Income Taxes (Tables)

12 Months Ended

Jan. 03, 2015

Income Tax Disclosure [Abstract]

Income before provision (benefit) for income taxes

Cadence’s income before provision (benefit) for income taxes included income from the United States and from foreign subsidiaries for fiscal 2014, 2013 and 2012, is as follows:

	2014		2013		2012
	(In thousands)
United States	$	12,680	$	20,092	$	61,865
Foreign subsidiaries	168,322		138,904		126,406
Total income before provision (benefit) for income taxes	$	181,002	$	158,996	$	188,271

Components of income taxes provision (benefits)

Cadence’s provision (benefit) for income taxes was comprised of the following items for fiscal 2014, 2013 and 2012:

	2014			2013			2012
	(In thousands)
Current:
Federal	$	(13,754	)	$	(40,494	)	$	(588	)
State and local	(1,159		)	2,574			(36,650		)
Foreign	19,100			28,040			19,409
Total current	4,187			(9,880		)	(17,829		)
Deferred:
Federal	2,075			4,888			(203,731		)
State and local	1,633			3,037			(28,894		)
Foreign	8,770			(10,291		)	(7,799		)
Total deferred	12,478			(2,366		)	(240,424		)
Tax expense allocated to shareholders’ equity	5,439			6,999			6,576
Total provision (benefit) for income taxes	$	22,104		$	(5,247	)	$	(251,677	)

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 before provision (benefit) for income taxes for fiscal 2014, 2013 and 2012 as follows:

	2014			2013			2012
	(In thousands)
Provision computed at federal statutory income tax rate	$	63,350		$	55,648		$	65,895
State and local income tax, net of federal tax effect	1,168			4,085			3,626
Foreign income tax rate differential	(39,012		)	(39,144		)	(39,308		)
Non-deductible share-based compensation costs	5,726			2,053			7,785
Change in deferred tax asset valuation allowance	10,065			18,354			(301,542		)
Tax credits	(17,331		)	(18,372		)	(3,744		)
Repatriation of foreign earnings	(2,910		)	(2,116		)	(2,645		)
Non-deductible research and development expense	2,195			3,043			1,968
Tax effects of intra-entity transfer of assets	(5,397		)	270			148
Domestic production activity deduction	(1,281		)	(1,088		)	—
Withholding taxes	4,064			3,333			3,593
Tax settlements, domestic	—			—			(37,481		)
Interest and penalties not included in tax settlements	(382		)	1,701			2,552
Increase (decrease) in unrecognized tax benefits not included in tax settlements	157			(33,730		)	47,329
Other	1,692			716			147
Provision (benefit) for income taxes	$	22,104		$	(5,247	)	$	(251,677	)
Effective tax rate	12		%	(3		)%	(134		)%

Components of deferred tax assets and liabilities

The components of deferred tax assets and liabilities consisted of the following as of January 3, 2015 and December 28, 2013:

	As of
	January 3, 2015			December 28, 2013
	(In thousands)
Deferred tax assets:
Tax credit carryforwards	$	180,127		$	159,839
Reserves and accruals	65,935			49,450
Intangible assets	38,938			45,948
Capitalized research and development expense for income tax purposes	33,552			33,742
Operating loss carryforwards	25,285			27,205
Deferred income	19,534			25,420
Capital loss carryforwards	21,494			22,050
Share-based compensation costs	20,009			20,652
Depreciation and amortization	10,904			11,167
Investments	6,825			7,643
Other	1,332			4,911
Total deferred tax assets	423,935			408,027
Valuation allowance	(102,742		)	(92,677		)
Net deferred tax assets	321,193			315,350
Deferred tax liabilities:
Intangible assets	(57,040		)	(66,775		)
Undistributed foreign earnings	(28,026		)	(17,301		)
Other	(1,607		)	(2,230		)
Total deferred tax liabilities	(86,673		)	(86,306		)
Total net deferred tax assets	$	234,520		$	229,044

Summary of operating loss carryforward

As of January 3, 2015, Cadence’s operating loss carryforwards were as follows:

	Amount		Expiration Periods
	(In thousands)
Federal	$	6,151	from 2021 through 2033
California	241,015		from 2015 through 2033
Other states (tax effected, net of federal benefit)	2,558		from 2015 through 2031
Foreign (tax effected)	7,182		from 2031 through indefinite

Summary of tax credit carryforwards

As of January 3, 2015, Cadence had tax credit carryforwards of:

	Amount		Expiration Periods
	(In thousands)
Federal*	$	132,426	from 2017 through 2034
California	28,396		indefinite
Other states	5,956		from 2015 through 2029
Foreign	13,349		from 2017 through 2032

_____________

*Certain of Cadence’s foreign tax credits are anticipated and as a result do not yet have an expiration period.

Earliest tax years open to examination by jurisdiction

As of January 3, 2015 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	2011
United States - California	2010
Israel	2010
Hungary	2007

Unrecognized tax benefits roll forward

The changes in Cadence’s gross amount of unrecognized tax benefits during fiscal 2014, 2013 and 2012 are as follows:

	2014			2013			2012
	(In thousands)
Unrecognized tax benefits at the beginning of the fiscal year	$	78,279		$	92,378		$	98,812
Gross amount of the increases (decreases) in unrecognized tax benefits of tax positions taken during a prior year*	8,301			6,196			2,194
Gross amount of the increases in unrecognized tax benefits as a result of tax positions taken during the current year	12,381			5,119			3,082
Amount of decreases in unrecognized tax benefits relating to settlements with taxing authorities, including the utilization of tax attributes	—			(15,171		)	(11,768		)
Reductions to unrecognized tax benefits resulting from the lapse of the applicable statute of limitations	(86		)	(11,850		)	(189		)
Effect of foreign currency translation	(1,651		)	1,607			247
Unrecognized tax benefits at the end of the fiscal year	$	97,224		$	78,279		$	92,378
Total amounts of unrecognized tax benefits that, if upon resolution of the uncertain tax positions would reduce Cadence’s effective tax rate	$	57,127		$	49,458		$	57,725

_________

* 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 2014, 2013 and 2012 were as follows:

	2014			2013			2012
	(In thousands)
Interest	$	255		$	(12,470	)	$	(11,184	)
Penalties	(748		)	(7,698		)	(1,862		)

The total amounts of gross accrued interest and penalties recognized in the consolidated balance sheets as of January 3, 2015 and December 28, 2013 were as follows:

	As of
	January 3, 2015		December 28, 2013
	(In thousands)
Interest	$	1,155	$	37
Penalties	446		1,227