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Income Taxes | 12 Months Ended
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Jan. 02, 2021
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Cadence’s income before provision (benefit) for income taxes included income from the United States and from foreign subsidiaries for fiscal 2020, 2019 and 2018, was as follows:
| 2020 |  | 2019 |  | 2018
| (In thousands)
United States | $ | 256,032 |  |  | $ | 139,306 |  |  | $ | 58,963 |
Foreign subsidiaries | 376,716 |  |  | 339,662 |  |  | 317,427 |
Total income before provision (benefit) for income taxes | $ | 632,748 |  |  | $ | 478,968 |  |  | $ | 376,390 |
Cadence’s provision (benefit) for income taxes was comprised of the following items for fiscal 2020, 2019 and 2018:
| 2020 |  | 2019 |  | 2018
| (In thousands)
Current: |  |  |  |  |
Federal | $ | 15,083 |  |  | $ | 15,282 |  |  | $ | 902 |
State and local | 6,401 |  |  | 2,716 |  |  | (1,270) |
Foreign | 46,737 |  |  | 48,729 |  |  | 42,657 |
Total current | 68,221 |  |  | 66,727 |  |  | 42,289 |
Deferred: |  |  |  |  |
Federal | (11,155) |  |  | (9,001) |  |  | (10,324) |
State and local | (24,186) |  |  | 6,593 |  |  | 886 |
Foreign | 9,224 |  |  | (574,330) |  |  | (2,238) |
Total deferred | (26,117) |  |  | (576,738) |  |  | (11,676) |
Total provision (benefit) for income taxes | $ | 42,104 |  |  | $ | (510,011) |  |  | $ | 30,613 |
During the third quarter of fiscal 2020, the State of California enacted legislation that, for a three-year period beginning in fiscal 2020, will limit Cadence’s utilization of California research and development tax credits to $5 million annually and will suspend the use of California net operating loss deductions. Cadence accounted for the effects of the California tax law change in the period of enactment. Cadence recognized a tax benefit of approximately $22.2 million due to a partial release of the valuation allowance on our California research and development tax credit deferred tax assets as a result of certain tax elections made in Cadence’s 2019 California tax return. During the fourth quarter of fiscal 2019, Cadence completed intercompany transfers of certain intangible property rights to its Irish subsidiary, which resulted in the establishment of a deferred tax asset and the recognition of an income tax benefit of $575.6 million. Cadence expected to realize the Irish deferred tax asset in future years and did not provide for a valuation allowance. Cadence considered all available positive and negative evidence, including its past operating results, forecasted earnings, future taxable income, and any prudent and feasible tax planning strategies in making this determination. 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 (benefit) for income taxes for fiscal 2020, 2019, and 2018 as follows:
| 2020 |  | 2019 |  | 2018
| (In thousands)
Provision computed at federal statutory income tax rate | $ | 132,877 |  |  | $ | 100,583 |  |  | $ | 79,042 |
State and local income tax, net of federal tax effect | 20,936 |  |  | 23,221 |  |  | 15,540 |
Intercompany transfers of intangible property rights | — |  |  | (575,618) |  |  | — |
Foreign income tax rate differential | (32,589) |  |  | (37,786) |  |  | (37,031) |
Deemed repatriation transition tax | — |  |  | — |  |  | (1,409) |
U.S. tax on foreign entities | 43,615 |  |  | 57,225 |  |  | 28,846 |
Stock-based compensation | (51,226) |  |  | (29,785) |  |  | (13,539) |
Change in deferred tax asset valuation allowance | (9,101) |  |  | 16,796 |  |  | 13,234 |
Tax credits | (89,684) |  |  | (87,793) |  |  | (72,815) |
Non-deductible research and development expense | 5,163 |  |  | 4,363 |  |  | 4,700 |
Tax effects of intra-entity transfer of assets | 392 |  |  | 895 |  |  | 79 |
Withholding taxes | 17,189 |  |  | 15,865 |  |  | 11,535 |
Tax settlements, foreign | 1,193 |  |  | 458 |  |  | — |
Increase (decrease) in unrecognized tax benefits | 159 |  |  | (1,303) |  |  | (1,545) |
Other | 3,180 |  |  | 2,868 |  |  | 3,976 |
Provision (benefit) for income taxes | $ | 42,104 |  |  | $ | (510,011) |  |  | $ | 30,613 |
Effective tax rate | 7 | % |  | (106) | % |  | 8 | %
The components of deferred tax assets and liabilities consisted of the following as of January 2, 2021 and December 28, 2019:
| As of
| January 2, 2021 |  | December 28, 2019
| (In thousands)
Deferred tax assets: |  |  |
Tax credit carryforwards | $ | 197,436 |  |  | $ | 206,008 |
Reserves and accruals | 60,272 |  |  | 47,562 |
Intangible assets | 578,267 |  |  | 583,323 |
Capitalized research and development expense for income tax purposes | 39,427 |  |  | 18,477 |
Operating loss carryforwards | 5,935 |  |  | 6,201 |
Deferred income | 21,170 |  |  | 16,704 |
