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Note 12 - Income Taxes | 12 Months Ended
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Jan. 02, 2021
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 (loss) before income taxes were as follows:
|  | Year Ended |
(In thousands) |  | January 2, 2021 |  |  | December 28, 2019 |  |  | December 29, 2018 |
Domestic |  | $ | 11,772 |  |  | $ | 33,417 |  |  | $ | (8,274 | )
Foreign |  |  | 36,684 |  |  |  | 11,648 |  |  |  | (15,695 | )
Income (loss) before taxes |  | $ | 48,456 |  |  | $ | 45,065 |  |  | $ | (23,969 | )
The components of Income tax expense are as follows:
|  | Year Ended |
(In thousands) |  | January 2, 2021 |  |  | December 28, 2019 |  |  | December 29, 2018 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 54 |  |  | $ | 499 |  |  | $ | 536 |
State |  |  | 68 |  |  |  | 45 |  |  |  | 38 |
Foreign |  |  | 1,025 |  |  |  | 1,345 |  |  |  | 1,869 |
|  |  | 1,147 |  |  |  | 1,889 |  |  |  | 2,443 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | — |  |  |  | — |  |  |  | — |
State |  |  | — |  |  |  | — |  |  |  | — |
Foreign |  |  | (83 | ) |  |  | (317 | ) |  |  | (90 | )
|  |  | (83 | ) |  |  | (317 | ) |  |  | (90 | )
Income tax expense |  | $ | 1,064 |  |  | $ | 1,572 |  |  | $ | 2,353 |
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 2, 2021 |  |  | December 28, 2019 |  |  | December 29, 2018 |
|  | % |  |  | % |  |  | % |
Statutory federal rate |  | 21 |  |  | 21 |  |  | (21) |
Adjustments for tax effects of: |  |  |  |  |  |  |  |  |
State taxes, net |  | (4) |  |  | 3 |  |  | (6) |
Research and development credits |  | (3) |  |  | 3 |  |  | (5) |
Stock compensation |  | (23) |  |  | (11) |  |  | 8 |
Foreign rate differential |  | (12) |  |  | (2) |  |  | 20 |
Foreign dividends |  | 15 |  |  | — |  |  | — |
Foreign withholding taxes |  | 3 |  |  | 3 |  |  | 5 |
162(m) executive compensation limitation |  | 13 |  |  | 5 |  |  | 2 |
Other deferred tax asset adjustment |  | 3 |  |  | — |  |  | 13 |
Valuation allowance |  | (13) |  |  | (19) |  |  | (11) |
Change in uncertain tax benefit accrual |  | 2 |  |  | — |  |  | 2 |
Other |  | — |  |  | 1 |  |  | 3 |
Effective income tax rate |  | 2 |  |  | 4 |  |  | 10 |
ASC 740, “Income Taxes”, provides for the recognition of deferred tax assets if realization of these assets is more-likely-than-not. We evaluate both positive and negative evidence to determine if some or all of our deferred tax assets should be recognized on a quarterly basis. Through January 2, 2021, we continued to evaluate the valuation allowance position in the United States and concluded that we should 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 are as follows:
(In thousands) |  | January 2, 2021 |  |  | December 28, 2019 |
Deferred tax assets: |  |  |  |  |  |  |  |
Accrued expenses and reserves |  | $ | 5,464 |  |  | $ | 3,527 |
Stock-based and deferred compensation |  |  | 3,851 |  |  |  | 2,812 |
Lease liability |  |  | 4,190 |  |  |  | 4,369 |
Intangible assets |  |  | 10,082 |  |  |  | 12,294 |
Fixed assets |  |  | 351 |  |  |  | 256 |
Net operating loss carry forwards |  |  | 87,443 |  |  |  | 86,899 |
Tax credit carry forwards |  |  | 83,534 |  |  |  | 90,339 |
Capital loss carry forwards |  |  | 4,018 |  |  |  | 4,235 |
Other |  |  | 934 |  |  |  | 1,059 |
Total deferred tax assets |  |  | 199,867 |  |  |  | 205,790 |
Less: valuation allowance |  |  | (192,478 | ) |  |  | (198,499 | )
Net deferred tax assets |  |  | 7,389 |  |  |  | 7,291 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Fixed assets |  |  | 2,809 |  |  |  | 2,620 |
Unremitted earnings |  |  | 1,746 |  |  |  | — |
Deferred revenue |  |  | 64 |  |  |  | 434 |
Right-of-use asset |  |  | 3,939 |  |  |  | 3,759 |
Total deferred tax liabilities |  |  | 8,558 |  |  |  | 6,813 |
Net deferred taxes |  |  | (1,169 | ) |  |  | 478 |
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 2, 2021 |  | $ | 198,499 |  |  | $ | (6,021 | ) |  | $ | — |  |  | $ | 192,478 |
December 28, 2019 |  | $ | 207,108 |  |  | $ | (8,609 | ) |  | $ | — |  |  | $ | 198,499 |
December 29, 2018 |  | $ | 209,691 |  |  | $ | (2,583 | ) |  | $ | — |  |  | $ | 207,108 |
