~~Level 3~~


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


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


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

The valuation techniques used to determine the fair value of Cadence’s 2024 Notes are classified within Level 2 of the fair value hierarchy. For additional information relating to Cadence’s debt arrangements, see Note 2 in ~~which one or more significant inputs or significant value drivers are unobservable.~~

the notes to condensed consolidated financial statements.

This hierarchy requires Cadence to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. Cadence recognizes transfers between levels of the hierarchy based on the fair values of the respective financial instruments at the end of the reporting period in which the transfer occurred. There were no transfers between levels of the fair value hierarchy during the ~~nine~~six months ended ~~September 30, 2017~~June 29, 2019.

On a quarterly basis, Cadence measures at fair value certain financial assets and liabilities. The fair value of financial assets ~~and liabilities~~ was determined using the following levels of inputs as of ~~September 30, 2017~~June 29, 2019 and December ~~31, 2016:~~29, 2018:



	Fair Value Measurements as of June 29, 2019
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	382,960	$	382,960	$	—	$	—
Marketable equity securities	3,615		3,615		—		—
Securities held in Non-Qualified Deferred Compensation (“NQDC”) trust	29,967		29,967		—		—
Foreign currency exchange contracts	808		—		808		—
Total Assets	$	417,350	$	416,542	$	808	$	—

As of June 29, 2019, Cadence did not have any financial liabilities requiring a recurring fair value measurement.

Fair Value Measurements as of September 30, 2017
   Total Level 1 Level 2 Level 3
(In thousands)
Assets
Cash equivalents:
Money market funds $ 489,487
$ 489,487
$ —
$ —
Short-term investments:

Marketable equity securities 4,135
4,135
—
—
Trading securities held in Non-Qualified Deferred Compensation, or NQDC, trust 29,498
29,498
—
—
Total Assets $ 523,120
$ 523,120
$ —
$ —

   Total Level 1 Level 2 Level 3
(In thousands)
Liabilities
Foreign currency exchange contracts $ 1,971
$ —
$ 1,971
$ —

Fair Value Measurements as of December 31, 2016
   Total Level 1 Level 2 Level 3
(In thousands)
Assets
Cash equivalents:

Money market funds $ 237,724
$ 237,724
$ —
$ —
Short-term investments:
Marketable equity securities 3,057
3,057
—
—
Trading securities held in NQDC trust 26,622
26,622
—
—
Total Assets $ 267,403
$ 267,403
$ —
$ —

   Total Level 1 Level 2 Level 3
(In thousands)
Liabilities
Foreign currency exchange contracts $ 2,653
$ —
$ 2,653
$ —



	Fair Value Measurements as of December 29, 2018
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	327,841	$	327,841	$	—	$	—
Marketable equity securities	3,887		3,887		—		—
Securities held in NQDC trust	27,767		27,767		—		—
Foreign currency exchange contracts	101		—		101		—
Total Assets	$	359,596	$	359,495	$	101	$	—

As of December 29, 2018, Cadence did not have any financial liabilities requiring a recurring fair value measurement.

NOTE ~~11.~~13. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

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

Other Contingencies

Cadence provides its customers with a warranty on sales of its hardware products, generally for a 90-day period. Cadence did not incur any significant costs related to warranty obligations during the three and ~~nine~~six months ended ~~September~~June 29, 2019 and June 30, ~~2017~~ ~~and~~ ~~October 1, 2016~~2018.

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 the three and ~~nine~~six months ended ~~September~~June 29, 2019 and June 30, ~~2017~~ ~~and~~ ~~October 1, 2016~~.

~~Non-Income Based Taxes~~

Cadence undergoes examination from time to time by U.S. and foreign authorities for non-income based taxes, such as payroll, sales, use, value-added, net worth or franchise, property, goods and services, consumption, import, stamp and excise taxes. Cadence is under examination by tax authorities in certain jurisdictions. If the potential loss from the examinations is considered probable and the amount or the range of loss can be estimated, Cadence accrues a liability for the estimated expense. Tax examinations and the related appeals processes 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 losses related to the non-income based taxes and may revise estimates.

2018.

NOTE ~~12.~~14. 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 ~~changes in unrealized holding gains and losses on available-for-sale securities net of reclassifications for realized gains and losses, as~~is presented in Cadence’s condensed consolidated statements of comprehensive income.

