LATTICE SEMICONDUCTOR CORP 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements: Page Consolidated Statements of Operations 37 Consolidated Statements of Comprehensive Income 38 Consolidated Balance Sheets 39 Consolidated Statements of Cash Flows 40 Consolidated Statements of Stockholders' Equity 41 Notes to Consolidated Financial Statements 42 Reports of Independent Registered Public Accounting Firm ( Ernst & Young LLP ) (PCAOB ID: 42 ) 60 36 Table of Contents LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 30, December 31, January 1, (In thousands, except per share data) 2023 2022 2022 Revenue $ 737,154 $ 660,356 $ 515,327 Cost of revenue 222,484 208,306 193,652 Gross margin 514,670 452,050 321,675 Operating expenses: Research and development 159,770 135,767 110,518 Selling, general, and administrative 137,244 122,076 105,617 Amortization of acquired intangible assets 3,478 3,778 2,613 Restructuring 1,908 2,551 940 Acquisition related — 511 1,171 Total operating expenses 302,400 264,683 220,859 Income from operations 212,270 187,367 100,816 Interest income (expense), net 2,041 ( 4,146 ) ( 2,738 ) Other income (expense), net 545 ( 1,109 ) ( 452 ) Income before income taxes 214,856 182,112 97,626 Income tax (benefit) expense ( 44,205 ) 3,230 1,704 Net income $ 259,061 $ 178,882 $ 95,922 Net income per share: Basic $ 1.88 $ 1.30 $ 0.70 Diluted $ 1.85 $ 1.27 $ 0.67 Shares used in per share calculations: Basic 137,694 137,321 136,619 Diluted 139,790 140,667 142,143 The accompanying notes are an integral part of these Consolidated Financial Statements. 37 Table of Contents LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 30, December 31, January 1, (In thousands) 2023 2022 2022 Net income $ 259,061 $ 178,882 $ 95,922 Other comprehensive income (loss): Translation adjustment ( 16 ) ( 1,554 ) ( 75 ) Change in actuarial valuation of defined benefit pension, net of tax ( 476 ) 591 372 Comprehensive income $ 258,569 $ 177,919 $ 96,219 The accompanying notes are an integral part of these Consolidated Financial Statements. 38 Table of Contents LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED BALANCE SHEETS December 30, December 31, (In thousands, except share and par value data) 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 128,317 $ 145,722 Accounts receivable, net of allowance for credit losses 104,373 94,018 Inventories, net 98,826 110,375 Prepaid expenses and other current assets 36,430 29,052 Total current assets 367,946 379,167 Property and equipment, net 49,546 47,614 Operating lease right-of-use assets 14,487 17,590 Intangible assets, net 20,974 25,070 Goodwill 315,358 315,358 Deferred income taxes 57,762 1,022 Other long-term assets 14,821 12,892 Total assets $ 840,894 $ 798,713 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 34,487 $ 42,036 Accrued liabilities 36,048 48,467 Accrued payroll obligations 26,865 36,870 Total current liabilities 97,400 127,373 Long-term debt — 128,752 Long-term operating lease liabilities, net of current portion 10,739 13,618 Other long-term liabilities 40,735 41,807 Total liabilities 148,874 311,550 Contingencies (Note 14) 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; 137,340,000 shares issued and outstanding as of December 30, 2023 and 137,099,000 shares issued and outstanding as of December 31, 2022 1,373 1,371 Additional paid-in capital 545,586 599,300 Retained earnings (Accumulated deficit) 147,967 ( 111,094 ) Accumulated other comprehensive loss ( 2,906 ) ( 2,414 ) Total stockholders' equity 692,020 487,163 Total liabilities and stockholders' equity $ 840,894 $ 798,713 The accompanying notes are an integral part of these Consolidated Financial Statements. 39 Table of Contents LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 30, December 31, January 1, (In thousands) 2023 2022 2022 Cash flows from operating activities: Net income $ 259,061 $ 178,882 $ 95,922 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 34,432 29,323 24,429 Stock-based compensation expense 70,197 55,530 46,475 Change in deferred income tax provision ( 58,614 ) ( 1,420 ) ( 324 ) Amortization of right-of-use assets 6,764 6,512 6,587 Impairment of operating lease right-of-use asset — 1,149 — Other non-cash adjustments 253 754 137 Changes in assets and liabilities: Accounts receivable, net ( 10,355 ) ( 14,159 ) ( 12,013 ) Inventories, net 11,549 ( 42,781 ) ( 2,995 ) Prepaid expenses and other assets ( 6,001 ) ( 6,276 ) 1,918 Accounts payable ( 7,549 ) 7,439 7,046 Accrued liabilities ( 12,664 ) 21,409 ( 2,907 ) Accrued payroll obligations ( 10,005 ) 8,903 9,692 Operating lease liabilities, current and long-term portions ( 7,480 ) ( 6,459 ) ( 6,245 ) Net cash provided by (used in) operating activities 