Acquisitions and Acquisition-Related Contingent Consideration

3 Months Ended

Mar. 30, 2013

Business Combinations [Abstract]

ACQUISITIONS AND ACQUISITION-RELATED CONTINGENT CONSIDERATION

ACQUISITIONS AND ACQUISITION-RELATED CONTINGENT CONSIDERATION

During the first fiscal quarter of 2013, Cadence signed definitive agreements to purchase two different companies. Neither acquisition closed during the quarter due to waiting periods for regulatory approvals.

Cosmic Circuits Private Limited

On February 7, 2013, Cadence entered into an agreement to acquire Cosmic Circuits Private Limited, or Cosmic, a privately held provider of intellectual property used in system-on-chip design and verification based in Bangalore, India, for aggregate consideration of approximately $61.2 million in cash. Lip-Bu Tan, Cadence’s president, chief executive officer and director, is also a member of the board of directors of Cosmic. In addition, a trust for the benefit of the children of Mr. Tan owns approximately 8.5% of Cosmic, and Mr. Tan and his wife serve as co-trustees of the trust. Prior to and during the negotiations of the transaction, Mr. Tan recused himself from the discussions and negotiations between and at Cadence and Cosmic, including any discussions and negotiations related to the consideration provided to Cosmic. A financial advisor provided a fairness opinion to Cadence in connection with the transaction, and the Board of Directors of Cadence reviewed the transaction and concluded that it was in the best interests of Cadence to proceed with such transaction. The completion of the transaction is subject to certain conditions, including regulatory approval.

Tensilica, Inc.

On March 11, 2013, Cadence entered into an agreement to acquire Tensilica, Inc., or Tensilica, a provider of configurable dataplane processing units. On April 22, 2013, after quarter-end, Cadence completed the acquisition of Tensilica. The cash outlay at closing, after taking into account adjustments for certain costs and an estimated $25.0 million of cash held by Tensilica at closing, was approximately $326.4 million. In addition, Cadence assumed certain unvested Tensilica options. Of the net $326.4 million, $5.8 million is conditioned upon certain Tensilica shareholders remaining employees of Cadence over designated retention periods. Cadence will also make payments to certain employees that will be conditioned upon continued employment and certain performance metrics over a three-year period. Cadence is in the process of determining the fair value of the net assets acquired and will include Tensilica’s results of operations in its financial statements with effect from the purchase date.

Acquisition-related Contingent Consideration

One of the fiscal 2011 acquisitions includes contingent consideration payments based on certain future financial measures associated with the acquired technology. This contingent consideration arrangement requires payments of up to $5.0 million if these measures are met during the three-year period subsequent to October 1, 2011. The fair value of the contingent consideration arrangement recorded on the date of the acquisition was $3.5 million. The fair value of the contingent consideration as of March 30, 2013 was $3.5 million.

Cadence may be obligated to make cash payments in connection with its business combinations and asset acquisitions, subject to the satisfaction of certain financial measures. If performance is such that these payments are fully achieved, Cadence may be obligated to pay up to an aggregate of $14.4 million over the next 37 months. Of the $14.4 million, up to $9.0 million would be recorded as operating expenses in the condensed consolidated income statements.