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Basis of Presentation
3 Months Ended
Apr. 02, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
BASIS OF PRESENTATION
BASIS OF PRESENTATION
The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared by Cadence Design Systems, Inc., or Cadence, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission, or the SEC. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP, have been condensed or omitted pursuant to such rules and regulations. However, Cadence believes that the disclosures contained in this Quarterly Report on Form 10-Q comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for a Quarterly Report on Form 10-Q and are adequate to make the information presented not misleading. These condensed consolidated financial statements are meant to be, and should be, read in conjunction with the consolidated financial statements and the Notes thereto included in Cadence’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016. Certain prior period balances have been reclassified to conform to current period presentation.
The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q reflect all adjustments (which include only normal, recurring adjustments and those items discussed in these Notes) that are, in the opinion of management, necessary to state fairly the results of operations, cash flows and financial position for the periods and dates presented. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year. Management has evaluated subsequent events through the issuance date of the unaudited condensed consolidated financial statements.
Use of Estimates
Preparation of the condensed consolidated financial statements in conformity with U.S. GAAP 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 condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
New Accounting Standards
In March 2016, the Financial Accounting Standards Board, or FASB, issued a new accounting standard intended to simplify various aspects related to how stock-based awards are accounted for and presented in the financial statements. The new standard: (a) requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled, (b) requires classification of excess tax benefits as an operating activity in the statement of cash flows rather than a financing activity, (c) eliminates the requirement to defer recognition of an excess tax benefit until the benefit is realized through a reduction to taxes payable, (d) modifies statutory withholding tax requirements, and (e) provides for a policy election to account for forfeitures as they occur. The guidance is effective in the first quarter of fiscal 2017 and early adoption is permitted if all amendments are adopted in the same period. Cadence elected to early adopt the new standard during the first quarter of fiscal 2016. As a result of early adoption, Cadence recorded all income tax effects of share-based awards in its provision for income taxes in the condensed consolidated income statements. Cadence also recorded a cumulative effect adjustment of approximately $7.8 million as a reduction of opening accumulated deficit on Cadence’s condensed consolidated balance sheets. The cumulative effect adjustment was comprised of approximately $8.1 million related to the recognition of income tax benefits in excess of compensation expense, offset by $0.3 million related to the policy election to recognize the impact of forfeitures on stock-based compensation expense as they occur. Additionally, Cadence adopted the change in presentation in the condensed consolidated statement of cash flows related to excess tax benefits on a prospective basis. Accordingly, prior periods have not been adjusted. There was no impact for the change in presentation in the statement of cash flows related to statutory tax withholding requirements as Cadence has historically classified the statutory tax withholding as a financing activity in its consolidated statement of cash flows.
In April 2015, the FASB issued a new accounting standard requiring that debt issuance costs be presented in the balance sheet as a direct deduction from the associated debt liability. The new standard became effective for Cadence in the first quarter of fiscal 2016 and required retrospective application. As a result, prior period balances have been reclassified to conform to the current period presentation. Adoption of this standard did not have a material impact on Cadence’s consolidated balance sheets.
In May 2014, the FASB issued a comprehensive revenue recognition standard for revenue associated with the delivery of goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB deferred the effective date of the new revenue standard for periods beginning after December 15, 2016 to December 15, 2017, with early adoption permitted but not earlier than the original effective date of December 15, 2016. Accordingly, the updated standard is effective for Cadence in the first quarter of fiscal 2018. In March 2016, the FASB finalized its amendments to the guidance in the new standard on assessing whether an entity is a principal or an agent in a revenue transaction. This conclusion impacts whether an entity reports revenue on a gross or net basis. In April 2016, the FASB finalized additional amendments to the guidance in the new revenue standard on identifying performance obligations and accounting for licenses of intellectual property. Cadence has not yet selected a transition method and is currently evaluating the effect that the updated standard, and the recently issued amendments, will have on its consolidated financial statements and related disclosures.
In January 2016, the FASB issued a new accounting standard that will impact certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The updated standard is effective for Cadence in the first quarter of fiscal 2018, and early adoption is permitted. Cadence is currently evaluating the effect the updated standard will have on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued a new accounting standard requiring, among other things, the recognition of lease assets and lease liabilities on the balance sheet by lessees for certain lease arrangements that are classified as operating leases under the previous standard. The updated standard is effective for Cadence in the first quarter of fiscal 2019, and early adoption is permitted. Cadence is currently evaluating the effect the updated standard will have on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued a new accounting standard intended to simplify the accounting for equity method investments when there is an increase in the level of ownership interest or degree of influence. The new standard is effective for Cadence in the first quarter of fiscal 2017 and requires prospective application. Adoption of this standard is not expected to have a material impact on Cadence’s consolidated financial statements.