Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Income Taxes

15. Income Taxes

        Significant components of the provision (benefit) for income taxes are as follows (in thousands):

	Year Ended
	December 31, 2011			January 1, 2011			January 2, 2010
Current:
Domestic	$	14,468		$	10,824		$	(11,560	)
International		2,845			4,145			5,538
Total Current		17,313			14,969			(6,022	)
Deferred:
Domestic		(70	)		(192	)		2,234
International		(375	)		(360	)		(338	)
Total Deferred		(445	)		(552	)		1,896
	$	16,868		$	14,417		$	(4,126	)

        The Company's provision (benefit) for income taxes differs from the expected tax expense amount computed by applying the statutory federal income tax rate to income before income taxes as a result of the following:

	Year Ended
	December 31, 2011			January 1, 2011			January 2, 2010
Federal statutory rate		35.0	%		35.0	%		35.0	%
Foreign tax rate benefit		(11.0	)		(15.6	)		(16.7	)
Research and development tax credits		(8.5	)		(6.1	)		(3.1	)
Release of prior year unrecognized tax benefits		—			(3.6	)		(23.4	)
Intercompany technology license		10.4			4.4			—
Excess officer compensation		3.2			2.0			1.8
Nondeductible acquisition costs		2.9			—			—
Other		0.2			0.3			0.4
		32.2	%		16.4	%		(6.0	)%

        The effective tax rate for fiscal 2011 increased from the prior period, primarily due to the tax charge related to the intercompany license of certain technology obtained in the acquisition of Spectra Linear and other one-time nondeductible costs associated with the acquisition of Spectra Linear, a decrease in the foreign tax rate benefit, and a release of prior year unrecognized tax benefits in fiscal 2010 with none in fiscal 2011. These changes were partially offset by an increase in the research and development tax credit. The effective tax rate for fiscal 2010 increased from fiscal 2009, primarily due to the resolution of uncertain tax positions as a result of entering into an Advance Pricing Agreement with the U.S. Internal Revenue Service during fiscal 2009. In addition, the effective tax rate for fiscal 2010 increased from the prior period due to the intercompany license of certain technology obtained in the acquisition of Silicon Clocks during fiscal 2010. The increase in the effective tax rate was partially offset by an increase in the federal research and development credit in fiscal 2010.

        Income before income taxes included approximately $4.1 million, $40.1 million and $39.5 million related to foreign operations in fiscal 2011, 2010 and 2009, respectively. Foreign income before income taxes decreased from fiscal 2010 to fiscal 2011 predominantly due to changes in product mix, an increase in research and development expense and an increase in the intercompany technology license payments made by a foreign subsidiary.

        At the end of fiscal 2011, undistributed earnings of the Company's foreign subsidiaries of approximately $265.3 million are considered permanently reinvested. Accordingly, no provision for U.S. federal and state income taxes has been made. Determination of the amount of the unrecognized deferred tax liability on these unremitted earnings is not practicable.

        Significant components of the Company's deferred taxes as of December 31, 2011 and January 1, 2011 are as follows (in thousands):

	December 31, 2011		January 1, 2011
Deferred tax assets:
Net operating loss carryforwards	$	21,479	$	10,927
Research and development tax credit carryforwards		5,556		4,880
Stock-based compensation		9,963		10,204
Depreciable assets		34,762		31,489
Reserves and allowances		122		136
Unrealized losses on available-for-sale securities		629		631
Unrealized losses on cash flow hedges		699		1,334
Deferred income on shipments to distributors		3,895		3,299
Accrued liabilities and other		5,855		4,559
		82,960		67,459
Less: Valuation allowance		—		—
		82,960		67,459
Deferred tax liabilities:
Acquired intangibles		18,562		15,536
Long term obligations for tax purposes		33,023		33,023
Prepaid expenses and other		913		1,234
		52,498		49,793
Net deferred tax assets	$	30,462	$	17,666

        As of December 31, 2011, the Company had federal net operating loss and research and development credit carryforwards of approximately $52.5 million and $0.3 million, respectively, as a result of the Cygnal Integrated Products, Silicon Clocks and SpectraLinear acquisitions. These carryforwards expire in fiscal years 2019 through 2030. Recognition of these loss and credit carryforwards is subject to an annual limit, which may cause them to expire before they are used.

        The Company also had state loss and research and development credit carryforwards of approximately $60.6 million and $8.0 million, respectively. A portion of these loss and credit carryforwards was generated by the Company and a portion was acquired through the Integration Associates, Silicon Clocks and SpectraLinear acquisitions. Certain of these carryforwards expire in fiscal years 2014 through 2030 and others do not expire. Recognition of some of these loss and credit carryforwards is subject to an annual limit, which may cause them to expire before they are used.

        Deferred income taxes reflect the net tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and the values used for income tax purposes. During 2011, the Company recorded net deferred tax assets of approximately $0.9 million related to the acquisition of Silicon Clocks and net deferred tax assets of approximately $12.2 million related to the acquisition of SpectraLinear due to differences between book and tax bases of acquired assets and assumed liabilities. Management believes that the Company's results of future operations will generate sufficient taxable income such that it is "more likely than not" that the deferred tax assets will be realized.

        The Company's operations in Singapore are subject to reduced tax rates through 2019, as long as certain conditions are met. The income tax benefit from the reduced Singapore tax rate reflected in earnings was approximately $2.5 million (representing $0.06 per diluted share) in fiscal 2011, approximately $6.1 million (representing $0.13 per diluted share) in fiscal 2010 and approximately $6.3 million (representing $0.13 per diluted share) in fiscal 2009.

        The following table reflects changes in the unrecognized tax benefits (in thousands):

	Year Ended
	December 31, 2011			January 1, 2011			January 2, 2010
Beginning balance	$	10,789		$	12,160		$	32,695
Additions based on tax positions related to current year		757			1,742			—
Additions based on tax positions related to prior years		—			—			4,127
Reductions for tax positions related to prior years		(603	)		(3,113	)		(14,954	)
Reductions for tax positions as a result of a lapse of the applicable statute of limitations		—			—			(1,197	)
Reductions for settlements with taxing authorities		—			—			(8,511	)
Ending balance	$	10,943		$	10,789		$	12,160

        As of December 31, 2011, January 1, 2011 and January 2, 2010, the Company had gross unrecognized tax benefits of $10.9 million, $10.8 million and $12.2 million, respectively, all of which would affect the effective tax rate if recognized. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company did not recognize any interest in the provision for income taxes in fiscal 2011 and 2010. During fiscal 2009, the Company recognized $0.8 million of interest, net of tax, in the provision for income taxes. In addition, the Company had decreases of interest, net of tax, of $0.1 million in fiscal 2010, and of $1.8 million in fiscal 2009. The Company has not made an accrual for the payment of interest related to unrecognized tax positions at the end of fiscal 2011 and 2010.

        The Company believes it is reasonably possible that the gross unrecognized tax benefits will decrease by approximately $3.5 million in the next 12 months due to the lapse of the statute of limitations applicable to a tax deduction claimed on a prior year foreign tax return.

        The tax years 2005 through 2011 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company is not currently under audit in any major taxing jurisdiction.