related to stock option grants of $32.8 million as of
January 1, 2022, which will be recognized over the remaining vesting period. The remaining weighted average
vesting period of unvested awards is 2.7 years.

The total intrinsic value of and cash received from options exercised during fiscal 2021, 2020 and 2019 was:

Intrinsic value of options exercised

Cash received from options exercised

Restricted Stock

2021

2020
(In thousands)

2019

$ 129,403 $ 109,193 $ 51,625

23,844

26,474

14,553

Generally, restricted stock, which includes restricted stock awards and restricted stock units, vests over three
years to four years and is subject to the employee’s continuing service to Cadence. Stock-based compensation
expense is recognized ratably over the vesting term. The vesting of certain restricted stock grants is subject to
attainment of specified performance criteria. Each fiscal quarter, Cadence estimates the probability of
the
achievement of these performance goals and recognizes any related stock-based compensation expense using
the graded-vesting method. The amount of stock-based compensation expense recognized in any one period can
vary based on the attainment or expected attainment of the various performance goals. If such performance goals

are not ultimately met, no compensation expense is recognized and any previously recognized compensation
expense is reversed.

Certain long-term, market-based performance stock awards granted to executives vest over three to five
years and are subject to certain market conditions and the executive’s continuing service to Cadence. Stock-based
compensation expense is recognized straight-line over the vesting term.
the market-based performance
conditions are not ultimately met, compensation expense previously recognized is not reversed. As of January 1,
2022, Cadence had 1.3 million shares of unvested long-term, market-based performance stock awards
outstanding.

Stock-based compensation expense related to performance-based and market-based performance restricted

stock grants for fiscal 2021, 2020 and 2019 was as follows:

2021

2020
(In thousands)

2019

Stock-based compensation expense related to performance-based

restricted stock

$ 16,225 $ 14,859 $ 12,640

Stock-based compensation expense related to market-based performance

stock awards

6,453

8,335

7,019

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

fiscal 2021 is presented below:

Weighted
Average
Remaining
Vesting
Terms
(Years)

Weighted
Average
Grant Date
Fair Value

Aggregate
Intrinsic
Value

(In thousands)

Unvested shares as of January 2, 2021

Granted

Vested

Forfeited

6,239 $

63.12

1,688

(2,570)

(426)

141.97

61.61

75.92

Unvested shares as of January 1, 2022

4,931 $

89.91

1.2 $

918,769

Cadence had total unrecognized compensation expense related to restricted stock grants of $341.0 million as
of January 1, 2022, which will be recognized over the remaining vesting period. The remaining weighted average
vesting period of unvested awards is 2.0 years.

The total fair value realized by employees upon vesting of restricted stock during fiscal 2021, 2020 and 2019

was:

2021

2020
(In thousands)

2019

Fair value of restricted stock realized upon vesting

$ 365,298 $ 358,261 $ 298,320

Employee Stock Purchase Plan

Cadence provides an ESPP that enables eligible employees to purchase shares of its common stock.
Offering periods under the plan last a duration of six months beginning on either February 1 or August 1, with the
purchase dates falling on the last day of the six-month offering period. For the offering periods that commenced
February 1, 2021 and August 1, 2021, 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 12% of their annual base earnings plus bonuses and commissions, and subject to a limit

in any calendar year of $15,000. The ESPP may be amended from time to time. As of January 1, 2022, the total
number of shares available for future issuance under the ESPP was 4.6 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 2021, 2020 and 2019 were as follows:

Dividend yield

Expected volatility

Risk-free interest rate

Expected term (in years)

2021

None

2020

None

31.5%

0.07%

0.5

32.6%

0.80%

0.5

2019

None

27.9%

2.23%

0.5

Weighted average fair value of options granted

33.77

23.08

14.37

Shares of common stock issued under the ESPP for fiscal 2021, 2020 and 2019 were as follows:

2021

2020
(In thousands, except per share amounts)

2019

Cadence shares purchased under the ESPP

624

785

Cash received for the purchase of shares under the ESPP

Weighted average purchase price per share

63,932 $

48,328 $

102.41 $

61.55 $

988

38,290

38.74

Reserved for Future Issuance

As of January 1, 2022, 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

(In thousands)

19,006

4,630

622

24,258

* 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 10. STOCK REPURCHASE PROGRAMS

the end of

fiscal 2020, approximately $739 million remained available under Cadence’s previously
announced authorization to repurchase shares of its common stock. In August 2021, Cadence’s Board of Directors
increased the prior authorization to repurchase shares of Cadence common stock by authorizing an additional
$1 billion. The actual timing and amount of repurchases are subject to business and market conditions, corporate
and regulatory requirements, stock price, acquisition opportunities and other factors. As of January 1, 2022,
approximately $1.1 billion of the share repurchase authorization remained available to repurchase shares of
Cadence common stock.