269,588 238,806 167,722 Cash flows from investing activities: Capital expenditures ( 20,098 ) ( 23,338 ) ( 9,835 ) Cash paid for software and intellectual property licenses ( 13,152 ) ( 11,594 ) ( 11,862 ) Cash paid for business acquisition, net of cash acquired — — ( 68,099 ) Net cash provided by (used in) investing activities ( 33,250 ) ( 34,932 ) ( 89,796 ) Cash flows from financing activities: Restricted stock unit tax withholdings ( 52,078 ) ( 54,946 ) ( 54,191 ) Proceeds from issuance of common stock 8,365 7,159 8,827 Repurchase of common stock ( 80,004 ) ( 110,132 ) ( 70,124 ) Proceeds from long-term debt, net of issuance costs — 148,597 — Repayment of long-term debt ( 130,000 ) ( 178,750 ) ( 13,125 ) Net cash provided by (used in) financing activities ( 253,717 ) ( 188,072 ) ( 128,613 ) Effect of exchange rate change on cash ( 26 ) ( 1,650 ) ( 75 ) Net increase (decrease) in cash and cash equivalents ( 17,405 ) 14,152 ( 50,762 ) Beginning cash and cash equivalents 145,722 131,570 182,332 Ending cash and cash equivalents $ 128,317 $ 145,722 $ 131,570 Supplemental disclosure of cash flow information and non-cash investing and financing activities: Interest paid $ 3,240 $ 3,973 $ 2,313 Income taxes paid, net of refunds $ 15,754 $ 4,621 $ 3,304 Operating lease payments $ 8,344 $ 7,419 $ 7,639 Accrued purchases of plant and equipment $ 392 $ 1,357 $ 1,360 Operating lease right-of-use assets obtained in exchange for lease obligations $ 3,718 $ 2,134 $ 8,134 The accompanying notes are an integral part of these Consolidated Financial Statements. 40 Table of Contents LATTICE SEMICONDUCTOR CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Retained Accumulated Common Stock Additional Earnings Other ($.01 par value) Paid-in (Accumulated Comprehensive (In thousands, except par value data) Shares Amount Capital Deficit) Income (Loss) Total 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 Components of comprehensive income, net of tax: Net income — — — 259,061 — 259,061 Other comprehensive income (loss) — — — — ( 492 ) ( 492 ) Total comprehensive income 258,569 Common stock issued in connection with employee equity incentive plans, net of shares withheld for employee taxes 1,465 14 ( 43,727 ) — — ( 43,713 ) Stock-based compensation expense — — 70,197 — — 70,197 Repurchase of common stock ( 1,224 ) ( 12 ) ( 80,184 ) — — ( 80,196 ) Balances, December 30, 2023 137,340 $ 1,373 $ 545,586 $ 147,967 $ ( 2,906 ) $ 692,020 The accompanying notes are an integral part of these Consolidated Financial Statements. 41 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 2023, 2022, and 2021 were all 52 -week years that ended on December 30, 2023, December 31, 2022, and January 1, 2022, respectively. 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. Certain of our largest distributors 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 30, December 31, January 1, 2023 2022 2022 Arrow 32 % 28 % 27 % Weikeng 21 30 37 Future 13 8 6 Macnica 11 10 7 Other distributors 10 13 10 Revenue attributable to distributors 87 % 89 % 87 % Three of these distributors each accounted for more than 10% of net accounts receivable at certain dates presented. At December 30, 2023 and December 31, 2022 , Arrow accounted for approximately 29 % and 27 %, respectively, Weikeng accounted for approximately 36 % and 47 %, respectively, and Future accounted for approximately 18 % and 9 %, 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. 42 Table of Contents 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. 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 income (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. Revenue related to licensing and services, 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. 43 Table of Contents 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. 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. 44 Table of Contents 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. Under this guidance, we apply the practical expedient to not separate lease and non-lease components for all asset classes. 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 and amortization, licenses and masks, 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 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. Expenses from other exit or disposal activities, including the cancellation of software contracts and engineering tools or the abandonment of long-lived assets, are recorded as a part of Restructuring. 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. 45 Table of Contents 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. 