Income Taxes

12 Months Ended

Dec. 30, 2023

Income Taxes

Income Taxes

17. Income Taxes

Income (loss) from continuing operations, inclusive of equity-method earnings (loss) and before income taxes, includes the following components (in thousands):

	Year Ended
	December 30,		December 31,		January 1,
	2023		2022		2022
Domestic	$	(14,539)	$	32,088	$	(15,384)
Foreign		(12,034)		97,764		(29,063)
	$	(26,573)	$	129,852	$	(44,447)

17. Income Taxes (Continued)

The provision (benefit) for income taxes consists of the following (in thousands):

	Year Ended
	December 30,		December 31,		January 1,
	2023		2022		2022
Current:
Domestic	$	3,291	$	52,834	$	(12,630)
Foreign		15,599		3,856		9,447
Total Current		18,890		56,690		(3,183)
Deferred:
Domestic		(9,036)		(17,728)		17,873
Foreign		(1,911)		(512)		(1,263)
Total Deferred		(10,947)		(18,240)		16,610
Provision for income taxes	$	7,943	$	38,450	$	13,427

The reconciliation of the federal statutory tax rate to the Company’s effective tax rate is as follows:

	Year Ended
	December 30,		December 31,		January 1,
	2023		2022		2022
Federal statutory rate	21.0	%	21.0	%	21.0	%
Foreign tax rate benefit	(33.2)		(6.2)		(16.4)
(Nondeductible) nontaxable foreign items	(25.5)		4.4		(7.2)
GILTI and Subpart F income, net of foreign tax credits	(24.2)		16.5		(2.4)
Base erosion and anti-abuse tax	(7.4)		—		—
(Nondeductible) nontaxable domestic items	(3.6)		0.7		(2.8)
Foreign withholding taxes	(2.2)		0.4		—
State tax expense	(1.5)		1.2		(0.8)
Change in prior period valuation allowance	(1.5)		(0.3)		(10.5)
Net operating loss not benefited	—		—		(6.0)
Other tax effects of equity compensation	1.1		(0.3)		0.5
Nondeductible officer compensation	1.3		2.0		(10.3)
Excess tax benefit of stock-based compensation	4.0		(1.1)		3.7
Return to provision adjustments	16.5		(2.0)		0.8
Research and development tax credits	26.4		(5.3)		0.1
Other	(1.1)		(1.4)		0.1
Effective tax rate	(29.9)	%	29.6	%	(30.2)	%

17. Income Taxes (Continued)

The decrease in the provision for income taxes for fiscal 2023 was primarily due to decreases in pre-tax book income and global intangible low-taxed income inclusions as compared to fiscal 2022. The provision for income taxes for fiscal 2022 increased from fiscal 2021 primarily due to the recognition of certain tax benefits for fiscal 2021 in discontinued operations under FASB ASU 2019-12, Simplifying the Accounting for Income Taxes, and the required adoption of new U.S. tax rules regarding the capitalization of research and experimental costs in fiscal 2022.

Under ASU 2019-12, the income tax benefit of a loss from continuing operations should be recognized in discontinued operations if the Company would be unable to benefit from the loss without considering the income from discontinued operations. As such, tax benefits associated with losses incurred for fiscal 2021 were recognized in discontinued operations.

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. Under the Act, research and experimental expenditures incurred for tax years beginning after December 31, 2021 must be capitalized and amortized ratably over five or fifteen years for tax purposes, depending on where the research activities are conducted. The Company has elected to treat global intangible low-taxed income (“GILTI”) as a period cost, so the capitalization of research and experimental costs in GILTI increases the Company’s provision for income taxes.

Additionally, the Act required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred from U.S. income tax under U.S. tax law. The Company elected to pay the transition tax over the eight-year period provided in the Act. As of December 30, 2023, the unpaid balance of its transition tax obligation was $14.3 million, which is payable between April 2024 and April 2025. This was recorded as components of other current liabilities and other non-current liabilities in the Consolidated Balance Sheet in the amounts of $6.4 million and $7.9 million, respectively.

