Prepaid expenses

[Table of](#i090043fcb1da400aaac214abf3d3ee98_7) [Contents](#i090043fcb1da400aaac214abf3d3ee98_7)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  |  |

During fiscal 2021, 2020 and 2019 Cadence maintained valuation allowances of $108.2 million, $116.4 million, and $125.5 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.The valuation allowance decreased by $8.3 million during fiscal 2021, decreased by $9.1 million during fiscal 2020 and increased by $16.8 million during fiscal 2019. The valuation allowance activity was primarily related to state research and development tax credits and certain foreign tax credits.68