Accumulated other comprehensive loss was comprised of the following as of ~~September 30, 2017~~June 29, 2019 and December ~~31, 2016:~~29, 2018:



	As of
	June 29, 2019			December 29, 2018
	(In thousands)
Foreign currency translation loss	$	(21,453	)	$	(20,861	)
Changes in defined benefit plan liabilities	(6,544		)	(3,919		)
Total accumulated other comprehensive loss	$	(27,997	)	$	(24,780	)

As of
September 30,
2017 December 31,
2016
(In thousands)
Foreign currency translation loss $ (8,567 ) $ (22,370 )
Changes in defined benefit plan liabilities (3,627 ) (3,716 )
Unrealized holding gains on available-for-sale securities 2,174
926
Total accumulated other comprehensive loss $ (10,020 ) $ (25,160 )

For the three and ~~nine~~six months ended ~~September~~June 29, 2019 and June 30, ~~2017~~ ~~and~~ ~~October 1, 2016~~2018 there were no significant amounts reclassified from accumulated other comprehensive loss to net income.

NOTE ~~13.~~15. 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 ~~President and~~ CEO, who reviews Cadence’s consolidated results as one operating segment. In making operating decisions, the CEO primarily considers consolidated financial information, accompanied by disaggregated information about revenues by geographic region.

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

The following table presents a summary of revenue by geography for the three and ~~nine~~six months ended ~~September~~June 29, 2019 and June 30, ~~2017~~ ~~and~~ ~~October 1, 2016~~2018:



	Three Months Ended				Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
	(In thousands)
Americas:
United States	$	234,490	$	230,673	$	477,738	$	455,476
Other Americas	12,025		7,682		20,431		15,349
Total Americas	246,515		238,355		498,169		470,825
Asia:
China	68,379		40,619		127,356		85,913
Other Asia	109,425		93,780		220,772		188,433
Total Asia	177,804		134,399		348,128		274,346
Europe, Middle East and Africa	113,829		105,673		217,291		210,380
Japan	42,271		39,964		93,573		80,153
Total	$	580,419	$	518,391	$	1,157,161	$	1,035,704

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
(In thousands)
Americas:
United States $ 208,348
$ 197,715
$ 620,525
$ 614,153
Other Americas 7,938
6,924
25,749
23,361
Total Americas 216,286
204,639
646,274
637,514
Asia 131,890
120,206
385,708
330,417
Europe, Middle East and Africa 94,681
83,124
284,415
257,308
Japan 42,541
38,251
124,913
121,864
Total $ 485,398
$ 446,220
$ 1,441,310
$ 1,347,103

The following table presents a summary of long-lived assets by geography as of ~~September 30, 2017~~June 29, 2019 and December ~~31, 2016:~~29, 2018:



	As of
	June 29, 2019		December 29, 2018
	(In thousands)
Americas:
United States	$	202,695	$	200,025
Other Americas	843		475
Total Americas	203,538		200,500
Asia:
China	15,593		9,608
Other Asia	27,550		30,021
Total Asia	43,143		39,629
Europe, Middle East and Africa	10,547		11,784
Japan	654		717
Total	$	257,882	$	252,630

As of
September 30,
2017 December 31,
2016
(In thousands)
Americas:
United States $ 194,245
$ 193,750
Other Americas 641
757
Total Americas 194,886
194,507
Asia 34,925
30,564
Europe, Middle East and Africa 14,106
12,692
Japan 703
844
Total $ 244,620
$ 238,607

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

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q ~~or this Quarterly Report,~~(this “Quarterly Report”) and in conjunction with our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2016~~29, 2018. This Quarterly Report contains statements that are not historical in nature, are predictive, or that depend upon or refer to future events or conditions or contain other forward-looking statements. Statements including, but not limited to, statements regarding the extent and timing of future revenues and expenses and customer demand, statements regarding the deployment of our products and services, statements regarding our reliance on third parties and other statements using words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “projects,” “should,” “targets,” “will” and “would,” and words of similar import and the negatives thereof, constitute forward-looking statements. These statements are predictions based upon our current expectations about future events. Actual results could vary materially as a result of certain factors, including, but not limited to, those expressed in these statements. We refer you to the “Risk Factors,” “Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” and “Liquidity and Capital Resources” sections contained in this Quarterly Report, and the risks discussed in our other Securities and Exchange Commission ~~or SEC,~~(“SEC”) filings, which identify important risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements.

