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Income Taxes | 12 Months Ended
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Dec. 29, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Cadence’s income before provision for income taxes included income from the United States and from foreign subsidiaries for fiscal 2018, 2017 and 2016, was as follows:
| 2018 |  | 2017 |  | 2016
| (In thousands)
United States | $ | 58,963 |  |  | $ | 81,619 |  |  | $ | 84,694 |
Foreign subsidiaries | 317,427 |  |  | 233,427 |  |  | 152,459 |
Total income before provision for income taxes | $ | 376,390 |  |  | $ | 315,046 |  |  | $ | 237,153 |
Cadence’s provision for income taxes was comprised of the following items for fiscal 2018, 2017 and 2016:
| 2018 |  | 2017 |  | 2016
| (In thousands)
Current: |  |  |  |  |
Federal | $ | 902 |  |  | $ | (2,193 | ) |  | $ | 4,839 |
State and local | (1,270 | ) |  | (2,097 | ) |  | 50 |
Foreign | 42,657 |  |  | 35,301 |  |  | 34,047 |
Total current | 42,289 |  |  | 31,011 |  |  | 38,936 |
Deferred: |  |  |  |  |
Federal | (10,324 | ) |  | 76,494 |  |  | (5,291 | )
State and local | 886 |  |  | 5,571 |  |  | 6,006 |
Foreign | (2,238 | ) |  | (2,131 | ) |  | (5,584 | )
Total deferred | (11,676 | ) |  | 79,934 |  |  | (4,869 | )
Total provision for income taxes | $ | 30,613 |  |  | $ | 110,945 |  |  | $ | 34,067 |
The provision for income taxes differs from the amount estimated by applying the United States statutory federal income tax rates of 21% to income before provision for income taxes for fiscal 2018 and of 35% to income before provision for income taxes for fiscal 2017 and 2016 as follows:
| 2018 |  | 2017 |  | 2016
| (In thousands)
Provision computed at federal statutory income tax rate | $ | 79,042 |  |  | $ | 110,266 |  |  | $ | 83,003 |
State and local income tax, net of federal tax effect | 15,540 |  |  | 5,867 |  |  | 5,534 |
Foreign income tax rate differential | (37,031 | ) |  | (65,296 | ) |  | (36,098 | )
Deemed repatriation transition tax | (1,409 | ) |  | 67,188 |  |  | — |
Remeasurement of U.S. deferred tax assets and liabilities | — |  |  | 25,200 |  |  | — |
U.S. tax on foreign entities | 28,846 |  |  | — |  |  | — |
Stock-based compensation | (13,539 | ) |  | (24,455 | ) |  | (13,132 | )
Change in deferred tax asset valuation allowance | 13,234 |  |  | 4,689 |  |  | 1,243 |
Tax credits | (72,815 | ) |  | (26,789 | ) |  | (39,765 | )
Repatriation of foreign earnings | — |  |  | — |  |  | 25,145 |
Non-deductible research and development expense | 4,700 |  |  | — |  |  | — |
Tax effects of intra-entity transfer of assets | 79 |  |  | (8,450 | ) |  | (7,661 | )
Domestic production activity deduction | — |  |  | (2,474 | ) |  | (2,826 | )
Withholding taxes | 11,535 |  |  | 11,225 |  |  | 9,870 |
Tax settlements, foreign | — |  |  | 3,086 |  |  | 5,620 |
Increase in unrecognized tax benefits not included in tax settlements | (1,545 | ) |  | 4,054 |  |  | 614 |
Other | 3,976 |  |  | 6,834 |  |  | 2,520 |
Provision for income taxes | $ | 30,613 |  |  | $ | 110,945 |  |  | $ | 34,067 |
Effective tax rate | 8 | % |  | 35 | % |  | 14 | %
The Tax Act was enacted in December 2017 and included several provisions that affected Cadence significantly, such as a one-time, mandatory transition tax on its previously untaxed foreign earnings and a reduction in the federal corporation income tax rate from 35% to 21% as of January 1, 2018, among others. Cadence is required to recognize the effect of tax law changes in the period of enactment, which in the case of the Tax Act was December 2017, even though the effective date for most provisions of the Tax Act was January 1, 2018. The Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”), which allowed registrants to record reasonable estimates or to apply tax laws in effect prior to the enactment of the Tax Act for a period of up to one year from the date of enactment when it did not have the necessary information available, prepared or analyzed in reasonable detail to complete its accounting for the changes in taxation. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, Cadence recorded a provisional $67.2 million expense related to the one-time transition tax during fiscal 2017. In accordance with SAB 118, this amount was updated to $65.8 million of expense during fiscal 2018. For purposes of SAB 118, the accounting for the tax effects of the Tax Act is complete. Cadence adopted the new accounting standard related to stock-based compensation in fiscal 2016, which required the excess tax benefits or deficiencies to be reflected in the consolidated income statements as a component of the provision for income taxes, whereas these income tax effects were previously recognized in stockholders’ equity in the consolidated balance sheets. Total excess tax benefits recognized in the provision for income taxes in fiscal 2018, fiscal 2017 and fiscal 2016, were $21.3 million, $32.0 million and $17.2 million, respectively. The components of deferred tax assets and liabilities consisted of the following as of December 29, 2018 and December 30, 2017:
| As of
| December 29, 2018 |  | December 30, 2017