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 10 - 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 30, 2023, 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 10 - 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 30, December 31, January 1, (In thousands, except per share data) 2023 2022 2022 Net income $ 259,061 $ 178,882 $ 95,922 Shares used in basic Net income per share 137,694 137,321 136,619 Dilutive effect of stock options, RSUs, ESPP shares, and equity awards with a market condition or performance condition 2,096 3,346 5,524 Shares used in diluted Net income per share 139,790 140,667 142,143 Basic Net income per share $ 1.88 $ 1.30 $ 0.70 Diluted Net income per share $ 1.85 $ 1.27 $ 0.67 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 30, December 31, January 1, (In thousands) 2023 2022 2022 Stock options, RSUs, ESPP shares, and equity awards with a market condition or performance condition excluded as they are antidilutive 376 472 638 46 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 30, December 31, January 1, (In thousands) 2023 2022 2022 Distributors $ 644,181 87 % $ 591,229 89 % $ 449,650 87 % Direct 92,973 13 % 69,127 11 % 65,677 13 % Total revenue $ 737,154 100 % $ 660,356 100 % $ 515,327 100 % Revenue by Geographical Market (In thousands) China 239,192 32 % 296,917 45 % 281,237 55 % Japan 110,403 15 % 90,902 14 % 47,915 9 % Other Asia 94,170 13 % 77,085 12 % 55,416 10 % Asia 443,765 60 % 464,904 71 % 384,568 74 % Americas 145,839 20 % 100,260 15 % 80,870 16 % Europe 147,550 20 % 95,192 14 % 49,889 10 % Total revenue $ 737,154 100 % $ 660,356 100 % $ 515,327 100 % Contract Balances Our contract assets relate to our rights to consideration for licenses and royalties due to us as a member of the HDMI Founders consortium. 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 distributed to us by the HDMI licensing 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 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 Revenues recorded during the period 12,941 Transferred to Accounts receivable or collected ( 9,094 ) Contract assets as of December 30, 2023 $ 11,194 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 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 Less: Product shipments from prepaid customer deposit ( 12,946 ) Accruals for estimated future stock rotation and scrap returns 9,867 Less: Release of accruals for recognized stock rotation and scrap returns ( 9,283 ) Contract liabilities as of December 30, 2023 $ 5,304 47 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 30, December 31, (In thousands) 2023 2022 Accounts receivable $ 104,373 $ 94,018 Less: Allowance for credit losses — — Accounts receivable, net of allowance for credit losses $ 104,373 $ 94,018 We had no material bad debt expense in fiscal 2023, 2022, or 2021. Inventories December 30, December 31, (In thousands) 2023 2022 Work in progress $ 65,396 $ 58,269 Finished goods 33,430 52,106 Total inventories, net $ 98,826 $ 110,375 Accrued Liabilities Included in Accrued liabilities in the Consolidated Balance Sheets are the following balances: December 30, December 31, (In thousands) 2023 2022 Liability for non-cancelable contracts $ 11,418 $ 10,498 Contract liabilities 5,304 17,666 Current portion of operating lease liabilities 5,571 6,454 Foreign, VAT, and other taxes payable 6,758 4,268 Other accrued liabilities 6,997 9,581 Total accrued liabilities $ 36,048 $ 48,467 Note 5 - Property and Equipment December 30, December 31, (In thousands) 2023 2022 Production equipment and software $ 159,950 $ 149,787 Leasehold improvements 13,519 12,416 Office furniture and equipment 1,933 1,760 175,402 163,963 Accumulated depreciation and amortization ( 125,856 ) ( 116,349 ) Total property and equipment, net $ 49,546 $ 47,614 For fiscal years 2023 , 2022 , and 2021 depreciation and amortization expense for property and equipment was $ 17.3 million, $ 13.8 million, and $ 12.0 million, respectively. 48 Table of Contents Property and Equipment – Geographic Information Our Property and equipment, net by country at the end of each period was as follows: December 30, December 31, (In thousands) 2023 2022 United States $ 29,467 $ 29,118 Taiwan 10,222 10,732 Philippines 4,602 3,596 China 2,778 2,229 Other 2,477 1,939 Total foreign property and equipment, net 20,079 18,496 Total property and equipment, net $ 49,546 $ 47,614 Note 6 - Intangible Assets and Goodwill In connection with our previous acquisitions, we have recorded identifiable intangible assets related to existing technology, customer relationships, trade names, and trademarks, 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 2023 , 2022, or 2021. The following tables summarize the details of our Intangible assets, net as of December 30, 2023 and December 31, 2022 : December 30, 2023 (In thousands) Weighted