LATTICE SEMICONDUCTOR CORP 10-K

Item 8. Financial Statements and Supplementary Data   Index to Consolidated Financial Statements:   Page       Consolidated Statements of Operations   35 Consolidated Statements of Comprehensive Income   36 Consolidated Balance Sheets   37 Consolidated Statements of Cash Flows   38 Consolidated Statements of Stockholders' Equity   39 Notes to Consolidated Financial Statements   40 Reports of Independent Registered Public Accounting Firm ( Ernst & Young LLP ) (PCAOB ID: 42 ) 59                     34 Table of Contents     LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS       Year Ended       December 31,     January 1,     January 2,   (In thousands, except per share data)   2022     2022     2021   Revenue   $ 660,356     $ 515,327     $ 408,120   Cost of revenue     208,306       193,652       162,814   Gross margin     452,050       321,675       245,306   Operating expenses:                         Research and development     135,767       110,518       89,223   Selling, general, and administrative     122,076       105,617       95,331   Amortization of acquired intangible assets     3,778       2,613       4,449   Restructuring charges     2,551       940       3,937   Acquisition related charges     511       1,171       —   Total operating expenses     264,683       220,859       192,940   Income from operations     187,367       100,816       52,366   Interest expense     ( 4,146 )     ( 2,738 )     ( 3,702 ) Other (expense) income, net     ( 1,109 )     ( 452 )     ( 208 ) Income before income taxes     182,112       97,626       48,456   Income tax expense (benefit)     3,230       1,704       1,064   Net income   $ 178,882     $ 95,922     $ 47,392                             Net income per share:                         Basic   $ 1.30     $ 0.70     $ 0.35   Diluted   $ 1.27     $ 0.67     $ 0.34                             Shares used in per share calculations:                         Basic     137,321       136,619       135,220   Diluted     140,667       142,143       141,276     The accompanying notes are an integral part of these Consolidated Financial Statements.   35 Table of Contents     LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME       Year Ended       December 31,     January 1,     January 2,   (In thousands)   2022     2022     2021   Net income   $ 178,882     $ 95,922     $ 47,392   Other comprehensive income (loss):                         Translation adjustment     ( 1,554 )     ( 75 )     1,533   Change in actuarial valuation of defined benefit pension, net of tax     591       372       ( 678 ) Comprehensive income   $ 177,919     $ 96,219     $ 48,247     The accompanying notes are an integral part of these Consolidated Financial Statements.   36 Table of Contents     LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED BALANCE SHEETS       December 31,     January 1,   (In thousands, except share and par value data)   2022     2022   ASSETS                 Current assets:                 Cash and cash equivalents   $ 145,722     $ 131,570   Accounts receivable, net of allowance for credit losses     94,018       79,859   Inventories, net     110,375       67,594   Prepaid expenses and other current assets     29,052       22,328   Total current assets     379,167       301,351   Property and equipment, net     47,614       38,094   Operating lease right-of-use assets     17,590       23,818   Intangible assets, net     25,070       29,782   Goodwill     315,358       315,358   Other long-term assets     13,914       18,091   Total assets   $ 798,713     $ 726,494                     LIABILITIES AND STOCKHOLDERS' EQUITY                 Current liabilities:                 Accounts payable   $ 42,036     $ 34,597   Accrued liabilities     48,467       26,444   Accrued payroll obligations     36,870       27,967   Current portion of long-term debt     —       17,173   Total current liabilities     127,373       106,181   Long-term debt, net of current portion     128,752       140,760   Long-term operating lease liabilities, net of current portion     13,618       19,248   Other long-term liabilities     41,807       48,672   Total liabilities     311,550       314,861   Contingencies (Note 15)                     Stockholders' equity:                 Preferred stock, $ .01 par value, 10,000,000 shares authorized, none issued and outstanding     —       —   Common stock, $ .01 par value, 300,000,000 shares authorized; 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     1,371       1,372   Additional paid-in capital     599,300       701,688   Accumulated deficit     ( 111,094 )     ( 289,976 ) Accumulated other comprehensive loss     ( 2,414 )     ( 1,451 ) Total stockholders' equity     487,163       411,633   Total liabilities and stockholders' equity   $ 798,713     $ 726,494       The accompanying notes are an integral part of these Consolidated Financial Statements.   37 Table of Contents     LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS       Year Ended       December 31,     January 1,     January 2,   (In thousands)   2022     2022     2021   Cash flows from operating activities:                         Net income   $ 178,882     $ 95,922     $ 47,392   Adjustments to reconcile net income to net cash provided by (used in) operating activities:                         Depreciation and amortization     29,323       24,429       25,140   Stock-based compensation expense     55,530       46,475       40,372   Amortization of right-of-use assets     6,512       6,587       5,960   Impairment of operating lease right-of-use asset     1,149       —       —   Other non-cash adjustments     642       ( 239 )     144   Changes in assets and liabilities:                         Accounts receivable, net     ( 14,159 )     ( 12,013 )     336   Inventories, net     ( 42,781 )     ( 2,995 )     ( 9,619 ) Prepaid expenses and other assets     ( 6,276 )     1,918       ( 6,441 ) Accounts payable     7,439       7,046       ( 16,820 ) Accrued liabilities     20,101       ( 2,855 )     6,314   Accrued payroll obligations     8,903       9,692       4,624   Operating lease liabilities, current and long-term portions     ( 6,459 )     ( 6,245 )     ( 5,715 ) Net cash provided by (used in) operating activities     238,806       167,722       91,687   Cash flows from investing activities:                         Cash paid for business acquisition, net of cash acquired     —       ( 68,099 )     —   Capital expenditures     ( 23,338 )     ( 9,835 )     ( 12,121 ) Cash paid for software and intellectual property licenses     ( 11,594 )     ( 11,862 )     ( 8,747 ) Net cash provided by (used in) investing activities     ( 34,932 )     ( 89,796 )     ( 20,868 ) Cash flows from financing activities:                         Restricted stock unit tax withholdings     ( 54,946 )     ( 54,191 )     ( 26,965 ) Proceeds from issuance of common stock     7,159       8,827       10,103   Repurchase of common stock     ( 110,132 )     ( 70,124 )     ( 14,989 ) Proceeds from long-term debt, net of issuance costs     148,597       —       50,000   Repayment of long-term debt     ( 178,750 )     ( 13,125 )     ( 26,250 ) Net cash provided by (used in) financing activities     ( 188,072 )     ( 128,613 )     ( 8,101 ) Effect of exchange rate change on cash     ( 1,650 )     ( 75 )     1,533   Net increase (decrease) in cash and cash equivalents     14,152       ( 50,762 )     64,251   Beginning cash and cash equivalents     131,570       182,332       118,081   Ending cash and cash equivalents   $ 145,722     $ 131,570     $ 182,332                             Supplemental disclosure of cash flow information and non-cash investing and financing activities:                         Interest paid   $ 3,973     $ 2,313     $ 3,700   Operating lease payments   $ 7,419     $ 7,639     $ 7,713   Income taxes paid, net of refunds   $ 4,621     $ 3,304     $ 1,868   Accrued purchases of plant and equipment   $ 1,357     $ 1,360     $ 975   Operating lease right-of-use assets obtained in exchange for lease obligations   $ 2,134     $ 8,134     $ 2,645     The accompanying notes are an integral part of these Consolidated Financial Statements.   