CADENCE DESIGN SYSTEMS, INC. 
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 (this "Quarterly Report") and in conjunction with our Annual Report on Form 10-K for the fiscal year endedDecember 28, 2019 . 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, statements regarding the anticipated impact on our business of the COVID-19 pandemic and related public health measures, 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 otherSecurities and Exchange Commission ("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 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 ("ICs") and increasingly sophisticated manufactured products. Our products and services do this by optimizing performance, minimizing power consumption, shortening the time to bring 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 ("IP"). Our strategy, which we call Intelligent System Design™, is to provide the technologies necessary for our electronic system and semiconductor customers to develop electronic products across a variety of vertical markets including consumer, hyperscale computing, mobile, 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 Electronic Design Automation ("EDA"). Today, our offerings include and extend beyond EDA. We combine our products into categories related to major design activities: •Custom IC Design and Simulation; •Digital IC Design and Signoff; •Functional Verification; •IP; and •System Interconnect and Analysis. 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 endedDecember 28, 2019 . During the first quarter of fiscal 2020, we completed acquisitions of AWR and Integrand. The aggregate cash consideration for these acquisitions of approximately$195 million was allocated to the assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition dates. These acquisitions enhance our technology portfolio to address growing RF/microwave design activity, driven by expanding use of 5G communications. We expect these acquisitions will increase expenses, including amortization of acquired intangible assets, more than revenue during fiscal 2020. 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." 19 -------------------------------------------------------------------------------- COVID-19 Impact InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout theU.S. and the world and has 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. Our compliance with these containment 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 ofJuly 20, 2020 . In addition, many of our customers are working remotely, which may delay the timing of some orders and deliveries due to their and our compliance with frequently changing government-mandated or recommended shelter-in-place orders in jurisdictions in which we, our customers and our suppliers operate. During the second quarter of 2020, we were unable to install some of our hardware products due to our inability to access certain customer sites. However, we were able to install hardware products for our other customers in an amount that was greater than we originally anticipated at the beginning of the second quarter of 2020. We were also able to regain access to our IP laboratories to complete and deliver IP products. Our customers are continuing to place orders for our hardware and IP offerings, and we are delivering these products earlier than we originally anticipated. We have also received numerous COVID-19 pandemic-related requests from our customers to delay their payments to us, while we continue to provide services to these customers. Because of the significant uncertainty regarding the amount that we can collect from customers that are requesting delays to their payment commitments, we have reduced the revenue for the applicable contracts to an amount that we now expect to collect from these customers. While the disruptions caused by COVID-19 did not have a material adverse impact on our financial results for the first half of fiscal 2020, the disruptions to our operations 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. For example, we may continue to be unable to install our hardware at certain customer sites, and access by our employees to our laboratory facilities that are necessary for the development of certain IP products has been and may continue to be disrupted due to the shelter-in-place orders. 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. We may also be unable to collect receivables from those customers significantly impacted by COVID-19. We will continue to evaluate the nature and extent of the impact of COVID-19 to our business. In addition, during the first quarter of fiscal 2020, we borrowed$350.0 million under our revolving credit facility as a precautionary measure to provide additional liquidity in light of global economic uncertainty and financial market conditions caused by the COVID-19 pandemic. We expect that current cash and cash equivalent balances and cash flows that are generated from operations will be sufficient to meet our domestic and international working capital needs and other capital and liquidity requirements for at least the next 12 months. 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. At least quarterly, we evaluate our assumptions, judgments and estimates, and make changes as deemed necessary. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as ofJuly 20, 2020 , the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. 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 endedDecember 28, 2019 . 20 -------------------------------------------------------------------------------- New Accounting Standards Not Yet Adopted For additional information about the adoption of new accounting standards, see Note 1 in the notes to condensed consolidated financial statements. Results of Operations Financial results for the three and six months endedJune 27, 2020 , as compared to the three and six months endedJune 29, 2019 , reflect the following: •increased product and maintenance revenue, resulting from growth in IP, hardware and software; •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. Our fiscal years are 52- or 53-week periods ending on the Saturday closest toDecember 31 . Fiscal 2019 was a 52-week fiscal year. Fiscal 2020 will be a 53-week fiscal year, with an additional week in our fourth quarter of 2020. 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. The remainder of our revenue 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 may be impacted by delivery of hardware and IP products to our customers in any single fiscal period. Revenue by Period The following table shows our revenue for the three months endedJune 27, 2020 andJune 29, 2019 and the change in revenue between periods: Three Months Ended Change June 27, June 29, 2020 2019 Amount Percentage (In millions, except percentages) Product and maintenance$ 601.3 $ 548.0 $ 53.3 10 % Services 37.1 32.4 4.7 14 %$ 638.4 $ 580.4 $ 58.0 10 %
The following table shows our revenue for the six months ended
Six Months Ended Change
June 27, June 29,
2020 2019 Amount Percentage
(In millions, except percentages)
Product and maintenance $ 1,183.1 $ 1,091.6 $ 91.5 8 %
Services 73.3 65.6 7.7 12 %
Total revenue $ 1,256.4 $ 1,157.2 $ 99.2 9 %
21-------------------------------------------------------------------------------- Product and maintenance revenue increased during the three and six months endedJune 27, 2020 , as compared to the three and six months endedJune 29, 2019 , primarily because of increased investments by our customers in new, complex designs for their products that include the design of electronic systems for AI, 5G networks, aerospace and defense, automotive, cloud data center and other market segments. 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 the three and six months endedJune 27, 2020 orJune 29, 2019 . Revenue by Product Category The following table shows the percentage of revenue contributed by each of our five product categories and services for the past five consecutive quarters: Three Months Ended June 27, March 28, December 28, September 28, June 29, 2020 2020 2019 2019 2019 Custom IC Design and Simulation 24 % 25 % 25 % 26 % 26 % Digital IC Design and Signoff 28 % 29 % 29 % 30 % 31 % Functional Verification, including Emulation and Prototyping Hardware 24 % 23 % 24 % 20 % 22 % IP 14 % 14 % 13 % 15 % 11 % System Interconnect and Analysis 10 % 9 % 9 % 9 % 10 % Total 100 % 100 % 100 % 100 % 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 determined at a later date. For these arrangements, we estimate the allocation of the revenue to product 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 Three Months Ended Change June 27, June 29, 2020 2019 Amount Percentage (In millions, except percentages) United States$ 267.0 $ 234.5 $ 32.5 14 % Other Americas 10.1 12.0 (1.9) (16) % China 77.2 68.4 8.8 13 % Other Asia 121.3 109.4 11.9 11 % Europe, Middle East and Africa 116.5 113.8 2.7 2 % Japan 46.3 42.3 4.0 9 % Total revenue$ 638.4 $ 580.4 $ 58.0 10 % 22
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Six Months Ended Change
June 27, June 29,
2020 2019 Amount Percentage
(In millions, except percentages)
United States $ 525.5 $ 477.7 $ 47.8 10 %
Other Americas 19.0 20.4 (1.4) (7) %
China 161.0 127.4 33.6 26 %
Other Asia 230.9 220.8 10.1 5 %
Europe, Middle East and Africa 232.2 217.3 14.9 7 %
Japan 87.8 93.6 (5.8) (6) %
Total revenue $ 1,256.4 $ 1,157.2 $ 99.2 9 %
Revenue in the United States increased during the three and six months ended
June 27, 2020 , as compared to the three and six months ended June 29, 2019 ,
primarily due to an increase in revenue for software and IP offerings.
Revenue in China increased during the three and six months ended June 27, 2020 ,
as compared to the three and six months ended June 29, 2019 , primarily due to an
increase in revenue for IP and hardware offerings. Beginning in the second
quarter of fiscal 2019, we were not able to deliver maintenance or support for
certain customers in China due to the U.S. Department of Commerce's designation
of certain customers to the "Entity List." We expect these restrictions will
continue to impact revenue from certain customers in China during fiscal 2020.
For the primary factors contributing to the change in revenue for other
geographies during the three and six months ended June 27, 2020 , as compared to
the three and six months ended June 29, 2019 , see the general description under
"Revenue by Period" and "Revenue by Product Category" above.
