Business Combinations

6 Months Ended

Apr. 30, 2012

Business Combinations [Abstract]

Business Combinations

Note 3. Business Combinations

Acquisition of Magma Design Automation, Inc. (Magma)

On February 22, 2012, the Company acquired all outstanding shares of Magma, a chip design software provider, at a per-share price of $7.35. Additionally, the Company assumed unvested restricted stock units (RSUs) and stock options, collectively called "equity awards." The aggregate purchase price was approximately $550.2 million. This acquisition will enable the Company to more rapidly meet the needs of leading-edge semiconductor designers for more sophisticated design tools.

The total purchase consideration and the preliminary purchase price allocation were as follows:

	(in thousands)
Cash paid	$	543,437
Fair value of assumed equity awards allocated to purchase consideration		6,797
Total purchase consideration	$	550,234
Goodwill		303,481
Identifiable intangibles assets acquired		184,300
Other assets acquired		115,954
Debt and liabilities assumed		(53,501	)
Total purchase allocation	$	550,234

As of the end of the second quarter of fiscal year 2012, the Company's purchase price allocation is preliminary and has not been finalized. Goodwill of $303.5 million, which is not deductible for tax purposes, primarily resulted from the Company's expectation of sales growth and cost synergies from the integration of Magma's technology and operations with the Company's technology and operations. Identifiable intangible assets, consisting primarily of technology, customer relationships, backlog and trademarks, were valued using the income method, and are being amortized over three to ten years.

Acquisition-related costs directly attributable to the business combination totaling $30.2 million and $31.8 million for the three and six month periods ended April 30, 2012, respectively, were expensed as incurred in the condensed unaudited consolidated statements of operations and consist primarily of employee separation costs, contract terminations, professional services, and facilities closure costs. Of the $30.2 million, $14.4 million were recorded in general and administrative expenses, $7.9 million in sales and marketing expenses, $6.4 million in research and development expenses and $1.5 million in cost of revenue for the three month period ended April 30, 2012. Of the $ 31.8 million costs recorded for the six month period ended April 30, 2012, $16.0 million were recorded in general and administrative expenses, $7.9 million in sales and marketing expenses, $6.4 million in research and development expenses and $1.5 million in cost of revenue.

Fair Value of Equity Awards Assumed. The Company assumed unvested restricted stock units (RSUs) and stock options with a fair value of $22.2 million. The Black-Scholes option-pricing model was used to determine the fair value of these stock options, whereas the fair value of the RSUs was based on the market price on the grant date of the instruments. The Black-Scholes option-pricing model incorporates various subjective assumptions including expected volatility, expected term and risk-free interest rates. The expected volatility was estimated by a combination of implied and historical stock price volatility of the options.

Of the total fair value of the equity awards assumed, $6.8 million was allocated to the purchase consideration and $15.4 million was allocated to future services to be expensed over their remaining service periods on a straight-line basis.

Supplemental Pro Forma Information (Unaudited). The financial information in the table below summarizes the combined results of operations of the Company and Magma, on a pro forma basis, as though the companies had been combined as of the beginning of fiscal 2011.

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 November 1, 2010 or of results that may occur in the future.

	Three Months Ended April 30,						Six Months Ended April 30,
	2012			2011			2012			2011
	(in thousands)
Revenue	$	436,541	(1)	$	431,709		$	900,666	(1)	$	831,118
Net Income	$	29,833	(2)	$	47,556	(2)	$	77,476	(2)	$	87,602	(2)

(1) Revenues for the three and six months ended April 30, 2012 includes $13.5 million of revenues from Magma since the acquisition date.

(2) 2012 supplemental pro forma net income was adjusted to exclude $30.2 million and $31.8 million of acquisition-related costs during the three and six months ended April 30, 2012, respectively. Corresponding periods of 2011 supplemental pro forma net income were adjusted to include these charges. Disclosure of net income of Magma since the acquisition is impracticable due to the integration of Magma with the Company's operations.

Other Fiscal 2012 Acquisitions

During the six months ended April 30, 2012, the Company completed other acquisitions for cash and preliminarily allocated the total purchase consideration of $55.8 million to the assets acquired and liabilities assumed based on their respective fair values at the acquisition dates, resulting in total goodwill of $36.9 million, of which $11.8 million is expected to be deductible for tax purposes. Acquired identifiable intangible assets totaling $26.0 million were valued using the income method and are being amortized over their respective useful lives ranging from three to eight years. For the three and six month periods ended April 30, 2012, acquisition-related costs totaling $ 0.4 million and $1.6 million, respectively, were expensed as incurred in the statement of operations.

The Company continues to evaluate certain assets and liabilities related to business combinations completed within 12 months from the applicable acquisition date. Additional information, which existed as of the acquisition date but is yet unknown to the Company, may become known to the Company during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date. Changes to amounts recorded as assets or liabilities will be recorded as retrospective adjustments to the provisional amounts recognized as of the acquisition date and may result in a corresponding adjustment to goodwill.