38 Table of Contents     LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                       Accumulated               Common Stock     Additional             Other               ($.01 par value)     Paid-in     Accumulated     Comprehensive           (In thousands, except par value data)   Shares     Amount     Capital     Deficit     Income (Loss)     Total   Balances, December 28, 2019     133,883     $ 1,339     $ 762,213     $ ( 433,290 )   $ ( 2,603 )   $ 327,659   Components of comprehensive income, net of tax:                                                 Net income     —       —       —       47,392       —       47,392   Other comprehensive income (loss)     —       —       —       —       855       855   Total comprehensive income                                     48,247   Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes     2,738       27       ( 16,889 )     —       —       ( 16,862 ) Stock-based compensation expense     —       —       40,372       —       —       40,372   Repurchase of common stock     ( 385 )     ( 4 )     ( 14,985 )     —       —       ( 14,989 ) Balances, January 2, 2021     136,236     $ 1,362     $ 770,711     $ ( 385,898 )   $ ( 1,748 )   $ 384,427   Components of comprehensive income, net of tax:                                                 Net income     —       —       —       95,922       —       95,922   Other comprehensive income (loss)     —       —       —       —       297       297   Total comprehensive income                                     96,219   Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes     2,270       23       ( 45,387 )     —       —       ( 45,364 ) Stock-based compensation expense     —       —       46,475       —       —       46,475   Repurchase of common stock     ( 1,267 )     ( 13 )     ( 70,111 )     —       —       ( 70,124 ) Balances, January 1, 2022     137,239     $ 1,372     $ 701,688     $ ( 289,976 )   $ ( 1,451 )   $ 411,633   Components of comprehensive income, net of tax:                                                 Net income     —       —       —       178,882       —       178,882   Other comprehensive income (loss)     —       —       —       —       ( 963 )     ( 963 ) Total comprehensive income                                     177,919   Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes     1,812       18       ( 47,806 )     —       —       ( 47,788 ) Stock-based compensation expense     —       —       55,530       —       —       55,530   Repurchase of common stock     ( 1,952 )     ( 19 )     ( 110,112 )     —       —       ( 110,131 ) Balances, December 31, 2022     137,099     $ 1,371     $ 599,300     $ ( 111,094 )   $ ( 2,414 )   $ 487,163         The accompanying notes are an integral part of these Consolidated Financial Statements.   39 Table of Contents   LATTICE SEMICONDUCTOR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     Note 1 - Basis of Presentation and Significant Accounting Policies   Basis of Presentation and Use of Estimates   The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). They include the accounts of Lattice and its subsidiaries after the elimination of all intercompany balances and transactions.   The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments affecting the amounts reported in our consolidated financial statements and the accompanying notes. We base our estimates and judgments on historical experience, knowledge of current conditions, and our beliefs of what could occur in the future considering available information. While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when made, and because of the uncertainty inherent in these matters, the actual results that we experience may differ materially from these estimates under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis.   Certain prior year balances have been reclassified to conform to the current year’s presentation.   Fiscal Reporting Periods   We report based on a 52 or 53 -week fiscal year ending on the Saturday closest to December 31. 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.   Concentrations of Risk   Potential exposure to concentrations of risk may impact revenue, accounts receivable, a nd supply of wafers for our new products .   Distributors have historically accounted for a significant portion of our total revenue. Our two largest distributor groups, the Weikeng Group ("Weikeng") and Arrow Electronics, Inc. ("Arrow"), each account for more than 10% of our total revenue and our net accounts receivable. Revenue attributable to distributors as a percentage of total revenue is presented in the following table:       Year Ended       December 31,     January 1,     January 2,       2022     2022     2021   Weikeng Group     30 %     37 %     35 % Arrow Electronics Inc.     28       27       25   Other distributors     31       23       23   Revenue attributable to distributors     89 %     87 %     83 %   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. We regularly review our allowance for doubtful accounts and the aging of our accounts receivable.   We rely on a limited number of foundries for our wafer purchases. We seek to mitigate the concentration of supply risk by establishing, maintaining and managing multiple foundry relationships; however, certain of our products are sourced from a single foundry and changing from one foundry to another can have a significant cost, or create delays in production or shipments, among other factors.   Cash and Cash Equivalents   We consider all investments that are readily convertible into cash and that have original maturities of three months or less to be cash equivalents. Cash equivalents consist primarily of highly liquid investments in time deposits or money market accounts and are carried at cost, which approximates fair value. Deposits with financial institutions at times exceed Federal Deposit Insurance Corporation insurance limits.   40 Table of Contents   Foreign Exchange and Translation of Foreign Currencies   While our revenues and the majority of our expenses are denominated in U.S. dollars, we also have international subsidiaries and branch operations that conduct some transactions in currencies that differ from the functional currency of that entity. Gains or losses from foreign exchange rate fluctuations on balances denominated in currencies that differ from the functional currencies are reflected in Other expense, net.   We translate accounts denominated in foreign currencies in accordance with ASC 830, “ Foreign Currency Matters ,” using the current rate method under which asset and liability accounts are translated at the current rate, while stockholders' equity accounts are translated at the appropriate historical rates, and revenue and expense accounts are translated at average monthly exchange rates. Translation adjustments related to the consolidation of foreign subsidiary financial statements are reflected in Accumulated other comprehensive loss in Stockholders' equity (See our Consolidated Statements of Stockholders' Equity).   Revenue Recognition   Under the terms of ASC 606, "Revenue from Contracts with Customers" , we recognize revenue when we satisfy performance obligations as evidenced by the transfer of control of our products or services to customers. For sales to distributors, we have concluded that our contracts are with the distributor, rather than with the distributor’s end customer, as we hold a contract bearing enforceable rights and obligations only with the distributor. Our revenue is derived primarily from sales of silicon-based products, with additional revenue from sales of silicon-enabling products. We consider customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer. For each contract, we consider our promise to transfer each distinct product to be the identified performance obligations. Revenue for product sales is recognized at the time of product shipment, as determined by the agreed upon contract shipping terms.   Our Licensing and services revenue is comprised of revenue from our IP core licensing activity, patent monetization activities, design services, and royalty and adopter fee revenue from our standards activities. These activities are complementary to our product sales and help us to monetize our IP associated with our technology and standards. We consider licensing arrangements with our customers and agreements with the standards consortia of which we are a member to be the contract. For each contract, we consider the promise to deliver a license that grants the customer the right to use the IP, as well as any professional services provided under the contract, as distinct performance obligations. We recognize license revenue at the point in time that control of the license transfers to the customer, which is generally upon delivery, or as usage occurs.   