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

shares, including commissions, during fiscal 2021, 2020 and 2019 were as follows:

Shares repurchased

2021

2020
(In thousands)

2019

4,401

4,247

4,841

Total cost of repurchased shares

612,297 $

380,064 $

306,148

NOTE 11. NET INCOME PER SHARE

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

The calculations for basic and diluted net income per share for fiscal 2021, 2020 and 2019 are as follows:

2021

2020
(In thousands, except per share amounts)

2019

Net income

$ 695,955

$ 590,644

$ 988,979

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

273,504

273,728

273,239

5,354

5,913

7,276

278,858

279,641

280,515

2.54

2.50

2.16

2.11

3.62

3.53

The following table presents shares of Cadence’s common stock outstanding for fiscal 2021, 2020 and 2019
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 market-based awards

Options to purchase shares of common stock

Non-vested shares of restricted stock

Total potential common shares excluded

NOTE 12. LEASES

2021

2020
(In thousands)

2019

—

214

255

383

201

642

1,097

359

727

2,183

Operating lease expense, which includes immaterial amounts of short-term leases, variable lease costs and

sublease income, was as follows during fiscal 2021, 2020 and 2019:

Operating lease expense

2021

2020
(In thousands)

2019

$ 43,210 $ 39,731 $ 34,709

Additional activity related to Cadence’s leases during fiscal 2021 and 2020 was as follows:

Cash paid for amounts included in the measurement of operating lease liabilities

$ 50,151 $ 34,723

ROU assets obtained in exchange for operating lease obligations

31,813

63,057

ROU lease assets and lease liabilities for Cadence’s operating leases were recorded in the consolidated

balance sheet as follows:

2021
2020
(In thousands)

Other assets

Accounts payable and accrued liabilities

Other long-term liabilities

Total lease liabilities

Weighted average remaining lease term (in years)

Weighted average discount rate

As of

January 1,
2022

January 2,
2021

(In thousands)

$ 130,124 $ 133,354

25,271

33,920

107,121

113,916

$ 132,392 $ 147,836

6.5

3.6%

6.7

3.8%

Future lease payments included in the measurement of lease liabilities on the consolidated balance sheet as

of January 1, 2022, for the following five fiscal years and thereafter were as follows:

2022

2023

2024

2025

2026

Thereafter

Total future lease payments

Less imputed interest

Total lease liability balance

Operating
Leases
(In thousands)

28,471

26,828

23,271

19,715

13,298

36,770

148,353

(15,961)

132,392

As of January 1, 2022, Cadence had additional operating lease obligations of approximately $22.7 million for

facility leases that will commence in fiscal 2022.

NOTE 13. BALANCE SHEET COMPONENTS

A summary of certain balance sheet components as of January 1, 2022 and January 2, 2021 is as follows:

Inventories:

Raw materials

Finished goods

Inventories

Prepaid expenses and other:

Prepaid income taxes

Other prepaid expenses and other assets

Prepaid expenses and other

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:

Non-marketable investments

ROU lease assets

Other long-term assets

Other assets

Accounts payable and accrued liabilities:

Payroll and payroll-related accruals

Customer deposits

Other accrued operating liabilities

Accounts payable and accrued liabilities

Other long-term liabilities:

Operating lease liabilities

Other accrued liabilities

Other long-term liabilities

As of

January 1,
2022

January 2,
2021

(In thousands)

88,629 $

27,092

63,647

12,309

115,721 $

75,956

85,320 $

88,192

55,366

80,346

173,512 $

135,712

636,069 $

616,836

126,557

55,842

137,778

27,798

40,603

13,830

126,666

55,848

129,155

27,064

38,732

10,774

1,038,477

1,005,075

(732,566)

(693,950)

305,911 $

311,125

127,501 $

132,226

130,124

181,601

133,354

170,526

439,226 $

436,106

254,090 $

219,289

64,117

99,076

27,888

102,774

417,283 $

349,951

107,121 $

113,916

118,542

93,186

225,663 $

207,102

NOTE 14. INVESTMENTS

Cadence has a portfolio of equity investments that

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

Marketable Equity Investments

Cadence’s investment

in marketable equity securities consists of purchased shares of a publicly held
company and is included in prepaid expenses and other in Cadence’s consolidated balance sheets. Changes in
the fair value of these investments is recorded to other income, net in Cadence’s consolidated income statements.

