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 2017.

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 December 30, 2017 and December 31, 2016:



	Fair Value Measurements as of December 30, 2017:
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	503,934	$	503,934	$	—	$	—
Short-term investments:
Marketable equity securities	4,455		4,455		—		—
Trading securities held in NQDC trust	31,473		31,473		—		—
Foreign currency exchange contracts	2,937		—		2,937		—
Total Assets	$	542,799	$	539,862	$	2,937	$	—

As of December 30, 2017, Cadence did not have any financial liabilities requiring a recurring fair value measurement.



	Fair Value Measurements as of December 31, 2016:
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	237,724	$	237,724	$	—	$	—
Short-term investments:
Marketable equity securities	3,057		3,057		—		—
Trading securities held in NQDC trust	26,622		26,622		—		—
Total Assets	$	267,403	$	267,403	$	—	$	—

	Total		Level 1		Level 2		Level 3
	(In thousands)
Liabilities
Foreign currency exchange contracts	$	2,653	$	—	$	2,653	$	—

Level 3 Measurements

During fiscal 2017, Cadence acquired intangible assets of $76.4 million. The fair value of certain of the intangible assets acquired was determined using the income approach and level 3 inputs. Key assumptions include market conditions, the amount and timing of expected future cash flows, projected costs, assumed profit margins, discount rates and the economy in general. The fair value of these intangible assets was affected most significantly by the projected income associated with the intangible assets and the anticipated timing of the projected income, but was also impacted by the discount rate used to adjust the outcomes to their present values. Cadence used a discount rate of 14% to value the intangible assets acquired.

Cadence believes that its estimates and assumptions related to the fair value of its acquired intangible assets are reasonable, but significant judgment is involved.