We measure revenue based on the amount of consideration we expect to be entitled to in exchange for products or services. Variable consideration is estimated and reflected as an adjustment to the transaction price. We determine variable consideration, which consists primarily of various sales price concessions, by estimating the most likely amount of consideration we expect to receive from the customer based on an analysis of historical rebate claims over a period of time considered adequate to account for current pricing and business trends. 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 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.   We generally provide an assurance warranty that our products will substantially conform to the published specifications for twelve months from the date of shipment. In some cases, the warranty period may be longer than twelve months. We do not separately price or sell the assurance warranty. Our liability is limited to either a credit equal to the purchase price or replacement of the defective part. Under the practical expedient provided by ASC 340, we generally expense sales commissions when incurred because the amortization period would be less than one year. We record these costs within Selling, general, and administrative expenses. Substantially all of our performance obligations are satisfied within twelve months.   Inventories and Cost of Revenue   Inventories are stated at the lower of actual cost (determined using the first -in, first -out method) or net realizable value. We review and set standard costs quarterly to approximate current actual manufacturing costs. Our manufacturing overhead standards for product costs are calculated assuming full absorption of actual spending over actual costs. The valuation of inventory requires us to estimate excess or obsolete inventory. Material assumptions we use to estimate necessary inventory carrying value adjustments can be unique to each product and are based on specific facts and circumstances. In determining provisions for excess or obsolete products, we consider assumptions such as changes in business and economic conditions, projected customer demand for our products, and changes in technology or customer requirements. The creation of such provisions results in a write-down of inventory to net realizable value and a charge to Cost of revenue. Lower of cost or net realizable value is based on assumptions such as recent historical sales activity and selling prices, as well as estimates of future sales activity and selling prices. Shipping and handling costs are included in Cost of revenue in our Consolidated Statements of Operations.   41 Table of Contents   Property and Equipment   Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets, generally three to five years for equipment and software, and one to three years for tooling. Leasehold improvements are amortized over the shorter of the non-cancelable lease term or the estimated useful life of the assets. We capitalize costs for the fabrication of masks used by our foundry partners to manufacture our products. The capitalized mask costs begin depreciating to Cost of revenue once the products go into production, and depreciation is straight-lined over a three -year period, which is the expected useful life of the mask. Upon disposal of property and equipment, the accounts are relieved of the costs and related accumulated depreciation and amortization, and resulting gains or losses are reflected in the Consolidated Statements of Operations for recognized gains and losses. Repair and maintenance costs are expensed as incurred.   Business Combinations   Business combinations are accounted for using the acquisition method of accounting, under which we allocate the purchase price paid for a company to identifiable assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Goodwill is measured as the excess of purchase price over the fair value of identifiable assets acquired and liabilities assumed. Determining the fair value of identifiable tangible and intangible assets acquired and liabilities assumed requires management to make assumptions, estimates, and judgments that are based on all available information, including comparable market data and information obtained from our management and the management of the acquired companies. The estimation of the fair values of the intangible assets requires significant judgment and the use of valuation techniques including primarily the income approach. Consideration is given to all relevant factors that might affect the fair value such as estimates of future revenues and costs, present value factors, and the estimated useful lives of intangible assets. We expense acquisition-related costs in the period incurred.   Impairment of Long-Lived Assets   Long-lived assets, which consist primarily of property and equipment, amortizable intangible assets, and right-of-use assets, are carried on our financial statements based on their cost less accumulated depreciation or amortization. We monitor the carrying value of our long-lived assets for potential impairment and test the recoverability of such assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. These events or changes in circumstances, including management decisions pertaining to such assets, are referred to as impairment indicators. If an impairment indicator occurs, we perform a test of recoverability by comparing the carrying value of the asset group to its undiscounted expected future cash flows. If the carrying values are in excess of undiscounted expected future cash flows, we measure any impairment by comparing the fair value of the asset group to its carrying value. Fair value is generally determined by considering (i) internally developed discounted projected cash flow analysis of the asset group; (ii) actual third -party valuations; and/or (iii) information available regarding the current market for similar asset groups. If the fair value of the asset group is determined to be less than the carrying amount of the asset group, an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs and is included in our Consolidated Statements of Operations. Estimating future cash flows requires significant judgment and projections may vary from the cash flows eventually realized, which could impact our ability to accurately assess whether an asset has been impaired.   Valuation of Goodwill   Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is not amortized, but is instead tested for impairment annually during the fourth quarter and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. When evaluating whether goodwill is impaired, we make a qualitative assessment to determine if it is more likely than not that the reporting unit's fair value is less than the carrying amount. If the qualitative assessment determines that it is more likely than not that the fair value is less than the carrying amount, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, then goodwill impairment exists for the reporting unit. The impairment loss, if any, is recognized for the amount by which the carrying value exceeds the fair value. If the fair value of the reporting unit exceeds its carrying value, no further impairment analysis is needed. For purposes of testing goodwill for impairment, we currently operate as a single reporting unit.   Leases   We account for leases under the terms of ASC 842, " Leases ," which requires lessees to record assets and liabilities on the balance sheet for all leases with terms longer than 12 months. Upon adoption, we elected the "package of practical expedients" that would allow us to carryforward our historical lease classifications, not reassess historical contracts to determine if they contain leases, and not reassess the initial direct costs for any existing leases. We also elected the practical expedient to not separate lease and non-lease components, which we applied to all asset classes. Concurrent with our adoption of Topic 842, we early adopted ASU 2019 - 01, Leases (Topic 842 ): Codification Improvements, which granted disclosure relief for interim periods during the year in which a company adopted Topic 842.   