Average Amortization Period (in years) Gross Accumulated Amortization Intangible assets, net Existing technology 5.1 $ 124,487 $ ( 115,085 ) $ 9,402 Customer relationships 6.1 32,734 ( 25,909 ) 6,825 Trade name / trademarks 10.0 1,500 ( 319 ) 1,181 Licensed technology 6.2 7,127 ( 3,561 ) 3,566 Total identified intangible assets $ 165,848 $ ( 144,874 ) $ 20,974 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 49 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 30, December 31, January 1, (In thousands) 2023 2022 2022 Research and development $ 1,074 $ 1,054 $ 901 Amortization of acquired intangible assets 3,478 3,778 2,613 $ 4,552 $ 4,832 $ 3,514 The annual expected amortization expense of acquired intangible assets is as follows: Fiscal year (In thousands) 2024 $ 4,417 2025 4,370 2026 4,362 2027 4,268 2028 3,125 Thereafter 432 Total $ 20,974 Goodwill Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets. The goodwill balance at December 30, 2023 is comprised of approximately $ 315.4 million from prior acquisitions. No impairment charges relating to goodwill were recorded for fiscal 2023 , 2022, or 2021. Note 7 - 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 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 income (expense), 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 2023, we made discretionary payments totaling $ 130 million on the revolving loans outstanding under the 2022 Credit Agreement. 50 Table of Contents The fair value of our long-term debt approximates the carrying value, which is reflected in our Consolidated Balance Sheets as follows: December 30, December 31, (In thousands) 2023 2022 Principal amount $ - $ 130,000 Unamortized original issuance discount and debt costs — ( 1,248 ) Long-term debt, net of unamortized debt issue costs $ - $ 128,752 Interest expense related to our long-term debt is included in Interest expense on our Consolidated Statements of Operations as follows: Year Ended December 30, December 31, January 1, (In thousands) 2023 2022 2022 Contractual interest $ 2,701 $ 4,500 $ 2,304 Amortization of original issuance discount and debt costs 266 310 362 Total interest expense related to long-term debt $ 2,967 $ 4,810 $ 2,666 Note 8 - Restructuring In the third quarter of 2023, our management approved and executed an internal restructuring plan (the “Q3 2023 Plan”), which included a targeted workforce reduction intended to reorganize critical roles and focus skillsets in key growth markets. We incurred restructuring costs of approximately $ 2.0 million in fiscal 2023. Under this plan, approximately $ 2.0 million of total costs have been incurred through December 30, 2023. The Q3 2023 plan is expected to be largely complete by the end of fiscal year 2024. In September 2022, our management approved and implemented additional contract cancellations and workforce 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. Under the Q2 2019 Sales Plan, we incurred no restructuring costs in fiscal 2023, approximately $ 1.0 million of incremental restructuring costs in fiscal 2022, and no restructuring costs in fiscal 2021. Under this plan, approximately $ 3.1 million of total expense has been incurred through December 30, 2023. All actions planned under the Q2 2019 Sales Plan have been implemented. In June 2017, our Board of Directors approved an internal restructuring plan (the "June 2017 Plan"), which included actions, among others, to reconfi gure our use of certain leased properties. Under the June 2017 Plan, we incurred restructuring costs of approximately $ 0.1 million in fiscal 2023, approximately $ 1.6 million in fiscal 2022 (which includes 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), and approximately $ 0.7 million in fiscal 2021. Under this plan, we have incurred approximately $ 23.3 million of total expense through December 30, 2023. All actions planned under the June 2017 Plan have been implemented. These costs, and adjustments on previous plans, are recorded to Restructuring on our Consolidated Statements of Operations. The restructuring accrual balance is presented in Accrued liabilities and in Other long-term liabilities on our Consolidated Balance Sheets. The following table displays the activity related to our restructuring plans: (In thousands) Severance & Related (1) Lease Termination & Fixed Assets Other (2) Total Accrued Restructuring at January 2, 2021 $ 246 $ 8,233 $ 664 $ 9,143 Restructuring 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 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 Restructuring 1,848 56 4 1,908 Costs paid or otherwise settled ( 758 ) ( 1,440 ) ( 24 ) ( 2,222 ) Accrued Restructuring at December 30, 2023 $ 1,490 $ 4,508 $ 620 $ 6,618 ( 1 ) Includes employee relocation costs and outplacement costs ( 2 ) Includes termination fees on the cancellation of certain contracts 51 Table of Contents Note 9 - 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 2029. Our leases have remaining lease terms of less than 1 year to 5 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 3.3 years and the weighted-average discount rate was 5.8 % as of December 30, 2023. We recorded fixed operating lease expense of $ 7.8 million, $ 7.6 million, and $ 7.9 million, respectively, for fiscal 2023 , 2022, and 2021. The following table presents the lease balance classifications within the Consolidated Balance Sheets and summarizes their activity during fiscal 2023 : Operating lease right-of-use assets (In thousands) Balance as of December 31, 2022 $ 17,590 Right-of-use assets obtained for new lease contracts during the period 3,718 Amortization of right-of-use assets during the period ( 6,764 ) Adjustments for present value and foreign currency effects ( 57 ) Balance as of December 30, 2023 $ 14,487 Operating lease liabilities (In thousands) Balance as of December 31, 2022 $ 20,072 Lease liabilities incurred for new lease contracts during the period 3,718 Accretion of lease liabilities 1,003 Operating cash used for payments on lease liabilities ( 8,344 ) Adjustments for present value and foreign currency effects ( 139 ) Balance as of December 30, 2023 16,310 Less: Current portion of operating lease liabilities (included in Accrued liabilities) ( 5,571 ) Long-term operating lease liabilities, net of current portion $ 10,739 Lease obligations for facilities restructured prior to the adoption of Topic 842 totaled approximately $ 4.5 million at December 30, 2023 and continued to be recorded in Other long-term liabilities on our Consolidated Balance Sheets. Maturities of operating lease liabilities as of December 30, 2023 are as follows: Fiscal year (In thousands) 2024 $ 6,502 2025 5,049 2026 3,412 2027 1,750 2028 1,235 Thereafter 201 Total lease payments 18,149 Less: amount representing interest ( 1,839 ) Total lease liabilities $ 16,310 Note 10 - Stock-Based Compensation Plans Employee and Director Stock Options, Restricted Stock, and ESPP Plans As of December 30, 2023, we have two active equity incentive plans, the "2023 Equity Incentive Plan" (which was adopted in 2023 and superseded the "2013 Incentive Plan" such that no additional shares will be granted under 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. "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. 52 Table of Contents We also maintain the 2012 Employee Stock Purchase Plan ( "2012 ESPP"), pursuant to which eligible employees may contribute through payroll deductions up to 10 % of base compensation, subject to certain income limits, to purchase shares of our common stock. 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 30, 2023 , a total of 0.9 million shares of our common stock were available for future purchases under the 2012 ESPP. At December 30, 2023 , a total of 11.7 million shares of our common stock were available for future grants under the 2023 Equity Incentive Plan and the 2011 Non-Employee Director Equity Incentive Plan. Neither the 2023 Equity Incentive Plan nor the 2011 Non-Employee Director Equity Incentive Plan have any fungible share ratio or counting provision . 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 30, December 31, January 1, (In thousands) 2023 2022 2022 Cost of revenue $ 4,506 $ 3,674 $ 3,049 Research and development 27,782 19,645 14,563 Selling, general, and administrative 37,909 32,211 28,863 Total stock-based compensation $ 70,197 $ 55,530 $ 46,475 The income tax benefit related to total stock-based compensation expense was $ 7.6 million for fiscal 2023, which is reflected in Income tax (benefit) expense in the Consolidated Statements of Operations. The income tax benefit related to awards vested or exercised during fiscal 2023 was $ 10.4 million. The income tax benefits related to stock-based compensation were not significant for the periods presented prior to fiscal 2023 as they were offset by an increase in valuation allowance. 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 2023, 2022, or 2021. 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 30, December 31, January 1, 2023 2022 2022 Employee Stock Purchase Plan Weighted average expected volatility 48.2 % 60.3 % 39.9 % Weighted average risk-free interest rate 5.37 % 3.74 % 0.07 % 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 $ 24.38 , $ 15.25 , and $ 13.04 for fiscal years 2023 , 2022 , and 2021 , respectively. At December 30, 2023, 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-based compensation expense related to the ESPP of approximately $ 2.2 million, $ 1.5 million, and $ 1.2 million in fiscal 2023 , 2022 , and 2021 , respectively. Related to stock options, w e recorded no expense in fiscal 2023 and 2022 , and approximately $ 1.0 million in fiscal 2021 . 