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

Business Overview

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

Our strategy, which we call Intelligent System Design ~~Enablement, or SDE,~~™, is ~~our overall strategy~~ to provide the technologies necessary for our electronic system and semiconductor customers to develop electronic products across a ~~complete~~variety of vertical markets including mobile, consumer, automotive, aerospace and ~~functional~~defense, industrial and medical segments. Our products and services enable our customers to develop complex and innovative electronic product. Our SDE strategy enables us to address the growing trends of electronic systems companies developing their own ICs as part of their end product systems, as well as semiconductor companies delivering greater portions of the systems into which their IC products, ~~are integrated. Demand~~so demand for our ~~products~~technology is driven by our customers’ investment in new designs and products. Historically, the industry that provided the tools used by IC engineers was referred to as Electronic Design Automation (“EDA”). Today, our offerings include and extend beyond EDA.

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

Functional Verification, including Emulation and Prototyping Hardware;

Digital IC Design and Signoff;

Custom IC ~~Design;~~Design and Simulation;

System Interconnect and Analysis; and

IP.

For additional information about our products, see the discussion in Item 1, “Business,” under the heading “Products and Product Strategy,” in our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2016~~29, 2018.

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

Critical Accounting Estimates

In preparing our condensed consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our condensed consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. At least quarterly, we evaluate our assumptions, judgments and estimates, and make changes as deemed necessary. For further information about our critical accounting estimates, see the discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Estimates” in our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2016~~29, 2018.

New Accounting Standards Not Yet Adopted

~~Revenue Recognition~~Credit Losses

In ~~May 2014,~~June 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ~~or ASU, 2014-09, “Revenue from Contracts with Customers (Topic 606),~~(“ASU”) 2016-13, “Measurement of Credit Losses on Financial Instruments,” which supersedes current guidance requiring recognition of credit losses when it is probable that a loss has been incurred. The new standard requires the ~~revenue~~establishment of an allowance for estimated credit losses on financial assets, including trade and other receivables, at each reporting date. The new standard will result in earlier recognition ~~requirements in “Revenue Recognition (Topic 605).” Under Topic 606, revenue is recognized when a customer obtains control~~ of ~~promised goods or services~~allowances for losses on trade and ~~is recognized in an amount that reflects the consideration which the entity expects~~other receivables and other contractual rights to receive in exchange for those goods or services. In addition, Topic 606 requires enhanced disclosures, including disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.cash. The FASB has recently issued several amendments to the standard, including clarification on accounting for licenses of intellectual property and identifying performance obligations. Topic 606 will be effective for us beginning with the first quarter of fiscal 2018.

~~While we continue to assess all potential impacts of Topic 606, we currently expect:~~

~~Our revenue mix will remain approximately 90% recurring, or recognizable over time, under both Topic 605 and Topic 606;~~

The use of the cumulative catch-up method upon adoption of Topic 606 requires us to evaluate only contracts that are effective on the adoption date as if that contract had been accounted for under Topic 606;

A small percentage of our existing backlog at the beginning of fiscal 2018 will be adjusted through retained earnings upon adoption of Topic 606 and such backlog will not be recognized as revenue in future periods under Topic 606;

~~Because of the transition method, revenue generated under Topic 606 will be slightly lower than Topic 605 in the year of adoption; and~~

~~In 2018, the year of adoption, we will report revenue under Topic 606 with supplemental disclosures of what revenue would have been under Topic 605.~~

We currently expect to continue to recognize revenue over time for our time-based software arrangements, which represents a significant percentage of our total revenue, because the multiple software licenses and related updates in our time-based arrangements constitute a single, combined performance obligation. The timing of revenue recognition for our hardware and professional services is expected to remain substantially unchanged.

We currently believe the adoption of Topic 606 will impact our accounting for multiple element arrangements, or MEAs, that combine many software-related deliverables, which may include multiple software contracts with varying terms, IP licenses, and/or service elements. Topic 605 requires vendor-specific objective evidence, or VSOE, to recognize revenue separately for the different undelivered elements. We have not established VSOE under Topic 605, thus the revenue related to these agreements is generally recognized over time beginning with the delivery of the last specified deliverable and ending on the latest end date. Topic 606 requires us to separate the different elements through the use of stand-alone selling prices, or SSPs, and to recognize the revenue allocated to the different elements as if those elements had been sold on a standalone basis, either up front or over time. We expect certain IP license agreements to be recognized up front under Topic 606, as opposed to over time under Topic 605. We also expect certain software agreements to be recognized over time under Topic 606, as opposed to up front under Topic 605. Despite these changes, we expect our revenue mix will remain consistent such that approximately 90% of our revenue is recognized over time.