42 Table of Contents   Right-of-use ("ROU") assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized on the commencement date of the lease based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we determine the present value of lease payments using an incremental borrowing rate based on information from our commercial bank for an equivalent borrowing and term in the respective region as of the lease commencement date. At inception, we determine if an arrangement is a lease, if it includes options to extend or terminate the lease, and if it is reasonably certain that we will exercise the options. Lease cost, representing lease payments over the term of the lease and any capitalizable direct costs less any incentives received, is recognized on a straight-line basis over the lease term as lease expense. We have operating leases for corporate offices, sales offices, research and development facilities, storage facilities, and a data center.   The exercise of lease renewal options is at our sole discretion. When deemed reasonably certain of exercise, the renewal options are included in the determination of the lease term and lease payment obligation, respectively. For our leases that contain variable lease payments, residual value guarantees, or restrictive covenants, we have concluded that these inputs are not significant to the determination of the ROU asset and lease liability.   Research and Development   Research and development expenses include costs for compensation and benefits, engineering wafers, depreciation, licenses, and outside engineering services. These expenditures are for the design of new products, intellectual property cores, processes, packaging, and software solutions. Research and development costs are generally expensed as incurred, with certain licensed technology agreements capitalized as intangible assets and amortized to Research and development expense over their estimated useful lives.   Restructuring Charges   Expenses associated with exit or disposal activities are recognized when incurred under ASC 420, “ Exit or Disposal Cost Obligations ,” for everything except severance expenses and vacated leased facilities. Because we have a history of paying severance benefits, the cost of severance benefits associated with a restructuring plan is recorded when such costs are probable and the amount can be reasonably estimated in accordance with ASC 712, “ Compensation - Nonretirement Postemployment Benefits. ” When leased facilities are vacated, the amount of any ROU asset impairment is calculated in accordance with ASC 360, " Property, Plant, and Equipment " and recorded as a part of restructuring charges. Expenses from other exit or disposal activities, including the cancellation of software contracts and engineering tools or the abandonment of long-lived assets, is recorded as a part of Restructuring charges.   Accounting for Income Taxes   We are required to estimate our provision for income taxes and amounts ultimately payable or recoverable in numerous tax jurisdictions around the world. These estimates involve significant judgment and interpretations of regulations and are inherently complex. Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of the applicable year. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse. Valuation allowances are provided to reduce deferred tax assets to an amount that in management’s judgment is more-likely-than- not to be recoverable against future taxable income. The determination of a valuation allowance and when it should be released requires complex judgment.   In assessing the ability to realize deferred tax assets, we evaluate both positive and negative evidence that may exist and consider whether it is more-likely-than- not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Any adjustment to the net deferred tax asset valuation allowance is recorded in the Consolidated Statements of Operations for the period that the adjustment is determined to be required.   Our income tax calculations are based on application of the respective U.S. federal, state or foreign tax law . Our tax filings, however, are subject to audit by the relevant tax authorities. Accordingly, we recognize tax liabilities based upon our estimate of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than- not to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases as well as any interest or penalties are recorded as income tax expense or benefit in the Consolidated Statements of Operations. We recognize the tax impact of including certain foreign earnings in U.S. taxable income as a period cost.   43 Table of Contents   Stock-Based Compensation   We estimate the fair value of share-based awards consistent with the provisions of ASC 718, “ Compensation - Stock Compensation .” We value RSUs using the closing market price on the date of grant, and we value stock options using the Black-Scholes option pricing model. We have also granted RSUs with a market condition or a performance condition to certain executives. 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. " Our current practice is to issue new shares to satisfy option exercises. For RSUs, we issue new shares when awards vest and withhold a portion of these shares on behalf of employees to satisfy the minimum statutory tax withholding requirements.   Segment Information   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. Our chief operating decision maker is the Chief Executive Officer, who reviews operating results and financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.     Note 2 - Net Income Per Share   Our calculation of the diluted share count includes the number of shares from our equity awards with market conditions or performance conditions that would be issuable under the terms of such awards at the end of the reporting period. For equity awards with a market condition, the number of shares included in the diluted share count as of the end of each period presented is determined by measuring the achievement of the market condition as of the end of the respective reporting periods. 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 " 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:       Year Ended       December 31,     January 1,     January 2,   (In thousands, except per share data)   2022     2022     2021   Net income   $ 178,882     $ 95,922     $ 47,392                             Shares used in basic Net income per share     137,321       136,619       135,220   Dilutive effect of stock options, RSUs, ESPP shares, and equity awards with a market condition or performance condition     3,346       5,524       6,056   Shares used in diluted Net income per share     140,667       142,143       141,276                             Basic Net income per share   $ 1.30     $ 0.70     $ 0.35   Diluted Net income per share   $ 1.27     $ 0.67     $ 0.34     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:         Year Ended       December 31,     January 1,     January 2,   (In thousands)   2022     2022     2021   Stock options, RSUs, ESPP shares, and equity awards with a market condition or performance condition excluded as they are antidilutive     472       638       646     44 Table of Contents     Note 3 - Revenue from Contracts with Customers   Disaggregation of Revenue   The following tables provide information about revenue from contracts with customers disaggregated by channel and by geographical market, based on ship-to location of the customer:       Year Ended   Revenue by Channel   December 31,     January 1,     January 2,   (In thousands)   2022     2022     2021   Product revenue - Distributors   $ 591,229       89 %   $ 449,650       87 %   $ 339,100       83 % Product revenue - Direct     51,988       8 %     45,202       9 %     49,402       12 % Licensing and services     17,139       3 %     20,475       4 %     19,618       5 % Total revenue   $ 660,356       100 %   $ 515,327       100 %   $ 408,120       100 %                                                   Revenue by Geographical Market                                                 (In thousands)                                                 United States   $ 94,972       14 %   $ 60,176       12 %   $ 43,945       11 % Other Americas     5,288       1 %     20,694       4 %     18,192       4 % Americas     100,260       15 %     80,870       16 %     62,137       15 % China     296,917       45 %     281,237       55 %     213,714       52 % Japan     90,902       14 %     47,915       9 %     25,435       6 % Other Asia     77,085       12 %     55,416       10 %     66,034       17 % Asia     464,904       71 %     384,568       74 %     305,183       75 % Europe     95,192       14 %     49,889       10 %     40,800       10 % Total revenue   $ 660,356       100 %   $ 515,327       100 %   $ 408,120       100 %   Contract Balances   Our contract assets relate to our rights to consideration for licenses and royalties due to us as a member of the HDMI consortium, with collection dependent on events other than the passage of time, such as collection of licenses and royalties from customers by the HDMI licensing agent. The balance results primarily from the amount of estimated revenue related to HDMI that we have recognized to date, but which has not yet been collected by the agent. Contract assets are recorded in Prepaid expenses and other current assets in our Consolidated Balance Sheets.   