53 Table of Contents The following table summarizes our stock option activity and related information for the year ended December 30, 2023: (Shares and aggregate intrinsic value in thousands) Shares Weighted average exercise price Weighted average remaining contractual term (years) Aggregate Intrinsic Value Balance, December 31, 2022 918 $ 6.70 Granted — — Exercised ( 487 ) 6.66 Forfeited or expired ( 3 ) 5.84 Balance, December 30, 2023 428 $ 6.75 Vested and expected to vest at December 30, 2023 428 $ 6.75 1.16 $ 26,626 Exercisable, December 30, 2023 428 $ 6.75 1.16 $ 26,626 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 2023 , 2022 , and 2021 was $ 37.3 million, $ 24.3 million, and $ 44.7 million, respectively. Time-Based Restricted Stock Unit Awards The following table summarizes the activity for our time-based RSUs for the year ended December 30, 2023: (Shares in thousands) Shares Weighted average grant date fair value Balance, December 31, 2022 1,821 $ 50.18 Granted 995 84.80 Vested ( 880 ) 41.63 Forfeited or expired ( 55 ) 56.69 Balance, December 30, 2023 1,881 $ 72.31 At December 30, 2023, there was $ 121.3 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 2023 , 2022 , and 2021 , we recorde d stock-based compensation expense related to time-based RSUs of approximately $ 41.5 million, $ 30.1 million, and $ 21.7 million, respectively. Market-Based and Performance-Based Awards In 2021 through 2023 , 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 and third quarters of fiscal 2023, and in the first quarters of fiscal 2022 and 2021, 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 a specified index. For the 2023 grants, the TSR condition is measured relative to the Russell 3000 index on either the third anniversary of the grant date, or equally on the first, second, and third anniversary of the grant date, depending on the executive. For the 2022 and 2021 grants, the TSR condition is measured relative to the Russell 2000 index on the third anniversary of the grant date . The awards may vest at 250 % or 200 %, depending on 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. 54 Table of Contents 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 second and third tranches of these awards, the Company had met the year-over-year revenue growth performance criteria at the 200 % and 116.3 % level of achievement, respectively, as of December 31, 2022 and December 30, 2023. Market-Based and Performance-Based Awards — Vesting During fiscal 2023, 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 2023, the first tranche of awards granted in fiscal 2021 with a year-over-year revenue growth performance condition vested at the 200 % level of achievement, as the Company met the maximum year-over-year revenue growth performance criteria as of January 1, 2022, and the 13 -month vesting period had been met. 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. Market-Based and Performance-Based Awards — Compensation Expense For our awards with a market condition or a performance condition, we incurred stock-based compensation expense of approximately $ 26.4 million, $ 24.0 million, and $ 22.1 million in fiscal years 2023 , 2022 , and 2021 , respectively, which is recorded as a component of total stock-based compensation. At December 30, 2023, there was $ 27.3 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 30, December 31, January 1, 2023 2022 2022 Executive RSUs with a market condition or performance condition Weighted average expected volatility 50.97 % to 54.31 % 51.44 % 50.37 % to 52.11 % Weighted average risk-free interest rate 4.28 % to 4.59 % 1.67 % 0.22 % to 0.77 % Expected term (years) 3 3 3 to 5 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, December 31, 2022 985 $ 60.15 Granted 172 146.69 Effect of vesting multiplier 334 Vested ( 639 ) 40.22 Balance, December 30, 2023 852 $ 84.73 55 Table of Contents Note 11 - 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 was through December 30, 2023. During the fourth quarter of fiscal 2023, we repurchased 872,994 shares for $ 50.2 million, or an average price paid per share of $ 57.49 , under the 2023 Repurchase Program. 