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Item 8. Financial Statements and Supplementary Data

2023-02-17 compared with 2022-02-23 · 177 added, 604 removed, 805 unchanged (49% of the section changed)

8 unchanged sentences

Reports of Independent Registered Public Accounting Firm ( Ernst & Young LLP )

Report of Independent Registered Public Accounting Firm (KPMG LLP)

LATTICE SEMICONDUCTOR CORPORATION

1 unchanged sentence

(In thousands, except per share data)

$ 515,327  

$ 408,120  

$ 404,093  

Cost of revenue

193,652  

162,814  

165,671  

321,675  

245,306  

238,422  

Operating expenses:

Research and development

110,518  

89,223  

78,617  

Selling, general, and administrative

105,617  

95,331  

82,542  

Amortization of acquired intangible assets

13,558  

Restructuring charges

1 unchanged sentence

Total operating expenses

220,859  

192,940  

179,381  

Income from operations

100,816  

52,366  

59,041  

Interest expense

( 2,738 )  

( 3,702 )  

Other (expense) income, net

( 452 )  

( 208 )  

Income before income taxes

97,626  

48,456  

45,065  

Income tax expense

$ 95,922  

$ 47,392  

$ 43,493  

Income tax expense (benefit)

Net income per share:

$ 0.70  

$ 0.35  

$ 0.33  

$ 0.67  

$ 0.34  

$ 0.32  

Shares used in per share calculations:

136,619  

135,220  

132,471  

142,143  

141,276  

137,274  

The accompanying notes are an integral part of these Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

$ 95,922  

$ 47,392  

$ 43,493  

Other comprehensive income (loss):

Translation adjustment

( 75 )  

Change in actuarial valuation of defined benefit pension, net of tax

( 678 )  

Unrealized gain related to marketable securities, net of tax

Reclassification adjustment for gains related to marketable securities included in Other expense, net of tax

Comprehensive income

$ 96,219  

$ 48,247  

$ 43,221  

The accompanying notes are an integral part of these Consolidated Financial Statements.

28 unchanged sentences

315,358  

Other long-term assets

8 unchanged sentences

$ 34,597  

Accrued expenses

Accrued liabilities

48,467  

5 unchanged sentences

17,173  

12,762  

Total current liabilities

17 unchanged sentences

Common stock, $ .01 par value, 300,000,000 shares authorized;

137,239,000 shares issued and outstanding as of January 1, 2022 and 136,236,000 shares issued and outstanding as of January 2, 2021

137,099,000 shares issued and outstanding as of December 31, 2022 and 137,239,000 shares issued and outstanding as of January 1, 2022

Additional paid-in capital

16 unchanged sentences

Cash flows from operating activities:

$ 95,922  

$ 47,392  

$ 43,493  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

24,429  

25,140  

33,056  

Stock-based compensation expense

46,475  

40,372  

18,899  

Amortization of right-of-use assets

Amortization of debt issuance costs and discount

Loss on refinancing of long-term debt

Impairment of operating lease right-of-use asset

Other non-cash adjustments

( 601 )  

( 256 )  

Changes in assets and liabilities:

Accounts receivable, net

( 12,013 )  

Inventories, net

( 2,995 )  

( 9,619 )  

12,116  

Prepaid expenses and other assets

( 6,441 )  

Accounts payable

( 16,820 )  

12,470  

Accrued expenses

( 2,855 )  

Accrued liabilities

Accrued payroll obligations

Operating lease liabilities, current and long-term portions

( 6,245 )  

( 5,715 )  

Net cash provided by (used in) operating activities

167,722  

91,687  

124,137  

Cash flows from investing activities:

Cash paid for business acquisition, net of cash acquired

( 68,099 )  

Capital expenditures

( 9,835 )  

( 12,121 )  

Cash paid for software and intellectual property licenses

( 11,862 )  

( 8,747 )  

Proceeds from sales of and maturities of short-term marketable securities

Net cash provided by (used in) investing activities

( 89,796 )  

( 20,868 )  

Cash flows from financing activities:

Restricted stock unit tax withholdings

( 54,191 )  

( 26,965 )  

Proceeds from issuance of common stock

10,103  

17,166  

Repurchase of common stock

( 70,124 )  

( 14,989 )  

Proceeds from long-term debt

50,000  

206,500  

Original issue discount and debt issuance costs

Proceeds from long-term debt, net of issuance costs

Repayment of long-term debt

( 13,125 )  

( 26,250 )  

Net cash provided by (used in) financing activities

( 128,613 )  

( 8,101 )  

Effect of exchange rate change on cash

( 75 )  

Net increase (decrease) in cash and cash equivalents

( 50,762 )  

64,251  

Beginning cash and cash equivalents

182,332  

118,081  

119,051  

Ending cash and cash equivalents

$ 131,570  

$ 182,332  

$ 118,081  

Supplemental disclosure of cash flow information and non-cash investing and financing activities:

Interest paid

$ 2,313  

$ 3,700  

$ 10,995  

Operating lease payments

$ 7,639  

$ 7,713  

$ 8,425  

Income taxes paid, net of refunds

$ 3,304  

$ 1,868  

$ 3,393  

Accrued purchases of plant and equipment

$ 1,360  

Operating lease right-of-use assets obtained in exchange for lease obligations

$ 8,134  

$ 2,645  

The accompanying notes are an integral part of these Consolidated Financial Statements.

6 unchanged sentences

Balances, December 28, 2019

129,728  

$ 1,297  

$ 736,274  

$ ( 476,783 )  

$ ( 2,331 )  

$ 258,457  

Components of comprehensive income, net of tax:

43,493  

Other comprehensive income (loss)

( 272 )  

Total comprehensive income

43,221  

Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes

Stock-based compensation expense

18,899  

Balances, December 28, 2019

133,883  

$ 1,339  

$ 762,213  

$ ( 433,290 )  

$ ( 2,603 )  

$ 327,659  

Repurchase of common stock

Balances, January 2, 2021

Components of comprehensive income, net of tax:

47,392  

Other comprehensive income (loss)

Total comprehensive income

48,247  

Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes

( 16,889 )  

Stock-based compensation expense

40,372  

Repurchase of common stock

( 385 )  

( 14,985 )  

Balances, January 1, 2022

136,236  

$ 1,362  

$ 770,711  

$ ( 385,898 )  

$ ( 1,748 )  

$ 384,427  

Components of comprehensive income, net of tax:

95,922  

Other comprehensive income (loss)

Total comprehensive income

96,219  

Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes

( 45,387 )  

Stock-based compensation expense

46,475  

Repurchase of common stock

( 1,267 )  

( 13 )  

( 70,111 )  

Balances, January 1, 2022

137,239  

$ 1,372  

$ 701,688  

$ ( 289,976 )  

$ ( 1,451 )  

$ 411,633  

Balances, December 31, 2022

The accompanying notes are an integral part of these Consolidated Financial Statements.

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We report based on a 52 or 53 -week fiscal year ending on the Saturday closest to December 31.

Our fiscal 2021 was a 52 -week year that ended on January 1, 2022. 