The following table summarizes activity during the periods presented:   (In thousands)         Contract assets as of January 2, 2021   $ 5,611   Revenues recorded during the period     15,587   Transferred to Accounts receivable or collected     ( 15,526 ) Contract assets as of January 1, 2022   $ 5,672   Revenues recorded during the period     15,848   Transferred to Accounts receivable or collected     ( 14,173 ) Contract assets as of December 31, 2022   $ 7,347     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 January 2, 2021   $ 3,068   Accruals for estimated future stock rotation and scrap returns     4,613   Less: Release of accruals for recognized stock rotation and scrap returns     ( 2,913 ) Contract liabilities as of January 1, 2022   $ 4,768   Prepaid customer deposit     12,811   Accruals for estimated future stock rotation and scrap returns     6,142   Less: Release of accruals for recognized stock rotation and scrap returns     ( 6,055 ) Contract liabilities as of December 31, 2022   $ 17,666     45 Table of Contents     Note 4 - Balance Sheet Components   Accounts Receivable   Accounts receivable do not bear interest and are shown net of an allowance for expected lifetime credit losses, which reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine this allowance through an assessment of known troubled accounts, analysis of our accounts receivable aging, historical experience, expectations for future economic conditions, management judgment, and other available evidence.       December 31,     January 1,   (In thousands)   2022     2022   Accounts receivable   $ 94,018     $ 79,859   Less: Allowance for credit losses     —       —   Accounts receivable, net of allowance for credit losses   $ 94,018     $ 79,859     We had no material bad debt expense in fiscal 2022, 2021, or 2020.   Inventories       December 31,     January 1,   (In thousands)   2022     2022   Work in progress   $ 58,269     $ 43,546   Finished goods     52,106       24,048   Total inventories, net   $ 110,375     $ 67,594     Accrued Liabilities   Included in Accrued liabilities in the Consolidated Balance Sheets are the following balances:       December 31,     January 1,   (In thousands)   2022     2022   Contract liability under ASC 606   $ 17,666     $ 4,768   Liability for non-cancelable contracts     10,498       9,930   Current portion of operating lease liabilities     6,454       5,696   Liability for production materials     6,002       —   Other accrued liabilities     7,847       6,050   Total accrued liabilities   $ 48,467     $ 26,444     Cloud Based Computing Implementation Costs   Under the guidance in ASU 2018 - 15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350 - 40 ) , we are capitalizing the implementation costs for cloud computing arrangements, mainly for our integrated distributor accounting management systems. These cloud-based computing implementation costs are recorded in Prepaid expenses and other current assets and Other long-term assets on our Consolidated Balance Sheets. The following table summarizes activity during the periods presented:   (In thousands)         Cloud based computing implementation costs as of January 2, 2021   $ 2,831   Costs capitalized     324   Amortization     ( 775 ) Cloud based computing implementation costs as of January 1, 2022   $ 2,380   Costs capitalized     63   Amortization     ( 841 ) Cloud based computing implementation costs as of December 31, 2022   $ 1,602     46 Table of Contents     Note 5 - Property and Equipment       December 31,     January 1,   (In thousands)   2022     2022   Production equipment and software   $ 149,787     $ 133,039   Leasehold improvements     12,416       12,960   Office furniture and equipment     1,760       2,000         163,963       147,999   Accumulated depreciation and amortization     ( 116,349 )     ( 109,905 )     $ 47,614     $ 38,094     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 – Geographic Information   Our Property and equipment, net by country at the end of each period was as follows:       December 31,     January 1,   (In thousands)   2022     2022   United States   $ 29,118     $ 26,509                     Taiwan     10,732       6,555   Philippines     3,596       2,498   China     2,229       1,643   Other     1,939       889   Total foreign property and equipment, net     18,496       11,585   Total property and equipment, net   $ 47,614     $ 38,094       Note 6 - Business Combination and Goodwill   On November 12, 2021, we acquired 100 % of the outstanding shares of Mirametrix, Inc. ("Mirametrix"), an innovator in advanced AI software and computer vision ("CV") applications. This acquisition combines Mirametrix technology and expertise with Lattice’s innovative hardware and software solution stacks to create an end-to-end AI and computer vision solution that spans from the hardware to the application layer. Total consideration to acquire Mirametrix was $ 68.5 million, paid 100% in cash to Mirametrix shareholders. There is no contingent consideration included in the determination of the purchase consideration.   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 fair values of the assets acquired and liabilities assumed in the acquisition of Mirametrix, by major class, were recognized as follows:   (In thousands)   Estimated Fair Value   Assets acquired:         Cash and cash equivalents   $ 437   Accounts receivable     3,265   Other current assets     262   Property and equipment     156   Intangible assets     24,800   Goodwill     47,844   Total assets acquired     76,764   Liabilities assumed         Accounts payable     21   Accrued liabilities     5   Accrued payroll obligations     247   Long-term liabilities     7,955   Total liabilities assumed     8,228   Fair value of net assets acquired   $ 68,536     47 Table of Contents   The following table presents details of the identified intangible assets acquired through the acquisition of Mirametrix, as of November 12, 2021:       Useful Life     Fair Value       (In years)     (In thousands)   Existing technology     7     $ 13,500   Customer relationships     7       9,800   Trade name / trademarks     10       1,500   Total identified intangible assets subject to amortization           $ 24,800     We do not believe there is any significant residual value associated with these intangible assets. We are amortizing the intangible assets using the straight-line method over their estimated useful lives.   Goodwill   Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets. The goodwill recognized in the acquisition of Mirametrix was derived from expected benefits from cost synergies and the knowledgeable and experienced workforce who joined the Company after the acquisition. Goodwill resulting from the acquisition is not deductible for Canada income tax purposes.   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  2022 , 2021, or 2020.     Note 7 - Intangible Assets   In connection with our acquisitions of Mirametrix, Inc. in November 2021, Silicon Image, Inc. in March 2015, and SiliconBlue Technologies, Inc. in December 2011, we recorded identifiable intangible assets related to developed technology, customer relationships, licensed technology, patents, and in-process research and development based on guidance for determining fair value under the provisions of ASC 820, " Fair Value Measurements ." We are amortizing the intangible assets using the straight-line method over their estimated useful lives. Additionally, we have entered into license agreements for third -party technology and recorded them as intangible assets. These licenses are being amortized to Research and development expense over their estimated useful lives. 