Non-Marketable Equity Investments

Cadence’s investments in non-marketable equity securities generally consist of stock, convertible debt or
other instruments of privately held entities and are included in other assets on Cadence’s consolidated balance
sheets. Cadence holds a 16% interest in a privately held company that is accounted for using the equity method of
accounting. The carrying value of this investment was $125.9 million and $130.7 million as of January 1, 2022 and
January 2, 2021, respectively. During fiscal 2021 and fiscal 2020, Cadence recorded losses of $1.1 million and
$4.6 million, respectively, to other income, net in Cadence’s consolidated income statements, which represented
Cadence’s proportionate share of net income from the investee, offset by amortization of basis differences.

Cadence also holds other non-marketable investments in privately held companies where Cadence does not
have the ability to exercise significant influence and the fair value of the investments is not readily determinable.
The carrying value of these investments was $1.6 million and $1.6 million as of January 1, 2022 and January 2,
2021, respectively. Gains and losses on these investments are recorded to other income, net in Cadence’s
consolidated income statements and were not material to Cadence’s consolidated financial statements for fiscal
2021, 2020 or 2019.

NOTE 15. 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

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 2021.

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 January 1, 2022 and
January 2, 2021:

Fair Value Measurements as of January 1, 2022:
Total

Level 1

Level 2

Level 3

Assets

Cash equivalents:

Money market funds

Marketable equity securities

Securities held in NQDC trust

Total Assets

Liabilities

(In thousands)

658,474 $

— $

5,956

56,165

5,956

56,165

—

720,595 $

— $

Foreign currency exchange contracts

306

—

306

Total Liabilities

306 $

— $

306 $

Fair Value Measurements as of January 2, 2021:
Total

Level 1

Level 2

Level 3

Assets

Cash equivalents:

Money market funds

Marketable equity securities

Securities held in NQDC trust

Foreign currency exchange contracts

(In thousands)

541,386 $

— $

4,452

42,769

8,868

4,452

42,769

—

8,868

Total Assets

597,475 $

588,607 $

8,868 $

—

As of January 2, 2021, Cadence did not have any financial

liabilities requiring a recurring fair value

measurement.

Level 1 Measurements

Cadence’s cash equivalents held in money market

funds, marketable equity securities and the trading

securities held in Cadence’s NQDC trust are measured at fair value using level 1 inputs.

Level 2 Measurements

The valuation techniques used to determine the fair value of Cadence’s foreign currency forward exchange
information

contracts and 2024 Notes are classified within Level 2 of the fair value hierarchy. For additional
relating to Cadence’s debt arrangements, see Note 3 in the notes to consolidated financial statements.

Level 3 Measurements

During fiscal 2021, Cadence acquired intangible assets of $88.9 million with its acquisition of NUMECA and
Pointwise. The fair value of the definite-lived intangible assets acquired with these acquisitions was determined
using variations of the income approach and level 3 inputs.

For acquired existing technology, the fair value was determined by applying the relief-from-royalty method.
This method is based on the application of a royalty rate to forecasted revenue to quantify the benefit of owning
the intangible asset rather than paying a royalty for use of the asset. To estimate royalty savings over time,
the
Cadence projected revenue from the acquired existing technology over the estimated remaining life of
technology, including the effect of assumed technological obsolescence, before applying an assumed royalty rate.
For NUMECA, Cadence assumed technological obsolescence at a rate of 6.7% annually, before applying an
assumed royalty rate of 22%. For Pointwise, Cadence assumed technological obsolescence at a rate of 10.0%
annually, before applying an assumed royalty rate of 25%. The present value of after-tax royalty savings were
determined using discount rates ranging from 10.5% to 12.0%.

During fiscal 2020, Cadence acquired intangible assets of $101.3 million during the first quarter of fiscal 2020
with its acquisition of AWR and Integrand. The fair value of the definite-lived intangible assets acquired with these
acquisitions was determined using variations of the income approach, which include level 3 inputs.

For existing technology, the fair value was determined by applying the relief-from-royalty method. This
method is based on the application of a royalty rate to forecasted revenue to quantify the benefit of owning the
intangible asset rather than paying a royalty for use of the asset. To estimate royalty savings over time, Cadence
projected revenue from existing technology over the estimated remaining life of the technology, including the effect
of technological obsolescence which was estimated at a rate between 5% and 7.5% annually, before applying an
assumed royalty rate of 20%. The present value of after-tax royalty savings were determined using discount rates
ranging from 10% to 11.5%.