Our fiscal 2020 was a 53 -week year that ended on January 

2, 2021, and our fiscal 2019 was a 52 -week year that ended on December 28, 2019 .

Our fiscal 2022 was a 52 -week year that ended on December 31, 2022. 

Our fiscal 2021 was a 52 -week year that ended on January 1, 2022, and our fiscal 2020 was a 53 -week year that ended on January 2, 2021 .

All references to quarterly or annual financial results are references to the results for the relevant fiscal period.

5 unchanged sentences

Revenue attributable to distributors as a percentage of total revenue is presented in the following table:

December 31,  

January 1,  

January 2,  

December 28,  

Weikeng Group

2 unchanged sentences

Revenue attributable to distributors

At January 1, 2022 and January 2, 2021 , Weikeng accounted for 59 % and 47 %, respectively, and Arrow accounted for 28 % and 45 %, respectively, of net accounts receivable.

At December 31, 2022 and January 1, 2022 , Weikeng accounted for approximately 47 % and 59 %, respectively, and Arrow accounted for approximately 27 % and 28 %, respectively, of net accounts receivable.

Concentration of credit risk with respect to accounts receivable is mitigated by our credit and collection process including active management of collections, credit limits, routine credit evaluations for essentially all customers, and secure transactions with letters of credit or advance payments where appropriate.

31 unchanged sentences

Sales rebates earned by customers are offset against their receivable balances.

Rebates earned by customers when they do not have outstanding receivable balances are recorded within Accrued expenses.

Rebates earned by customers when they do not have outstanding receivable balances are recorded within Accrued liabilities.

Licensing and services revenue, which includes HDMI and MHL standards revenue, as well as certain IP licenses, includes variable consideration in the form of usage-based royalties.

101 unchanged sentences

The terms of these grants, including achievement criteria and vesting schedules, are detailed under the heading " Market-Based and Performance-Based Awards —

Grants" in " Note 11 - Stock-Based Compensation Plans " to our consolidated financial statements.

Grants" in " Note 11 - Stock-Based Compensation Plans.

" Our current practice is to issue new shares to satisfy option exercises.

1 unchanged sentence

Segment Information

As of January 1, 2022, we had one operating segment:

As of December 31, 2022, we had one operating segment:

the core Lattice business, which includes silicon-based and silicon-enabling products, evaluation boards, development hardware, and related intellectual property licensing, services, and sales.

4 unchanged sentences

For equity awards with a performance condition, the number of shares that qualified for vesting as of the end of each period presented are included in the diluted share count when the condition for their issuance was satisfied by the end of the respective reporting periods.

See " Note 11 - Stock-Based Compensation Plans " to our consolidated financial statements for further discussion of our equity awards with market or performance conditions.

See " Note 11 - Stock-Based Compensation Plans " for further discussion of our equity awards with market or performance conditions.

A summary of basic and diluted Net income per share is presented in the following table:

(In thousands, except per share data)

$ 95,922  

$ 47,392  

$ 43,493  

Shares used in basic Net income per share

136,619  

135,220  

132,471  

Dilutive effect of stock options, RSUs, ESPP shares, and equity awards with a market condition or performance condition

Shares used in diluted Net income per share

142,143  

141,276  

137,274  

Basic Net income per share

$ 0.70  

$ 0.35  

$ 0.33  

Diluted Net income per share

$ 0.67  

$ 0.34  

$ 0.32  

The computation of diluted Net income per share excludes the effects of stock options, RSUs, ESPP shares, and equity awards with a market condition or performance condition that are antidilutive, aggregating to approximately the following number of shares:

7 unchanged sentences

Product revenue - Distributors

$ 449,650  

$ 339,100  

$ 331,941  

Product revenue - Direct

45,202  

49,402  

50,607  

Licensing and services

20,475  

19,618  

21,545  

Total revenue

$ 515,327  

$ 408,120  

$ 404,093  

Revenue by Geographical Market

1 unchanged sentence

United States

$ 60,176  

$ 43,945  

$ 44,330  

Other Americas

20,694  

18,192  

13,606  

80,870  

62,137  

57,936  

281,237  

213,714  

206,107  

47,915  

25,435  

42,658  

55,416  

66,034  

50,000  

384,568  

305,183  

298,765  

49,889  

40,800  

47,392  

Total revenue

$ 515,327  

$ 408,120  

$ 404,093  

Contract Balances

4 unchanged sentences

(In thousands)

Contract assets as of December 28, 2019

$ 5,569  

Contract assets as of January 2, 2021

Revenues recorded during the period

15,860  

Transferred to Accounts receivable or collected

Contract assets as of January 1, 2022

$ 5,611  

Revenues recorded during the period

15,587  

Transferred to Accounts receivable or collected

Contract assets as of January 1, 2022

$ 5,672  

Contract liabilities are included in Accrued expenses on our Consolidated Balance Sheets.

Contract assets as of December 31, 2022

Contract liabilities are included in Accrued liabilities on our Consolidated Balance Sheets.

The following table summarizes activity during the periods presented:

(In thousands)

Contract liabilities as of December 28, 2019

$ 2,313  

Contract liabilities as of January 2, 2021

Accruals for estimated future stock rotation and scrap returns

1 unchanged sentence

Contract liabilities as of January 1, 2022

$ 3,068  

Prepaid customer deposit

Accruals for estimated future stock rotation and scrap returns

Release of accruals for recognized stock rotation and scrap returns

Contract liabilities as of January 1, 2022

$ 4,768  

Contract liabilities as of December 31, 2022

Note 4 - Balance Sheet Components

4 unchanged sentences

Accounts receivable

$ 79,859  

$ 64,635  

Allowance for credit losses

Accounts receivable, net of allowance for credit losses

$ 79,859  

$ 64,581  

We had no material bad debt expense in fiscal 2022, 2021, or 2020.

1 unchanged sentence

Work in progress

$ 43,546  

$ 34,724  

Finished goods

24,048  

29,875  

Total inventories, net

$ 67,594  

$ 64,599  

Accrued Expenses

Included in Accrued expenses in the Consolidated Balance Sheets are the following balances:

Accrued Liabilities

Included in Accrued liabilities in the Consolidated Balance Sheets are the following balances:

(In thousands)

Contract liability under ASC 606

Liability for non-cancelable contracts

$ 9,930  

$ 8,492  

Current portion of operating lease liabilities

Contract liability under ASC 606

Other accrued expenses

Total accrued expenses

$ 26,444  

$ 21,411  

Liability for production materials

Other accrued liabilities

Total accrued liabilities

Cloud Based Computing Implementation Costs

3 unchanged sentences

(In thousands)

Cloud based computing implementation costs as of December 28, 2019

$ 2,543  

Costs capitalized

Cloud based computing implementation costs as of January 2, 2021

$ 2,831  

Costs capitalized

Cloud based computing implementation costs as of January 1, 2022

$ 2,380  

Costs capitalized

Cloud based computing implementation costs as of December 31, 2022

Note 5 - Property and Equipment

January 1,  

January 2,  

(In thousands)

Production equipment and software

$ 133,039  

$ 135,774  

Leasehold improvements

12,960  

12,913  

Office furniture and equipment

147,999  

150,848  

Accumulated depreciation and amortization

( 109,905 )  

$ 38,094  

$ 39,666  

For fiscal years 2021 and 2020 , depreciation and amortization expense for property and equipment was $ 12.0 million and $ 11.8 million, respectively.