Capital loss carryforwards | 16,944 |  |  | 17,320 |
Stock-based compensation costs | 14,656 |  |  | 15,097 |
Depreciation and amortization | 4,402 |  |  | 8,721 |
Investments | 2,521 |  |  | 2,459 |
Lease liability | 31,278 |  |  | 25,016 |
Total deferred tax assets | 972,308 |  |  | 946,888 |
Valuation allowance | (116,419) |  |  | (125,520) |
Net deferred tax assets | 855,889 |  |  | 821,368 |
Deferred tax liabilities: |  |  |
Intangible assets | (44,549) |  |  | (24,907) |
Undistributed foreign earnings | (41,957) |  |  | (31,916) |
ROU assets | (31,278) |  |  | (25,016) |
Other | (10,749) |  |  | (8,350) |
Total deferred tax liabilities | (128,533) |  |  | (90,189) |
Total net deferred tax assets | $ | 727,356 |  |  | $ | 731,179 |
During fiscal 2020, 2019 and 2018 Cadence maintained valuation allowances of $116.4 million, $125.5 million, and $108.7 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. The valuation allowance decreased by $9.1 million during fiscal 2020 and increased by $16.8 million and $13.2 million, during fiscal 2019 and fiscal 2018, respectively. The valuation allowance activity was primarily related to California research and development tax credits and certain foreign tax credits. As of January 2, 2021, Cadence’s operating loss carryforwards were as follows:
| Amount |  | Expiration Periods
| (In thousands) |  |
Federal | $ | 743 |  |  | from 2021 through 2029
California | 27,093 |  |  | from 2030 through 2039
Other states (tax effected, net of federal benefit) | 1,564 |  |  | from 2021 through 2037
Foreign (tax effected) | 2,322 |  |  | from 2025 through indefinite
As of January 2, 2021, Cadence had tax credit carryforwards of:
| Amount |  | Expiration Periods
| (In thousands) |  |
Federal* | $ | 96,417 |  |  | from 2038 through 2040
California | 63,130 |  |  | indefinite
Other states | 12,023 |  |  | from 2021 through indefinite
Foreign | 25,866 |  |  | from 2035 through indefinite
_____________ *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 January 2, 2021, 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 |  | 2016
Ireland |  | 2016
Unrecognized Tax Benefits The changes in Cadence’s gross amount of unrecognized tax benefits during fiscal 2020, 2019 and 2018 are as follows:
| 2020 |  | 2019 |  | 2018
| (In thousands)
Unrecognized tax benefits at the beginning of the fiscal year | $ | 106,041 |  |  | $ | 101,857 |  |  | $ | 110,179 |
Gross amount of the increases (decreases) in unrecognized tax benefits of tax positions taken during a prior year* | 5,037 |  |  | (3,143) |  |  | (4,183) |
Gross amount of the increases in unrecognized tax benefits as a result of tax positions taken during the current year | 3,344 |  |  | 8,951 |  |  | 2,370 |
Amount of decreases in unrecognized tax benefits relating to settlements with taxing authorities, including the utilization of tax attributes | (1,316) |  |  | (380) |  |  | — |
Reductions to unrecognized tax benefits resulting from the lapse of the applicable statute of limitations | (676) |  |  | (1,692) |  |  | (5,179) |
Effect of foreign currency translation | 591 |  |  | 448 |  |  | (1,330) |
Unrecognized tax benefits at the end of the fiscal year | $ | 113,021 |  |  | $ | 106,041 |  |  | $ | 101,857 |
Total amounts of unrecognized tax benefits that, if upon resolution of the uncertain tax positions would reduce Cadence’s effective tax rate | $ | 66,010 |  |  | $ | 61,527 |  |  | $ | 58,022 |
_____________ * Includes unrecognized tax benefits of tax positions recorded in connection with acquisitions It is reasonably possible that the amount of unrecognized tax positions could decrease by approximately $10.5 million during the next 12 months. The potential decrease could be primarily driven by settlements with tax authorities. The actual amount could vary significantly depending on the ultimate timing and nature of any settlements. The total amounts of interest, net of tax, and penalties recognized in the consolidated income statements as provision (benefit) for income taxes for fiscal 2020, 2019 and 2018 were as follows:
| 2020 |  | 2019 |  | 2018
| (In thousands)
Interest | $ | 473 |  |  | $ | 490 |  |  | $ | 585 |
Penalties | (3) |  |  | 19 |  |  | 342 |
The total amounts of gross accrued interest and penalties recognized in the consolidated balance sheets as of January 2, 2021 and December 28, 2019 were as follows:
| As of
| January 2, 2021 |  | December 28, 2019
| (In thousands)
Interest | $ | 3,555 |  |  | $ | 3,500 |
Penalties | 12 |  |  | 12 |

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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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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