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Income Taxes | 12 Months Ended
--- | ---
Dec. 29, 2012
Income Taxes |
Income Taxes | 17. Income Taxes Significant components of the provision for income taxes are as follows (in thousands):
|  | Year Ended |
--- | --- | --- | ---
|  | December 29, 2012 |  | December 31, 2011 |  | January 1, 2011 |
Current: |  |  |  |  |  |  |  |  |  |
Domestic |  | $ | 21,084 |  | $ | 14,468 |  | $ | 10,824 |
International |  |  | (3,009 | ) |  | 2,845 |  |  | 4,145 |
Total Current |  |  | 18,075 |  |  | 17,313 |  |  | 14,969 |
Deferred: |  |  |  |  |  |  |  |  |  |
Domestic |  |  | 5,444 |  |  | (70 | ) |  | (192 | )
International |  |  | (719 | ) |  | (375 | ) |  | (360 | )
Total Deferred |  |  | 4,725 |  |  | (445 | ) |  | (552 | )
|  | $ | 22,800 |  | $ | 16,868 |  | $ | 14,417 |
The Company's provision for income taxes differs from the expected tax expense amount computed by applying the statutory federal income tax rate to income before income taxes as a result of the following:
|  | Year Ended |
--- | --- | --- | ---
|  | December 29, 2012 |  | December 31, 2011 |  | January 1, 2011 |
Federal statutory rate |  |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
Foreign tax rate benefit |  |  | (11.8 | ) |  | (11.0 | ) |  | (15.6 | )
Research and development tax credits |  |  | (0.5 | ) |  | (8.5 | ) |  | (6.1 | )
Release of prior year unrecognized tax benefits |  |  | (8.4 | ) |  | — |  |  | (3.6 | )
Intercompany technology license |  |  | 11.8 |  |  | 10.4 |  |  | 4.4 |
Excess officer compensation |  |  | 1.0 |  |  | 3.2 |  |  | 2.0 |
Nondeductible acquisition costs |  |  | — |  |  | 2.9 |  |  | — |
Other |  |  | (0.7 | ) |  | 0.2 |  |  | 0.3 |
|  |  | 26.4 | % |  | 32.2 | % |  | 16.4 | %
The effective tax rate for fiscal 2012 decreased from the prior period, primarily due to the release of prior year unrecognized tax benefits that were determined to be effectively settled during the current period, along with one-time nondeductible costs associated with the acquisition of Spectra Linear in fiscal 2011. The impact of these items was partially offset by the non-renewal of the federal research and development tax credit in the current period. The American Taxpayer Relief Act of 2012 (the "Act") was enacted on January 2, 2013. The Act retroactively reinstates the federal research and development credit from January 1, 2012, through December 31, 2013. The effect of the change in the tax law related to fiscal 2012 is estimated to be between $3.5 million and $4.0 million, which will be recognized as a benefit to income tax expense in the first quarter of fiscal 2013, the quarter in which the law was enacted. The effective tax rate for fiscal 2011 increased from the prior period, primarily due to the tax charge related to the intercompany license of certain technology obtained in the acquisition of Spectra Linear and other one-time nondeductible costs associated with the acquisition of Spectra Linear, a decrease in the foreign tax rate benefit, and a release of prior year unrecognized tax benefits in fiscal 2010 with none in fiscal 2011. These changes were partially offset by an increase in the research and development tax credit in fiscal 2011. Income before income taxes included approximately $5.9 million, $4.1 million and $40.1 million related to foreign operations in fiscal 2012, 2011 and 2010, respectively. Foreign income before income taxes increased from fiscal 2011 to fiscal 2012 predominantly due to increases in product sales, offset in part by an increase in the intercompany technology license payments made by a foreign subsidiary. Foreign income before income taxes decreased from fiscal 2010 to fiscal 2011 predominantly due to changes in product mix, an increase in research and development expense and an increase in the intercompany technology license payments made by a foreign subsidiary. 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. 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 has provided a valuation allowance of $2.1 million in fiscal 2012 related to certain state loss and research and development tax credit carryforwards acquired in fiscal 2012. The Company has determined that it is more likely than not that the carryforwards will expire or go unutilized because the Company no longer expects to have a significant apportionment of income to the jurisdiction in which the attributes were created. No valuation allowance has been provided against other deferred tax assets for fiscal 2012 or 2011. Management believes that the Company's results of future operations will generate sufficient taxable income such that it is more likely than not that the remaining deferred tax assets will be realized. Significant components of the Company's deferred taxes as of December 29, 2012 and December 31, 2011 are as follows (in thousands):
|  | December 29, 2012 |  | December 31, 2011 |
--- | --- | --- | --- | --- | ---
Deferred tax assets: |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 35,847 |  | $ | 21,479 |
Research and development tax credit carryforwards |  |  | 8,447 |  |  | 5,556 |
Stock-based compensation |  |  | 8,133 |  |  | 9,963 |
Depreciation and amortization |  |  | — |  |  | 33,334 |
Capitalized research and development |  |  | 9,708 |  |  | 1,428 |