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 2023. We repurchased a total of 1,224,443 shares for $ 80.2 million, or an average price paid per share of $ 65.50 , during fiscal year 2023. On November 30, 2023, we announced that our Board of Directors had approved a stock repurchase program pursuant to which up to an additional $ 250 million of outstanding common stock could be repurchased from time to time (the "2024 Repurchase Program"). The duration of the 2024 Repurchase Program is through December 28, 2024. No shares were repurchased under the 2024 Repurchase Program during the fourth quarter of fiscal 2023. Note 12 - 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 30, December 31, January 1, (In thousands) 2023 2022 2022 Domestic $ 55,069 $ 30,362 $ 24,003 Foreign 159,787 151,750 73,623 Income before taxes $ 214,856 $ 182,112 $ 97,626 The components of Income tax (benefit) expense are as follows: Year Ended December 30, December 31, January 1, (In thousands) 2023 2022 2022 Current: Federal $ 10,331 $ 748 $ 445 State 1,059 265 45 Foreign 3,019 3,637 1,538 14,409 4,650 2,028 Deferred: Federal ( 56,323 ) — — State — — — Foreign ( 2,291 ) ( 1,420 ) ( 324 ) ( 58,614 ) ( 1,420 ) ( 324 ) Income tax (benefit) expense $ ( 44,205 ) $ 3,230 $ 1,704 56 Table of Contents Income tax (benefit) 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 30, December 31, January 1, 2023 2022 2022 % % % Statutory federal rate 21 21 21 Adjustments for tax effects of: State taxes, net (1) (2) (4) Federal tax credits (4) (1) (3) Excess tax benefit from stock-based compensation (2) — (8) Foreign rate differential (15) (16) (14) U.S. tax on foreign operations 9 33 3 Capital loss expiration — 1 3 Valuation allowance (29) (33) 8 Change in uncertain tax benefit accrual — (2) (5) Other — 1 1 Effective income tax rate (21) 2 2 We updated our evaluation of the valuation allowance position in the United States through December 30, 2023. In making this evaluation, we considered our operating environment and estimates about our ability to generate taxable income in future periods within the United States. As a result of our consistent and continued profitability over the preceding three -year period and our expectations about generating sufficient U.S. Federal taxable income, we have determined that there is sufficient evidence that our U.S. Federal deferred tax assets are more likely than not to be realized. In the fourth quarter of fiscal 2023, we reduced the valuation allowance against a significant portion of our U.S. deferred tax assets resulting in the inclusion of $ 56.9 million of U.S. Federal deferred tax assets on our Consolidated Balance Sheets. We continue to maintain a full valuation allowance against our state deferred tax assets due to insufficient income sources. We will continue to evaluate both positive and negative evidence in future periods to determine if we will realize the deferred tax assets. We do not maintain a valuation allowance in any foreign jurisdictions as we have concluded it is more likely than not that we will realize those net deferred tax assets in future periods. The components of our net deferred tax assets and liabilities are as follows: (In thousands) December 30, 2023 December 31, 2022 Deferred tax assets: Intangible assets $ 4,274 $ 6,264 Net operating loss carry forwards 13,829 15,362 Tax credit carry forwards 87,955 103,092 Accrued liabilities and reserves 23,249 12,932 Stock-based and deferred compensation 5,199 3,769 Other 5,162 5,031 Total deferred tax assets 139,668 146,450 Less: valuation allowance ( 79,100 ) ( 140,533 ) Net deferred tax assets 60,568 5,917 Deferred tax liabilities: Fixed assets 1,475 2,058 Unremitted earnings 620 2,498 Other 6,889 8,134 Total deferred tax liabilities 8,984 12,690 Net deferred taxes $ 51,584 $ ( 6,773 ) Reported as: Deferred tax assets $ 57,762 $ 1,022 Deferred tax liabilities (included in Other long-term liabilities) ( 6,178 ) ( 7,795 ) Net deferred taxes $ 51,584 $ ( 6,773 ) 57 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 30, 2023 $ 140,533 $ ( 61,433 ) $ — $ 79,100 December 31, 2022 $ 200,438 $ ( 59,905 ) $ — $ 140,533 January 1, 2022 $ 192,478 $ 7,960 $ — $ 200,438 At December 30, 2023, we had U.S. federal net operating loss ("NOL") carryforwards (pretax) of approximately $ 8.0 million which will expire between 2027 and 2028. We had state NOL carryforwards (pretax) of approximately $ 134.5 million that substantially all expire at various dates from 2024 through 2041. We also had federal credit carryforwards of $ 45.0 million that expire at various dates from 2033 through 2043, and $ 78.9 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 30, 2023, 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 30, 2023 and December 31, 2022, our unrecognized tax benefits associated with uncertain tax positions were $ 61.4 million and $ 58.9 million, respectively, of which $ 58.7 million and $ 56.3 million, respectively, if recognized, would affect the effective tax rate, subject to valuation allowance. As