NOTE 4. ACQUISITIONS

For each of Cadence’s acquisitions, the results of operations and the estimated fair value of the assets acquired and liabilities assumed have been included in Cadence’s Condensed Consolidated Financial Statements from the date of the acquisition.

2011 Acquisition

During the three months ended July 2, 2011, Cadence acquired a company and recorded $14.2 million of goodwill, and $13.2 million of intangible assets with a weighted average life of 7 years. The $14.2 million of goodwill recorded in connection with this acquisition is not expected to be deductible for income tax purposes. The fair value of the intangible assets was determined using the income approach with significant inputs that are not observable in the market. Key assumptions include the economy in general and conditions and demands specific to electronic design automation software development with expected future cash flows from revenues, the timing of the expected future cash flows and discount rates consistent with the level of risk.

Denali Software, Inc.

In June 2010, Cadence acquired Denali Software, Inc., or Denali. Denali was a privately-held provider of electronic design automation software and intellectual property used in system-on-chip design and verification. Cadence acquired Denali to expand its portfolio to provide system component modeling and intellectual property integration. The aggregate initial purchase price was $296.8 million, which was paid in cash. Of the $12.6 million of purchase price payments that were deferred on the acquisition date, $1.3 million remains unpaid as of July 2, 2011 and is conditioned upon certain Denali shareholders remaining employees of Cadence over the stated retention periods. Of the $12.6 million deferred purchase price, Cadence expensed $10.2 million during fiscal 2010, $0.8 million during the six months ended July 2, 2011 and Cadence will expense the remaining $1.6 million over the stated retention periods.

The financial information in the table below summarizes the combined results of operations of Cadence and Denali, on a pro forma basis, as though the companies had been combined as of the beginning of the three and six months ended July 3, 2010. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 3, 2010 or of results that may occur in the future.


	Three Months		Six Months
	Ended		Ended
	July 3,		July 3,
	2010		2010
	(In thousands)
Total revenue	$	231,792	$	460,897

Net income	$	36,756	$	11,508

Acquisition-Related Contingent Consideration

Cadence accounts for business combinations with acquisition dates on or before January 3, 2009 under the purchase method in accordance with Statement of Financial Accounting Standard, or SFAS, No. 141, “Business Combinations,” and contingent consideration is added to Goodwill as it is paid. See Note 5 for the amount of Goodwill recorded during the six months ended July 2, 2011 in connection with acquisitions accounted for under SFAS No. 141. Cadence accounts for business combinations with acquisition dates after January 3, 2009 under the acquisition method in accordance with the Accounting Standards Codification and contingent consideration is recorded at fair value on the acquisition date.

In connection with Cadence’s business combinations and asset acquisitions completed before July 2, 2011, Cadence may be obligated to make payments based on, or subject to the satisfaction of, certain performance metrics. If performance is such that these payments are fully achieved, Cadence may be obligated to pay up to an aggregate of $27.2 million in cash during the next 58 months, of which up to $19.8 million would be expensed in Cadence’s Condensed Consolidated Income Statements.