The fair value for acquired agreements and relationships was determined by using the multi-period excess
earnings method. This method reflects the present value of the projected cash flows that are expected to be
generated from existing customers, less charges representing the contribution of other assets to those cash flows.
Projected income from existing customer relationships considered customer retention rates ranging between 85%
and 95%. The present value of operating cash flows from existing customers was determined using discount rates
10% and 11.5%.

Cadence also assumed obligations related to deferred revenue of $6.9 million during fiscal 2020 with its
acquisition of AWR. The fair value of these obligations was estimated using the cost build-up approach. The cost
build-up approach determines fair value using estimates of the costs required to fulfill the contracted obligations
plus an assumed profit margin, which approximates the amount that AWR would be required to pay a third party to
assume the obligation.

Cadence believes that its estimates and assumptions related to the fair value of its acquired intangible assets

and assumed liabilities are reasonable, but significant judgment is involved.

NOTE 16. RESTRUCTURING AND OTHER CHARGES

Cadence has initiated restructuring plans, most recently in fiscal 2020, in an effort to better align its resources
with its business strategy. The charges associated with these restructuring plans have primarily been comprised of
severance payments and termination benefits related to headcount reductions and charges related to impacted
facilities and are included in restructuring and other charges on Cadence’s consolidated income statements.

The following table presents activity for Cadence’s restructuring plans during fiscal 2021, 2020 and 2019:

Balance, December 29, 2018

Restructuring

Cash payments

Effect of foreign currency translation

Balance, December 28, 2019

Restructuring

Cash payments

Effect of foreign currency translation

Balance, January 2, 2021

Restructuring

Cash payments

Effect of foreign currency translation

Balance, January 1, 2022

Severance
and
Benefits

Excess
Facilities
(In thousands)

Total

11,176 $

848 $ 12,024

8,649

(28)

8,621

(10,714)

(420)

(11,134)

118

127

9,229 $

409 $ 9,638

7,476

1,739

9,215

(9,424)

(773)

(10,197)

(3)

7,321 $ 1,372 $ 8,693

(1,480)

432

(1,048)

(5,774)

(1,761)

(7,535)

(67)

—

— $

43 $

(67)

All remaining liabilities for Cadence’s restructuring plans represent liabilities from vacated facilities and are
included in accounts payable and accrued liabilities on Cadence’s consolidated balance sheet as of January 1,
2022. 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.

Other Termination Benefits

During the second quarter of

fiscal 2021, Cadence offered a voluntary retirement program to eligible
employees in the United States. This program resulted in a one-time charge of $26.8 million for voluntary
termination and post-employment benefits. These charges are included in each category of costs and expenses
on Cadence’s consolidated income statements. As of January 1, 2022, liabilities related to the voluntary retirement
program were $17.5 million and were included in accounts payable and accrued liabilities and other long-term
liabilities on Cadence’s consolidated balance sheet. Cadence expects to make cash payments to settle these
liabilities through fiscal 2023, including $17.0 million that is expected to be paid within the next twelve months.

NOTE 17. OTHER INCOME, NET

Cadence’s other income, net, for fiscal 2021, 2020 and 2019 was as follows:

Interest income

Gains (losses) on marketable equity investments

Losses on non-marketable equity investments

Gains on securities in NQDC trust

Gains (losses) on foreign exchange

Other expense, net

Total other income, net

2021

2020
(In thousands)

2019

2,634 $

3,817 $

9,509

1,504

(924)

6,163

(2,789)

(262)

(148)

(4,806)

4,881

4,429

(228)

713

(4,802)

5,402

(4,111)

(710)

6,326 $

7,945 $

6,001

NOTE 18. COMMITMENTS AND CONTINGENCIES

Purchase Obligations

Cadence had purchase obligations of $62.4 million as of January 1, 2022 that were associated with
agreements or commitments for purchases of goods or services. Cadence expects to settle $50.9 million of these
obligations within the next 12 months.

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 legal proceedings related to intellectual property,
indemnification
obligations, mergers and acquisitions, licensing, contracts, customers, products, distribution and other commercial
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 2021, 2020 or 2019.

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 2021, 2020 or 2019.