For fiscal year 2019, depreciation and amortization expense for property and equipment was $ 11.6 million, including $ 0.4 million of restructuring expense.

For fiscal years 2022 , 2021 , and 2020 depreciation and amortization expense for property and equipment was $ 13.8 million, $ 12.0 million, and $ 11.8 million, respectively.

Property and Equipment –

1 unchanged sentence

Our Property and equipment, net by country at the end of each period was as follows:

January 1,  

January 2,  

(In thousands)

United States

$ 26,509  

$ 29,440  

Total foreign property and equipment, net

11,585  

10,226  

Total property and equipment, net

$ 38,094  

$ 39,666  

Note 6 - Business Combination and Goodwill

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Purchase consideration was allocated to the tangible and intangible assets and liabilities assumed on the basis of the respective estimated fair values on the acquisition date.

The purchase price allocation has been substantially completed, but may be subject to revision as we perform and complete more detailed analysis of certain tax matters.

The fair values of the assets acquired and liabilities assumed in the acquisition of Mirametrix, by major class, were recognized as follows:

7 unchanged sentences

Intangible assets

24,800  

47,844  

Total assets acquired

76,764  

Liabilities assumed

Accounts payable

Accrued expenses

Accrued liabilities

Accrued payroll obligations

2 unchanged sentences

Fair value of net assets acquired

$ 68,536  

The following table presents details of the identified intangible assets acquired through the acquisition of Mirametrix:

The following table presents details of the identified intangible assets acquired through the acquisition of Mirametrix, as of November 12, 2021:

(In thousands)

Existing technology

$ 13,500  

Customer relationships

1 unchanged sentence

Total identified intangible assets subject to amortization

$ 24,800  

We do not believe there is any significant residual value associated with these intangible assets.

3 unchanged sentences

Goodwill resulting from the acquisition is not deductible for Canada income tax purposes.

The goodwill balance of approximately $ 315.4 million at January 1, 2022 is comprised of approximately $ 267.5 million from prior acquisitions combined with the approximately $ 47.8 million from the acquisition of Mirametrix.

The goodwill balance of approximately $ 315.4 million at December 31, 2022 is comprised of approximately $ 267.5 million from prior acquisitions combined with the approximately $ 47.8 million from the acquisition of Mirametrix.

No impairment charges relating to goodwill were recorded for fiscal 

8 unchanged sentences

No impairment charges relating to acquired intangible assets were recorded for fiscal 2022 , 2021, or 2020.

The following tables summarize the details of our Intangible assets, net as of January 1, 2022 and January 2, 2021 :

January 1, 2022

The following tables summarize the details of our Intangible assets, net as of December 31, 2022 and January 1, 2022 :

December 31, 2022

(In thousands)

22 unchanged sentences

Intangible assets, net

Developed technology

Existing technology

$ 124,487  

4 unchanged sentences

( 22,947 )  

Trade name / trademarks

( 19 )  

Licensed technology

7 unchanged sentences

Research and development

Amortization of acquired intangible assets

$ 1,054  

Amortization of acquired intangible assets

$ 4,832  

6 unchanged sentences

Note 8 - Long-Term Debt

On May 17, 2019, we entered into a credit agreement (the “Current Credit Agreement”), which provides for a five -year secured term loan facility in an aggregate principal amount of $ 175.0 million and a five -year secured revolving loan facility in an aggregate principal amount of up to $ 75.0 million, along with other components and options, such as a letter of credit, swing line, or expansion of the revolver, currently not in use, which are described in the Current Credit Agreement.

We used the $ 175.0 million term loan proceeds and an initial $ 31.5 million revolving loan draw at closing to (i) repay the $ 204.4 million obligation outstanding under our previous credit agreement (the “Previous Credit Agreement”), and (ii) pay fees and expenses totaling $ 2.1 million incurred in connection with the Current Credit Agreement.

The revolving loan may be used for working capital and general corporate purposes.

With the repayment of our obligations under the Previous Credit Agreement, we wrote off the remaining unamortized balance of the related original issue discount and debt costs, which we recorded as a $ 2.2 million loss on refinancing in Other expense, net on our Consolidated Statements of Operations in fiscal 2019.

At our option, the term loan and the revolving loan (collectively, "long-term debt") accrue interest at a per annum rate based on either (i) the base rate plus a margin ranging from 0.25 % to 1.00 %, determined based on our total leverage ratio or (ii) the London Interbank Offered Rate ("LIBOR") for interest periods of 1, 2, 3 or 6 months plus a margin ranging from 1.25 % to 2.00 %, determined based on our total leverage ratio.

The base rate is defined as the highest of (i) the federal funds rate, plus 0.50 %, (ii) Wells Fargo Bank, National Association’s prime rate or (iii) the LIBOR rate for a 1 -month interest period plus 1.00 %.

As of January 1, 2022, the effective interest rate on the term loan was 1.57 %, and the effective interest rate on the revolving loan was 1.35 %.

We pay a commitment fee of 0.20 % on the unused portion of the revolving loan.

The term loan is payable through a combination of (i) required quarterly installments of approximately $ 4.4 million, and (ii) any payments due upon certain issuances of additional indebtedness and certain asset dispositions, with any remaining outstanding principal amount due and payable on the maturity date of the term loan.

The revolving loan is payable at our discretion, with any remaining outstanding principal amount due and payable on the maturity date of the revolving loan.

The Current Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments, make certain restricted payments, dispose of assets, enter into transactions with affiliates, and enter into burdensome agreements, in each case, subject to limitations and exceptions set forth in the Current Credit Agreement.

We are also required to maintain compliance with a total leverage ratio and an interest coverage ratio, in each case, determined in accordance with the terms of the Current Credit Agreement.

We account for the original issue discount and the debt issuance costs as a reduction to the carrying value of our long-term debt on our Consolidated Balance Sheets.

We amortize the discount and costs to Interest expense in our Consolidated Statements of Operations over the contractual term using the effective interest method.

We determine the Current portion of long-term debt as the sum of the required quarterly installments to be made over the next twelve months, reduced by the original issue discount and the debt issuance costs to be amortized over the next twelve months.

During fiscal 2021, we made principal payments totaling $ 13.1 million.

On September 1, 2022, we entered into an Amended and Restated Credit Agreement (the “2022 Credit Agreement”), which provides for a five -year secured revolving loan facility with an aggregate principal amount of up to $ 350 million, along with other components and options, such as a letter of credit, swingline loan, and expansion of revolving and/or term loan commitments, currently not in use.

We drew down an initial $ 150 million revolving loan at closing, which we used along with $ 1.9 million of cash to (i) repay the $ 150.5 million term loan, revolving loan, and accrued interest obligations outstanding under our previous credit agreement (the “2019 Credit Agreement”), and (ii) pay fees and expenses totaling $ 1.4 million incurred in connection with the 2022 Credit Agreement.

