Note 13 - Income Taxes

12 Months Ended

Jan. 01, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

We are subject to federal and state income tax as well as income tax in the various foreign jurisdictions in which we operate.

The domestic and foreign components of Income before income taxes were as follows:

	Year Ended
	January 1,		January 2,		December 28,
(In thousands)	2022		2021		2019
Domestic	$	24,003	$	11,772	$	33,417
Foreign		73,623		36,684		11,648
Income before taxes	$	97,626	$	48,456	$	45,065

The components of Income tax expense are as follows:

	Year Ended
	January 1,			January 2,			December 28,
(In thousands)	2022			2021			2019
Current:
Federal	$	445		$	54		$	499
State		45			68			45
Foreign		1,538			1,025			1,345
		2,028			1,147			1,889
Deferred:
Federal		—			—			—
State		—			—			—
Foreign		(324	)		(83	)		(317	)
		(324	)		(83	)		(317	)
Income tax expense	$	1,704		$	1,064		$	1,572

Income tax expense differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income as a result of the following differences:

	Year Ended
	January 1,	January 2,	December 28,
	2022	2021	2019
	%	%	%
Statutory federal rate	21	21	21
Adjustments for tax effects of:
State taxes, net	(4)	(4)	3
Federal tax credits	(3)	(3)	3
Excess tax benefit for stock compensation	(8)	(10)	(6)
Foreign rate differential	(14)	(12)	(2)
U.S. tax on foreign operations	3	15	—
Foreign withholding taxes	1	3	3
Capital loss expiration	3	—	1
Other deferred tax asset adjustment	—	3	—
Valuation allowance	8	(13)	(19)
Change in uncertain tax benefit accrual	(5)	2	—
Effective income tax rate	2	2	4

We updated our evaluation of the valuation allowance position in the United States through January 1, 2022 and concluded that we should continue to maintain a full valuation allowance against the net federal and state deferred tax assets. In making this evaluation, we exercised significant judgment and considered estimates about our ability to generate revenue and taxable profits sufficient to offset expenditures in future periods within the United States. We will continue to evaluate both positive and negative evidence in future periods to determine if we will realize the net deferred tax assets. We don't have a valuation allowance in any foreign jurisdictions as we have concluded it is more likely than not that we will realize the net deferred tax assets in future periods.

The components of our net deferred tax assets and liabilities are as follows:

(In thousands)	January 1, 2022			January 2, 2021
Deferred tax assets:
Intangible assets	$	8,236		$	10,082
Net operating loss carry forwards		88,254			87,443
Tax credit carry forwards		93,095			83,534
Accrued expenses and reserves		6,590			5,464
Stock-based and deferred compensation		4,477			3,851
Other		6,615			9,493
Total deferred tax assets		207,267			199,867
Less: valuation allowance		(200,438	)		(192,478	)
Net deferred tax assets		6,829			7,389
Deferred tax liabilities:
Fixed assets		2,379			2,809
Unremitted earnings		2,128			1,746
Other		9,969			4,003
Total deferred tax liabilities		14,476			8,558
Net deferred taxes	$	(7,647	)	$	(1,169	)
Reported as:
Deferred tax assets (included in Other long-term assets)	$	953		$	577
Deferred tax liabilities (included in Other long-term liabilities)		(8,600	)		(1,746	)
Net deferred taxes	$	(7,647	)	$	(1,169	)

The following table displays the activity related to changes in our valuation allowance for deferred tax assets:

Fiscal Years Ended	Balance at beginning		Charged (Credit) to costs and			Charged (credit) to other		Balance at end of
(in thousands)	of period		expenses			accounts		period
January 1, 2022	$	192,478	$	7,960		$	—	$	200,438
January 2, 2021	$	198,499	$	(6,021	)	$	—	$	192,478
December 28, 2019	$	207,108	$	(8,609	)	$	—	$	198,499

At January 1, 2022, we had U.S. federal net operating loss ("NOL") carryforwards (pretax) of approximately $361.5 million, of which $345.4 million expire at various dates between 2022 and 2037, and the remaining do not expire. We had state NOL carryforwards (pretax) of approximately $152.8 million that substantially all expire at various dates from 2022 through 2037. We also had federal credit carryforwards of $55.3 million that expire at various dates from 2022 through 2041, and $68.9 million state credit carryforwards, of which substantially all do not expire.

Future utilization of federal and state net operating losses and tax credit carry forwards may be limited if cumulative changes to ownership exceed 50% within any three-year period, which has not occurred through fiscal 2021. However, if there is a significant change in ownership, future tax attribute utilization may be limited and NOL carryforwards and/or R&D credits will be reduced to reflect the limitation.

Foreign earnings may be subject to withholding taxes in local jurisdictions if they are distributed. At January 1, 2022, U.S. income taxes and foreign withholding taxes were not provided for on a cumulative total of approximately $3.2 million of the undistributed earnings of our foreign subsidiaries. We intend to reinvest these earnings indefinitely.

At January 1, 2022 and January 2, 2021, our unrecognized tax benefits associated with uncertain tax positions were $56.2 million and $55.7 million, respectively, of which $54.0 million and $53.6 million, respectively, if recognized, would affect the effective tax rate, subject to valuation allowance. As of January 1, 2022 and January 2, 2021, interest and penalties associated with unrecognized tax benefits were $9.6 million and $9.1 million, respectively, which are not reflected in the table below. We accrue interest and penalties related to uncertain tax positions in Income tax expense.

The following table summarizes the changes to unrecognized tax benefits for the fiscal years presented:

	(in thousands)
Balance at December 29, 2018	$	58,285
Additions based on tax positions related to the current year		238
Additions based on tax positions of prior years		1,084
Reduction for tax positions of prior years		(213	)
Reduction as a result of lapse of applicable statute of limitations		(2,432	)
Balance at December 28, 2019		56,962
Additions based on tax positions related to the current year		548
Additions based on tax positions of prior years		628
Reductions for tax positions of prior years		—
Reduction as a result of lapse of applicable statute of limitations		(2,401	)
Balance at January 2, 2021		55,737
Additions based on tax positions related to the current year		1,156
Additions based on tax positions of prior years		1,130
Additions due to acquisition		977
Settlements		(51	)
Reduction as a result of lapse of applicable statute of limitations		(2,718	)
Balance at January 1, 2022	$	56,231

Our liability for uncertain tax positions (including penalties and interest) was $21.6 million and $22.3 million at January 1, 2022 and January 2, 2021, respectively, and is recorded as a component of Other long-term liabilities on our Consolidated Balance Sheets. The remainder of our uncertain tax position exposure of $44.2 million and $42.5 million at January 1, 2022 and January 2, 2021, respectively, is netted against deferred tax assets.

At January 1, 2022, it is reasonably possible that $0.8 million of unrecognized tax benefits and $0.1 million of associated interest and penalties could be recognized during the next twelve months.

The years that remain subject to examination are 2017 for federal and state income taxes, and 2015 for foreign income taxes, including years ending thereafter. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating losses or credit carryforward amount. Our Philippines 2019 and 2020 income tax returns are currently under examination.