NOTE 19. EMPLOYEE AND DIRECTOR BENEFIT PLANS

Cadence maintains various defined contribution plans for its eligible U.S. and non-U.S. employees. For
employees in the United States, Cadence maintains a 401(k) savings plan to provide retirement benefits through
tax-deferred salary deductions and may make discretionary contributions, as determined by the Board of Directors,
which cannot exceed a specified percentage of the annual aggregate salaries of those employees eligible to
participate. Cadence’s total contributions made to these plans during fiscal 2021, 2020 and 2019 were as follows:

2021

2020
(In thousands)

2019

Contributions to defined contribution plans

33,029

27,152

25,269

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

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

NOTE 20. ACCUMULATED OTHER COMPREHENSIVE LOSS

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

Accumulated other comprehensive loss was comprised of the following as of January 1, 2022, and January 2,

2021:

Foreign currency translation loss

Changes in defined benefit plan liabilities

Total accumulated other comprehensive loss

As of

January 1,
2022

January 2,
2021

(In thousands)

(26,553) $

(11,130)

(6,758)

(6,295)

(33,311) $

(17,425)

For fiscal 2021, 2020 and 2019, there were no significant amounts related to foreign currency translation loss
or changes in defined benefit plan liabilities reclassified to net income from accumulated other comprehensive
loss.

NOTE 21. SEGMENT REPORTING

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

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

The following table presents a summary of revenue by geography for fiscal 2021, 2020 and 2019:

Americas:

United States

Other Americas

Total Americas

Asia:

China

Other Asia

Total Asia

Europe, Middle East and Africa

Japan

Total

2021

2020
(In thousands)

2019

1,292,980 $

1,096,263 $

982,380

42,141

43,652

43,473

1,335,121

1,139,915

1,025,853

378,160

566,772

944,932

523,390

184,801

406,645

487,362

894,007

469,804

179,165

241,474

459,028

700,502

433,314

176,650

2,988,244 $

2,682,891 $

2,336,319

The following table presents a summary of property, plant and equipment by geography as of January 1,

2022, January 2, 2021 and December 28, 2019:

Americas:

United States

Other Americas

Total Americas

Asia:

China

Other Asia

Total Asia

Europe, Middle East and Africa

Japan

Total

January 1,
2022

As of
January 2,
2021

December 28,
2019

(In thousands)

$ 238,263 $ 248,292 $

220,023

623

753

728

238,886

249,045

220,751

15,010

35,458

50,468

16,033

524

16,416

28,668

45,084

16,304

692

15,729

27,890

43,619

10,474

1,011

$ 305,911 $ 311,125 $

275,855

Provided
Herewith

Exhibit
Number

3.01

3.02

4.01

4.02

4.03

4.04

10.01*

10.02*

10.03*

10.04*

10.05*

10.06*

10.07*

10.08*

EXHIBIT INDEX

Exhibit Title

Form

Incorporated by Reference
Exhibit
No.

File No.

Filing Date

10-Q 000-15867

3.01

7/22/2019

8-K

000-15867

3.01

2/12/2021

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

10-Q 001-15867

10.01

7/26/2012

10-K

000-15867

10.76

2/21/2013

10-K

000-15867

10.77

2/21/2013

S-8

333-240302

99.01

8/3/2020

10-K

000-15867

10.16

2/22/2021

10-K

000-15867

10.17

2/22/2021

S-8

333-195771

99.04

5/7/2014

S-8

333-195771

99.05

5/7/2014

The Registrant’s Restated Certificate of
Incorporation, as filed with the Secretary of
State of the State of Delaware on May 3,
2019.
The Registrant’s Amended and Restated
Bylaws, effective as of February 10, 2021.
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).
Description of the Registrant’s Securities
Registered Pursuant to Section 12 of the
Securities Exchange Act of 1934.
The Registrant’s 1995 Directors Stock
Incentive Plan.
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 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.

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*

10.24*

10.25*

10.26*

Exhibit Title

Form

Incorporated by Reference
Exhibit
No.

File No.

Filing Date

Provided
Herewith

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.
Tensilica, Inc. 2007 Stock Incentive Plan.
nusemi inc. 2015 Equity Incentive Plan.
The Registrant’s Amended and Restated
Employee Stock Purchase Plan.
The Registrant’s 2009 Deferred
Compensation Plan, as amended and
restated on February 5, 2019.
The Registrant’s Senior Executive Bonus
Plan.
The Registrant’s Executive Severance Plan.
The Registrant’s Director Medical and
Prescription Benefits Coverage
Reimbursement Plan.
Form of Indemnity Agreement between the
Registrant and its directors and executive
officers, as amended and restated.
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.
Third Amendment to Employment
Agreement, effective as of March 22, 2018,
between the Registrant and Lip-Bu Tan.
Employment Agreement, effective as of
September 20, 2012, between the
Registrant and Thomas P. Beckley.
Letter, dated September 1, 2015, between
the Registrant and Neil Zaman.