We intend to use the revolving loan facility for working capital and general corporate purposes.

At our option, the revolving loans accrue interest at a per annum rate based on ranges determined by our consolidated total leverage ratio of either (i) the base rate (as defined in the 2022 Credit Agreement) plus a margin ranging from 0.25 % to 1.00 %, or (ii) the adjusted Term Secured Overnight Financing Rate ("SOFR") for interest periods of 1, 3 or 6 months plus a margin ranging from 1.25 % to 2.00 %.

Interest is due and payable in arrears quarterly for loans bearing interest at the base rate and at the end of an interest period (or at each three -month interval in the case of loans with interest periods greater than three months) in the case of loans bearing interest at the adjusted Term SOFR.

In addition, we pay a quarterly commitment fee of 0.20 % on the unused portion of the revolving facility.

With the amendment of our 2019 Credit Agreement pursuant to the 2022 Credit Agreement, we capitalized $ 0.9 million of the new debt costs, and expensed $ 0.7 million of debt costs and existing original issue discount ("OID") as a loss on refinancing in Other (expense) income, net on our Consolidated Statements of Operations for fiscal 2022.

We determine the Current portion of long-term debt, if any, as the sum of the required debt payments to be made over the next twelve months, reduced by the OID and the debt issuance costs to be amortized over the next twelve months.

The revolving loans under the 2022 Credit Agreement may be repaid and reborrowed at our discretion, with any remaining outstanding principal amount due and payable on the maturity date of the revolving loans on September 1, 2027.

During fiscal 2022, we made principal payments totaling $ 28.8 million, including a discretionary payment of $ 20 million on the revolving loans outstanding under the 2022 Credit Agreement and required quarterly installments totaling $ 8.8 million on the term loans outstanding under the 2019 Credit Agreement.

The fair value of our long-term debt approximates the carrying value, which is reflected in our Consolidated Balance Sheets as follows:

1 unchanged sentence

Principal amount

$ 158,750  

$ 171,875  

Unamortized original issuance discount and debt costs

( 817 )  

Current portion of long-term debt

( 17,173 )  

Long-term debt, net of current portion and unamortized debt issue costs

$ 140,760  

$ 157,934  

Interest expense related to our long-term debt is included in Interest expense on our Consolidated Statements of Operations as follows:

1 unchanged sentence

Contractual interest

$ 2,304  

$ 3,319  

$ 10,278  

Amortization of original issuance discount and debt costs

Total interest expense related to long-term debt

$ 2,666  

$ 3,719  

$ 11,937  

Expected future principal payments are based on the schedule of required quarterly installments.

As of January 1, 2022, expected future principal payments on our long-term debt were as follows:

(in thousands)

17,500  

123,750  

$ 158,750  

Note 9 - Restructuring

In September 2022, our management approved and implemented additional contract cancellations and headcount reductions under the Q2 2019 Sales Plan, an internal restructuring plan that our management approved and executed in April 2019.

The Q2 2019 Sales Plan focused on a restructuring of the global sales organization through cancellation of certain contracts and a workforce reduction.

With these actions, we incurred approximately $ 1.0 million of incremental restructuring costs in fiscal 2022.

Under this plan, no restructuring expense was incurred during fiscal 2021, and we incurred restructuring expense of approximately $ 0.1 million during fiscal 2020.

Under this plan, approximately $ 3.1 million of total expense has been incurred through December 31, 2022.

All actions planned under the Q2 2019 Sales Plan have been implemented.

In March 2020, our management approved and executed an internal restructuring plan (the “Q1 2020 Plan”), which included a workforce reduction in order to reduce our operating cost structure by leveraging our low-cost regions as well as enhancing efficiency.

Under this plan, we incurred restructuring expense of approximately $ 0.2 million and $ 2.0 million, respectively, during 

Under this plan, we recorded a credit of approximately $ 0.1 million during fiscal 2022, and we incurred restructuring expense of approximately $ 0.2 million and $ 2.0 million, respectively, during 

fiscal 2021 and 2020 .

Approximately $ 2.2 million of total expense has been incurred through January 1, 2022 under the Q1 2020 Plan.

Substantially all actions planned under the Q1 2020 Plan have been implemented.

In April 2019, our management approved and executed an internal restructuring plan (the “Q2 2019 Sales Plan”), which focused on a restructuring of the global sales organization through cancellation of certain contracts and a workforce reduction.

Under this plan, no restructuring expense was incurred during fiscal 2021, and we incurred restructuring expense of approximately $ 0.1 million and $ 2.0 million, respectively, during fiscal 2020 and 2019.

Approximately $ 2.1 million of total expense has been incurred through January 1, 2022 under the Q2 2019 Sales Plan.

All actions planned under the Q2 2019 Sales Plan have been implemented.

In June 2017, our Board of Directors approved an internal restructuring plan (the "June 2017 Plan"), which included the sale of 100 % of the equity of our Hyderabad, India subsidiary and the transfer of certain assets related to our Simplay Labs testing and certification business, a worldwide workforce reduction, and an initiative to reduce our infrastructure costs, including reconfi guring our use of certain leased properties.

Under this plan, we incurred restructuring expense of approximately $ 0.7 million, $ 1.9 million, and $ 2.7 million, respectively, during fiscal 2021, 2020, and 2019.

We have incurred approximately $ 21.6 million of total expense through January 1, 2022 under the June 2017 Plan, and all planned actions have been implemented.

We expect the total cost of the June 2017 Plan to be approximately $ 22.0 million to $ 23.5 million as ROU asset amortization expenses related to our partially vacated facility in San Jose, California will be incurred over the remaining lease term.

Approximately $ 2.1 million of total expense has been incurred through December 31, 2022 under the Q1 2020 Plan.

All actions planned under the Q1 2020 Plan have been implemented.

In June 2017, our Board of Directors approved an internal restructuring plan (the "June 2017 Plan"), which included actions, among others, to reconfi gure our use of certain leased properties.

Under the June 2017 Plan, we incurred approximately $ 1.1 million of incremental restructuring costs in fiscal 2022 related to an impairment of the operating lease right-of-use asset for our partially vacated facility in San Jose, California.

Including these charges, we incurred restructuring expense of approximately $ 1.6 million during fiscal 2022, and we incurred restructuring expense of approximately $ 0.7 million and $ 1.9 million, respectively, during fiscal 2021 and 2020.

Under this plan, we have incurred approximately $ 23.3 million of total expense through December 31, 2022.

All actions planned under the June 2017 Plan have been implemented.

These expenses and credits were recorded to Restructuring charges on our Consolidated Statements of Operations.

The restructuring accrual balance is presented in Accrued expenses and Other long-term liabilities on our Consolidated Balance Sheets.

The restructuring accrual balance is presented in Accrued liabilities and Other long-term liabilities on our Consolidated Balance Sheets.