More judgment and estimates will be required under Topic 606 than are required under Topic 605, including estimating the SSP for each performance obligation identified within our contracts. Due to the complexity of certain contracts, the actual revenue recognition treatment required under the new standard ~~for these arrangements may be dependent on contract-specific terms and vary in some instances.~~

Topic 606 permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or modified retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). We currently anticipate adopting the standard using the cumulative catch-up transition method.

Under the cumulative catch-up transition method, we will evaluate each contract that is effective on the adoption date as if that contract had been accounted for under Topic 606 from contract inception. Some revenue related to the MEAs and IP arrangements noted above that would have been recognized in future periods under Topic 605 will be recast under Topic 606 as if the revenue had been recognized in prior periods. As this transition method requires that we not adjust historical reported revenue amounts, the revenue that would have been recognized under this method prior to the adoption date will be an adjustment to retained earnings and will not be recognized as revenue in future periods as previously planned. Because of this transition method, we expect that a small percentage of our year-end backlog will be adjusted to retained earnings upon adoption.

Topic 606 also requires the deferral of incremental costs of obtaining a contract with a customer. This will require that we capitalize commission costs directly related to obtaining customer contracts, and we will amortize those costs over the life of the contract. Due to the broad scope and complexity associated with Topic 606, we are currently implementing systems and processes to assist in the adoption of this new accounting standard.

~~Financial Instruments~~

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which will impact certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The updated standard becomes effective for us in the first quarter of fiscal 2018. Upon the effective date of the new standard, all equity investments in unconsolidated entities, other than those accounted for using the equity method of accounting, will generally be measured at fair value with the changes in fair value recognized through earnings. There will no longer be an available-for-sale classification for equity investments and therefore, the changes in the fair value of our marketable equity securities will no longer be reported in other comprehensive income (loss).

The updated standard also simplifies the impairment assessment of investments without readily determinable fair values by requiring a qualitative assessment of investments at each reporting period. The new guidance must be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the year of adoption. We do not anticipate that the adoption of this standard will have a significant impact on our consolidated financial statements or the related disclosures based on our current holdings of equity investments.

~~Leases~~

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” requiring, among other things, the recognition of lease liabilities and corresponding right-of-use assets on the balance sheet by lessees for certain lease arrangements that are classified as operating leases under the previous standard. While we are continuing to assess the potential impacts of the standard, we anticipate that the adoption of this standard will have a material impact on our consolidated balance sheets and may require changes to our systems and processes. We currently expect the most significant impact will be the recognition of right-of-use assets and lease liabilities for operating leases.

The updated standard becomes effective for us in the first quarter of fiscal 2019 and requires the use of a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements.

~~Income Tax~~

In October 2016, the FASB issued ASU 2016-16, “Income taxes (Topic 740): Intra-entity Transfers of Assets Other Than Inventory.” The new guidance requires the recognition of the income tax consequences of an intra-entity asset transfer when the transfer occurs. For intra-entity transfers of inventory, the income tax effects will continue to be deferred until the inventory has been sold to a third party. The new standard becomes effective for us in the first quarter of fiscal 2018. The new guidance must be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We are currently evaluating the effects that the adoption of this guidance will have on our consolidated financial statements. We anticipate the potential for increased volatility in future effective tax rates from the adoption of this guidance.

~~Business Combinations~~

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” that revises the definition of a business as it relates to acquisitions, disposals, goodwill impairments and consolidations. The updated standard becomes effective for us in the first quarter of fiscal 2018,2020, and early adoption is permitted. We are currently ~~evaluating~~reviewing this standard to assess the ~~effect of adopting~~impact on our condensed consolidated financial statements and the ~~new standard.~~related disclosures.

Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, ~~“Intangibles—Goodwill and Other (Topic 350): Simplifying~~“Simplifying the Test for Goodwill Impairment,” that eliminates “Step 2” from the goodwill impairment test. The new standard is effective for us in the first quarter of fiscal 2020, and early adoption is permitted. The new guidance must be applied on a prospective basis. We do not anticipate that the adoption of this standard will have a significant impact on our consolidated financial statements or the related disclosures.

~~Stock-based Compensation~~Fair Value Measurements

In ~~May 2017,~~August 2018, the FASB issued ASU ~~2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” that provides guidance about which changes~~2018-13, “Disclosure Framework — Changes to the ~~terms or conditions of a share-based payment award require an entity to apply modification accounting.~~Disclosure Requirements for Fair Value Measurement,” which modifies the disclosure requirements on fair value measurements. The new standard is effective for us in the first quarter of fiscal ~~2018. The new guidance must be applied on a prospective basis.~~2020, and early adoption is permitted. We do not ~~anticipate that~~expect the adoption of this standard ~~will~~to have a ~~significant~~material impact on our condensed consolidated financial ~~statements or~~statements.

