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Income Taxes
9 Months Ended
Oct. 03, 2015
Income Tax Disclosure [Abstract]  
INCOME TAXES
INCOME TAXES
Cadence’s provision (benefit) for income taxes for the three and nine months ended October 3, 2015 primarily resulted from federal, state and foreign income taxes on its anticipated fiscal 2015 income, which was offset by $13.8 million of tax benefit recognized during the three months ended October 3, 2015 related to the effective settlement of a tax examination of a Cadence foreign subsidiary. As a result of the settlement, Cadence recognized a tax benefit of $1.2 million from the release of reserves for certain tax positions. The settlement also provided Cadence with additional visibility into when it could expect to utilize certain tax credits, which in turn allowed Cadence to release $12.6 million of valuation allowance on those credits.
Cadence’s provision for income taxes for the three and nine months ended September 27, 2014 is primarily attributable to federal, state and foreign income taxes on its anticipated fiscal 2014 income.
In determining the adequacy of the provision for income taxes, Cadence regularly assesses new information available at each reporting date regarding the potential settlement outcomes of income tax examinations. However, the final outcomes of tax examinations, including the total amount payable or the timing of any such payments, cannot be estimated with certainty.
In July 2015, the United States Tax Court, in Altera Corp. et al. v. Commissioner, determined that part of a 2003 Treasury Regulation requiring taxpayers to include stock-based compensation in qualified intercompany cost sharing arrangements is invalid. A final decision has yet to be issued by the Tax Court. The U.S. Department of the Treasury has not withdrawn the regulation, and the Internal Revenue Service may appeal. Cadence has reviewed this case and concluded that no adjustment to the condensed consolidated financial statements is appropriate at this time. Cadence will continue to monitor developments related to the regulation and the potential impact of those developments on the consolidated financial statements.
In July 2015, a Cadence subsidiary located outside of the United States entered into a settlement agreement with tax authorities on its examination of the 2011 to 2013 tax returns. Cadence’s gross unrecognized tax benefits exclusive of interest and penalties decreased by approximately $9.5 million due to the settlement. Cadence’s gross unrecognized tax benefits at October 3, 2015 were $88.9 million, excluding interest and penalties. If the total gross unrecognized tax benefits at October 3, 2015 were recognized in the future, approximately $46.3 million of the total amount would decrease Cadence’s effective tax rate.