Income Taxes (Tables)

12 Months Ended

Dec. 29, 2012

Income Tax Disclosure [Abstract]

Income (loss) before provision (benefit) for income taxes

Cadence's income (loss) before provision (benefit) for income taxes included income (loss) from the United States and from foreign subsidiaries for fiscal 2012, 2011 and 2010, is as follows:

	2012		2011		2010
	(In thousands)
United States	$	61,865	$	39,175	$	(141,726	)
Foreign subsidiaries	126,406		56,251		78,958
Total income (loss) before provision (benefit) for income taxes	$	188,271	$	95,426	$	(62,768	)

Components of income taxes provision (benefits)

Cadence's provision (benefit) for income taxes was comprised of the following items for fiscal 2012, 2011 and 2010:

	2012			2011			2010
	(In thousands)
Current:
Federal	$	(588	)	$	(662	)	$	(143,045	)
State and local	(36,650		)	1,363			(3,475		)
Foreign	19,409			13,752			24,468
Total current	(17,829		)	14,453			(122,052		)
Deferred:
Federal	(203,731		)	(4,937		)	(59,880		)
State and local	(28,894		)	(524		)	(8,523		)
Foreign	(7,799		)	(2,350		)	4,212
Total deferred	(240,424		)	(7,811		)	(64,191		)
Tax expense (benefit) allocated to shareholders' equity	6,576			16,555			(3,063		)
Total provision (benefit) for income taxes	$	(251,677	)	$	23,197		$	(189,306	)

Summary of income tax reconciliation

The provision (benefit) for income taxes differs from the amount estimated by applying the United States statutory federal income tax rate of 35% to income (loss) before provision (benefit) for income taxes for fiscal 2012, 2011 and 2010 as follows:

	2012			2011			2010
	(In thousands)
Provision computed at federal statutory income tax rate	$	65,895		$	33,400		$	(21,968	)
State and local income tax, net of federal tax effect	3,626			6,493			(3,970		)
Foreign income tax rate differential	(39,308		)	(6,676		)	(7,053		)
Non-deductible share-based compensation costs	7,785			1,651			11,129
Change in deferred tax asset valuation allowance	(301,542		)	(3,617		)	(26,550		)
Tax credits	(3,744		)	(12,588		)	(12,495		)
Repatriation of foreign earnings	(2,645		)	708			(407		)
Non-deductible research and development expense	1,968			—			3,199
Financing arrangements	—			—			(1,821		)
Withholding taxes	3,593			3,851			2,778
Tax settlements, domestic	(37,481		)	328			(147,109		)
Tax settlements, foreign	(804		)	(2,451		)	—
Interest and penalties not included in tax settlements	2,552			1,840			7,595
Increase (decrease) in unrecognized tax benefits not included in tax settlements	47,329			933			8,496
Other	1,099			(675		)	(1,130		)
Provision (benefit) for income taxes	$	(251,677	)	$	23,197		$	(189,306	)
Effective tax rate	(134		)%	24		%	302		%

Components of deferred tax assets and liabilities

The components of deferred tax assets and liabilities consisted of the following as of December 29, 2012 and December 31, 2011:

	As of
	December 29, 2012			December 31, 2011
	(In thousands)
Deferred tax assets:
Tax credit carryforwards	$	129,724		$	133,829
Intangible assets	56,512			70,314
Reserves and accruals	50,960			77,325
Capitalized research and development expense for income tax purposes	34,046			40,510
Share-based compensation costs	20,012			20,661
Operating loss carryforwards	24,429			56,330
Deferred income	27,237			17,840
Capital loss carryforwards	23,026			23,737
Depreciation and amortization	8,979			7,058
Investments	7,550			7,339
Other	4,185			3,723
Total deferred tax assets	386,660			458,666
Valuation allowance	(74,323		)	(375,864		)
Net deferred tax assets	312,337			82,802
Deferred tax liabilities:
Intangible assets	(70,086		)	(66,878		)
Undistributed foreign earnings	(13,113		)	(5,584		)
Other	(965		)	(6,700		)
Total deferred tax liabilities	(84,164		)	(79,162		)
Total net deferred tax assets	$	228,173		$	3,640

Unrealized share-based compensation deductions

The excess tax benefit from share-based compensation is not recognized until a tax deduction is realized on Cadence's income tax returns. As of December 29, 2012 and December 31, 2011, Cadence had unrealized share-based compensation deductions as follows:

	As of
	December 29, 2012		December 31, 2011
	(Tax Effected - In thousands)
Federal	$	2,170	$	2,343
California	457		457

Summary of operating loss carryforward

As of December 29, 2012, Cadence's operating loss carryforwards were as follows:

	Amount		Expiration Periods
	(in thousands)
Federal	$	21,985	from 2021 through 2031
California	263,023		from 2013 through 2031
Other states (tax effected, net of federal benefit)	4,466		from 2013 through 2031

Summary of tax credit carryforwards

As of December 29, 2012, Cadence had tax credit carryforwards of:

	Amount		Expiration Periods
	(in thousands)
Federal (1)	$	94,213	from 2015 through 2032
California	32,103		do not expire until utilized
Other states	9,699		from 2013 through 2026
Foreign	8,340		do not expire until utilized

_____________

⁽¹⁾ This amount includes foreign tax credits that have not been recognized for income tax purposes. We have not included an expiration period for foreign tax credits that have not been recognized for income tax purposes.

Unrecognized tax benefits roll forward

The changes in Cadence's gross amount of unrecognized tax benefits during fiscal 2012, 2011 and 2010 are as follows:

	2012			2011			2010
	(In thousands)
Unrecognized tax benefits at the beginning of the fiscal year	$	98,812		$	131,545		$	324,837
Gross amount of the increases (decreases) in unrecognized tax benefits of tax positions taken during a prior year	2,194			(3,791		)	(130,313		)
Gross amount of the increases in unrecognized tax benefits as a result of tax positions taken during the current year	3,082			1,588			12,052
Amount of decreases in unrecognized tax benefits relating to settlements with taxing authorities, including the utilization of tax attributes	(11,768		)	(30,115		)	(74,890		)
Reductions to unrecognized tax benefits resulting from the lapse of the applicable statute of limitations	(189		)	(421		)	(109		)
Effect of foreign currency translation	247			6			(32		)
Unrecognized tax benefits at the end of the fiscal year	$	92,378		$	98,812		$	131,545
Total amounts of unrecognized tax benefits that, if upon resolution of the uncertain tax positions would reduce Cadence's effective tax rate	$	57,725		75,057			$	83,676

Interest and penalties recognized in Income Statement

The total amounts of interest and penalties recognized in the consolidated income statements as provision (benefit) for income taxes for fiscal 2012, 2011 and 2010 were as follows:

	2012			2011			2010
	(In thousands)
Interest	$	(11,184	)	$	2,173		$	(46,268	)
Penalties	(1,862		)	(1,495		)	4,471

Interest and penalties recognized in Balance Sheets

The total amounts of gross accrued interest and penalties recognized in the consolidated balance sheets as of December 29, 2012 and December 31, 2011 were as follows:

	As of
	December 29, 2012		December 31, 2011
	(In thousands)
Interest	$	24,427	$	35,368
Penalties	8,953		11,574