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Income Taxes | 12 Months Ended
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Jan. 02, 2016
Income Taxes |
Income Taxes | 17. Income Taxes Significant components of the provision for income taxes are as follows (in thousands):
|  | Year Ended |
|  | January 2, 2016 |  | January 3, 2015 |  | December 28, 2013 |
Current: |  |  |  |  |  |  |  |  |  |
Domestic |  | $ | 951 |  | $ | 7,083 |  | $ | 4,796 |
International |  |  | 3,015 |  |  | 882 |  |  | 4,093 |
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Total Current |  |  | 3,966 |  |  | 7,965 |  |  | 8,889 |
Deferred: |  |  |  |  |  |  |  |  |  |
Domestic |  |  | (5,825 | ) |  | 2,352 |  |  | 5,591 |
International |  |  | 2,536 |  |  | 702 |  |  | (2,272 | )
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Total Deferred |  |  | (3,289 | ) |  | 3,054 |  |  | 3,319 |
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|  | $ | 677 |  | $ | 11,019 |  | $ | 12,208 |
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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 |
|  | January 2, 2016 |  | January 3, 2015 |  | December 28, 2013 |
Federal statutory rate |  |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
Foreign tax rate benefit |  |  | (30.7 | ) |  | (3.5 | ) |  | (8.2 | )
Research and development tax credits |  |  | (5.6 | ) |  | (8.6 | ) |  | (12.8 | )
Release of prior year unrecognized tax benefits |  |  | (1.9 | ) |  | (2.6 | ) |  | — |
Excess officer compensation |  |  | 3.2 |  |  | 2.3 |  |  | 1.9 |
Change in cost-sharing treatment of stock-based compensation |  |  | (7.1 | ) |  | — |  |  | — |
Change in prior period valuation allowance |  |  | 8.8 |  |  | (1.4 | ) |  | 3.1 |
Other |  |  | 0.5 |  |  | 1.3 |  |  | 0.7 |
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|  |  | 2.2 | % |  | 22.5 | % |  | 19.7 | %
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The effective tax rate for fiscal 2015 decreased from fiscal 2014, primarily due to the completion of payments related to a prior year intercompany licensing arrangement resulting in an increase to the foreign tax rate benefit as well as the recognition of a net benefit resulting from a change in the tax accounting treatment of stock-based compensation in a cost-sharing arrangement following a recent U.S. Tax Court case. On July 27, 2015, the U.S. Tax Court (the "Court") issued an opinion in Altera Corp. v. Commissioner related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. A final decision was entered by the Court on December 1, 2015. In its opinion, the Court accepted Altera's position of excluding stock-based compensation from its intercompany cost-sharing arrangement. The U.S. Internal Revenue Service has the right to appeal the Court decision, and although the U.S. Department of the Treasury has not withdrawn the requirement from its regulations to include stock-based compensation in intercompany cost-sharing arrangements, the Company has evaluated the Court case and has concluded that the Court's opinion is more likely than not to be sustained upon final appeal of the decision. The Company has analyzed the impact of the Court case and has recorded a tax benefit of $29.6 million in its consolidated statement of income for fiscal 2015. Of the total $29.6 million tax benefit, $25.9 million represents the benefit of a future intercompany transaction that will result from the reversal of the inclusion of stock-based compensation in the Company's cost-sharing arrangement as a result of stock-based awards that have already vested. The remainder of the $29.6 million benefit, or $3.7 million, represents the additional benefit reflected in the ending deferred tax asset for stock-based compensation as a result of the Altera decision. Because this change to cost-sharing is expected to increase the Company's cumulative foreign earnings at the time of final resolution of the case, in fiscal 2015, the Company accrued a deferred tax liability of $27.5 million as a result of management's intent to repatriate the foreign earnings generated when the inclusion of stock-based compensation in its cost-sharing arrangement is reversed. The decrease in the effective tax rate during fiscal 2015 from the completion of payments related to a prior year intercompany licensing arrangement and the recognition of a net benefit from the Altera case was partially offset by an increase in the prior year valuation allowance related to lower expectations of profitability in jurisdictions where tax attributes exist. Additionally, the Company expects a lower realization of the recently re-enacted U.S. federal research and development tax credit as compared to the realization of the U.S. federal research and development tax credit in fiscal 2014. The effective tax rate for fiscal 2014 increased from fiscal 2013, primarily due to the recognition of the fiscal 2012 federal research and development tax credit in fiscal 2013 due to the enactment of the American Taxpayer Relief Act of 2012 on January 2, 2013, as well as a decrease in the foreign tax rate benefit in fiscal 2014. This increase in the effective tax rate was partially offset by the reduction to a valuation allowance recorded in a prior year related to certain state loss and research and development tax credit carryforwards and the release in fiscal 2014 of prior year unrecognized tax benefits due to the lapse of the statute of limitations applicable to a tax deduction claimed on a prior year foreign tax return. Income before income taxes included the following components (in thousands):
