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Income Taxes (Tables)

12 Months Ended

Jan. 01, 2022

Income Tax Disclosure [Abstract]

Income before provision for income taxes

Cadence’s income before provision (benefit) for income taxes included income from the United States and from foreign subsidiaries for fiscal 2021, 2020 and 2019, was as follows:

			2021						2020						2019
			(In thousands)
United States			$	376,037					$	256,032					$	139,306
Foreign subsidiaries			392,398						376,716						339,662
Total income before provision (benefit) for income taxes			$	768,435					$	632,748					$	478,968

Components of income taxes provision

Cadence’s provision (benefit) for income taxes was comprised of the following items for fiscal 2021, 2020 and 2019:

			2021						2020						2019
			(In thousands)
Current:
Federal			$	19,957					$	15,083					$	15,282
State and local			25,246						6,401						2,716
Foreign			70,455						46,737						48,729
Total current			115,658						68,221						66,727
Deferred:
Federal			(16,415)						(11,155)						(9,001)
State and local			(30,406)						(24,186)						6,593
Foreign			3,643						9,224						(574,330)
Total deferred			(43,178)						(26,117)						(576,738)
Total provision (benefit) for income taxes			$	72,480					$	42,104					$	(510,011)

Summary of income tax reconciliation

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 2021, 2020, and 2019 as follows:

			2021						2020						2019
			(In thousands)
Provision computed at federal statutory income tax rate			$	161,880					$	132,877					$	100,583
State and local income tax, net of federal tax effect			24,640						20,936						23,221
Intercompany transfers of intangible property rights			—						—						(575,618)
Foreign income tax rate differential			(26,887)						(32,589)						(37,786)
Foreign-derived intangible income deduction			(22,050)						(3,762)						(1,201)
U.S. tax on foreign entities			51,112						43,615						57,225
Stock-based compensation			(55,091)						(51,226)						(29,785)
Change in deferred tax asset valuation allowance			(8,262)						(9,101)						16,796
Tax credits			(90,054)						(89,684)						(87,793)
Non-deductible research and development expense			4,443						5,163						4,363
Withholding taxes			23,495						17,189						15,865
Other			9,254						8,686						4,119
Provision (benefit) for income taxes			$	72,480					$	42,104					$	(510,011)
Effective tax rate			9		%				7		%				(106)		%

Components of deferred tax assets and liabilities

The components of deferred tax assets and liabilities consisted of the following as of January 1, 2022 and January 2, 2021:

			As of
			January 1, 2022						January 2, 2021
			(In thousands)
Deferred tax assets:
Tax credit carryforwards			$	147,248					$	197,436
Reserves and accruals			72,287						60,272
Intangible assets			568,199						578,267
Capitalized research and development expense for income tax purposes			34,467						39,427
Operating loss carryforwards			6,630						5,935
Deferred income			42,753						21,170
Capital loss carryforwards			16,957						16,944
Stock-based compensation costs			17,690						14,656
Depreciation and amortization			5,005						4,402
Investments			6,833						2,521
Lease liability			27,362						31,278
Prepaid expenses			53,893						—
Total deferred tax assets			999,324						972,308
Valuation allowance			(108,158)						(116,419)
Net deferred tax assets			891,166						855,889
Deferred tax liabilities:
Intangible assets			(55,178)						(44,549)
Undistributed foreign earnings			(45,460)						(41,957)
ROU assets			(27,362)						(31,278)
Other			(8,528)						(10,749)
Total deferred tax liabilities			(136,528)						(128,533)
Total net deferred tax assets			$	754,638					$	727,356

Summary of operating loss carryforward

As of January 1, 2022, Cadence’s operating loss carryforwards were as follows:

			Amount						Expiration Periods
			(In thousands)
Federal			$	428					from 2027 through 2033
California			27,044						from 2025 through 2038
Other states (tax effected, net of federal benefit)			1,174						from 2022 through 2037
Foreign (tax effected)			3,478						from 2030 through indefinite

Summary of tax credit carryforwards

As of January 1, 2022, Cadence had tax credit carryforwards of:

			Amount						Expiration Periods
			(In thousands)
Federal*			$	46,743					from 2029 through 2041
California			77,651						indefinite
Other states			14,361						from 2025 through indefinite
Foreign			27,814						from 2037 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.

Earliest tax years open to examination by jurisdiction

As of January 1, 2022, 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						2017
United States – California						2015
Ireland						2017
Israel						2016
Korea						2016

Unrecognized tax benefits roll forward

The changes in Cadence’s gross amount of unrecognized tax benefits during fiscal 2021, 2020 and 2019 are as follows:

			2021						2020						2019
			(In thousands)
Unrecognized tax benefits at the beginning of the fiscal year			$	113,021					$	106,041					$	101,857
Gross amount of the increases (decreases) in unrecognized tax benefits of tax positions taken during a prior year*			15,414						5,037						(3,143)
Gross amount of the increases in unrecognized tax benefits as a result of tax positions taken during the current year			5,100						3,344						8,951
Amount of decreases in unrecognized tax benefits relating to settlements with taxing authorities, including the utilization of tax attributes			(270)						(1,316)						(380)
Reductions to unrecognized tax benefits resulting from the lapse of the applicable statute of limitations			(2,778)						(676)						(1,692)
Effect of foreign currency translation			43						591						448
Unrecognized tax benefits at the end of the fiscal year			$	130,530					$	113,021					$	106,041
Total amounts of unrecognized tax benefits that, if upon resolution of the uncertain tax positions would reduce Cadence’s effective tax rate			$	79,654					$	66,010					$	61,527

_____________

* Includes unrecognized tax benefits of tax positions recorded in connection with acquisitions

Interest and penalties recognized in consolidated income statements and balance sheets

The total amounts of interest, net of tax, and penalties recognized in the consolidated income statements as provision (benefit) for income taxes for fiscal 2021, 2020 and 2019 were as follows:

			2021						2020						2019
			(In thousands)
Interest			$	1,171					$	473					$	490
Penalties			(11)						(3)						19

The total amounts of gross accrued interest and penalties recognized in the consolidated balance sheets as of January 1, 2022 and January 2, 2021 were as follows:

			As of
			January 1, 2022						January 2, 2021
			(In thousands)
Interest			$	4,921					$	3,555
Penalties			—						12

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