The following table displays the activity related to the restructuring plans described above:

2 unchanged sentences

Lease Termination & Fixed Assets

Software Contracts & Engineering Tools (2)

Accrued Restructuring at December 28, 2019

$ 1,814  

$ 8,630  

$ 10,680  

Restructuring charges

Costs paid or otherwise settled

( 2,279 )  

( 4,761 )  

( 218 )  

( 476 )  

Accrued Restructuring at December 28, 2019

$ 6,585  

$ 7,610  

Accrued Restructuring at January 2, 2021

Restructuring charges

Costs paid or otherwise settled

( 1,583 )  

( 248 )  

( 573 )  

Accrued Restructuring at January 1, 2022

$ 8,233  

$ 9,143  

Restructuring charges

Costs paid or otherwise settled

( 245 )  

( 1,793 )  

( 664 )  

Accrued Restructuring at January 1, 2022

$ 7,130  

$ 7,381  

Includes employee relocation costs and outplacement costs, and accelerated stock compensation

Includes cancellation of contracts, asset impairments, and accelerated depreciation on certain enterprise resource planning and customer relationship management systems

Includes termination fees on the cancellation of certain contracts under the Q2 2019 Sales Plan

Accrued Restructuring at December 31, 2022

Includes employee relocation costs and outplacement costs

Includes termination fees on the cancellation of certain contracts

Note 10 - Leases

We have operating leases for corporate offices, sales offices, research and development facilities, storage facilities, and a data center, all of which are leased under operating leases that expire at various times through 2028.

In the first quarter of fiscal 2021, we extended the leases for our Hillsboro, Oregon and Shanghai, China facilities, which resulted in approximately $ 7.2 million of the increase in right-of-use assets and operating lease liabilities.

Our leases have remaining lease terms of 1 to 6 years, some of which include options to extend for up to 5 years, and some of which include options to terminate within 1 year.

The weighted-average remaining lease term was 4.1 years and the weighted-average discount rate was 5.4 % as of January 1, 2022.

The weighted-average remaining lease term was 3.5 years and the weighted-average discount rate was 5.4 % as of December 31, 2022.

We recorded fixed operating lease expense of $ 7.6 million, $ 7.9 million, and $ 7.6 million, respectively, for fiscal 2022 , 2021, and 2020.

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Balance as of January 1, 2022

$ 22,178  

Right-of-use assets obtained for new and modified lease contracts during the period

Right-of-use assets obtained for new lease contracts during the period

Amortization of right-of-use assets during the period

Impairment of right-of use asset during the period (recorded in Restructuring charges)

Adjustments for present value and foreign currency effects

Balance as of January 1, 2022

$ 23,818  

Balance as of December 31, 2022

Operating lease liabilities

1 unchanged sentence

Balance as of January 1, 2022

$ 23,055  

Lease liabilities incurred for new lease contracts during the period

2 unchanged sentences

Adjustments for present value and foreign currency effects

Balance as of January 1, 2022

24,944  

Current portion of operating lease liabilities (included in Accrued expenses)

Balance as of December 31, 2022

Current portion of operating lease liabilities (included in Accrued liabilities)

Long-term operating lease liabilities, net of current portion

$ 19,248  

Lease obligations for facilities restructured prior to the adoption of Topic 842 totaled approximately $ 7.1 million at January 1, 2022 and continued to be recorded in Other long-term liabilities on our Consolidated Balance Sheets.

Maturities of operating lease liabilities as of January 1, 2022 are as follows:

Lease obligations for facilities restructured prior to the adoption of Topic 842 totaled approximately $ 5.9 million at December 31, 2022 and continued to be recorded in Other long-term liabilities on our Consolidated Balance Sheets.

Maturities of operating lease liabilities as of December 31, 2022 are as follows:

(In thousands)

Total lease payments

28,036  

amount representing interest

Total lease liabilities

$ 24,944  

Note 11 - Stock-Based Compensation Plans

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We have treated the 2012 ESPP as a compensatory plan.

At January 1, 2022 , a total of 1.1 million shares of our common stock were available for future purchases under the 2012 ESPP.

At January 1, 2022 , a total of 7.5 million shares of our common stock were available for future grants under the 2013 Incentive Plan, and the 2011 Non-Employee Director Equity Incentive Plan.

At December 31, 2022 , a total of 1.0 million shares of our common stock were available for future purchases under the 2012 ESPP.

At December 31, 2022 , a total of 5.0 million shares of our common stock were available for future grants under the 2013 Incentive Plan and the 2011 Non-Employee Director Equity Incentive Plan.

Following our 2018 Shareholder meeting, a share ratio of 2.2:1 was applied to the 2013 Incentive Plan.

6 unchanged sentences

Cost of revenue

$ 3,049  

$ 3,179  

$ 1,422  

Research and development

14,563  

10,124  

Selling, general, and administrative

28,863  

27,069  

11,837  

Total stock-based compensation

$ 46,475  

$ 40,372  

$ 18,899  

ESPP and Stock Options

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The following table summarizes the assumptions used in the valuation of ESPP compensation for the periods presented:

January 1,  

January 2,  

December 28,  

Employee Stock Purchase Plan

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The weighted average fair values for the ESPP, calculated using the Black-Scholes option pricing model with the noted assumptions for the ESPP, were $ 15.25 , $ 13.04 , and $ 6.62 for fiscal years 2022 , 2021 , and 2020, respectively.

At January 1, 2022, there was no unrecognized compensation cost related to unvested employee and director stock options.

At December 31, 2022, there was no unrecognized compensation cost related to unvested employee and director stock options.

Compensation expense for all stock-based compensation awards is recognized using the straight-line method.

In fiscal 2021 , 2020 , and 2019 , we recorde d stock compensation expense of approximately $ 1.2 million, $ 1.0 million, and $ 0.5 million, respectively, related to the ESPP, and approximately $ 1.0 million, $ 2.0 million, and $ 2.4 million, respectively, related to stock options .

The following table summarizes our stock option activity and related information for the year ended January 1, 2022:

We recorde d stock compensation expense related to the ESPP of approximately $ 1.5 million, $ 1.2 million, and $ 1.0 million in fiscal 2022 , 2021 , and 2020 , respectively.

Related to stock options, w e recorded no expense in fiscal 2022, and approximately $ 1.0 million and $ 2.0 million, in fiscal 2021 and 2020 , respectively.

The following table summarizes our stock option activity and related information for the year ended December 31, 2022:

(Shares and aggregate intrinsic value in thousands)

3 unchanged sentences

Balance, January 1, 2022

$ 6.40  

( 822 )  

Forfeited or expired

( 11 )  

Balance, January 1, 2022

$ 6.62  

Vested and expected to vest at January 1, 2022

$ 6.62  

$ 96,315  

Exercisable, January 1, 2022

$ 6.62  

$ 96,315  

Balance, December 31, 2022

Vested and expected to vest at December 31, 2022

Exercisable, December 31, 2022

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company's closing stock price on the last trading day of the fiscal year and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on that day.