|  | Year Ended |
|  | January 2, 2016 |  | January 3, 2015 |  | December 28, 2013 |
Domestic |  | $ | 2,249 |  | $ | 38,174 |  | $ | 41,849 |
Foreign |  |  | 28,014 |  |  | 10,866 |  |  | 20,178 |
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|  | $ | 30,263 |  | $ | 49,040 |  | $ | 62,027 |
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Foreign income before taxes increased from fiscal 2014 to fiscal 2015 primarily due to the completion of payments related to a prior year intercompany licensing arrangement. The impact of this change was partially offset by lower profitability for fiscal 2015 as compared to fiscal 2014, predominately resulting from higher amortization of acquired intangibles. Foreign income before taxes decreased from fiscal 2013 to fiscal 2014 primarily due to an increase in fiscal 2014 of the fair value of the Company's acquisition-related contingent consideration liability. 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 recorded a new valuation allowance of $0.5 million in fiscal 2015 related to certain state research and development tax credit carryforwards generated in fiscal 2015 as well as recording a new valuation allowance of $3.2 million related to a carryforward of the recently enacted U.S. federal research and development tax credit generated in fiscal 2015. The Company also recorded a new valuation allowance of $0.6 million in fiscal 2015 related to the state tax impact of the change in tax accounting treatment of stock-based compensation in a cost-sharing arrangement. In addition, the Company recorded additional valuation allowances of $2.0 million for previously acquired federal research and development credit carryforwards, $0.4 million for prior year state research and development credit carryforwards and $0.2 million for prior year state net operating loss carryforwards. The Company does not expect to recognize sufficient income in the jurisdictions in which the carryforwards were created and therefore, the Company has concluded that it is more likely than not that a portion of these carryforwards will expire or go unutilized. In addition, in fiscal 2015, the Company recorded a reduction of $0.1 million to the prior year valuation allowance related to the expiration of certain acquired state net operating loss carryforwards which were fully valued. Since this change was due to the expiration of the losses, the reduction to the valuation allowance was offset by a reduction in deferred tax assets rather than a charge to income tax expense. No valuation allowance was recorded against other deferred tax assets in fiscal 2015. 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 January 2, 2016 and January 3, 2015 are as follows (in thousands):
|  | January 2, 2016 |  | January 3, 2015 |
Deferred tax assets: |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 25,869 |  | $ | 31,518 |
Research and development tax credit carryforwards |  |  | 13,335 |  |  | 9,740 |
Stock-based compensation |  |  | 8,757 |  |  | 6,353 |
Capitalized research and development |  |  | 8,741 |  |  | 7,371 |
Deferred income on shipments to distributors |  |  | 7,413 |  |  | 8,117 |
Expected future cost-sharing adjustment |  |  | 25,896 |  |  | — |
Accrued liabilities and other |  |  | 8,619 |  |  | 6,481 |
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|  |  | 98,630 |  |  | 69,580 |
Less: Valuation allowance |  |  | (10,264 | ) |  | (3,455 | )
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|  |  | 88,366 |  |  | 66,125 |
Deferred tax liabilities: |  |  |  |  |  |  |
Acquired intangible assets |  |  | 33,020 |  |  | 33,630 |
Depreciation and amortization |  |  | 2,349 |  |  | 3,388 |
Unremitted foreign earnings for expected future cost-sharing adjustment |  |  | 27,495 |  |  | — |
Prepaid expenses and other |  |  | 1,991 |  |  | 1,517 |
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|  |  | 64,855 |  |  | 38,535 |
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Net deferred tax assets |  | $ | 23,511 |  | $ | 27,590 |