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 December 31, 2022 and January 1, 2022 :       December 31, 2022   (In thousands)   Weighted Average Amortization Period (in years)     Gross     Accumulated Amortization     Intangible assets, net   Existing technology   5.1     $ 124,487     $ ( 113,157 )   $ 11,330   Customer relationships   6.1       32,734       ( 24,509 )     8,225   Trade name / trademarks   10.0       1,500       ( 169 )     1,331   Licensed technology   6.3       6,671       ( 2,487 )     4,184   Total identified intangible assets         $ 165,392     $ ( 140,322 )   $ 25,070         January 1, 2022   (In thousands)   Weighted Average Amortization Period (in years)     Gross     Accumulated Amortization     Intangible assets, net   Existing technology   5.1     $ 124,487     $ ( 111,090 )   $ 13,397   Customer relationships   6.1       32,734       ( 22,947 )     9,787   Trade name / trademarks   10.0       1,500       ( 19 )     1,481   Licensed technology   6.3       6,551       ( 1,434 )     5,117   Total identified intangible assets         $ 165,272     $ ( 135,490 )   $ 29,782     48 Table of Contents   We recorded amortization expense related to intangible assets on the Consolidated Statements of Operations as presented in the following table:       Year Ended       December 31,     January 1,     January 2,   (In thousands)   2022     2022     2021   Research and development   $ 1,054     $ 901     $ 124   Amortization of acquired intangible assets     3,778       2,613       4,449       $ 4,832     $ 3,514     $ 4,573     The annual expected amortization expense of acquired intangible assets is as follows:   Fiscal year   (In thousands)   2023   $ 4,522   2024     4,310   2025     4,263   2026     4,261   2027     4,197   Thereafter     3,517   Total   $ 25,070       Note 8 - Long-Term Debt   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:       December 31,     January 1,   (In thousands)   2022     2022   Principal amount   $ 130,000     $ 158,750   Unamortized original issuance discount and debt costs     ( 1,248 )     ( 817 ) Less: Current portion of long-term debt     —       ( 17,173 ) Long-term debt, net of current portion and unamortized debt issue costs   $ 128,752     $ 140,760     49 Table of Contents   Interest expense related to our long-term debt is included in Interest expense on our Consolidated Statements of Operations as follows:       Year Ended       December 31,     January 1,     January 2,   (In thousands)   2022     2022     2021   Contractual interest   $ 4,500     $ 2,304     $ 3,319   Amortization of original issuance discount and debt costs     310       362       400   Total interest expense related to long-term debt   $ 4,810     $ 2,666     $ 3,719       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 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 $ 2.1 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 liabilities and Other long-term liabilities on our Consolidated Balance Sheets. The following table displays the activity related to the restructuring plans described above:   (In thousands)   Severance & Related (1)     Lease Termination & Fixed Assets     Other (2)     Total   Accrued Restructuring at December 28, 2019   $ 160     $ 6,585     $ 865     $ 7,610   Restructuring charges     1,669       1,896       372       3,937   Costs paid or otherwise settled     ( 1,583 )     ( 248 )     ( 573 )     ( 2,404 ) Accrued Restructuring at January 2, 2021   $ 246     $ 8,233     $ 664     $ 9,143   Restructuring charges     250       690       —       940   Costs paid or otherwise settled     ( 245 )     ( 1,793 )     ( 664 )     ( 2,702 ) Accrued Restructuring at January 1, 2022   $ 251     $ 7,130     $ —     $ 7,381   Restructuring charges     303       1,608       640       2,551   Costs paid or otherwise settled     ( 154 )     ( 2,846 )     —       ( 3,000 ) Accrued Restructuring at December 31, 2022   $ 400     $ 5,892     $ 640     $ 6,932       ( 1 ) Includes employee relocation costs and outplacement costs   ( 2 ) Includes termination fees on the cancellation of certain contracts   50 Table of Contents     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. 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 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.   The following table presents the lease balance classifications within the Consolidated Balance Sheets and summarizes their activity during fiscal 2022 :   Operating lease right-of-use assets   (In thousands)   Balance as of January 1, 2022   $ 23,818   Right-of-use assets obtained for new lease contracts during the period     2,134   Amortization of right-of-use assets during the period     ( 6,512 ) Impairment of right-of use asset during the period (recorded in Restructuring charges)     ( 1,149 ) Adjustments for present value and foreign currency effects     ( 701 ) Balance as of December 31, 2022   $ 17,590     Operating lease liabilities   (In thousands)   Balance as of January 1, 2022   $ 24,944   Lease liabilities incurred for new lease contracts during the period     2,134   Accretion of lease liabilities     1,087   Operating cash used by payments on lease liabilities     ( 7,419 ) Adjustments for present value and foreign currency effects     ( 674 ) Balance as of December 31, 2022     20,072   Less: Current portion of operating lease liabilities (included in Accrued liabilities)     ( 6,454 ) Long-term operating lease liabilities, net of current portion   $ 13,618     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:   Fiscal year   (In thousands)   2023     7,536   2024     6,042   2025     4,140   2026     2,522   2027     1,110   Thereafter     934   Total lease payments     22,284   Less: amount representing interest     ( 2,212 ) Total lease liabilities   $ 20,072       Note 11 - Stock-Based Compensation Plans   Employee and Director Stock Options, Restricted Stock, and ESPP Plans   We have two active equity incentive plans, the "2013 Incentive Plan" and the "2011 Non-Employee Director Equity Incentive Plan", under which shares remain available for grants to employees and non-employee directors, respectively. In addition, we have made grants of inducement awards to certain executives and employees that are granted outside of, but governed by, the 2013 Incentive Plan. "Incentive stock options" under Section 422 of the U.S. Internal Revenue Code and restricted stock unit ("RSU") grants are part of our equity compensation practices for employees who receive equity grants. Options and RSUs generally vest quarterly over a four -year period beginning on the grant date. The contractual terms of options granted do not exceed ten years.   51 Table of Contents   In May 2012, the Company's stockholders approved the 2012 Employee Stock Purchase Plan ( "2012 ESPP"), which authorizes the issuance of 3.0 million shares of common stock to eligible employees to purchase shares of common stock through payroll deductions, which cannot exceed 10 % of an employee's compensation. The purchase price of the shares is the lower of 85 % of the fair market value of the stock at the beginning of each six -month offering period or 85 % of the fair market value at the end of such period. We have treated the 2012 ESPP as a compensatory 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. This ratio takes two and two -tenths shares out of the 2013 Plan for every one full value share granted. During fiscal 2022 , a total of 2.5 million shares were adjusted out of the 2013 Plan. Shares subject to stock option grants that expire or are canceled, without delivery of such shares, generally become available for re-issuance under equity incentive plans.   Stock-Based Compensation Expense   Total stock-based compensation expense included in our Consolidated Statements of Operations is presented in the following table:       Year Ended       December 31,     January 1,     January 2,   (In thousands)   2022     2022     2021   Cost of revenue   $ 3,674     $ 3,049     $ 3,179   Research and development     19,645       14,563       10,124   Selling, general, and administrative     32,211       28,863       27,069   Total stock-based compensation   $ 55,530     $ 46,475     $ 40,372     ESPP and Stock Options   The fair values of the shares expected to be issued under the employee stock purchase plan and of each option award on the date of grant were estimated using the Black-Scholes valuation model and the assumptions noted in the following table. No new stock options were granted during fiscal 2022, 2021, or 2020. The expected volatility of both ESPP shares and stock options is based on the daily historical volatility of our stock price, measured over the ESPP purchase period or the expected term of the option. The risk-free interest rate is based on the implied yield on a U.S. Treasury zero -coupon issue with a remaining term closest to the expected term of the option. The expected term is based on historical vested option exercises and includes an estimate of the expected term for options that are fully vested and outstanding. Dividend yield has no valuation impact, as we have not paid any cash dividends since inception and do not intend to pay any cash dividends in the foreseeable future.   