Income Taxes

6 Months Ended

Jul. 02, 2011

Income Taxes [Abstract]

INCOME TAXES

NOTE 9. INCOME TAXES

          Cadence determined that uncertain tax positions that were subject to the Internal Revenue Service, or IRS, examination of Cadence’s federal income tax returns for the tax years 2003 through 2005 were effectively settled during the three and six months ended July 2, 2011. Cadence recognized a benefit for income taxes of $4.3 million during the three months ended July 2, 2011, including the impact of the effective settlement and the release of deferred tax asset valuation allowance, primarily resulting from the increase in deferred tax liabilities from the intangible assets held by the company acquired during the three months ended July 2, 2011, which was partially offset by tax expense on certain Cadence foreign subsidiaries and interest expense on unrecognized tax benefits. Cadence recognized a provision for income taxes of $0.4 million during the six months ended July 2, 2011, including tax expense on certain Cadence foreign subsidiaries and interest expense on unrecognized tax benefits, which was mostly offset by the impact of the effective settlement and the $5.0 million release of deferred tax asset valuation allowance primarily resulting from the increase in deferred tax liabilities from the intangible assets held by the company that was acquired during the three months ended July 2, 2011.

          Internal Revenue Service Examinations

          The IRS and other tax authorities regularly examine Cadence’s income tax returns. Cadence’s federal income tax returns beginning with the 2003 tax year remain subject to examination by the IRS.

          In May 2009, the IRS completed its field examination of Cadence’s federal income tax returns for the tax years 2003 through 2005 and issued a Revenue Agent’s Report, or RAR, in which the IRS proposed to assess an aggregate deficiency for the three-year period of $94.1 million. In August 2009, the IRS revised the proposed aggregate tax deficiency for the three-year period to $60.7 million. The IRS contested Cadence’s transfer pricing arrangements with its foreign subsidiaries and deductions for foreign trade income. In June 2011, the Appeals Office of the IRS, or the Appeals Office, provided Cadence with copies of the settlement agreements that were executed by the Appeals Office resolving the previously disputed tax positions. While the statute of limitations for the IRS to audit the tax returns remains open, Cadence considers the tax positions to be effectively settled because the IRS has completed its examination procedures and Cadence believes that there is a remote possibility that the IRS will re-examine the settled tax positions. As a result of this effective settlement, Cadence recognized a benefit for income taxes of $5.7 million in the Condensed Consolidated Income Statements for the three and six months ended July 2, 2011.

          The IRS is currently examining Cadence’s federal income tax returns for the tax years 2006 through 2009.

          The calculation of Cadence’s provision (benefit) for income taxes requires significant judgment and involves dealing with uncertainties in the application of complex tax laws and regulations. In determining the adequacy of the provision (benefit) for income taxes, Cadence regularly assesses the potential settlement outcomes resulting from income tax examinations. However, the final outcome of tax examinations, including the total amount payable or the timing of any such payments upon resolution of these issues, cannot be estimated with certainty. In addition, Cadence cannot be certain that such amount will not be materially different from the amount that is reflected in its historical income tax provisions and accruals. Should the IRS or other tax authorities assess additional taxes as a result of the current or a future examination, Cadence may be required to record charges to operations in future periods that could have a material impact on its results of operations, financial position or cash flows in the applicable period or periods.