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Stock Compensation Plans and Stock Based Compensation
 12 Months Ended
Jan. 02, 2021
Share-based Payment Arrangement [Abstract]  
STOCK COMPENSATION PLANS AND STOCK-BASED COMPENSATION 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 2, 2021, the total number of shares available for future issuance under the Omnibus Plan was 16.2 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 2, 2021, the total number of shares available for future issuance under the Directors Plan was 0.5 million. Options granted under the Directors Plan expire after ten years, and options, restricted stock awards and restricted stock units vest one year from the date of grant.
Cadence has assumed certain options granted to employees of acquired companies (“Acquired Options”). The Acquired Options were assumed by Cadence outside of its stock option plans, and each option is administered under the terms of the respective original plans of the acquired companies. All of the Acquired Options have been adjusted for the price conversion under the terms of the acquisition agreement between Cadence and the relevant acquired company. If the Acquired Options are canceled, forfeited or expire, they do not become available for future grant.
Stock-Based Compensation
Stock-based compensation expense and the related income tax benefit recognized in connection with stock options, restricted stock and the ESPP during fiscal 2020, 2019 and 2018 were as follows:
202020192018
(In thousands)
Stock options$8,062 $6,806 $5,581 
Restricted stock173,193 164,078 153,348 
ESPP16,013 10,663 8,786 
Total stock-based compensation expense$197,268 $181,547 $167,715 
Income tax benefit$31,857 $30,118 $32,830 
Stock-based compensation expense is reflected in Cadence’s consolidated income statements during fiscal 2020, 2019 and 2018 as follows:
202020192018
(In thousands)
Cost of product and maintenance$2,922 $2,759 $2,631 
Cost of services3,720 3,510 3,714 
Marketing and sales42,096 39,088 34,665 
Research and development124,999 114,656 104,353 
General and administrative23,531 21,534 22,352 
Total stock-based compensation expense$197,268 $181,547 $167,715 
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 2020, 2019 and 2018 were as follows:
202020192018
Dividend yieldNoneNoneNone
Expected volatility25.1 %24.4 %24.3 %
Risk-free interest rate1.36 %2.47 %2.54 %
Expected term (in years)4.84.84.8
Weighted-average fair value of options granted$19.38 $14.58 $10.24 
A summary of the changes in stock options outstanding under Cadence’s equity incentive plans during fiscal 2020 is presented below:
Weighted-
Average
Weighted-
Average
Remaining
Contractual
Terms



Aggregate
Intrinsic
SharesExercise Price(Years)Value
(In thousands)(In thousands)
Options outstanding as of December 28, 20194,933 $26.38 
Granted534 79.82 
Exercised(1,497)17.69 
Forfeited(36)49.97 
Options outstanding as of January 2, 20213,934 $36.72 3.4$392,240 
Options vested as of January 2, 20212,974 $28.37 2.7$321,425 
Cadence had total unrecognized compensation expense related to stock option grants of $15.0 million as of January 2, 2021, which will be recognized over the remaining vesting period. The remaining weighted-average vesting period of unvested awards is 2.3 years.
The total intrinsic value of and cash received from options exercised during fiscal 2020, 2019 and 2018 was:
202020192018
(In thousands)
Intrinsic value of options exercised$109,193 $51,625 $31,109 
Cash received from options exercised26,474 14,553 11,748 
Restricted Stock
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. If the market-based performance conditions are not ultimately met, compensation expense previously recognized is not reversed. As of January 2, 2021, Cadence had 1.8 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 2020, 2019 and 2018 was as follows:
202020192018
(In thousands)
Stock-based compensation expense related to performance-based restricted stock$14,859 $12,640 $12,868 
Stock-based compensation expense related to market-based performance stock awards8,335 7,019 2,300 
A summary of the changes in restricted stock outstanding under Cadence’s equity incentive plans during fiscal 2020 is presented below:
Weighted-
Average Grant Date
Weighted-
Average
Remaining
Vesting
Terms



Aggregate
Intrinsic
SharesFair Value(Years)Value
(In thousands)(In thousands)
Unvested shares as of December 28, 20198,393 $42.55 
Granted2,180 101.80 
Vested(3,865)42.14 
Forfeited(469)47.74 
Unvested shares as of January 2, 20216,239 $63.12 1.1$851,087 
Cadence had total unrecognized compensation expense related to restricted stock grants of $316.0 million as of January 2, 2021, which will be recognized over the remaining vesting period. The remaining weighted-average vesting period of unvested awards is 2.1 years.
The total fair value realized by employees upon vesting of restricted stock during fiscal 2020, 2019 and 2018 was:
202020192018
(In thousands)
Fair value of restricted stock realized upon vesting$358,261 $298,320 $232,099 
Employee Stock Purchase Plan
Cadence provides an ESPP, as amended from time to time. A majority of Cadence employees are eligible to participate in the ESPP. Under the terms of the ESPP, for the offering period that commenced February 1, 2020, 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 $12,000. Each offering period has a duration of six months beginning on either February 1 or August 1. The purchase dates fall on the last days of the six-month offering periods. Under the ESPP for the periods August 1, 2018 through the January 31, 2020 purchase date, participating employees could contribute up to 10% of their annual base earnings plus bonuses and commissions, and subject to a limit in any calendar year of $10,000. Under the ESPP and through the July 31, 2018 purchase date, participating employees could contribute up to 7% of their annual base earnings plus bonuses and commissions, subject to a limit in any calendar year of $8,000. As of January 2, 2021, the total number of shares available for future issuance under the ESPP was 5.3 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 2020, 2019 and 2018 were as follows:
202020192018
Dividend yieldNoneNoneNone
Expected volatility32.6 %27.9 %21.1 %
Risk-free interest rate0.8 %2.23 %2.05 %
Expected term (in years)0.50.50.5
Weighted-average fair value of options granted$23.08 $14.37 $9.24 
Shares of common stock issued under the ESPP for fiscal 2020, 2019 and 2018 were as follows:
202020192018
(In thousands, except per share amounts)
Cadence shares purchased under the ESPP785 988 892 
Cash received for the purchase of shares under the ESPP$48,328 $38,290 $29,160 
Weighted-average purchase price per share$61.55 $38.74 $32.69 
Reserved for Future Issuance
As of January 2, 2021, Cadence had reserved the following shares of authorized but unissued common stock for future issuance:
Shares
(In thousands)
Employee equity incentive plans*21,365 
Employee stock purchase plans5,254 
Directors stock plans*730 
    Total27,349 
_____________
*Includes shares reserved for: (i) issuance upon exercise of future option grants, (ii) issuance upon vesting of future restricted stock grants, (iii) outstanding but unexercised options to purchase common stock, or (iv) unvested restricted stock units.