The following table summarizes the assumptions used in the valuation of ESPP compensation for the periods presented:       Year Ended     December 31,   January 1,   January 2,     2022   2022   2021 Employee Stock Purchase Plan             Weighted average expected volatility   60.3 %   39.9 %   48.2 % Weighted average risk-free interest rate   3.74 %   0.07 %   0.89 % Expected term (in months)   6   6   6   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 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. 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.   52 Table of Contents   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)   Shares     Weighted average exercise price     Weighted average remaining contractual term (years)     Aggregate Intrinsic Value   Balance, January 1, 2022     1,367     $ 6.62                   Granted     —       —                   Exercised     ( 448 )     6.48                   Forfeited or expired     ( 1 )     5.01                   Balance, December 31, 2022     918     $ 6.70                   Vested and expected to vest at December 31, 2022     918     $ 6.70       1.93     $ 53,433   Exercisable, December 31, 2022     918     $ 6.70       1.93     $ 53,433     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. This amount changes based on the fair market value of the Company's stock. Total intrinsic value of options exercised for fiscal 2022 , 2021 , and 2020 was $ 24.3 million, $ 44.7 million, and $ 21.5 million, respectively.   Time-Based Restricted Stock Unit Awards   The following table summarizes the activity for our time-based RSUs for the year ended December 31, 2022:   (Shares in thousands)   Shares     Weighted average grant date fair value   Balance, January 1, 2022     2,188     $ 31.85   Granted     843       62.23   Vested     ( 1,132 )     24.34   Forfeited or expired     ( 78 )     41.21   Balance, December 31, 2022     1,821     $ 50.18     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. In fiscal 2022 , 2021 , and 2020 , we recorde d stock compensation expense related to time-based RSUs of approximately $ 30.1 million, $ 21.7 million, and $ 16.6 million, respectively.   Market-Based and Performance-Based Awards   In 2020 through 2022 , we granted awards of RSUs with either a market condition or a performance condition to certain executives.   Market-Based and Performance-Based Awards — Grants   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 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.   In the first quarter of fiscal 2021, we also granted awards of RSUs with a performance condition to certain executives, to specifically drive additional executive attention and focus on the Company’s revenue growth priorities. Under the terms of these grants, the RSUs with a performance condition will vest based on the Company generating specified levels of year-over-year revenue growth, which will be measured annually for one - fourth of the grants after each fiscal year-end through the end of fiscal 2024. 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 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.   53 Table of Contents   Market-Based and Performance-Based Awards — Vesting   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 250 % or 200 % for the respective executives. Also during fiscal 2022, the fifth and sixth tranches of 40 % and 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 250 % or 200 % for the respective executives. Also during fiscal 2021, the second and 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 250 % or 200 %, and applicable tranches of these awards vested at 250 % or 200 % for the respective executives. Also during 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 measurement period.   Market-Based and Performance-Based Awards — Compensation Expense   During the first quarter of fiscal 2020, the Board of Directors approved a modification to the market condition measurement periods associated with the unvested portions of certain of the Company’s awards with a market condition that were granted prior to fiscal 2020. 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 $ 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:       Year Ended     December 31,   January 1,   January 2,     2022   2022   2021 Executive RSUs with a market condition or performance condition             Weighted average expected volatility   51.44 %   50.37 % to 52.11 %   42.38 % Weighted average risk-free interest rate   1.67 %   0.22 % to 0.77 %   1.40 % Expected term (years)   3.00   3.00 to 5.00   3.00   The following table summarizes the activity for our awards with a market condition or performance condition:   (Shares in thousands)   Shares     Weighted average grant date fair value   Balance, January 1, 2022     1,246     $ 41.23   Granted     183       96.63   Effect of vesting multiplier     642         Vested     ( 1,086 )     20.38   Balance, December 31, 2022     985     $ 60.15     54 Table of Contents     Note 12 - Common Stock 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 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 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   We are subject to federal and state income tax as well as income tax in the various foreign jurisdictions in which we operate.   The domestic and foreign components of Income before income taxes were as follows:       Year Ended       December 31,     January 1,     January 2,   (In thousands)   2022     2022     2021   Domestic   $ 30,362     $ 24,003     $ 11,772   Foreign     151,750       73,623       36,684   Income before taxes   $ 182,112     $ 97,626     $ 48,456     The components of Income tax expense are as follows:       Year Ended       December 31,     January 1,     January 2,   (In thousands)   2022     2022     2021   Current:                         Federal   $ 748     $ 445     $ 54   State     265       45       68   Foreign     3,637       1,538       1,025         4,650       2,028       1,147   Deferred:                         Federal     —       —       —   State     —       —       —   Foreign     ( 1,420 )     ( 324 )     ( 83 )       ( 1,420 )     ( 324 )     ( 83 ) Income tax expense   $ 3,230     $ 1,704     $ 1,064     55 Table of Contents   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:       Year Ended       December 31,     January 1,     January 2,       2022     2022     2021       %     %     %   Statutory federal rate   21     21     21   Adjustments for tax effects of:                   State taxes, net   (2)     (4)     (4)   Federal tax credits   (1)     (3)     (3)   Excess tax benefit from stock compensation   —     (8)     (10)   Foreign rate differential   (16)     (14)     (12)   U.S. tax on foreign operations   33     3     15   Foreign withholding taxes   1     1     3   Capital loss expiration   1     3     —   Other deferred tax asset adjustment   —     —     3   Valuation allowance   (33)     8     (13)   Change in uncertain tax benefit accrual   (2)     (5)     2   Effective income tax rate   2     2     2     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. We don't have a valuation allowance in any foreign jurisdictions as we have concluded it is more likely than not that we will realize the net deferred tax assets in future periods .   