Revenue by Geography as a Percent of Total Revenue
Three Months Ended Six Months Ended
June 27, June 29, June 27, June 29,
2020 2019 2020 2019
United States 42 % 40 % 42 % 41 %
Other Americas 2 % 2 % 2 % 2 %
China 12 % 12 % 13 % 11 %
Other Asia 19 % 19 % 18 % 19 %
Europe, Middle East and Africa 18 % 20 % 18 % 19 %
Japan 7 % 7 % 7 % 8 %
Total 100 % 100 % 100 % 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 condensed
consolidated financial statements, see the discussion under Item 3,
"Quantitative and Qualitative Disclosures About Market Risk - Foreign Currency
Risk."
Cost of Revenue
Three Months Ended Change
June 27, June 29,
2020 2019 Amount Percentage
(In millions, except percentages)
Cost of product and maintenance $ 55.7 $ 43.4 $ 12.3 28 %
Cost of services 19.5 18.1 1.4 8 %
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Six Months Ended Change
June 27, June 29,
2020 2019 Amount Percentage
(In millions, except percentages)
Cost of product and maintenance $ 111.1 $ 93.9 $ 17.2 18 %
Cost of services 38.6 38.1 0.5 1 %
Cost of Product and Maintenance
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. 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.
A summary of cost of product and maintenance is as follows:
Three Months Ended Change
June 27, June 29,
2020 2019 Amount Percentage
(In millions, except percentages)
Product and maintenance-related costs
38 %
Amortization of acquired intangibles 11.5 11.3 0.2 2 %
Total cost of product and maintenance $ 55.7 $ 43.4 $ 12.3 28 %
Six Months Ended Change
June 27, June 29,
2020 2019 Amount Percentage
(In millions, except percentages)
Product and maintenance-related costs
22 %
Amortization of acquired intangibles 22.3 21.2 1.1
5 %
Total cost of product and maintenance
18 %
Cost of product and maintenance depends primarily on our hardware product sales
in any given period. Cost of product and maintenance is also affected by
employee salary and benefits and other employee-related costs, reserves for
inventory, as well as the timing and extent to which we acquire intangible
assets, acquire or license third-parties' IP or technology, and sell our
products that include such acquired or licensed IP or technology.
The changes in product and maintenance-related costs for the three and six
months ended
Change
Three Months Ended Six Months Ended
(In millions)
Emulation and prototyping hardware costs $ 12.0 $ 15.6
Other items 0.1 $ 0.5
Total change in product and maintenance-related costs $ 12.1 $ 16.1
Costs of emulation and prototyping increased during the three and six months
ended
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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, foreign exchange rate movements, stock-based
compensation, restructuring activities and the impact of our variable
compensation programs that are driven by operating results.
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 condensed consolidated
financial statements, see the discussion in Item 3, "Quantitative and
Qualitative Disclosures About Market Risk - Foreign Currency Risk."
Our operating expenses for the three and six months ended June 27, 2020 and
June 29, 2019 were as follows:
Three Months Ended Change
June 27, June 29,
2020 2019 Amount Percentage
(In millions, except percentages)
Marketing and sales $ 120.5 $ 116.2 $ 4.3 4 %
Research and development 250.8 231.8 19.0 8 %
General and administrative 35.6 34.4 1.2 3 %
Total operating expenses $ 406.9 $ 382.4 $ 24.5 6 %
Six Months Ended Change
June 27, June 29,
2020 2019 Amount Percentage
(In millions, except percentages)
Marketing and sales $ 246.2 $ 233.1 $ 13.1 6 %
Research and development 492.5 460.0 32.5 7 %
General and administrative 69.2 64.5 4.7 7 %
Total operating expenses $ 807.9 $ 757.6 $ 50.3 7 %
Our operating expenses, as a percentage of total revenue, for the three and six
months ended
Three Months Ended Six Months Ended
June 27, June 29, June 27, June 29,
2020 2019 2020 2019
Marketing and sales 19 % 20 % 20 % 20 %
Research and development 39 % 40 % 39 % 40 %
General and administrative 6 % 6 % 6 % 6 %
Total operating expenses 64 % 66 % 65 % 66 %
25-------------------------------------------------------------------------------- Marketing and Sales The increase in marketing and sales expense for the three and six months endedJune 27, 2020 , as compared to the three and six months endedJune 29, 2019 , was due to the following: Change
Three Months Ended Six Months Ended
(In millions)
Salary, benefits and other employee-related costs $ 8.4 $ 15.6
Home office-related expenses 2.0 2.0
Stock-based compensation 0.6 1.5
Marketing programs (2.2) (1.8)
Travel and sales meetings (5.0) (5.3)
Other items 0.5 1.1
Total change in marketing and sales expense $ 4.3 $ 13.1
Salary, benefits and other employee-related costs included in marketing and
sales expense increased during the three and six months ended June 27, 2020 , as
compared to the three and six months ended June 29, 2019 , primarily due to
additional hiring and acquisitions. We expect marketing and sales expense to
increase during the remainder of fiscal 2020, as compared to fiscal 2019, due to
additional headcount from hiring and acquisitions.
