CDNSCadence Design Systems

Failure to obtain import, export or re-export licenses or permits when required 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. Delays, uncertainty or an inability to obtain required export licenses in a timely manner, including as a result of government processing backlogs or policy changes, could cause delays in scheduled shipments and may impact our business and customer relationships. In addition, if our customers sell fail to obtain appropriate import, export or re-export licenses or permits for re-sale of our products to any entity on the Entity List without our knowledge or authorization, products, we may also be held liable for such sales. adversely affected through reputational harm and penalties and may not be able to provide support related to those items. Although we have implemented risk-based policies and procedures that are reasonably designed to comply with all applicable trade restrictions, from time to time we and governmental authorities have had and may in the future have reason to inquire into particular sales. Specifically, in February 2021, we received an administrative subpoena from BIS requesting the production of records in connection with certain sales to our customers in China. In November 2023, we received a related subpoena from the U.S. Department of Justice (“DOJ”) that also requested information regarding our business activity in China. In December 2024, we began discussions with BIS and DOJ regarding preliminary findings of their investigations and a potential resolution of this matter. We have been and will continue cooperating with BIS and DOJ in responding to the subpoenas and their ongoing investigations. These matters are subject to uncertainties and the outcomes of these and other proceedings that may occur are difficult to predict. If any governmental fines, penalties, restrictions or compliance requirements are imposed on us, or if we do not prevail in any possible civil or criminal litigation, our business, financial condition and results of operations could be materially adversely affected. In addition, political, media or other scrutiny surrounding governmental investigations or their outcome could cause significant expense and reputational harm and distract senior executives from managing normal day-to-day operations. transactions.

We have been impacted by the continued expansion of trade Trade control laws and regulations, regulations have amended over the past several years, including through the imposition of certain export control restrictions concerning advanced node IC production in China, China and the inclusion of additional Chinese technology companies on the Bureau of Industry and Security BIS “Entity List” and regulations governing the sale of certain technologies. Based In furtherance of these regulations, effective September 29, 2025, BIS issued an interim final rule that extended the export restrictions imposed on our current assessments, we entities identified on the Entity List or the Military End-User List and other certain sanctioned parties, to entities that are 50% or more owned by one or more such entities. However, on November 11, 2025, BIS published a one-year suspension of the new rule that is currently set to expire on November 9, 2026, absent a future extension. We expect the impact of these current expanded trade control laws and regulations on our business to be limited. In addition, President Trump has announced the imposition of broad-based tariffs on imports from many countries, including China and Mexico. We are monitoring the imposition of these new or higher tariffs, including any pauses on the tariffs imposed, and limited, but we will assess their potential impact on our business either directly, such as on our hardware business, or due continue to downstream effects. monitor future developments.

In December 2023, the FASB Financial Accounting Standards Board (“FASB”) issued ASU accounting standards update (“ASU”) No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” (“ASU 2023-09”) which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. This standard is effective for fiscal years beginning after December 15, 2024, and may be applied on a retrospective or prospective basis. Cadence is currently evaluating the impact of adopting adopted this ASU on its prospectively during fiscal 2025. See Note 8 in the notes to the consolidated financial statements and disclosures. for further details.

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 IP, intellectual property, indemnification obligations, mergers and acquisitions, licensing, contracts, customers, products, distribution and other commercial arrangements and employee relations matters. Cadence is also subject from time to time to inquiries, investigations and regulatory proceedings involving governments and regulatory agencies in the jurisdictions in which Cadence operates, including the ongoing investigations by the Bureau of Industry and Security (“BIS”) of the U.S. Department of Commerce and the U.S. Department of Justice (“DOJ”) regarding certain historical sales by Cadence to customers in China. operates. 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 legal proceedings and may revise estimates.