Basis of Presentation (Policies)

9 Months Ended

Oct. 01, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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.

Cash and Cash Equivalents and Short Term Investments

Cadence considers all highly liquid investments with original maturities of three months or less on the date of purchase to be cash equivalents.

Fair Value of Financial Instruments

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 the nine months ended October 1, 2016.

Contingencies

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 litigation matters and may revise 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.