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Income Taxes | 12 Months Ended
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Dec. 31, 2016
Income Taxes |
Income Taxes | 16. Income Taxes Income before income taxes includes the following components (in thousands):
|  | Year Ended |
--- | --- | --- | ---
|  | December 31, 2016 |  | January 2, 2016 |  | January 3, 2015 |
Domestic |  | $ | 4,313 |  | $ | 2,249 |  | $ | 38,174 |
Foreign |  |  | 60,183 |  |  | 28,014 |  |  | 10,866 |
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|  | $ | 64,496 |  | $ | 30,263 |  | $ | 49,040 |
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The provision for income taxes consists of the following (in thousands):
|  | Year Ended |
--- | --- | --- | ---
|  | December 31, 2016 |  | January 2, 2016 |  | January 3, 2015 |
Current: |  |  |  |  |  |  |  |  |  |
Domestic |  | $ | 2,639 |  | $ | 951 |  | $ | 7,083 |
International |  |  | 4,421 |  |  | 3,015 |  |  | 882 |
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Total Current |  |  | 7,060 |  |  | 3,966 |  |  | 7,965 |
Deferred: |  |  |  |  |  |  |  |  |  |
Domestic |  |  | (2,430 | ) |  | (5,825 | ) |  | 2,352 |
International |  |  | (1,628 | ) |  | 2,536 |  |  | 702 |
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Total Deferred |  |  | (4,058 | ) |  | (3,289 | ) |  | 3,054 |
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Provision for income taxes |  | $ | 3,002 |  | $ | 677 |  | $ | 11,019 |
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The reconciliation of the federal statutory tax rate to the Company's effective tax rate is as follows:
|  | Year Ended |
--- | --- | --- | ---
|  | December 31, 2016 |  | January 2, 2016 |  | January 3, 2015 |
Federal statutory rate |  |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
Foreign tax rate benefit |  |  | (27.2 | ) |  | (30.7 | ) |  | (3.5 | )
Research and development tax credits |  |  | (4.1 | ) |  | (5.6 | ) |  | (8.6 | )
Release of prior year unrecognized tax benefits |  |  | (1.7 | ) |  | (1.9 | ) |  | (2.6 | )
Excess officer compensation |  |  | 1.4 |  |  | 3.2 |  |  | 2.3 |
Change in cost-sharing treatment of stock-based compensation |  |  | (0.5 | ) |  | (7.1 | ) |  | — |
Change in prior period valuation allowance |  |  | (0.6 | ) |  | 8.8 |  |  | (1.4 | )
Other |  |  | 2.4 |  |  | 0.5 |  |  | 1.3 |
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Effective Tax Rate |  |  | 4.7 | % |  | 2.2 | % |  | 22.5 | %
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The effective tax rate for fiscal 2016 increased from fiscal 2015 primarily due to fiscal 2015 including a net benefit from a change in the tax accounting treatment of stock-based compensation in a cost-sharing arrangement following a U.S. Tax Court case (Altera). The increase in the effective tax rate was offset by a reduction in the prior period valuation allowance. 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 as well as the recognition of a net benefit from a change in the tax accounting treatment of stock-based compensation in a cost-sharing arrangement following a U.S. Tax Court case (Altera). The decrease in the effective tax rate during fiscal 2015 was offset by an increase in the prior year valuation allowance related to lower expectations of profitability in jurisdictions where tax attributes exist. 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 cost-sharing arrangement and concluded that the related U.S. Treasury Regulations were invalid. In February 2016, the U.S. Internal Revenue Service (the "IRS") appealed the decision to the U.S Court of Appeals for the Ninth Circuit. Although the IRS has appealed the decision, and the U.S. Treasury has not withdrawn the requirement to include stock-based compensation from its regulations, based on the facts and circumstances of the Tax Court Case, the Company believes that it is more likely than not that the Tax Court decision will be upheld and has recognized a benefit in its financial statements of $33.1 million. This change to cost-sharing is expected to increase the Company's cumulative foreign earnings at the time of final resolution of the case. As such, the Company has accrued a deferred tax liability of $31.2 million for the U.S. tax cost of potential repatriation of the associated foreign earnings because at this time, the Company cannot reasonably conclude that it will have the ability and intent to indefinitely reinvest these contingent earnings. The Company will continue to monitor ongoing developments and potential impacts to its Consolidated Financial Statements. 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 $7.7 million (representing $0.18 per diluted share) in fiscal 2016, approximately $14.4 million (representing $0.34 per diluted share) in fiscal 2015 and approximately $2.0 million (representing $0.05 per diluted share) in fiscal 2014. At the end of fiscal 2016, undistributed earnings of the Company's foreign subsidiaries of approximately $361.4 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. 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 31, 2016 and January 2, 2016 are as follows (in thousands):
