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Income Taxes
 12 Months Ended
Oct. 01, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

10. Income Taxes

The Company’s income (loss) before provision for (benefit from) income taxes for fiscal 2022, 2021 and 2020 were as follows:

 

 

 

October 1,
2022

 

 

October 2,
2021

 

 

October 3,
2020

 

(In thousands)

 

 

 

 

 

 

 

 

 

Domestic

 

$

54,609

 

 

$

126,810

 

 

$

(15,194

)

Foreign

 

 

14,121

 

 

 

30,115

 

 

 

(4,889

)

Income (loss) before provision for (benefit from) income taxes

 

$

68,730

 

 

$

156,925

 

 

$

(20,083

)

 

Components of the provision for (benefit from) income taxes consisted of the following:

 

 

 

October 1,
2022

 

 

October 2,
2021

 

 

October 3,
2020

 

(In thousands)

 

 

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

 

 

U.S. Federal

 

$

—

 

 

$

—

 

 

$

(1,388

)

U.S. State

 

 

483

 

 

 

440

 

 

 

724

 

Foreign

 

 

3,401

 

 

 

6,216

 

 

 

1,220

 

Total current

 

 

3,884

 

 

 

6,656

 

 

 

556

 

Deferred:

 

 

 

 

 

 

 

 

 

U.S. Federal

 

 

(1,459

)

 

 

—

 

 

 

—

 

U.S. State

 

 

(21

)

 

 

—

 

 

 

—

 

Foreign

 

 

(1,057

)

 

 

(8,326

)

 

 

(524

)

Total deferred

 

 

(2,537

)

 

 

(8,326

)

 

 

(524

)

Provision for (benefit from) income taxes

 

$

1,347

 

 

$

(1,670

)

 

$

32

 

 

The Company is subject to income taxes in the United States and foreign jurisdictions in which it operates. The Company’s tax provision is impacted by the jurisdictional mix of earnings as its foreign subsidiaries have statutory tax rates different from those in the United States.

Components of the Company’s deferred income tax assets and liabilities are as follows:

 

 

 

October 1,
2022

 

 

October 2,
2021

 

(In thousands)

 

 

 

 

 

 

Deferred tax assets

 

 

 

 

 

 

Accrued expenses and reserves

 

$

8,872

 

 

$

18,601

 

Deferred revenue

 

 

14,170

 

 

 

13,915

 

U.S. net operating loss carryforwards

 

 

26,363

 

 

 

25,284

 

Foreign net operating loss carryforwards

 

 

7,702

 

 

 

13,240

 

Research & development tax credit carryforwards

 

 

92,487

 

 

 

77,607

 

Stock-based compensation

 

 

9,261

 

 

 

9,082

 

Operating lease liability

 

 

7,717

 

 

 

9,908

 

Capitalized research & development

 

 

9,420

 

 

 

3,409

 

Other capitalized costs

 

 

3,799

 

 

 

4,622

 

Depreciation

 

 

2,239

 

 

 

1,843

 

Other

 

 

182

 

 

 

428

 

Total deferred tax assets

 

 

182,212

 

 

 

177,939

 

Valuation allowance

 

 

(162,267

)

 

 

(155,978

)

Deferred tax assets, net of valuation allowance

 

 

19,945

 

 

 

21,961

 

Deferred tax liabilities

 

 

 

 

 

 

Tax accounting method change

 

 

—

 

 

 

(962

)

Right-of-use asset

 

 

(5,940

)

 

 

(7,388

)

Intangibles

 

 

(22,125

)

 

 

(5,833

)

Other

 

 

(14

)

 

 

(144

)

Total deferred tax liabilities

 

 

(28,079

)

 

 

(14,327

)

Net deferred tax assets (liabilities)

 

$

(8,134

)

 

$

7,634

 

 

 

 

 

 

 

 

Reported as

 

 

 

 

 

 

Deferred tax assets

 

$

1,508

 

 

$

10,028

 

Deferred tax liabilities

 

 

(9,642

)

 

 

(2,394

)

Net deferred tax assets (liabilities)

 

$

(8,134

)

 

$

7,634

 

 

The Company has assessed, on a jurisdictional basis, the realization of its net deferred tax assets, including the ability to carry back net operating losses, the existence of taxable temporary differences, the availability of tax planning strategies and available sources of future taxable income. The Company has concluded that based on cumulative taxable income and future taxable income that it is able to realize a benefit for net deferred tax assets in certain foreign jurisdictions. In addition, the Company has concluded that a valuation allowance on its net deferred tax assets in the U.S. and certain foreign jurisdictions continues to be appropriate considering cumulative taxable losses in recent years and uncertainty with respect to future taxable income.

During the fiscal year ended October 1, 2022, the Company determined that the net deferred tax assets of certain of our non-U.S. subsidiaries were more-likely-than-not realizable and released valuation allowance totaling $7.3 million as an income tax benefit. The Company determined that the valuation allowance releases were appropriate as sufficient positive evidence, notably fiscal 2022 profits and forecasted future taxable income in each jurisdiction, outweighed the available negative evidence. It is possible that within the next

12 months there may be sufficient positive evidence to release a portion or all of the remaining valuation allowance in the U.S. and certain foreign jurisdictions. Release of the remaining valuation allowance would result in a benefit to income tax expense for the period the release is recorded, which could have a material impact on net earnings. The timing and amount of the potential valuation allowance release are subject to significant management judgment, as well as prospective earnings in the United States and certain other foreign entities and jurisdictions.

