FAIR VALUE

Inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Cadence’s market assumptions. These two types of inputs have created the following fair value hierarchy:


•	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.

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 fiscal 2015.

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 January 2, 2016 and January 3, 2015:



	Fair Value Measurements as of January 2, 2016:
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	360,691	$	360,691	$	—	$	—
Short-term investments:
Corporate debt securities	34,829		—		34,829		—
Bank certificates of deposit	15,046		—		15,046		—
United States Treasury securities	36,286		36,286		—		—
United States government agency securities	4,152		4,152		—		—
Commercial paper	1,993		—		1,993		—
Marketable equity securities	2,192		2,192		—		—
Trading securities held NQDC trust	24,905		24,905		—		—
Total Assets	$	480,094	$	428,226	$	51,868	$	—

	Total		Level 1		Level 2		Level 3
	(In thousands)
Liabilities
Foreign currency exchange contracts	362		—		362		—
Total Liabilities	$	362	$	—	$	362	$	—



	Fair Value Measurements as of January 3, 2015:
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	728,496	$	728,496	$	—	$	—
Short-term investments:
Corporate debt securities	34,894		—		34,894		—
Bank certificates of deposit	21,910		—		21,910		—
United States Treasury securities	19,374		19,374		—		—
United States government agency securities	9,208		9,208		—		—
Commercial paper	3,186		—		3,186		—
Marketable equity securities	1,873		1,873		—		—
Trading securities held in NQDC trust	27,034		27,034		—		—
2015 Notes Hedges	523,930		—		523,930		—
Total Assets	$	1,369,905	$	785,985	$	583,920	$	—

	Total		Level 1		Level 2		Level 3
	(In thousands)
Liabilities
Foreign currency exchange contracts	$	3,163	$	—	$	3,163	$	—
2015 Notes Embedded Conversion Derivative	523,930		—		523,930		—
Total Liabilities	$	527,093	$	—	$	527,093	$	—

Level 1 Measurements

Cadence’s cash equivalents held in money market funds, available-for-sale United States Treasury securities, United States government agency securities, marketable equity securities and the trading securities held in Cadence’s NQDC trust are measured at fair value using level 1 inputs.

Level 2 Measurements

As of January 3, 2015, the 2015 Notes Hedges and the 2015 Notes Embedded Conversion Derivative were measured at fair value using a combination of level 1 and level 2 inputs. These instruments were not actively traded and were valued using an option pricing model that used observable market data for all inputs, such as implied volatility of Cadence’s common stock, risk-free interest rate and other factors.

Cadence’s available-for-sale corporate debt securities, bank certificates of deposit and commercial paper are measured at fair value using level 2 inputs. Cadence obtains the fair values of its level 2 available-for-sale securities from a professional pricing service and validates the fair values by assessing the pricing methods and inputs and by comparing the fair values to another independent source.

Cadence’s foreign currency exchange contracts are measured at fair value using observable foreign currency exchange rates.