Financial Instruments

6 Months Ended

Jul. 02, 2011

Financial Instruments [Abstract]

FINANCIAL INSTRUMENTS

NOTE 6. FINANCIAL INSTRUMENTS

          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 six months ended July 2, 2011.

          The fair value of Cadence’s cash and cash equivalents, short-term investments, receivables, accounts payable and foreign currency forward exchange contracts approximate their carrying value due to the short-term nature of these instruments. The fair values of Cadence’s long-term investments and installment contract receivables approximate their carrying values based upon current market rates of interest. The fair values of Cadence’s 2015 Notes and Convertible Senior Notes are influenced by interest rates, Cadence’s stock price and stock price volatility and are determined by market trading. The fair values of the embedded conversion derivative and hedge transaction associated with Cadence’s 2015 Notes are determined using an option pricing model based on observable inputs, including Cadence’s stock price, stock price volatility and risk-free interest rates. See Note 2 for the fair value of Cadence’s 2015 Notes, Convertible Senior Notes, 2023 Notes, and Cadence’s convertible notes hedges and warrants.

          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 July 2, 2011:

	Fair Value Measurements as of July 2, 2011:
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents — Money market funds	$	532,346	$	532,346	$	----	$	----
Available-for-sale securities		3,240		3,240		----		----
Trading securities held in Non-Qualified Deferred Compensation Plan (NQDC)		27,063		27,063		----		----
2015 Notes Hedges		222,085		----		222,085		----
Foreign currency exchange contracts		490		----		490		----
Time deposits		15		15		----		----
Total Assets	$	785,239	$	562,664	$	222,575	$	----

	Total		Level 1		Level 2		Level 3
	(In thousands)
Liabilities
Acquisition-related contingent consideration	$	162	$	----	$	----	$	162
2015 Notes Embedded Conversion Derivative		222,085		----		222,085		----
Total Liabilities	$	222,247	$	----	$	222,085	$	162

          The 2015 Notes Hedges and the 2015 Notes Embedded Conversion Derivative are classified as Level 2 because these assets and liabilities are not actively traded and are valued using standard pricing methodologies that use observable market data for all inputs. The fair values of the 2015 Notes Hedges and 2015 Notes Embedded Conversion Derivative are determined using an option pricing model based on observable inputs, such as implied volatility of Cadence’s common stock, risk-free interest rate and other factors. The foreign currency exchange contracts are classified as Level 2 because the fair value of these contracts is determined based on observable foreign currency exchange rates.

          Cadence acquired intangible assets of $13.2 million in connection with a business combination during the six months ended July 2, 2011. The fair value of these intangible assets was estimated using Level 3 inputs. See Note 4 for an additional description of this business combination and the key inputs used in the valuation.

          Cadence vacated or consolidated certain facilities in connection with restructuring plans initiated in 2010 and recorded lease losses of $1.5 million during the six months ended July 2, 2011, which are included in Restructuring and other charges (credits) in Cadence’s Condensed Consolidated Income Statements. The fair value of these lease losses was estimated using Level 3 inputs. See Note 7 for an additional description of Cadence’s lease loss estimates.

          The fair value of financial assets and liabilities was determined using the following levels of inputs as of January 1, 2011:

	Fair Value Measurements as of January 1, 2011:
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents — Money market funds	$	463,681	$	463,681	$	----	$	----
Available-for-sale securities		12,702		12,702		----		----
Trading securities held in NQDCs		28,738		28,738		----		----
2015 Notes Hedges		130,211		----		130,211		----
Foreign currency exchange contracts		1,559		----		1,559		----
Time deposits		13		13		----		----
Total Assets	$	636,904	$	505,134	$	131,770	$	----

	Total		Level 1		Level 2		Level 3
	(In thousands)
Liabilities
Acquisition-related contingent consideration	$	966	$	----	$	----	$	966
2015 Notes Embedded Conversion Derivative		130,211		----		130,211		----
Total Liabilities	$	131,177	$	----	$	130,211	$	966

          Marketable Securities

          During the three months ended July 2, 2011, Cadence sold available-for-sale securities and received $8.1 million in proceeds, net of $0.4 million of transaction costs, and recognized a gain of $8.0 million as Other income, net, in its Condensed Consolidated Income Statements.

          During the six months ended July 2, 2011, Cadence sold available-for-sale securities and received $9.6 million in proceeds, net of $0.4 million of transaction costs, and recognized a gain of $8.0 million as Other income, net, in its Condensed Consolidated Income Statements.

          The cost basis of Cadence’s remaining marketable securities was $1.9 million as of July 2, 2011. The cost basis of Cadence’s marketable securities as of January 1, 2011 was $3.2 million.

          Non-Marketable Securities

          Cadence uses either the cost or equity method of accounting to account for its long-term, non-marketable investment securities included in Other assets in its Condensed Consolidated Balance Sheets. During the six months ended July 2, 2011, Cadence sold its interest in one of its equity method investments and recognized a gain of $2.7 million as Other income, net in its Condensed Consolidated Income Statements.

          During the three months ended July 2, 2011, a $2.0 million convertible note Cadence held was converted into non-marketable equity securities. Cadence will account for this investment under the cost method.

          The carrying value of Cadence’s non-marketable securities was $11.8 million as of July 2, 2011 and $9.3 million as of January 1, 2011.