17. Income Taxes (Continued)

Deferred Income Taxes

Deferred tax assets and liabilities are recorded for the estimated tax impact of temporary differences between the tax basis and book basis of assets and liabilities. Significant components of the Company’s deferred taxes as of December 30, 2023 and December 31, 2022 were as follows (in thousands):

	December 30,		December 31,
	2023		2022
Deferred tax assets:
Capitalized research and development	$	27,402	$	15,188
Tax credit carryforwards		13,303		13,334
Intangible assets		7,188		7,938
Net operating loss carryforwards		6,911		4,965
Leases		6,584		5,517
Deferred income on shipments to distributors		6,465		6,726
Accrued liabilities		2,859		6,809
Other		3,072		7,118
		73,784		67,595
Less: Valuation allowance		(10,530)		(9,409)
		63,254		58,186
Deferred tax liabilities:
Intangible assets		13,916		13,789
Fixed assets		8,353		8,518
Leases		6,238		5,189
Prepaid expenses and other		4,534		5,637
Unrealized gain on equity-method investment		—		4,120
		33,041		37,253
Net deferred tax assets (liabilities)	$	30,213	$	20,933

As of December 30, 2023, the Company had foreign net operating loss and research and development tax credit carryforwards of approximately $47.2 million and $0.2 million, respectively. The foreign net operating loss carryforward does not expire. The foreign research and development tax credits expire in fiscal years 2042 through 2043.

The Company also had U.S. federal net operating loss and research and development tax credit carryforwards of approximately $12.4 million and $1.1 million, respectively. These carryforwards expire in fiscal years 2026 through 2031. Recognition of these loss and credit carryforwards is subject to an annual limit, which may cause them to expire before they are used.

Additionally, the Company had state loss, state research and development, and state alternative minimum tax credit carryforwards of approximately $28.2 million, $12.9 million, and $0.1 million, respectively. Certain of these carryforwards expire in fiscal years 2025 through 2036, 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.

17. Income Taxes (Continued)

A valuation allowance is established against a deferred tax asset when it is more likely than not that the deferred tax asset will not be realized. The Company maintains a valuation allowance with respect to certain deferred tax assets relating to state research and development tax credits, state net operating loss carryforwards and state alternative minimum tax credits. The following table summarizes the activity related to the valuation allowance for deferred tax assets (in thousands):

	Balance at		Additions				Balance at
	Beginning of		Charged to				End of
	Period		Expenses		Deductions		Period
Year ended December 30, 2023	$	9,409	$	1,121		—	$	10,530
Year ended December 31, 2022	$	9,529	$	792	$	(912)	$	9,409
Year ended January 1, 2022	$	5,311	$	5,370	$	(1,152)	$	9,529

Prior to fiscal 2023, the Company asserted permanent reinvestment of the earnings of all foreign subsidiaries, except for Singapore and China. During fiscal 2023, the Company modified its previous indefinite reinvestment assertion for the remaining foreign subsidiaries and recorded a deferred tax liability for applicable withholding taxes on the undistributed earnings in those jurisdictions.

Uncertain Tax Positions

The following table summarizes the activity related to gross unrecognized tax benefits (in thousands):

	Year Ended
	December 30,		December 31,		January 1,
	2023		2022		2022
Beginning balance	$	4,109	$	3,677	$	2,853
Additions based on tax positions related to current year		737		872		830
Additions based on tax positions related to prior years		22		—		—
Reductions based on tax positions related to prior years		—		(6)		(6)
Reductions for tax positions as a result of a lapse of the applicable statute of limitations		—		(434)		—
Ending balance	$	4,868	$	4,109	$	3,677

As of December 30, 2023, December 31, 2022 and January 1, 2022, the Company had gross unrecognized tax benefits, inclusive of interest, of $5.4 million, $4.4 million and $3.9 million, respectively, of which $5.1 million, $4.4 million and $3.9 million, respectively, 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. These amounts were not material for any of the periods presented.

Following the completion of the Norwegian Tax Administration (“NTA”) examination of the Company’s Norwegian subsidiary for income tax matters relating to fiscal years 2013 – 2016, the Company received an assessment from the NTA in December 2017 concerning an adjustment to its 2013 taxable income related to the pricing of an intercompany transaction. The Company is currently appealing the assessment. The adjustment to the pricing of the intercompany transaction results in approximately 141.3 million Norwegian kroner, or $13.9 million, additional Norwegian income tax. The Company disagrees with the NTA’s assessment and believes the Company’s position on this matter is more likely than not to be sustained. The Company plans to exhaust all available administrative remedies, and if unable to resolve this matter through administrative remedies with the NTA, the Company plans to pursue judicial remedies.

17. Income Taxes (Continued)

The Company believes that it has accrued adequate reserves related to all matters contained in tax periods open to examination. Should the Company experience an unfavorable outcome in the NTA matter, however, such an outcome could have a material impact on its financial statements.

Tax years 2015 through 2023 remain open to examination by the major taxing jurisdictions in which the Company operates. The Company’s 2021 tax year is currently under examination in India. Although the outcome of tax audits is always uncertain, the Company believes that the results of the examination will not materially impact its financial position or results of operations. The Company is not currently under audit in any other major taxing jurisdiction.

The Company believes it is reasonably possible that its gross unrecognized benefits will decrease by approximately $1.7 million, inclusive of interest, in the next 12 months due to the lapse of the statute of limitations.