Internal-use Software

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

Results of Operations

Financial results for the three and ~~nine~~six months ended ~~September 30, 2017,~~June 29, 2019, as compared to the three and ~~nine~~six months ended ~~October 1, 2016,~~June 30, 2018, reflect the following:

increased product and maintenance revenue resulting from overall growth in ~~our software and IP business,~~each geography, particularly in ~~Asia, partially offset by lower~~Asia;

increased emulation and prototyping hardware ~~revenue;~~costs resulting from increased sales of these products;

increased selling costs, including additional investment in technical sales support in response to our customers’ increasing technological requirements; and

continued investment in research and development activities focused on creating and enhancing our products.

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 ~~multiple periods~~time or ~~up front,~~at a point in time, upon completion of delivery.

~~Approximately~~We expect that between 85% and 90% of our revenue iswill be recognized over time ~~and~~during fiscal 2019, with the remainder of the resulting revenue recognized at the point in time that control is ~~recognized up front, upon completion of delivery.~~transferred to the customer. Revenue recognized over time includes revenue from our ~~time-based~~ software arrangements, ~~certain IP license arrangements where revenue is recognized over multiple periods,~~ services, royalties from certain IP arrangements, maintenance on ~~perpetual software~~IP licenses and hardware, and operating leases of hardware. ~~Upfront revenue~~Revenue recognized at a point in time is primarily generated by our sales of emulation and prototyping hardware and ~~perpetual software and certain~~ IP licenses. Our ability to maintain this mix in any single fiscal period may be impacted primarily by delivery of hardware and IP products to our customers.

Revenue by Period

The following table shows our revenue for the three months ended ~~September~~June 29, 2019 and June 30, ~~2017~~ ~~and~~ ~~October 1, 2016~~2018 and the change in revenue between periods:


	Three Months Ended				Change				Three Months Ended				Change
	September 30, 2017		October 1, 2016		Amount		Percentage		June 29, 2019		June 30, 2018		Amount		Percentage
	(In millions, except percentages)								(In millions, except percentages)
Product and maintenance	$	451.2	$	415.4	$	35.8	9	%	$	548.0	$	487.9	$	60.1	12	%
Services	34.2		30.8		3.4		11	%	32.4		30.5		1.9		6	%
Total revenue	$	485.4	$	446.2	$	39.2	9	%	$	580.4	$	518.4	$	62.0	12	%

The following table shows our revenue for the ~~nine~~six months ended ~~September~~June 29, 2019 and June 30, ~~2017 and October 1, 2016~~2018 and the change in revenue between periods:


	Nine Months Ended				Change					Six Months Ended				Change
	September 30, 2017		October 1, 2016		Amount			Percentage		June 29, 2019		June 30, 2018		Amount			Percentage
	(In millions, except percentages)									(In millions, except percentages)
Product and maintenance	$	1,346.5	$	1,247.1	$	99.4		8	%	$	1,091.6	$	968.5	$	123.1		13	%
Services	94.8		100.0		(5.2		)	(5	)%	65.6		67.2		(1.6		)	(2	)%
Total revenue	$	1,441.3	$	1,347.1	$	94.2		7	%	$	1,157.2	$	1,035.7	$	121.5		12	%



Delaware			00-0000000
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

2655 Seely Avenue, Building 5,	San Jose,	California	95134
(Address of Principal Executive Offices)			(Zip Code)



Large ~~accelerated filer~~Accelerated Filer	x☒	Accelerated ~~filer~~Filer	o☐	Smaller ~~reporting company~~Reporting Company	o☐

Non-accelerated ~~filer~~Filer	o☐	~~(Do not check if a smaller reporting company)~~		Emerging ~~growth~~Growth company	o☐



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	CDNS	Nasdaq Global Select Market



		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets: ~~September 30, 2017~~ June 29, 2019 and December ~~31, 2016~~29, 2018	1

	Condensed Consolidated Income Statements: Three and ~~Nine~~Six Months Ended ~~September~~June 29, 2019 and June 30, ~~2017 and October 1, 2016~~2018	2

	Condensed Consolidated Statements of Comprehensive Income: Three and ~~Nine~~Six Months Ended ~~September~~June 29, 2019 and June 30, ~~2017 and October 1, 2016~~2018	3

	Condensed Consolidated Statements of ~~Cash Flows:~~ ~~Nine~~Stockholder's Equity: Three and Six Months Ended ~~September~~June 29, 2019 and June 30, ~~2017 and October 1, 2016~~2018	4