Research and Development
The increase in research and development expense for the three and six months
ended June 27, 2020 , as compared to the three and six months ended June 29,
2019 , was due to the following:
Change
Three Months Ended Six Months Ended
(In millions)
Salary, benefits and other employee-related costs $ 16.5 $ 29.1
Home office-related expenses 5.3 5.3
Stock-based compensation 2.0 4.5
Product development costs 3.3 3.0
Facilities and other infrastructure costs (4.9) (4.3)
Travel (4.1) (4.7)
Other items 0.9 (0.4)
Total change in research and development expense $ 19.0 $ 32.5
Costs included in research and development expense increased during the three
and six months ended June 27, 2020 , as compared to the three and six months
ended June 29, 2019 , primarily due to additional hiring and acquisitions. We
expect research and development expense to increase during the remainder of
fiscal 2020, as compared to fiscal 2019, due to additional headcount from hiring
and acquisitions.
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General and Administrative
The increase in general and administrative expense for the three and six months
ended June 27, 2020 , as compared to the three and six months ended June 29,
2019 , was due to the following:
Change
Three Months Ended Six Months Ended
(In millions)
Professional services 1.4 4.2
Bad debt 1.2 1.3
Salary, benefits and other employee-related costs 1.5 0.9
University endowment (3.0) (3.0)
Other items 0.1 1.3
Total change in general and administrative expense $ 1.2 4.7
Costs of professional services included in general and administrative expense
increased during the three and six months ended June 27, 2020 , as compared to
the three and six months ended June 29, 2019 , primarily due to consulting fees
related to an internal realignment of our international operating structure,
acquisition and integration-related costs.
Restructuring and Other Charges
We have initiated restructuring plans in recent years 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.
During the six months ended June 27, 2020 , we revised certain estimates made in
connection with prior restructuring plans and recorded credits of approximately
$1.3 million . For additional information about our restructuring plans, see Note
9 in the notes to condensed consolidated financial statements.
Interest Expense
Three Months Ended Six Months Ended
June 27, June 29, June 27, June 29,
2020 2019 2020 2019
(In millions)
Contractual interest expense:
2024 Notes 3.8 3.8 7.6 7.6
Revolving credit facility 1.9 1.0 2.5 2.2
Amortization of debt discount:
2024 Notes 0.2 0.2 0.4 0.4
Other - - 0.1 0.2
Total interest expense $ 5.9 $ 5.0 $ 10.6 $ 10.4
We expect interest expense to increase during the remainder of fiscal 2020, as
compared to fiscal 2019. For an additional description of our debt arrangements,
see Note 2 in the notes to condensed consolidated financial statements.