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Time-Based Restricted Stock Unit Awards

The following table summarizes the activity for our time-based RSUs for the year ended January 1, 2022:

The following table summarizes the activity for our time-based RSUs for the year ended December 31, 2022:

(Shares in thousands)

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Balance, January 1, 2022

$ 16.76  

( 1,392 )  

Forfeited or expired

( 98 )  

Balance, January 1, 2022

$ 35.06  

At January 1, 2022, there was $ 62.4 million of unrecognized compensation expense related to unvested time-based RSUs.

Balance, December 31, 2022

At December 31, 2022, there was $ 81.6 million of unrecognized compensation expense related to unvested time-based RSUs.

Compensation expense for RSUs is recognized using the straight-line method over the related vesting period.

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In the first quarters of fiscal 2022, 2021 and 2020, we granted awards of RSUs with a market condition to certain executives.

Under the terms of these grants, the RSUs with a market condition vest over a three -year period based on the Company’s total shareholder return ("TSR") relative to the Russell 2000 index, which condition is measured for the 2021 grants on the third anniversary of the grant date, and measured for one -half of the 2020 grants on the second and third anniversary of the grant date.

Under the terms of these grants, the RSUs with a market condition vest over a three -year period based on the Company’s total shareholder return ("TSR") relative to the Russell 2000 index, which condition is measured for the 2022 and 2021 grants on the third anniversary of the grant date, and measured for one -half of the 2020 grants on the second and third anniversary of the grant date.

The awards may vest at 250 % or 200 %, depending upon the executive, if the 75th percentile of the market condition is achieved, with 100 % of the units vesting at the 55th percentile, zero vesting if relative TSR is below the 25th percentile, and vesting scaling for achievement between the 25th and 75th percentile.

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Vesting of these awards scales for achievement of year-over-year revenue growth compared to certain targets, with maximum vesting up to 200 %.

Vesting of these awards occurs 13 months after the end of each measurement period and the entire award cannot be fully earned until five years from grant.

In fiscal 2019, we granted inducement awards outside of, but subject to the terms and conditions of the 2013 Incentive Plan to certain executives consisting of RSUs with a market condition.

These awards vest over a three -year period based on the Company’s TSR relative to the PHLX Semiconductor Sector Index, with either 250 % or 200 % of the units vesting at the 75th percentile, depending upon the executive, 100 % of the units vesting at the 50th percentile and zero vesting if relative TSR is below the 25th percentile, and vesting scaling linearly for achievement between the 25th and 75th percentile.

Prior to fiscal 2019, we granted inducement awards outside of, but subject to the terms and conditions of the 2013 Incentive Plan to our Chief Executive Officer consisting of RSUs with a performance condition.

These awards vest based upon the Company’s achievement of Adjusted EBITDA targets on a trailing four quarter basis in any two consecutive trailing four -quarter periods.

Vesting of each tranche of these awards occurs 13 months afte r the performance conditions is met, a nd the entire award cannot be fully earned until five years from grant.

For the first and second tranches of these awards, the Company had met the year-over-year revenue growth performance criteria at the 200 % level of achievement as of January 1, 2022 and December 31, 2022, respectively.

Market-Based and Performance-Based Awards —

During the first quarter of fiscal 2021, the market condition for awards granted to certain executives in the first quarter of fiscal 2019 exceeded the 75th percentile of their TSR condition, and the second tranche of these awards vested at 200 %.

During the third and fourth quarters of fiscal 2021, the market condition for awards granted to certain executives in previous years exceeded the 75th percentile of their TSR condition, and the second and third tranches of these awards vested at 250 % or 200 %, as applicable for the respective executive.

As of the end of the second and third quarters of fiscal 2021, the second and third tranches, respectively, each 33.3% of the base number of the awards with an EBITDA performance condition vested, as the Company had met the adjusted EBITDA performance criteria on a trailing four -quarter basis for two consecutive trailing four -quarter periods as of the end of the respective previous quarters.

As of January 1, 2022, the Company had met the next adjusted EBITDA performance criteria on a trailing four -quarter basis for two consecutive trailing four -quarter periods, and the fourth tranche of the awards with an EBITDA performance condition qualified for vesting at 40% of the base number.

During the first quarter of fiscal 2020, the market condition for awards granted to certain executives in the first quarter of fiscal 2019 exceeded the 75th percentile of their TSR condition, and the first tranche of these awards vested at 200 %.

As of the end of the first quarter of fiscal 2020, the first tranche of 33.3 % of the base number of the awards with an EBITDA performance condition vested, as the Company had met the adjusted EBITDA performance criteria on a trailing four -quarter basis for two consecutive trailing four -quarter periods as of the end of the previous quarter.

During the third and fourth quarters of fiscal 2020, the market condition for awards granted in previous years exceeded the 75th percentile of the condition, and one - third of these awards vested at 250 % or 200 %, as applicable for the respective executive.

During fiscal

2022, the market condition for awards granted to certain executives in previous years exceeded the

75th percentile of their TSR condition, and applicable tranches of these awards vested at

200 % for the respective executives.

Also during fiscal

sixth tranches of

70 %, respectively, of the base number of the awards with an EBITDA performance condition vested, as the Company had met the adjusted EBITDA performance criteria on a trailing

four -quarter basis for

two consecutive trailing

four -quarter periods as of the end of the respective measurement periods.

During fiscal

2021, the market condition for awards granted to certain executives in previous years exceeded the

75th percentile of their TSR condition, and applicable tranches of these awards vested at

200 % for the respective executives.

Also during fiscal

third tranches, each

33.3% of the base number of the awards with an EBITDA performance condition vested and released, as the Company had met the adjusted EBITDA performance criteria on a trailing

four -quarter basis for

two consecutive trailing

four -quarter periods as of the end of the respective measurement periods.

Additionally, as of

January 1, 2022, the Company had met the next adjusted EBITDA performance criteria on a trailing

four -quarter basis for

two consecutive trailing

four -quarter periods, and the

fourth tranche of the awards with an EBITDA performance condition qualified for vesting at

40% of the base number.

During fiscal

2020, the market condition for awards granted to certain executives in previous years exceeded the

75th percentile of their TSR condition, and annual tranches of these awards vested at

200 %, and applicable tranches of these awards vested at

200 % for the respective executives.

Also during fiscal

first tranche of

33.3 % of the base number of the awards with an EBITDA performance condition vested, as the Company had met the adjusted EBITDA performance criteria on a trailing

four -quarter basis for

two consecutive trailing

four -quarter periods as of the end of the measurement period.

Market-Based and Performance-Based Awards —

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The modification extended the duration of the measurement period by adjusting the beginning date of each measurement period to the original grant date, resulting in approximately $ 1.8 million additional stock compensation expense during the first quarter of fiscal 2020.

For our awards with a market condition or a performance condition, we incurred stock compensation expense, including the effect of the modification in the first quarter of fiscal 2020, of approximately $ 22.1 million, $ 20.8 million, and $ 5.7 million in fiscal years 2021 , 2020 , and 2019 , respectively.

At January 1, 2022, there was $ 25.3 million of unrecognized compensation expense related to unvested RSUs with a market condition or a performance condition.