The components of our net deferred tax assets and liabilities are as follows:   (In thousands)   December 31, 2022     January 1, 2022   Deferred tax assets:                 Intangible assets   $ 6,264     $ 8,236   Net operating loss carry forwards     15,362       88,254   Tax credit carry forwards     103,092       93,095   Accrued liabilities and reserves     12,932       6,590   Stock-based and deferred compensation     3,769       4,477   Other     5,031       6,615   Total deferred tax assets     146,450       207,267   Less: valuation allowance     ( 140,533 )     ( 200,438 ) Net deferred tax assets     5,917       6,829   Deferred tax liabilities:                 Fixed assets     2,058       2,379   Unremitted earnings     2,498       2,128   Other     8,134       9,969   Total deferred tax liabilities     12,690       14,476   Net deferred taxes   $ ( 6,773 )   $ ( 7,647 )                   Reported as:                 Deferred tax assets (included in Other long-term assets)   $ 1,022     $ 953   Deferred tax liabilities (included in Other long-term liabilities)     ( 7,795 )     ( 8,600 ) Net deferred taxes   $ ( 6,773 )   $ ( 7,647 )     56 Table of Contents   The following table displays the activity related to changes in our valuation allowance for deferred tax assets:   Fiscal Years Ended   Balance at beginning     Charged (Credit) to costs and     Charged (credit) to other     Balance at end of   (In thousands)   of period     expenses     accounts     period   December 31, 2022   $ 200,438     $ ( 59,905 )   $ —     $ 140,533   January 1, 2022   $ 192,478     $ 7,960     $ —     $ 200,438   January 2, 2021   $ 198,499     $ ( 6,021 )   $ —     $ 192,478     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. 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 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 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.   The following table summarizes the changes to unrecognized tax benefits for the fiscal years presented:       (In thousands)   Balance at December 28, 2019   $ 56,962   Additions based on tax positions related to the current year     548   Additions based on tax positions of prior years     628   Reduction for tax positions of prior years     —   Reduction as a result of lapse of applicable statute of limitations     ( 2,401 ) Balance at January 2, 2021     55,737   Additions based on tax positions related to the current year     1,156   Additions based on tax positions of prior years     1,130   Additions due to acquisition     977   Settlements     ( 51 ) Reduction as a result of lapse of applicable statute of limitations     ( 2,718 ) Balance at January 1, 2022     56,231   Additions based on tax positions related to the current year     1,594   Additions based on tax positions of prior years     2,798   Settlements     ( 148 ) Reduction as a result of lapse of applicable statute of limitations     ( 1,586 ) Balance at December 31, 2022   $ 58,889       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.   57 Table of Contents   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 Singapore 2020 income tax return is currently under examination.     Note 14 - Employee Benefit Plans   Qualified Investment Plan   In 1990, we adopted a 401 (k) tax-deferred savings plan, which provides all employees in the United States who meet certain eligibility requirements with an opportunity to accumulate funds for retirement. Participants may contribute up to the amount allowable as a deduction for federal income tax purposes. The plan does not allow investments in the Company's common stock. The plan allows for the Company to make discretionary matching contributions in cash. We recorded matching contributions of approximately $ 2.8 million, $ 2.6 million, and $ 2.4 million in fiscal years 2022 , 2021 , and 2020 , respectively.   Cash Incentive Plans   For 2022 , 2021 , and 2020 , the Board of Directors of the Company, upon the recommendation of the Compensation Committee, approved the Cash Incentive Plan (the “Cash Plans”) for the respective fiscal year. The chief executive officer, other executive officers, and other members of senior management, including vice presidents and director-level employees, together with all other employees of the Company not on the Company's sales incentive plan are eligible to participate in the Cash Plans. Under the Cash Plans, individual cash incentive payments for the eligible employees will be based both on Company financial performance, as measured by achievement of operating income (before incentive plan accruals) and revenue goals within specified ranges established by the Compensation Committee, and Company performance, as measured by the achievement of personal management objectives. The Compensation Committee determines the performance of the chief executive officer, the chief financial officer and other participants based on the achievement of the management objectives established by the Compensation Committee during the first quarter of the respective fiscal year. We recorded approximately $ 25.2 million, $ 18.0 million, and $ 7.9 million of expense under the Cash Plans in fiscal 2022 , 2021 , and 2020 , respectively.     Note 15 - Contingencies   Legal Matters   On or about December 19, 2018, Steven A.W. De Jaray, Perienne De Jaray and Darrell R. Oswald (collectively, the “Plaintiffs”) commenced an action against the Company and several unnamed defendants in the Multnomah County Circuit Court of the State of Oregon, in connection with the sale of certain products by the Company to the Plaintiffs in or around 2008. 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 $ 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. At this stage of the proceedings, we do not have an estimate of the likelihood or the amount of any potential exposure to the Company; however, we believe that these claims are without merit and intend to vigorously defend the action.   From time to time, we are exposed to certain additional asserted and unasserted potential claims. We review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and a range of possible losses can be estimated, we then accrue a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may revise estimates.   58 Table of Contents   Report of Independent Registered Public Accounting Firm   To the Stockholders and the Board of Directors of Lattice Semiconductor Corporation   Opinion on the Consolidated Financial Statements   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 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   These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the 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 audits 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 financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the 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 financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.   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 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 $110.4 million as of December 31, 2022. As explained in “Note 1 - Basis of Presentation and Significant Accounting Policies” within the consolidated financial statements, the Company records inventory at the lower of cost or net realizable value, and writes down inventories to net realizable value if it is obsolete or if quantities are in excess of projected customer demand.   Auditing management’s estimates of excess and obsolete inventory was challenging because the estimate is judgmental and considers a number of factors that are affected by market and economic conditions that are outside of the Company’s control. In particular, excess and obsolete inventory calculations are sensitive to significant assumptions that relate to projected customer demand for the Company’s products.       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 calculation of excess and obsolete inventory, including the determination of projected customer demand and related application against on-hand inventory.   Our audit procedures included, among others, evaluating the significant assumptions stated above and the underlying data used in management's excess and obsolete inventory assessment. We evaluated inventory levels compared to projected customer demand, historical sales, and specific product considerations. 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.   /s/ Ernst & Young LLP   We have served as the Company's auditor since 2020. San Jose, California February 17, 2023   59 Table of Contents     Report of Independent Registered Public Accounting Firm   To the Stockholders and the Board of Directors of Lattice Semiconductor Corporation   Opinion on Internal Control Over Financial Reporting   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. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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 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. 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 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; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; 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. 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.   /s/ Ernst & Young LLP   San Jose, California February 17, 2023   60 Table of Contents   Item 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure   None.