S-8

333-195771

99.06

5/7/2014

S-8

333-195771

99.07

5/7/2014

S-8
S-8
S-8

333-188452
333-226294
333-226293

99.01
99.01
99.01

5/8/2013
7/23/2018
7/23/2018

10-K

000-15867

10.26

2/24/2020

8-K

000-15867

10.01

2/8/2019

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

10.01
10.02

5/11/2016
4/29/2011

10-Q 000-15867

10.01

7/25/2016

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-Q 000-15867

10.01

4/25/2018

10-K

000-15867

10.44

2/20/2014

10-K

000-15867

10.49

2/18/2016

Exhibit
Number

10.27*

10.28*

10.29

16.01

21.01
23.01

23.02

31.01

31.02

32.01†

32.02†

Exhibit Title

Form

Incorporated by Reference
Exhibit
No.

File No.

Filing Date

8-K/A

000-15867

10.01

12/17/2021

8-K/A

000-15867

10.02

12/17/2021

8-K

000-15867

10.01

7/1/2021

8-K

000-15867

16.01

3/3/2020

Amended and Restated Employment
Agreement, effective as of December 15,
2021, between the Registrant and Anirudh
Devgan.
Executive Chairman Agreement, effective
as of December 15, 2021, between the
Registrant and Lip-Bu Tan.
Credit Agreement, dated as of June 30,
2021, by and among the Registrant, Bank of
America, N.A., and other lenders party
thereto.
Letter from KPMG LLP dated March 3,
2020.
Subsidiaries of the Registrant.
Consent of PricewaterhouseCoopers LLP,
Independent Registered Public Accounting
Firm.
Consent of KPMG LLP, Independent
Registered Public Accounting Firm.
Certification of the Registrant’s Chief
Executive Officer, Anirudh Devgan,
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, Anirudh Devgan,
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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 Inline XBRL Instance Document.
101.SCH Inline XBRL Taxonomy Extension Schema

Document.

101.CAL Inline XBRL Taxonomy Extension

Calculation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition

Linkbase Document.

101.LAB Inline XBRL Taxonomy Extension Label

Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension
Presentation Linkbase Document.

100

Provided
Herewith

X
X

Exhibit
Number

104

Exhibit Title

Form

Cover Page Interactive Data File—The
cover page from this Annual Report on
Form 10-K is formatted in iXBRL.

Incorporated by Reference
Exhibit
No.

File No.

Filing Date

Provided
Herewith

†

Indicates management contract or compensatory plan or arrangement covering executive officers or directors
of the Registrant.
In accordance with Item 601(b)(32)(ii) of Regulation S-K, the certifications furnished in Exhibits 32.01 and
32.02 hereto will not be deemed “filed” for purposes of Section 18 of the Exchange Act or incorporated by
reference into any filings under the Securities Act or the Exchange Act (except to the extent that the registrant
specifically incorporates it by reference).

Item 16. Form 10-K Summary

None.

101

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/ Anirudh Devgan

Anirudh Devgan
President and Chief Executive Officer
Dated: February 22, 2022

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/ Anirudh Devgan

Anirudh Devgan

President and Chief Executive Officer

/s/ John M. Wall

John M. Wall

Senior Vice President and Chief Financial Officer

DATE: February 22, 2022

102

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS,

that each person whose signature appears below
constitutes and appoints Anirudh Devgan, John M. Wall and Alinka Flaminia, 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/ Lip-Bu Tan

Lip-Bu Tan, Executive Chair

/s/ Dr. John B. Shoven

Dr. John B. Shoven, Lead Independent Director

/s/ Mark W. Adams

Mark W. Adams, Director

/s/

Ita Brennan

Ita Brennan, Director

/s/ Lewis Chew

Lewis Chew, Director

/s/ Mary Louise Krakauer

Mary Louise Krakauer, Director

Julia Liuson
/s/
Julia Liuson, Director

/s/ Dr. James D. Plummer

Dr. James D. Plummer, Director

/s/ Dr. Alberto Sangiovanni-Vincentelli

Dr. Alberto Sangiovanni-Vincentelli, Director

/s/ Young K. Sohn

Young K. Sohn, Director

103

February 22, 2022

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