For our awards with a market condition or a performance condition, we incurred stock compensation expense, including the effect of the modification in the first quarter of fiscal 2020, of approximately $ 24.0 million, $ 22.1 million, and $ 20.8 million in fiscal years 2022 , 2021 , and 2020 , respectively, which is recorded as a component of total stock-based compensation.

At December 31, 2022, there was $ 21.6 million of unrecognized compensation expense related to unvested RSUs with a market condition or a performance condition.

Awards with a TSR market condition were valued using a Monte Carlo simulation model.

The following table summarizes the assumptions used at the grant date in the valuation of RSUs with a market or performance condition:

January 1,  

January 2,  

December 28,  

Executive RSUs with a market condition or performance condition

1 unchanged sentence

50.37 % to 52.11 %

40.15 % to 41.10 %

Weighted average risk-free interest rate

0.22 % to 0.77 %

1.66 % to 2.55 %

Expected term (years)

3 unchanged sentences

Balance, January 1, 2022

$ 20.42  

Effect of vesting multiplier

( 884 )  

Balance, January 1, 2022

$ 41.23  

Balance, December 31, 2022

Note 12 - Common Stock Repurchase Program

On February 19, 2021, our Board of Directors approved a stock repurchase program pursuant to which up to $ 60.0 million of outstanding common stock could be repurchased from time to time (the "2021 Repurchase Program").

The duration of the 2021 Repurchase Program is twelve months.

Under the 2021 Repurchase Program during the fourth quarter of fiscal 2021, we repurchased approximately 60,800 shares for approximately $ 4.9 million, or an average price paid per share of $ 80.55 .

As of January 1, 2022, the amount authorized for the twelve -month 2021 Repurchase Program had been fully utilized.

All repurchases were open market transactions funded from available working capital.

All shares repurchased pursuant to the 2021 Repurchase Program were retired by the end of the 2021 fiscal year.

On November 8, 2021, we announced that our Board of Directors had approved a stock repurchase program pursuant to which up to an additional $ 100.0 million of outstanding common stock could be repurchased from time to time (the "2022 Repurchase Program").

On August 8, 2022, we announced that our Board of Directors had approved a stock repurchase program pursuant to which up to $ 150 million of outstanding common stock could be repurchased from time to time (the "2023 Repurchase Program").

The duration of the 2023 Repurchase Program is through the end of December 2023.

Under the 2022 Repurchase Program during the fourth quarter of fiscal 2021, we repurchased approximately 125,400 shares for $ 10.1 million, or an average price paid per share of $ 80.55 .

As of January 1, 2022, the remaining portion of the amount authorized for the 2022 Repurchase Program is approximately $ 89.9 million.

Under the 2023 Repurchase Program during the fourth quarter of fiscal 2022, we repurchased 288,652 shares for $ 20.0 million, or an average price paid per share of $ 69.27 .

All repurchases were open market transactions funded from available working capital.

All shares repurchased pursuant to the 2022 Repurchase Program were retired by the end of the 2021 fiscal year.

All shares repurchased pursuant to the 2023 Repurchase Program were retired by the end of the fourth quarter of fiscal 2022.

As of December 31, 2022, the remaining portion of the amount authorized for the 2023 Repurchase Program is approximately $ 129.7 million.

We repurchased a total of 1,951,934 shares for $ 110.1 million, or an average price paid per share of $ 56.42 , during fiscal year 2022.

Note 13 - Income Taxes

1 unchanged sentence

The domestic and foreign components of Income before income taxes were as follows:

January 1,  

January 2,  

December 28,  

(In thousands)

$ 24,003  

$ 11,772  

$ 33,417  

73,623  

36,684  

11,648  

Income before taxes

$ 97,626  

$ 48,456  

$ 45,065  

The components of Income tax expense are as follows:

January 1,  

January 2,  

December 28,  

(In thousands)

( 324 )  

( 83 )  

( 324 )  

( 83 )  

Income tax expense

$ 1,704  

$ 1,064  

$ 1,572  

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:

January 1,  

January 2,  

December 28,  

Statutory federal rate

2 unchanged sentences

Federal tax credits

Excess tax benefit for stock compensation

Excess tax benefit from stock compensation

Foreign rate differential

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Effective income tax rate

We updated our evaluation of the valuation allowance position in the United States through January 1, 2022 and concluded that we should continue to 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 updated our evaluation of the valuation allowance position in the United States through December 31, 2022 and concluded that we should continue to maintain a full valuation allowance against the net federal and state deferred tax assets.

In making this evaluation, we considered the uncertain stability of the current economic and operating environment and estimates about our ability to generate taxable income 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.

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(In thousands)

January 1, 2022  

January 2, 2021  

December 31, 2022

January 1, 2022

Deferred tax assets:

Intangible assets

$ 8,236  

$ 10,082  

Net operating loss carry forwards

88,254  

87,443  

Tax credit carry forwards

93,095  

83,534  

Accrued expenses and reserves

Accrued liabilities and reserves

Stock-based and deferred compensation

Total deferred tax assets

207,267  

199,867  

valuation allowance

( 200,438 )  

Net deferred tax assets

2 unchanged sentences

Total deferred tax liabilities

14,476  

Net deferred taxes

$ ( 7,647 )  

Deferred tax assets (included in Other long-term assets)

Deferred tax liabilities (included in Other long-term liabilities)

( 8,600 )  

Net deferred taxes

$ ( 7,647 )  

The following table displays the activity related to changes in our valuation allowance for deferred tax assets:

5 unchanged sentences

(In thousands)

of period  

expenses  

accounts  

period  

December 31, 2022

January 1, 2022

$ 192,478  

$ 7,960  

$ 200,438  

January 2, 2021

$ 198,499  

$ ( 6,021 )  

$ 192,478  

December 28, 2019

$ 207,108  

$ ( 8,609 )  

$ 198,499  

At January 1, 2022, we had U.S.

federal net operating loss ("NOL") carryforwards (pretax) of approximately $ 361.5 million, of which $ 345.4 million expire at various dates between 2022 and 2037, and the remaining do not expire.

At December 31, 2022, we had U.S.

federal net operating loss ("NOL") carryforwards (pretax) of approximately $ 16.3 million which do not expire.

We had state NOL carryforwards (pretax) of approximately $ 142.0 million that substantially all expire at various dates from 2023 through 2041.

We also had federal credit carryforwards of $ 59.1 million that expire at various dates from 2023 through 2042, and $ 75.0 million state credit carryforwards, of which substantially all do not expire.

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, which has not occurred through fiscal 2021.

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.

However, if there is a significant change in ownership, future tax attribute utilization may be limited and NOL carryforwards and/or R&D credits will be reduced to reflect the limitation.

Foreign earnings may be subject to withholding taxes in local jurisdictions if they are distributed.

At January 1, 2022, U.S.

At December 31, 2022, U.S.

income taxes and foreign withholding taxes were not provided for on a cumulative total of approximately $ 3.0 million of the undistributed earnings of our foreign subsidiaries.

We intend to reinvest these earnings indefinitely.

