Note 13 - Income Taxes

12 Months Ended

Dec. 31, 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
	December 31,		January 1,		January 2,
(In thousands)	2022		2022		2021
Domestic	$	30,362	$	24,003	$	11,772
Foreign		151,750		73,623		36,684
Income before taxes	$	182,112	$	97,626	$	48,456

The components of Income tax expense are as follows:

	Year Ended
	December 31,			January 1,			January 2,
(In thousands)	2022			2022			2021
Current:
Federal	$	748		$	445		$	54
State		265			45			68
Foreign		3,637			1,538			1,025
		4,650			2,028			1,147
Deferred:
Federal		—			—			—
State		—			—			—
Foreign		(1,420	)		(324	)		(83	)
		(1,420	)		(324	)		(83	)
Income tax expense	$	3,230		$	1,704		$	1,064

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
	December 31,	January 1,	January 2,
	2022	2022	2021
	%	%	%
Statutory federal rate	21	21	21
Adjustments for tax effects of:
State taxes, net	(2)	(4)	(4)
Federal tax credits	(1)	(3)	(3)
Excess tax benefit from stock compensation	—	(8)	(10)
Foreign rate differential	(16)	(14)	(12)
U.S. tax on foreign operations	33	3	15
Foreign withholding taxes	1	1	3
Capital loss expiration	1	3	—
Other deferred tax asset adjustment	—	—	3
Valuation allowance	(33)	8	(13)
Change in uncertain tax benefit accrual	(2)	(5)	2
Effective income tax rate	2	2	2

We updated our evaluation of the valuation allowance position in the United States through December 31, 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 considered the uncertain stability of the current economic and operating environment and estimates about our ability to generate taxable income 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)	December 31, 2022			January 1, 2022
Deferred tax assets:
Intangible assets	$	6,264		$	8,236
Net operating loss carry forwards		15,362			88,254
Tax credit carry forwards		103,092			93,095
Accrued liabilities and reserves		12,932			6,590
Stock-based and deferred compensation		3,769			4,477
Other		5,031			6,615
Total deferred tax assets		146,450			207,267
Less: valuation allowance		(140,533	)		(200,438	)
Net deferred tax assets		5,917			6,829
Deferred tax liabilities:
Fixed assets		2,058			2,379
Unremitted earnings		2,498			2,128
Other		8,134			9,969
Total deferred tax liabilities		12,690			14,476
Net deferred taxes	$	(6,773	)	$	(7,647	)
Reported as:
Deferred tax assets (included in Other long-term assets)	$	1,022		$	953
Deferred tax liabilities (included in Other long-term liabilities)		(7,795	)		(8,600	)
Net deferred taxes	$	(6,773	)	$	(7,647	)

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
December 31, 2022	$	200,438	$	(59,905	)	$	—	$	140,533
January 1, 2022	$	192,478	$	7,960		$	—	$	200,438
January 2, 2021	$	198,499	$	(6,021	)	$	—	$	192,478

At December 31, 2022, we had U.S. federal net operating loss ("NOL") carryforwards (pretax) of approximately $16.3 million which do not expire. We had state NOL carryforwards (pretax) of approximately $142.0 million that substantially all expire at various dates from 2023 through 2041. We also had federal credit carryforwards of $59.1 million that expire at various dates from 2023 through 2042, and $75.0 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. 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 December 31, 2022, U.S. income taxes and foreign withholding taxes were not provided for on a cumulative total of approximately $3.0 million of the undistributed earnings of our foreign subsidiaries. We intend to reinvest these earnings indefinitely.

At December 31, 2022 and January 1, 2022, our unrecognized tax benefits associated with uncertain tax positions were $58.9 million and $56.2 million, respectively, of which $56.3 million and $54.0 million, respectively, if recognized, would affect the effective tax rate, subject to valuation allowance. As of December 31, 2022 and January 1, 2022, interest and penalties associated with unrecognized tax benefits were $10.6 million and $9.6 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 28, 2019	$	56,962
Additions based on tax positions related to the current year		548
Additions based on tax positions of prior years		628
Reduction 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
Additions based on tax positions related to the current year		1,594
Additions based on tax positions of prior years		2,798
Settlements		(148	)
Reduction as a result of lapse of applicable statute of limitations		(1,586	)
Balance at December 31, 2022	$	58,889

Our liability for uncertain tax positions (including penalties and interest) was $21.6 million at both December 31, 2022 and January 1, 2022 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 $47.9 million and $44.2 million at December 31, 2022 and January 1, 2022, respectively, is netted against deferred tax assets.

At December 31, 2022, it is reasonably possible that $1.0 million of unrecognized tax benefits and $0.2 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 2016 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 Singapore 2020 income tax return is currently under examination.