of December 30, 2023 and December 31, 2022, interest and penalties associated with unrecognized tax benefits were $ 11.3 million and $ 10.6 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 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 Additions based on tax positions related to the current year 2,247 Additions based on tax positions of prior years 1,128 Reductions for tax positions of prior years ( 156 ) Reduction as a result of lapse of applicable statute of limitations ( 696 ) Balance at December 30, 2023 $ 61,412 Our liability for uncertain tax positions (including penalties and interest) was $ 21.9 million and $ 21.6 million at December 30, 20 23 and December 31, 2022 , respectively, and is recorded as a component of Other long-term liabilities on our Consolidated Balance Sheets. At December 30, 2023, it is reasonably possible that $ 0.3 million of unrecognized tax benefits and $ 0.1 million of associated interest and penalties could be recognized during the next twelve months. The years that remain subject to examination ar e 2017 for federal income taxes, 2019 for state income taxes, and 2017 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. 58 Table of Contents Note 13 - 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 $ 3.1 million, $ 2.8 million, and $ 2.6 million in fiscal years 2023 , 2022 , and 2021 , respectively. Cash Incentive Plans For 2023 , 2022 , and 2021 , 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 $ 15.0 million, $ 25.2 million, and $ 18.0 million of expense under the Cash Plans in fiscal 2023 , 2022 , and 2021 , respectively. Note 14 - Contingencies Legal Proceedings 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 alleged that we violated the Lanham Act, engaged in negligence, fraud, and breach of contract by failing to disclose to the Plaintiffs the export-controlled status of the subject parts. In January 2019, we removed the action to the United States District Court for the District of Oregon (the “Court”). On May 24, 2023, the Plaintiffs filed a second amended complaint, which added Apex-Micro Manufacturing Corporation as a plaintiff and removed the violation of the Lanham Act claim. The Plaintiffs sought damages of $ 180 million, punitive damages, and other remedies. On January 18, 2024, the court dismissed the claims against the Company by Perienne De Jaray and Darrell R. Oswald. The trial for the remainder of the claims was held from January 30, 2024 to February 15, 2024. On February 13, 2024, after both parties rested their cases and prior to the submission of the case to the jury, the Company filed a Rule 50 motion for judgment as a matter of law as to all remaining claims due to insufficient evidence to support the claims. The Court granted the Company’s Rule 50 motion in part and entered judgment in the Company’s favor as to all of Steven De Jaray’s claims and Apex-Micro Manufacturing Corporation’s negligence claims. On February 15, 2023, the jury found that the Company was not liable for all outstanding claims and the presiding judge stated he would enter the judgment in favor of the Company. 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. 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 the Financial Statements We have audited the accompanying consolidated balance sheets of Lattice Semiconductor Corporation (the Company) as of December 30, 2023 and December 31, 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 30, 2023, 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 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 30, 2023, 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 30, 2023, 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 16, 2024 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 is a matter arising from the current period audit of the financial statements that was 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 the critical audit matter 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 it relates. Inventory Valuation Description of the Matter The Company's net inventory totaled $98.8 million as of December 30, 2023. 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 16, 2024 60 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 30, 2023, 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 30, 2023, 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 30, 2023 and December 31, 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 30, 2023, and the related notes and our report dated February 16, 2024 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 OverFinancial 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 16, 2024 61 Table of Contents Item 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure None.