| (In thousands)
Deferred tax assets: |  |  |
Tax credit carryforwards | $ | 197,524 |  |  | $ | 164,687 |
Reserves and accruals | 43,522 |  |  | 42,357 |
Intangible assets | 12,096 |  |  | 13,112 |
Capitalized research and development expense for income tax purposes | 6,975 |  |  | 10,621 |
Operating loss carryforwards | 15,347 |  |  | 20,650 |
Deferred income | 6,580 |  |  | 12,178 |
Capital loss carryforwards | 20,342 |  |  | 20,266 |
Stock-based compensation costs | 15,329 |  |  | 15,782 |
Depreciation and amortization | 8,759 |  |  | 7,665 |
Investments | 2,900 |  |  | 3,201 |
Total deferred tax assets | 329,374 |  |  | 310,519 |
Valuation allowance | (108,724 | ) |  | (95,491 | )
Net deferred tax assets | 220,650 |  |  | 215,028 |
Deferred tax liabilities: |  |  |
Intangible assets | (36,194 | ) |  | (36,683 | )
Undistributed foreign earnings | (27,627 | ) |  | (23,563 | )
Other | (2,497 | ) |  | (2,730 | )
Total deferred tax liabilities | (66,318 | ) |  | (62,976 | )
Total net deferred tax assets | $ | 154,332 |  |  | $ | 152,052 |
During fiscal 2018 and 2017, Cadence maintained valuation allowances of $108.7 million and $95.5 million, respectively, on certain federal, state and foreign deferred tax assets because the realization of these deferred tax assets require future income of a specific character or amount that Cadence considered uncertain. The valuation allowance primarily relates to the following:
• | Tax credits in certain states that are accumulating at a rate greater than Cadence’s capacity to utilize the credits and tax credits in certain states where it is likely the credits will expire unused;
• | Federal, state and foreign deferred tax assets related to investments and capital losses that can only be utilized against gains that are capital in nature; and
• | Foreign tax credits that can only be fully utilized if Cadence has sufficient income of a specific character in the future.
As of December 29, 2018, Cadence’s operating loss carryforwards were as follows:
| Amount |  | Expiration Periods
| (In thousands) |  |
Federal | $ | 1,374 |  |  | from 2021 through 2029
California | 175,541 |  |  | from 2019 through 2037
Other states (tax effected, net of federal benefit) | 2,333 |  |  | from 2019 through 2037
Foreign (tax effected) | 293 |  |  | from 2025 through indefinite
As of December 29, 2018, Cadence had tax credit carryforwards of:
| Amount |  | Expiration Periods
| (In thousands) |  |
Federal* | $ | 108,934 |  |  | from 2023 through 2038
California | 61,473 |  |  | indefinite
Other states | 10,445 |  |  | from 2019 through 2038
Foreign | 16,672 |  |  | from 2019 through 2038
_____________ *Certain of Cadence’s foreign tax credits have yet to be realized and as a result do not yet have an expiration period. Examinations by Tax Authorities Taxing authorities regularly examine Cadence’s income tax returns. As of December 29, 2018 Cadence’s earliest tax years that remain open to examination and the assessment of additional tax include:
Jurisdiction |  | Earliest Tax Year Open to Examination
United States - Federal |  | 2015
United States - California |  | 2014
Unrecognized Tax Benefits The changes in Cadence’s gross amount of unrecognized tax benefits during fiscal 2018, 2017 and 2016 are as follows:
| 2018 |  | 2017 |  | 2016
| (In thousands)
Unrecognized tax benefits at the beginning of the fiscal year | $ | 110,179 |  |  | $ | 98,540 |  |  | $ | 87,820 |
Gross amount of the increases (decreases) in unrecognized tax benefits of tax positions taken during a prior year* | (4,183 | ) |  | 688 |  |  | (155 | )
Gross amount of the increases in unrecognized tax benefits as a result of tax positions taken during the current year | 2,370 |  |  | 13,141 |  |  | 11,342 |
Reductions to unrecognized tax benefits resulting from the lapse of the applicable statute of limitations | (5,179 | ) |  | (3,028 | ) |  | (149 | )
Effect of foreign currency translation | (1,330 | ) |  | 838 |  |  | (318 | )
Unrecognized tax benefits at the end of the fiscal year | $ | 101,857 |  |  | $ | 110,179 |  |  | $ | 98,540 |
Total amounts of unrecognized tax benefits that, if upon resolution of the uncertain tax positions would reduce Cadence’s effective tax rate | $ | 58,022 |  |  | $ | 63,108 |  |  | $ | 56,248 |
_____________ * Includes unrecognized tax benefits of tax positions recorded in connection with acquisitions The total amounts of interest, net of tax, and penalties recognized in the consolidated income statements as provision for income taxes for fiscal 2018, 2017 and 2016 were as follows:
| 2018 |  | 2017 |  | 2016
| (In thousands)
Interest | $ | 585 |  |  | $ | 1,865 |  |  | $ | 1,166 |
Penalties | 342 |  |  | 218 |  |  | 3 |
The total amounts of gross accrued interest and penalties recognized in the consolidated balance sheets as of December 29, 2018 and December 30, 2017 were as follows:
| As of
| December 29, 2018 |  | December 30, 2017
| (In thousands)
Interest | $ | 2,699 |  |  | $ | 2,511 |
Penalties | 10 |  |  | 151 |

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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