Financial Instruments

9 Months Ended

Oct. 01, 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.

The fair value of Cadence’s cash and cash equivalents, short-term investments, receivables, accounts payable, accrued liabilities 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 installment contract receivables approximate their carrying values based upon current market rates of interest. The fair values of Cadence’s 2011 Notes, 2013 Notes and 2015 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 2011 Notes, 2013 Notes, 2015 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 October 1, 2011:

		000000		000000		000000		000000
	Fair Value Measurements as of October 1, 2011:
Assets	Total		Level 1		Level 2		Level 3
	(In thousands)
Cash equivalents – Money market funds	$	564,917	$	564,917	$	—	$	—
Available-for-sale securities		2,946		2,946		—		—
Trading securities held in Non-Qualified Deferred Compensation Plan (NQDC)		27,572		27,572		—		—
2015 Notes Hedges		179,658		—		179,658		—
Time deposits		13		13		—		—
Total Assets	$	775,106	$	595,448	$	179,658	$	—

		0000000		0000000		0000000		0000000
Liabilities	Total		Level 1		Level 2		Level 3
	(In thousands)
Acquisition-related contingent consideration	$	3,745	$	—	$	—	$	3,745
Foreign currency exchange contracts		1,111		—		1,111		—
2015 Notes Embedded Conversion Derivative		179,658		—		179,658		—
Total Liabilities	$	184,514	$	—	$	180,769	$	3,745

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 $21.6 million in connection with business combinations during the nine months ended October 1, 2011. The fair value of these intangible assets was estimated using Level 3 inputs. See Note 4 for an additional description of these business combinations and the key inputs used in the valuations.

The liabilities included in Level 3 represent the fair value of contingent consideration associated with certain of Cadence’s 2011 acquisitions. See Note 4 for an additional description of these business combinations and the key inputs used in the valuation of these liabilities. The following table summarizes Level 3 activity for the nine months ended October 1, 2011:

	(In thousands)
Balance as of January 1, 2011	$	966
Additions		3,521
Adjustments		(835	)
Accretion		93
Balance as of October 1, 2011	$	3,745

Cadence vacated or consolidated certain facilities in connection with restructuring plans initiated in 2010 and recorded lease losses of $1.5 million during the nine months ended October 1, 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 including estimated sublease income after facilities are vacated, lease buyout costs, certain contractual costs to maintain vacated facilities and discount rates. 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:

		$100,000		$100,000		$100,000		$100,000
	Fair Value Measurements as of January 1, 2011:
Assets	Total		Level 1		Level 2		Level 3
	(In thousands)
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	$	—

		$100,000		$100,000		$100,000		$100,000
Liabilities	Total		Level 1		Level 2		Level 3
	(In thousands)
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 nine months ended October 1, 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 (expense), net in its Condensed Consolidated Income Statements.

The cost basis of Cadence’s remaining marketable securities was $2.0 million as of October 1, 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. It is Cadence’s policy to review the fair value of its investment securities on a regular basis to determine whether its investments in these companies are other-than-temporarily impaired. This evaluation includes, but is not limited to, reviewing each company’s cash position, financing needs, earnings or revenue outlook, operational performance, management or ownership changes and competition. If Cadence believes the carrying value of an investment is in excess of its fair value, and this difference is other-than-temporary, it is Cadence’s policy to write down the investment to reduce its carrying value to fair value.

During the three months ended October 1, 2011, Cadence recognized gains of $5.4 million related to sales of cost-method investments with carrying amounts of $1.5 million. During the nine months ended October 1, 2011, Cadence recognized a gain of $2.7 million from the sale of an equity method investment. Gains and losses on the sale of non-marketable securities are recognized as Other income (expense), net in Cadence’s Condensed Consolidated Income Statements.

The carrying value of Cadence’s non-marketable securities was $10.3 million as of October 1, 2011 and $9.3 million as of January 1, 2011.