	~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Cash Flows: Three and Six Months Ended June 29, 2019 and June 30, 2018	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1519

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2830

Item 4.	Controls and Procedures	2931

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	3133

Item 1A.	Risk Factors	3133

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4648

Item 3.	Defaults Upon Senior Securities	4648

Item 4.	Mine Safety Disclosures	4648

Item 5.	Other Information	4648

Item 6.	Exhibits	4749

	Signatures	4850


	As of						As of
	September 30, 2017			December 31, 2016			June 29, 2019			December 29, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	678,284		$	465,232		$	633,415		$	533,298
Short-term investments	4,135			3,057
Receivables, net	170,312			157,171			237,609			297,082
Inventories	36,000			39,475			49,299			28,162
Prepaid expenses and other	42,374			37,099			58,918			92,550
Total current assets	931,105			702,034			979,241			951,092
Property, plant and equipment, net of accumulated depreciation of $648,298 and $612,961, respectively	244,620			238,607
Property, plant and equipment, net of accumulated depreciation of $719,785 and $698,493, respectively							257,882			252,630
Goodwill	574,912			572,764			662,713			662,272
Acquired intangibles, net of accumulated amortization of $283,632 and $267,723, respectively	216,177			258,814
Acquired intangibles, net							197,840			225,457
Long-term receivables	11,590			12,949			2,140			5,972
Other assets	326,823			311,740			512,509			371,231
Total assets	$	2,305,227		$	2,096,908		$	2,612,325		$	2,468,654
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Revolving credit facility	$	—		$	50,000		$	—		$	100,000
Accounts payable and accrued liabilities	199,672			239,496			246,591			256,526
Current portion of deferred revenue	320,462			296,066			363,592			352,456
Total current liabilities	520,134			585,562			610,183			708,982
Long-term liabilities:
Long-term portion of deferred revenue	57,865			66,769			57,280			48,718
Long-term debt	644,146			643,493			345,652			345,291
Other long-term liabilities	72,342			59,314			168,665			77,262
Total long-term liabilities	774,353			769,576			571,597			471,271
Commitments and contingencies (Note 11)
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock and capital in excess of par value	1,807,839			1,820,081			1,984,464			1,936,124
Treasury stock, at cost	(1,142,524		)	(1,190,053		)	(1,526,421		)	(1,395,652		)
Retained earnings	355,445			136,902			1,000,499			772,709
Accumulated other comprehensive loss	(10,020		)	(25,160		)	(27,997		)	(24,780		)
Total stockholders’ equity	1,010,740			741,770			1,430,545			1,288,401
Total liabilities and stockholders’ equity	$	2,305,227		$	2,096,908		$	2,612,325		$	2,468,654



	x☒	QUARTERLY 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



	Common Stock
			Par Value								Accumulated
			and Capital								Other
			in Excess			Treasury			Retained		Comprehensive
	Shares		of Par			Stock			Earnings		Loss			Total
Balance, December 29, 2018	280,015		$	1,936,124		$	(1,395,652	)	$	772,709	$	(24,780	)	$	1,288,401
Net income	—		—			—			120,555		—			$	120,555
Other comprehensive loss, net of taxes	—		—			—			—		(1,295		)	$	(1,295	)
Purchase of treasury stock	(1,529	)	—			(81,114		)	—		—			$	(81,114	)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures	3,075		(29,746		)	59,605			—		—			$	29,859
Stock received for payment of employee taxes on vesting of restricted stock	(531	)	(3,736		)	(29,086		)	—		—			$	(32,822	)
Stock-based compensation expense	—		42,253			—			—		—			$	42,253
Balance, March 30, 2019	281,030		$	1,944,895		$	(1,446,247	)	$	893,264	$	(26,075	)	$	1,365,837
Net income	—		—			—			107,235		—			$	107,235
Other comprehensive loss, net of taxes	—		—			—			—		(1,922		)	$	(1,922	)
Purchase of treasury stock	(1,125	)	—			(75,006		)	—		—			$	(75,006	)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures	410		(2,283		)	5,303			—		—			$	3,020
Stock received for payment of employee taxes on vesting of restricted stock	(162	)	(2,405		)	(10,471		)	—		—			$	(12,876	)
Stock-based compensation expense	—		44,257			—			—		—			$	44,257
Balance, June 29, 2019	280,153		$	1,984,464		$	(1,526,421	)	$	1,000,499	$	(27,997	)	$	1,430,545


