Note 12 - Income Taxes

12 Months Ended

Dec. 30, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 12 - Income Taxes

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 30,		December 31,		January 1,
(In thousands)	2023		2022		2022
Domestic	$	55,069	$	30,362	$	24,003
Foreign		159,787		151,750		73,623
Income before taxes	$	214,856	$	182,112	$	97,626

The components of Income tax (benefit) expense are as follows:

	Year Ended
	December 30,			December 31,			January 1,
(In thousands)	2023			2022			2022
Current:
Federal	$	10,331		$	748		$	445
State		1,059			265			45
Foreign		3,019			3,637			1,538
		14,409			4,650			2,028
Deferred:
Federal		(56,323	)		—			—
State		—			—			—
Foreign		(2,291	)		(1,420	)		(324	)
		(58,614	)		(1,420	)		(324	)
Income tax (benefit) expense	$	(44,205	)	$	3,230		$	1,704

Income tax (benefit) 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 30,	December 31,	January 1,
	2023	2022	2022
	%	%	%
Statutory federal rate	21	21	21
Adjustments for tax effects of:
State taxes, net	(1)	(2)	(4)
Federal tax credits	(4)	(1)	(3)
Excess tax benefit from stock-based compensation	(2)	—	(8)
Foreign rate differential	(15)	(16)	(14)
U.S. tax on foreign operations	9	33	3
Capital loss expiration	—	1	3
Valuation allowance	(29)	(33)	8
Change in uncertain tax benefit accrual	—	(2)	(5)
Other	—	1	1
Effective income tax rate	(21)	2	2

We updated our evaluation of the valuation allowance position in the United States through December 30, 2023. In making this evaluation, we considered our operating environment and estimates about our ability to generate taxable income in future periods within the United States. As a result of our consistent and continued profitability over the preceding three-year period and our expectations about generating sufficient U.S. Federal taxable income, we have determined that there is sufficient evidence that our U.S. Federal deferred tax assets are more likely than not to be realized. In the fourth quarter of fiscal 2023, we reduced the valuation allowance against a significant portion of our U.S. deferred tax assets resulting in the inclusion of $56.9 million of U.S. Federal deferred tax assets on our Consolidated Balance Sheets.

We continue to maintain a full valuation allowance against our state deferred tax assets due to insufficient income sources. We will continue to evaluate both positive and negative evidence in future periods to determine if we will realize the deferred tax assets. We do not maintain a valuation allowance in any foreign jurisdictions as we have concluded it is more likely than not that we will realize those net deferred tax assets in future periods.

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

(In thousands)	December 30, 2023			December 31, 2022
Deferred tax assets:
Intangible assets	$	4,274		$	6,264
Net operating loss carry forwards		13,829			15,362
Tax credit carry forwards		87,955			103,092
Accrued liabilities and reserves		23,249			12,932
Stock-based and deferred compensation		5,199			3,769
Other		5,162			5,031
Total deferred tax assets		139,668			146,450
Less: valuation allowance		(79,100	)		(140,533	)
Net deferred tax assets		60,568			5,917
Deferred tax liabilities:
Fixed assets		1,475			2,058
Unremitted earnings		620			2,498
Other		6,889			8,134
Total deferred tax liabilities		8,984			12,690
Net deferred taxes	$	51,584		$	(6,773	)
Reported as:
Deferred tax assets	$	57,762		$	1,022
Deferred tax liabilities (included in Other long-term liabilities)		(6,178	)		(7,795	)
Net deferred taxes	$	51,584		$	(6,773	)

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 30, 2023	$	140,533	$	(61,433	)	$	—	$	79,100
December 31, 2022	$	200,438	$	(59,905	)	$	—	$	140,533
January 1, 2022	$	192,478	$	7,960		$	—	$	200,438

At December 30, 2023, we had U.S. federal net operating loss ("NOL") carryforwards (pretax) of approximately $8.0 million which will expire between 2027 and 2028. We had state NOL carryforwards (pretax) of approximately $134.5 million that substantially all expire at various dates from 2024 through 2041. We also had federal credit carryforwards of $45.0 million that expire at various dates from 2033 through 2043, and $78.9 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. 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 30, 2023, 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 30, 2023 and December 31, 2022, our unrecognized tax benefits associated with uncertain tax positions were $61.4 million and $58.9 million, respectively, of which $58.7 million and $56.3 million, respectively, if recognized, would affect the effective tax rate, subject to valuation allowance. As of December 30, 2023 and December 31, 2022, interest and penalties associated with unrecognized tax benefits were $11.3 million and $10.6 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 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
Additions based on tax positions related to the current year		2,247
Additions based on tax positions of prior years		1,128
Reductions for tax positions of prior years		(156	)
Reduction as a result of lapse of applicable statute of limitations		(696	)
Balance at December 30, 2023	$	61,412

Our liability for uncertain tax positions (including penalties and interest) was $21.9 million and $21.6 million at December 30, 2023 and December 31, 2022, respectively, and is recorded as a component of Other long-term liabilities on our Consolidated Balance Sheets.

At December 30, 2023, it is reasonably possible that $0.3 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 income taxes, 2019 for state income taxes, and 2017 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.