Deferred income on shipments to distributors |  |  | 3,933 |  |  | 3,895 |
Accrued liabilities and other |  |  | 7,503 |  |  | 7,305 |
|  |  | 73,571 |  |  | 82,960 |
Less: Valuation allowance |  |  | (2,114 | ) |  | — |
|  |  | 71,457 |  |  | 82,960 |
Deferred tax liabilities: |  |  |  |  |  |  |
Acquired intangibles |  |  | 28,653 |  |  | 18,562 |
Long term obligations for tax purposes |  |  | — |  |  | 33,023 |
Depreciation and amortization |  |  | 1,076 |  |  | — |
Prepaid expenses and other |  |  | 1,447 |  |  | 913 |
|  |  | 31,176 |  |  | 52,498 |
Net deferred tax assets |  | $ | 40,281 |  | $ | 30,462 |
During fiscal 2012, the Company recorded net deferred tax assets of approximately $15.5 million, net of the valuation allowance of $2.1 million discussed above, related to the acquisition of Ember due to differences between book and tax bases of acquired assets and assumed liabilities. As of December 29, 2012, the Company had federal net operating loss and research and development credit carryforwards of approximately $90.8 million and $2.0 million, respectively, as a result of the Cygnal Integrated Products, Silicon Clocks, Spectra Linear and Ember acquisitions. These carryforwards expire in fiscal years 2019 through 2032. Recognition of these loss and credit carryforwards is subject to an annual limit, which may cause them to expire before they are used. The Company also had state loss and research and development credit carryforwards of approximately $78.9 million and $9.9 million, respectively. A portion of these loss and credit carryforwards was generated by the Company and a portion was acquired through the Integration Associates, Silicon Clocks, Spectra Linear and Ember acquisitions. Certain of these carryforwards expire in fiscal years 2013 through 2032 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. At the end of fiscal 2012, undistributed earnings of the Company's foreign subsidiaries of approximately $279.8 million are considered permanently reinvested. Accordingly, no provision for U.S. federal and state income taxes has been made. Determination of the amount of the unrecognized deferred tax liability on these unremitted earnings is not practicable. The Company's operations in Singapore are subject to reduced tax rates through 2019, as long as certain conditions are met. The income tax benefit (expense) from the reduced Singapore tax rate reflected in earnings was approximately $(13.3) million (representing $(0.31) per diluted share) in fiscal 2012, approximately $2.5 million (representing $0.06 per diluted share) in fiscal 2011 and approximately $6.1 million (representing $0.13 per diluted share) in fiscal 2010. The impact of the reduced Singapore tax rate in fiscal 2012 reflects the recognition of prior year unrecognized tax benefits. The following table reflects changes in the unrecognized tax benefits (in thousands):
|  | Year Ended |
--- | --- | --- | ---
|  | December 29, 2012 |  | December 31, 2011 |  | January 1, 2011 |
Beginning balance |  | $ | 10,943 |  | $ | 10,789 |  | $ | 12,160 |
Additions based on tax positions related to current year |  |  | 1,818 |  |  | 757 |  |  | 1,742 |
Reductions for tax positions related to prior years |  |  | (8,397 | ) |  | (603 | ) |  | (3,113 | )
Ending balance |  | $ | 4,364 |  | $ | 10,943 |  | $ | 10,789 |
As of December 29, 2012, December 31, 2011 and January 1, 2011, the Company had gross unrecognized tax benefits of $4.4 million, $10.9 million and $10.8 million, respectively, of which $4.1 million, $9.9 million and $9.7 million, respectively, would affect the effective tax rate if recognized. During fiscal 2012, the Company had gross increases of $1.8 million to its current year unrecognized tax benefits, as well as a gross decrease of $8.4 million to its prior year unrecognized tax benefits related to an uncertain tax position that was determined to be effectively settled. A portion of these amounts represents foreign currency remeasurement adjustments and was recognized in other income (expense), net. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company did not recognize any interest in the provision for income taxes in fiscal 2012, 2011 and 2010. In addition, the Company had decreases of interest, net of tax, of $0.1 million in fiscal 2010. The Company has not made an accrual for the payment of interest related to unrecognized tax positions at the end of fiscal 2012, 2011 and 2010. The Company believes it is reasonably possible that the gross unrecognized tax benefits will decrease by approximately $1.3 million in the next 12 months due to the lapse of the statute of limitations applicable to a tax deduction claimed on a prior year foreign tax return. The tax years 2006 through 2012 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company's 2010 federal income tax return is under examination by the U.S. Internal Revenue Service. Although the outcome of tax audits is always uncertain, the Company believes that the results of the examination will not materially affect its financial position or results of operations. The Company is not currently under audit in any other major taxing jurisdiction.

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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/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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