Acquisitions and Acquisition-Related Contingent Consideration

9 Months Ended

Sep. 29, 2012

Business Combinations [Abstract]

ACQUISITIONS AND ACQUISITION-RELATED CONTINGENT CONSIDERATION

ACQUISITIONS AND ACQUISITION-RELATED CONTINGENT CONSIDERATION

Sigrity, Inc.

On July 2, 2012, Cadence acquired Sigrity, Inc., or Sigrity, a provider of signal and power integrity analysis tools for system, printed circuit board and integrated circuit package designs. Cadence is incorporating the Sigrity technology into its Allegro product offering. The goodwill associated with this acquisition resulted primarily from Cadence's expectation of synergies from the integration of Sigrity's product offerings with Cadence's product offerings, and is not deductible for income tax purposes. Comparative pro forma financial information for this acquisition has not been presented because the results of operations were not material to Cadence’s Condensed Consolidated Financial Statements.

Total cash consideration for Sigrity was $78.5 million (net of cash acquired of $7.5 million), of which $64.3 million was paid at closing, and $14.2 million was deferred and is conditioned upon certain Sigrity shareholders remaining employees of Cadence over designated retention periods. Cadence recorded expense of $1.8 million during the three months ended September 29, 2012 related to this deferred purchase consideration and will expense the remaining $12.4 million over the remaining retention periods.

The following table summarizes the assets acquired and liabilities assumed as part of the Sigrity acquisition:

	(In thousands)
Cash and cash equivalents	$	7,490
Trade receivables	4,254
Property, plant and equipment	238
Other assets	1,004
Acquired intangibles:
Existing technology (four- to ten-year useful lives)	22,200
Agreements and relationships (three- to ten-year useful lives)	17,100
Tradenames and trademarks (nine-year useful lives)	1,300
Goodwill	39,680
Total assets acquired	$	93,266
Deferred revenue	(3,800		)
Other liabilities	(2,547		)
Long-term deferred tax liabilities	(15,079		)
Net assets acquired	$	71,840

Sigrity's assets and liabilities were recorded at their fair values on the date of acquisition. The fair values of Sigrity's intangible assets and deferred revenue were determined using significant inputs that are not observable in the market. For an additional description of these fair value calculations, see Note 7.

The deferred tax liabilities primarily related to the intangible assets acquired with Sigrity provided Cadence a future source of taxable income. Accordingly, Cadence released $14.8 million of its deferred tax asset valuation allowance, which was recognized as a benefit for income taxes during the three and nine months ended September 29, 2012.

Acquisition-related Contingent Consideration

For business combinations completed after January 3, 2009, contingent consideration is recorded at fair value on the acquisition date and adjusted to fair value at the end of each reporting period.

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 September 29, 2012 was $4.0 million.

Cadence may be obligated to make cash payments in connection with other business combinations and asset acquisitions, 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 $18.8 million over the next 43 months. Of the $18.8 million, up to $12.5 million would be recorded as operating expenses in the Condensed Consolidated Income Statements.