Balance, December 30, 2017	282,067		$	1,829,950		$	(1,178,121	)	$	341,003	$	(3,630	)	$	989,202
Cumulative effect adjustment	—		—			—			85,929		(2,638		)	$	83,291
Net income	—		—			—			72,885		—			$	72,885
Other comprehensive income, net of taxes	—		—			—			—		12,208			$	12,208
Purchase of treasury stock	(1,289	)	—			(50,013		)	—		—			$	(50,013	)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures	1,698		(5,087		)	28,426			—		—			$	23,339
Stock received for payment of employee taxes on vesting of restricted stock	(570	)	(4,072		)	(22,443		)	—		—			$	(26,515	)
Stock-based compensation expense	—		37,901			—			—		—			$	37,901
Balance, March 31, 2018	281,906		$	1,858,692		$	(1,222,151	)	$	499,817	$	5,940		$	1,142,298
Net income	—		—			—			75,149		—			$	75,149
Other comprehensive loss, net of taxes	—		—			—			—		(19,112		)	$	(19,112	)
Purchase of treasury stock	(1,224	)	—			(50,012		)	—		—			$	(50,012	)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures	2,202		(37,987		)	40,306			—		—			$	2,319
Stock received for payment of employee taxes on vesting of restricted stock	(76	)	(526		)	(3,084		)	—		—			$	(3,610	)
Stock-based compensation expense	—		40,956			—			—		—			$	40,956
Balance, June 30, 2018	282,808		$	1,861,135		$	(1,234,941	)	$	574,966	$	(13,172	)	$	1,187,988



	June 29, 2019							December 29, 2018
	(In thousands)
	Principal		Unamortized Discount			Carrying Value		Principal		Unamortized Discount			Carrying Value
Revolving Credit Facility	$	—	$	—		$	—	$	100,000	$	—		$	100,000
2024 Notes	350,000		(4,348		)	345,652		350,000		(4,709		)	345,291
Total outstanding debt	$	350,000	$	(4,348	)	$	345,652	$	450,000	$	(4,709	)	$	445,291



	September 30, 2017							December 31, 2016
	(In thousands)
	Principal		Unamortized Discount			Carrying Value		Principal		Unamortized Discount			Carrying Value
Revolving Credit Facility	$	—	$	—		$	—	$	50,000	$	—		$	50,000
2019 Term Loan	300,000		(278		)	299,722		300,000		(434		)	299,566
2024 Notes	350,000		(5,576		)	344,424		350,000		(6,073		)	343,927
Total outstanding debt	$	650,000	$	(5,854	)	$	644,146	$	700,000	$	(6,507	)	$	693,493



	As of September 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Marketable equity securities	$	1,961	$	2,174	$	—	$	4,135



	As of December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Marketable equity securities	$	2,131	$	926	$	—	$	3,057



	Gross Carrying Amount
	(In thousands)
Balance as of December 31, 2016	$	572,764
Effect of foreign currency translation	2,148
Balance as of September 30, 2017	$	574,912



	Gross Carrying Amount
	(In thousands)
Balance as of December 29, 2018	$	662,272
Effect of foreign currency translation	441
Balance as of June 29, 2019	$	662,713



	Gross Carrying Amount		Accumulated Amortization			Acquired Intangibles, Net
	(In thousands)
Existing technology	$	363,143	$	(226,643	)	$	136,500
Agreements and relationships	146,452		(106,822		)	39,630
Tradenames, trademarks and patents	7,600		(5,390		)	2,210
Total acquired intangibles with definite lives	517,195		(338,855		)	178,340
In-process technology	19,500		—			19,500
Total acquired intangibles	$	536,695	$	(338,855	)	$	197,840