At January 1, 2022 and January 2, 2021, our unrecognized tax benefits associated with uncertain tax positions were $ 56.2 million and $ 55.7 million, respectively, of which $ 54.0 million and $ 53.6 million, respectively, if recognized, would affect the effective tax rate, subject to valuation allowance.

As of January 1, 2022 and January 2, 2021, interest and penalties associated with unrecognized tax benefits were $ 9.6 million and $ 9.1 million, respectively, which are not reflected in the table below.

At December 31, 2022 and January 1, 2022, our unrecognized tax benefits associated with uncertain tax positions were $ 58.9 million and $ 56.2 million, respectively, of which $ 56.3 million and $ 54.0 million, respectively, if recognized, would affect the effective tax rate, subject to valuation allowance.

As of December 31, 2022 and January 1, 2022, interest and penalties associated with unrecognized tax benefits were $ 10.6 million and $ 9.6 million, respectively, which are not reflected in the table below.

We accrue interest and penalties related to uncertain tax positions in Income tax expense.

2 unchanged sentences

Balance at December 28, 2019

$ 58,285  

Additions based on tax positions related to the current year

2 unchanged sentences

Reduction as a result of lapse of applicable statute of limitations

Balance at December 28, 2019

56,962  

Balance at January 2, 2021

Additions based on tax positions related to the current year

Additions based on tax positions of prior years

Reductions for tax positions of prior years

Additions due to acquisition

Reduction as a result of lapse of applicable statute of limitations

Balance at January 1, 2022

55,737  

Additions based on tax positions related to the current year

Additions based on tax positions of prior years

Additions due to acquisition

Reduction as a result of lapse of applicable statute of limitations

Balance at January 1, 2022

$ 56,231  

Our liability for uncertain tax positions (including penalties and interest) was $ 21.6 million and $ 22.3 million at January 1, 20 22 and January 2, 2021 , 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 $ 44.2 million and $ 42.5 million at January 1, 2022 and January 2, 2021, respectively, is netted against deferred tax assets.

At January 1, 2022, it is reasonably possible that $ 0.8 million of unrecognized tax benefits and $ 0.1 million of associated interest and penalties could be recognized during the next twelve months.

Balance at December 31, 2022

Our liability for uncertain tax positions (including penalties and interest) was $ 21.6 million at both December 31, 20 22 and January 1, 2022 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 $ 47.9 million and $ 44.2 million at December 31, 2022 and January 1, 2022, respectively, is netted against deferred tax assets.

At December 31, 2022, it is reasonably possible that $ 1.0 million of unrecognized tax benefits and $ 0.2 million of associated interest and penalties could be recognized during the next twelve months.

The years that remain subject to examination ar e 2017 for federal and state income taxes, and 2016 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 2019 and 2020 income tax returns are currently under examination.

Our Singapore 2020 income tax return is currently under examination.

Note 14 - Employee Benefit Plans

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The Plaintiffs allege that we violated The Lanham Act, engaged in negligence and fraud by failing to disclose to the Plaintiffs the export-controlled status of the subject parts.

The Plaintiffs seek damages of $ 138 million, treble damages, and other remedies.

The Plaintiffs seek damages of $ 155 million to $ 268 million, treble damages, and other remedies.

In January 2019, we removed the action to the United States District Court for the District of Oregon.

10 unchanged sentences

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Lattice Semiconductor Corporation (the Company) as of January 1, 2022 and January 2, 2021, the related consolidated statements of operations, comprehensive income, stockholders’

equity and cash flows for each of the two years in the period ended January 1, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 1, 2022 and January 2, 2021, and the results of its operations and its cash flows for each of the two years in the periods ended January 1, 2022, in conformity with U.S.

We have audited the accompanying consolidated balance sheets of Lattice Semiconductor Corporation (the Company) as of December 31, 2022 and January 1, 2022, the related consolidated statements of operations, comprehensive income, stockholders’

equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and January 1, 2022, and the results of its operations and its cash flows for each of the three years in the periods ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 1, 2022, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2022 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 17, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

9 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

Critical Audit Matter

The critical audit matter communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Inventory Valuation

Description of the Matter

The Company's net inventory totaled $67.6 million as of January 1, 2022.

The Company's net inventory totaled $110.4 million as of December 31, 2022.

As explained in “Note 1 - Basis of Presentation and Significant Accounting Policies”

7 unchanged sentences

We also assessed the historical accuracy of management's estimates and performed sensitivity analyses to evaluate the changes in inventory valuation that would result from changes in significant assumptions.

Business Combinations

Description of the Matter

The Company acquired 100% of the outstanding shares of Mirametrix, Inc.

for total consideration of $68.5 million.

As explained in “Note 6 –

Business Combination and Goodwill”

within the consolidated financial statements, the transaction was accounted for as a business combination.

Auditing management’s accounting for the Mirametrix acquisition was complex and required judgment due to the significant estimation applied by management to determine the fair value of the acquired intangible assets, which consist primarily of existing technology of $13.5 million and customer relationships of $9.8 million.

The estimation of the fair values of the intangible assets required the use of valuation techniques including primarily the income approach.

Significant assumptions used to estimate the fair value of these intangible assets included revenue growth rates, operating expenses, technology obsolescence, customer attrition, and discount rates.

These assumptions are forward-looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit

We evaluated and tested the design and operating effectiveness of the Company's internal controls over the Company's accounting for acquisitions.

For example, we tested controls over management's review of the valuation of acquired intangible assets, including the review of the valuation models and significant assumptions used in the valuation models.

To test the estimated fair value of these intangible assets, our audit procedures included, among others, evaluating the Company's valuation methodology, evaluating the significant assumptions used by the Company and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.

For example, we compared the significant assumptions used to current industry, market, and economic trends, to the assumptions used to value similar assets in other acquisitions, and to the historical results of both the Company and the acquiree.

We also involved our valuation specialists to assist with our evaluation of the methodology used by the company and significant assumptions included in the fair value estimates.

/s/ Ernst & Young LLP

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Opinion on Internal Control Over Financial Reporting

We have audited Lattice Semiconductor Corporation’s internal control over financial reporting as of January 1, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Lattice Semiconductor Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 1, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of January 1, 2022 and January 2, 2021, the related consolidated statements of operations, comprehensive income, stockholders’

equity and cash flows for each of the two years in the period ended January 1, 2022, and the related notes and our report dated February 23, 2022 expressed an unqualified opinion thereon.

We have audited Lattice Semiconductor Corporation’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Lattice Semiconductor Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2022 and January 1, 2022, the related consolidated statements of operations, comprehensive income, stockholders’

equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 17, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

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and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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February 17, 2023

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Lattice Semiconductor Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of operations, comprehensive income, stockholders’

equity, and cash flows of Lattice Semiconductor Corporation and subsidiaries (the Company) for the year ended December 28, 2019, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations of the Company and its cash flows for the year ended December 28, 2019, in conformity with U.S.

generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

We served as the Company’s auditor from 2007 to 2020.

Portland, Oregon

2020 except for Note 13, as to which the date is February 26, 2021

Changes in and Disagreements with Accountants On Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data