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Income Taxes
The following table presents the provision for income taxes and the effective
tax rate for the three and six months ended June 27, 2020 and June 29, 2019 :
Three Months Ended Six Months Ended
June 27, June 29, June 27, June 29,
2020 2019 2020 2019
(In millions, except percentages)Provision for income taxes$ 19.4 $ 21.4 $ 25.6 $ 29.0 Effective tax rate 12.9 % 16.6 % 9.1 % 11.3 % The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted bythe United States onMarch 27, 2020 which did not have a material impact on our provision for income taxes for the three and six months endedJune 27, 2020 . Our provision for income taxes for the three and six months endedJune 27, 2020 was primarily attributable to federal, state and foreign income taxes on our anticipated fiscal 2020 income, partially offset by tax benefits of$11.3 million and$29.7 million , respectively, related to stock-based compensation that vested or was exercised during the period. Our provision for income taxes for the three and six months endedJune 29, 2019 was primarily attributable to federal, state and foreign income taxes on our then-anticipated fiscal 2019 income, partially offset by tax benefits of$5.8 million and$20.2 million for the three and six months endedJune 29, 2019 , respectively, related to stock-based compensation that vested or was exercised during each period. OnJune 29, 2020 , theState of California enacted legislation that, for a three-year period beginning in fiscal 2020, will limit our utilization ofCalifornia research and development tax credits and will suspend the use ofCalifornia net operating loss deductions. We will account for the effects of theCalifornia tax law change during the third quarter of fiscal 2020, the period of enactment. We are continuing to analyze theCalifornia legislation, but currently expect to recognize a discrete tax benefit of approximately$19 million during the third quarter of fiscal 2020 due to the release of valuation allowance on ourCalifornia research and development tax credit deferred tax assets as a result of certain tax elections in our 2019 California tax filings. We expect this tax benefit to be partially offset by an increase in our fiscal 2020 California taxes of approximately$7 million . Our future effective tax rates may be materially impacted by tax amounts associated with our foreign earnings at rates different fromthe United States federal statutory rate, research credits, the tax impact of stock-based compensation, accounting for uncertain tax positions, business combinations, closure of statutes of limitations or settlement of tax audits, changes in valuation allowance and changes in tax law. A significant amount of our foreign earnings is generated by our subsidiaries organized inIreland andHungary . Our future effective tax rates may be adversely affected if our earnings were to be lower in countries where we have lower statutory tax rates. We currently expect that our fiscal 2020 effective tax rate will be approximately 6%. We expect that our quarterly effective tax rates will vary from our fiscal 2020 effective tax rate as a result of recognizing the income tax effects of stock-based awards in the quarterly periods that the awards vest or are settled and other items that we cannot anticipate. For additional discussion about how our effective tax rate could be affected by various risks, see Part II, Item 1A, "Risk Factors." Liquidity and Capital Resources As of June 27, December 28, 2020 2019 Change (In millions) Cash and cash equivalents$ 1,189.2 $ 705.2 $ 484.0 Net working capital 487.9 497.0 (9.1) Cash and Cash Equivalents As ofJune 27, 2020 , our principal sources of liquidity consisted of$1,189.2 million of cash and cash equivalents as compared to$705.2 million as ofDecember 28, 2019 . 28
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During the first quarter of fiscal 2020, we borrowed$350.0 million under our revolving credit facility as a precautionary measure to provide additional liquidity in light of the recent global economic uncertainty and financial market conditions caused by the COVID-19 pandemic. This borrowing represents the full amount available under our revolving credit facility; however, we are entitled to request increased capacity up to an additional$250.0 million subject to the receipt of lender commitments. As ofJune 27, 2020 , the interest rate on our revolving credit facility was 1.53%. In addition to borrowings under our revolving credit facility, our primary sources of cash and cash equivalents during the six months endedJune 27, 2020 were cash generated from operations and proceeds from the issuance of common stock resulting from stock purchases under our employee stock purchase plan and stock options exercised during the period. Our primary uses of cash and cash equivalents during the six months endedJune 27, 2020 were payments related to employee salaries and benefits, operating expenses, cash paid in business combinations, repurchases of our common stock, payment of taxes on vesting of restricted stock held by employees, and purchases of property, plant and equipment. Approximately 43% of our cash and cash equivalents were held by our foreign subsidiaries as ofJune 27, 2020 . 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. We expect that current cash and cash equivalent balances and cash flows that are generated from operations will be sufficient to meet our domestic and international working capital needs and other capital and liquidity requirements for at least the next 12 months.Net Working Capital Net working capital is comprised of current assets less current liabilities, as shown on our condensed consolidated balance sheets. The increase in our net working capital as ofJune 27, 2020 , as compared toDecember 28, 2019 , is primarily due to the timing of cash receipts from customers and disbursements made to vendors.
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