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016			June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Revenue:
Product and maintenance	$	451,229		$	415,370		$	1,346,483		$	1,247,077		$	548,028		$	487,870		$	1,091,546		$	968,479
Services	34,169			30,850			94,827			100,026			32,391			30,521			65,615			67,225
Total revenue	485,398			446,220			1,441,310			1,347,103			580,419			518,391			1,157,161			1,035,704
Costs and expenses:
Cost of product and maintenance	34,825			38,740			117,371			125,881			43,388			40,127			93,910			81,857
Cost of services	19,657			17,867			59,735			54,563			18,081			18,833			38,144			40,312
Marketing and sales	104,263			96,793			311,507			297,103			116,208			109,300			233,038			218,448
Research and development	206,568			191,547			600,755			553,824			231,814			219,129			460,024			443,314
General and administrative	36,302			30,441			100,892			95,129			34,407			34,875			64,509			68,174
Amortization of acquired intangibles	3,453			3,889			11,145			14,206			3,159			3,518			6,467			7,148
Restructuring and other charges (credits)	(55		)	101			(2,772		)	14,613
Restructuring and other credits													(313		)	(447		)	(1,002		)	(2,438		)
Total costs and expenses	405,013			379,378			1,198,633			1,155,319			446,744			425,335			895,090			856,815
Income from operations	80,385			66,842			242,677			191,784			133,675			93,056			262,071			178,889
Interest expense	(6,225		)	(6,053		)	(18,952		)	(17,306		)	(4,976		)	(6,669		)	(10,367		)	(13,644		)
Other income, net	12,387			2,836			14,370			10,441
Income before provision (benefit) for income taxes	86,547			63,625			238,095			184,919
Provision (benefit) for income taxes	5,390			(1,087		)	19,552			20,310
Other income (expense), net													(110		)	3,638			5,131			2,949
Income before provision for income taxes													128,589			90,025			256,835			168,194
Provision for income taxes													21,354			14,876			29,045			20,160
Net income	$	81,157		$	64,712		$	218,543		$	164,609		$	107,235		$	75,149		$	227,790		$	148,034
Net income per share - basic	$	0.30		$	0.23		0.80			0.57
Net income per share - diluted	$	0.29		$	0.23		0.78			0.56
Net income per share – basic													$	0.39		$	0.27		$	0.83		$	0.54
Net income per share – diluted													$	0.38		$	0.27		$	0.81		$	0.53
Weighted average common shares outstanding – basic	273,156			280,622			271,739			288,476			273,159			273,564			273,155			273,703
Weighted average common shares outstanding – diluted	281,400			287,473			279,554			295,369			281,054			280,774			280,877			281,247



	(In thousands)
2019 – remaining period	$	25,461
2020	49,422
2021	44,758
2022	26,453
2023	13,967
Thereafter	18,279
Total estimated amortization expense	$	178,340



	Operating
	Leases
	(In thousands)
2019 – remaining period	$	15,315
2020	30,805
2021	27,267
2022	19,906
2023	14,969
Thereafter	29,620
Total future lease payments	137,882
Less imputed interest	(16,981		)
Total	$	120,901



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



	(In thousands)
2017 – remaining period	$	13,619
2018	52,193
2019	45,183
2020	39,975
2021	35,484
Thereafter	29,723
Total estimated amortization expense	$	216,177



	Severance and Benefits			Excess Facilities			Total
	(In thousands)
Balance, December 29, 2018	$	11,176		$	848		$	12,024
Restructuring and other charges (credits)	(1,036		)	34			(1,002		)
Cash payments	(9,614		)	(330		)	(9,944		)
Effect of foreign currency translation	35			10			45
Balance, June 29, 2019	$	561		$	562		$	1,123


	Notional Principal			Weighted Average Contract Rate	Notional Principal		Weighted Average Contract Rate
	(In millions)				(In millions)
Forward Contracts:
European Union euro	$	59.8		0.84	$	132.0	0.88
Japanese yen	48.9			110.75
British pound	21.7			0.75	98.2		0.77
Israeli shekel	21.3			3.53	63.1		3.57
Indian rupee	14.7			64.25	33.8		71.06
Japanese yen					31.8		107.62
Swedish krona					29.2		9.44
South Korean won	12.2			1,130.90	20.1		1,177.44
Chinese renminbi	7.9			6.56	18.5		6.91
Taiwan dollar	5.1			29.98
Other	6.2			N/A	14.8		N/A
Total	$	197.8			$	441.5
Estimated fair value	$	(2.0	)		$	0.8



Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share ⁽²⁾		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program	Maximum Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Plan or Program ⁽¹⁾ (In millions)
July 2, 2017 – August 5, 2017	151,441	$	36.57	122,700	$	520
August 6, 2017 – September 2, 2017	1,141,684	$	37.10	614,900	$	498
September 3, 2017 – September 30, 2017	691,194	$	38.34	593,703	$	475
Total	1,984,319	$	37.49	1,331,303


(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.



		CADENCE DESIGN SYSTEMS, INC. (Registrant)

DATE:	~~October 26, 2017~~July 22, 2019	By:	/s/ Lip-Bu Tan
			Lip-Bu Tan
			~~President,~~ Chief Executive Officer and Director

DATE:	~~October 26, 2017~~July 22, 2019	By:	/s/ John M. Wall
			John M. Wall
			Senior Vice President and Chief Financial Officer