At January 2, 2021, we had U.S. federal net operating loss ("NOL") carryforwards (pretax) of approximately $359.5 million that expire at various dates between 2021 and 2037. We had state NOL carryforwards (pretax) of approximately $147.6 million that expire at various dates from 2021 through 2037. We also had federal and state credit carryforwards of $51.7 million and $64.9 million, respectively. Of the $64.9 million state credit carryforwards, $64.5 million do not expire. The federal and remaining state credits expire at various dates from 2021 through 2040. 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. If there is a significant change in ownership, future tax attribute utilization may be restricted and an allowance will be recorded against NOL carryforwards and/or R&D credits to reflect the limitation. Foreign earnings may be subject to withholding taxes in local jurisdictions if they are distributed and repatriated in the United States. At January 2, 2021, U.S. income taxes and foreign withholding taxes were not provided for on a cumulative total of approximately $3.1 million of the undistributed earnings of our Chinese subsidiary. We intend to reinvest these earnings indefinitely. At January 2, 2021, our unrecognized tax benefits associated with uncertain tax positions were $55.7 million, of which $53.6 million, if recognized, would affect the effective tax rate, subject to valuation allowance. As of January 2, 2021, interest and penalties associated with unrecognized tax benefits were $9.1 million, which are not reflected in the table below. The following table summarizes the changes to unrecognized tax benefits for the fiscal years presented:
|  | (in thousands) |
Balance at December 30, 2017 |  | $ | 58,377 |
Additions based on tax positions related to the current year |  |  | 389 |
Additions based on tax positions of prior years |  |  | 759 |
Reduction for tax positions of prior years |  |  | (5 | )
Reduction as a result of lapse of applicable statute of limitations |  |  | (1,235 | )
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 |
Reductions 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 |
The balance of the unrecognized tax benefit at December 30, 2017 included in the table above summarizing the changes to the unrecognized tax benefit has been updated from $44,832 thousand to $58,377 thousand. Additionally, the amounts in this table for Additions based on tax positions of prior years during 2018 and 2019 have been updated from $19 thousand and $334 thousand to $759 thousand and $1,084 thousand, respectively. Our liability for uncertain tax positions (including penalties and interest) was $22.3 million and $24.6 million at January 2, 2021 and December 28, 2019, 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 $42.5 million is netted against deferred tax assets. At January 2, 2021, it is reasonably possible that $2.7 million of unrecognized tax benefits and $0.4 million of associated interest and penalties could be recognized during the next twelve months. The $3.1 million potential change would represent a decrease in unrecognized tax benefits, comprised of items related to tax filings for years that will no longer be subject to examination under expiring statutes of limitations. The years that remain subject to examination are 2017 for federal income taxes, 2016 for state income taxes, and 2013 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 2016 and 2017 and Israeli 2013 through 2017 income tax returns are currently under examination. We are not under examination in any other jurisdiction. We are not currently paying U.S. federal income taxes and do not expect to pay such taxes until we fully utilize our tax NOL and credit carryforwards. We expect to pay a nominal amount of state income tax. We are paying foreign income and withholding taxes, which are reflected in income tax expense in our Consolidated Statements of Operations and are primarily related to the cost of operating offshore activities and subsidiaries. We accrue interest and penalties related to uncertain tax positions in income tax expense. In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (2017 Tax Act). The CARES Act eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020. The CARES Act makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. In addition, the CARES Act allows companies to defer making certain payroll tax payments until future years. With the enactment of the CARES Act, the Company does not expect a financial statement impact from income taxes. The Company has not recorded any income tax expense or benefit relate to the Act for the year ended January 2, 2021.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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