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As of January 2, 2016, the Company had federal net operating loss and research and development tax credit carryforwards of approximately $53.8 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 2020 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. Additionally, as of January 2, 2016, the Company had $5.1 million of federal research and development tax credit carryforward. This carryforward will expire in 2036. As of January 2, 2016, the Company had foreign net operating loss carryforwards of approximately $15.8 million as a result of the Energy Micro acquisition. These loss carryforwards do not expire and recognition is not subject to an annual limit. Additionally, as of January 2, 2016, the Company had foreign net operating loss carryforwards of approximately $0.2 million as a result of the Bluegiga acquisition. These loss carryforwards will expire in fiscal year 2025. The Company also had state loss and research and development tax credit carryforwards of approximately $54.0 million and $12.5 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 2016 through 2033, 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 2015, undistributed earnings of the Company's foreign subsidiaries of approximately $312.4 million are intended to be permanently reinvested outside the U.S. Accordingly, no provision for U.S. federal and state income taxes associated with a distribution of these earnings has been made. Determination of the amount of the unrecognized deferred tax liability on these unremitted earnings is not practicable. Other than the previously described future earnings of its Singapore subsidiary as a result of the reversal of the inclusion of stock-based compensation in its cost-sharing arrangement, the Company intends to continue to permanently reinvest the actual earnings of each of its foreign subsidiaries. The Company's operations in Singapore are subject to reduced tax rates through June 30, 2019, as long as certain conditions are met. The income tax benefit from the reduced Singapore tax rate reflected in earnings was approximately $14.4 million (representing $0.34 per diluted share) in fiscal 2015, approximately $2.0 million (representing $0.05 per diluted share) in fiscal 2014, and approximately $2.2 million (representing $0.05 per diluted share) in fiscal 2013. The significant increase in the impact of the reduced Singapore tax rate from fiscal 2014 to fiscal 2015 is due to the recognition of additional profit in Singapore for tax accounting purposes as a result of the Altera case as well as the completion of payments related to a prior year intercompany licensing agreement. The following table reflects changes in the unrecognized tax benefits (in thousands):
|  | Year Ended |
|  | January 2, 2016 |  | January 3, 2015 |  | December 28, 2013 |
Beginning balance |  | $ | 3,929 |  | $ | 4,998 |  | $ | 4,364 |
Additions based on tax positions related to current year |  |  | 432 |  |  | 465 |  |  | 316 |
Additions based on tax positions related to prior years |  |  | — |  |  | 58 |  |  | 318 |
Reductions for tax positions related to prior years |  |  | (751 | ) |  | (1,592 | ) |  | — |
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Ending balance |  | $ | 3,610 |  | $ | 3,929 |  | $ | 4,998 |
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As of January 2, 2016, January 3, 2015 and December 28, 2013, the Company had gross unrecognized tax benefits of $3.6 million, $3.9 million, and $5.0 million, respectively, of which $3.2 million, $4.0 million, and $4.8 million, respectively, would affect the effective tax rate if recognized. During fiscal 2015, the Company had gross increases of $0.4 million to its current year unrecognized tax benefits, as well as gross decreases of $0.6 million related to an uncertain tax position that was closed by statute. In addition, there was a reduction of $0.2 million due to foreign currency remeasurement adjustments related to prior year unrecognized tax benefits which were recognized in other income (expense), net. During fiscal 2014, the Company had gross increases of $0.5 million to its current and prior year unrecognized tax benefits, as well as gross decreases of $1.3 million to its prior year unrecognized tax benefits related to an uncertain tax position that was closed by statute. In addition, there was a reduction of $0.3 million due to foreign currency remeasurement adjustments related to prior year unrecognized tax benefits which were recognized in other income (expense), net. During fiscal 2013, the Company had gross increases of $0.6 million to its current and prior year unrecognized tax benefits. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company recognized less than $0.1 million of interest in the provision for income taxes in fiscal 2015, 2014 and 2013. The Company had an accrual of less than $0.1 million for the payment of interest related to unrecognized tax positions at the end of fiscal 2015, 2014 and 2013. The Company believes it is reasonably possible that the gross unrecognized tax benefits will decrease by approximately $1.1 million in the next 12 months due to the lapse of the statute of limitations applicable to tax deductions and tax credits claimed on prior year tax returns. The tax years 2011 through 2015 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company is not currently under audit in any 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 Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: 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 Reference 3: 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 4: 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 5: 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 + Details
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