|  | December 31, 2016 |  | January 2, 2016 |
--- | --- | --- | --- | --- | ---
Deferred tax assets: |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 21,187 |  | $ | 25,869 |
Research and development tax credit carryforwards |  |  | 15,068 |  |  | 13,335 |
Stock-based compensation |  |  | 7,396 |  |  | 8,757 |
Capitalized research and development |  |  | 6,802 |  |  | 8,741 |
Deferred income on shipments to distributors |  |  | 9,338 |  |  | 7,413 |
Expected future cost-sharing adjustment |  |  | 29,719 |  |  | 25,896 |
Accrued liabilities and other |  |  | 11,321 |  |  | 8,619 |
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|  |  | 100,831 |  |  | 98,630 |
Less: Valuation allowance |  |  | (12,361 | ) |  | (10,264 | )
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|  |  | 88,470 |  |  | 88,366 |
Deferred tax liabilities: |  |  |  |  |  |  |
Acquired intangible assets |  |  | 25,785 |  |  | 33,020 |
Depreciation and amortization |  |  | 2,939 |  |  | 2,349 |
Unremitted foreign earnings for expected future cost-sharing adjustment |  |  | 31,165 |  |  | 27,495 |
Prepaid expenses and other |  |  | 3,069 |  |  | 1,991 |
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|  |  | 62,958 |  |  | 64,855 |
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Net deferred tax assets |  | $ | 25,512 |  | $ | 23,511 |
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As of December 31, 2016, the Company had federal net operating loss and research and development tax credit carryforwards of approximately $44.5 million and $1.9 million, respectively, as a result of the Silicon Clocks, Spectra Linear and Ember acquisitions. These carryforwards expire in fiscal years 2021 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 December 31, 2016, the Company had generated $7.4 million of federal research and development tax credit carryforwards. These carryforwards will begin expiring in 2036. As of December 31, 2016, the Company had foreign net operating loss carryforwards of approximately $13.2 million as a result of the Energy Micro acquisition. These loss carryforwards do not expire and recognition is not subject to an annual limit. The Company also had state loss and research and development tax credit carryforwards of approximately $49.1 million and $13.1 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 2017 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. 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. As of December 31, 2016, the Company maintains a valuation allowance with respect to certain deferred tax assets relating primarily to U.S. federal and state research and development tax credit carryforwards. Uncertain Tax Positions The following table summarizes the activity related to gross unrecognized tax benefits (in thousands):
|  | Year Ended |
--- | --- | --- | ---
|  | December 31, 2016 |  | January 2, 2016 |  | January 3, 2015 |
Beginning balance |  | $ | 3,610 |  | $ | 3,929 |  | $ | 4,998 |
Additions based on tax positions related to current year |  |  | 439 |  |  | 432 |  |  | 465 |
Additions based on tax positions related to prior years |  |  | 99 |  |  | — |  |  | 58 |
Reductions for tax positions as a result of a lapse of the applicable statute of limitations |  |  | (1,094 | ) |  | (751 | ) |  | (1,592 | )
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Ending balance |  | $ | 3,054 |  | $ | 3,610 |  | $ | 3,929 |
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As of December 31, 2016, January 2, 2016 and January 3, 2015, the Company had gross unrecognized tax benefits of $3.0 million, $3.6 million and $3.9 million, respectively, of which $2.2 million, $3.2 million and $4.0 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 fiscal years 2016, 2015 and 2014. Tax years 2012 through 2016 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. Although the timing of resolution, settlement and closures of audits is not certain, the Company does not expect the gross unrecognized tax benefits to materially change in the next 12 months.

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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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