As of October 1, 2022, the Company had gross U.S. federal net operating loss carryforwards of $105.8 million, of which $74.7 million have an indefinite life and $31.1 million expire beginning in 2035, gross state net operating loss carryforwards of $65.5 million, which expire beginning in 2027, and gross foreign net operating loss carryforwards of $41.7 million with an indefinite life. As of October 1, 2022, the Company also had gross federal and state research and development tax credit carryforwards of $70.0 million and $48.1 million, respectively. The federal research and development tax credits will begin to expire in 2025, and the state research and development tax credits will begin to expire in 2024.

Because of the change of ownership provisions of Sections 382 and 383 of the Internal Revenue Code, and similar state provisions, use of a portion of the Company’s U.S. federal and state net operating loss and research and development tax credit carryforwards may be limited in future periods if there are future changes in ownership. Further, a portion of the carryforwards may expire before being applied to reduce future taxable income and income tax liabilities if sufficient taxable income is not generated in future periods.

The following table summarizes changes in the valuation allowance for fiscal 2022, 2021 and 2020:

 

 

 

October 1,
2022

 

 

October 2,
2021

 

 

October 3,
2020

 

(In thousands)

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

155,978

 

 

$

113,939

 

 

$

95,088

 

Increase during the period

 

 

13,841

 

 

 

49,791

 

 

 

18,851

 

Decrease during the period

 

 

(7,552

)

 

 

(7,752

)

 

 

—

 

Ending balance

 

$

162,267

 

 

$

155,978

 

 

$

113,939

 

 

Reconciliation of U.S. statutory federal income taxes to the Company’s provision for (benefit from) income taxes is as follows:

 

 

 

October 1,
2022

 

 

October 2,
2021

 

 

October 3,
2020

 

(In thousands)

 

 

 

 

 

 

 

 

 

U.S. federal income taxes at statutory rate

 

$

14,433

 

 

$

32,954

 

 

$

(4,217

)

U.S. state and local income taxes, net of federal benefit and state credits

 

 

(2,594

)

 

 

(9,473

)

 

 

(2,798

)

Foreign income tax rate differential

 

 

970

 

 

 

1,430

 

 

 

(75

)

Stock-based compensation

 

 

(15,532

)

 

 

(47,496

)

 

 

869

 

Federal research and development tax credits

 

 

(8,983

)

 

 

(21,535

)

 

 

(8,012

)

Unrecognized federal tax benefits

 

 

(2,482

)

 

 

4,041

 

 

 

815

 

Change in tax rate

 

 

5,013

 

 

 

(2,681

)

 

 

—

 

Global intangible low taxed income, net of foreign tax credits

 

 

290

 

 

 

—

 

 

 

—

 

162(m) executive compensation limitation

 

 

2,574

 

 

 

—

 

 

 

—

 

Base erosion and anti-abuse tax

 

 

—

 

 

 

—

 

 

 

(781

)

Other

 

 

1,079

 

 

 

(565

)

 

 

598

 

Change in valuation allowance

 

 

6,579

 

 

 

41,655

 

 

 

13,633

 

Provision for income taxes

 

$

1,347

 

 

$

(1,670

)

 

$

32

 

Change in gross unrecognized tax benefits, excluding interest and penalties, as a result of uncertain tax positions are as follows:

 

 

 

October 1,
2022

 

 

October 2,
2021

 

 

October 3,
2020

 

(In thousands)

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

21,252

 

 

$

14,721

 

 

$

12,527

 

Decrease - tax positions in prior periods

 

 

(6,039

)

 

 

(4

)

 

 

(768

)

Increase - tax positions in current periods

 

 

1,808

 

 

 

6,535

 

 

 

2,962

 

Ending balance

 

$

17,021

 

 

$

21,252

 

 

$

14,721

 

 

The Company does not anticipate changes to its unrecognized benefits within the next 12 months that would result in a material change to the Company’s financial position. The unrecognized tax benefits as of October 1, 2022, would have no impact on the effective tax rate if recognized.

The Company conducts business in a number of jurisdictions and, as such, is required to file income tax returns in multiple jurisdictions globally. U.S. federal income tax returns for the 2018 tax year and earlier are no longer subject to examination by the U.S. Internal Revenue Service (the "IRS"). All U.S. federal and state net operating losses as well as research and development tax credits generated to date, including 2018 and earlier, used in open tax years are subject to adjustment by the IRS and state tax authorities.

The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense. There were no accrued interest or penalties as of October 1, 2022, and October 2, 2021.

As of October 1, 2022, the Company continues to assert that the unremitted earnings in our foreign subsidiaries are permanently reinvested and therefore no deferred taxes or withholding taxes have been provided. If, in the future, the Company decides to repatriate its $7.2 million of undistributed earnings from these subsidiaries in the form of dividends or otherwise, the Company could be subject to withholding taxes payable at that time. Outside basis differences in the Company's foreign subsidiaries including unremitted earnings and any related taxes are not material.