Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED January 2, 2021DECEMBER 30, 2023

 

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO __________

 

Commission file number: 000-18032

 

latticelogocolorpmsa51.jpg
 

LATTICE SEMICONDUCTOR CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

93-0835214

(State of Incorporation)

(I.R.S. Employer Identification Number)

5555 NE Moore Court, Hillsboro, Oregon

97124-6421

(Address of principal executive offices)

(Zip Code)

 

Registrant's telephone number, including area code: (503) 268-8000

 

Securities registered pursuant to Section 12(b) of the Act:

 

(Title of Class)

(Trading Symbol)

(Name of each exchange on which registered)

Common Stock, $.01 par value

LSCC

Nasdaq Global Select Market

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐    No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐    No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ☐    No ☑

Aggregate market value of voting stock held by non-affiliates of the registrant as of June 27, 2020

$

3,252,740,803

 

Number of shares of common stock outstanding as of February 19, 2021

136,532,920

 

Aggregate market value of voting stock held by non-affiliates of the registrant as of July 1, 2023

$

10,394,183,650

 

Number of shares of common stock outstanding as of February 12, 2024

137,550,564

 

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference from the registrant's definitive proxy statement relating to the 20202024 Annual Meeting of Stockholders, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.

 

 

 
 

LATTICE SEMICONDUCTOR CORPORATION

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

 

 

 

Page

 

 

 

 

 

 

Note Regarding Forward-Looking Statements

2

 

 

 

 

PART I

 

 

 

Item 1.

 

Business

3

Item 1A.

 

Risk Factors

9

Item 1B.

 

Unresolved Staff Comments

2023

Item 1C.Cybersecurity23

Item 2.

 

Properties

2023

Item 3.

 

Legal Proceedings

2023

Item 4.

 

Mine Safety Disclosures

2023

 

 

 

 

PART II

 

 

 

Item 5.

 

Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

2124

Item 6.

 

Selected Financial DataReserved

2325

Item 7.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

2426

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

3435

Item 8.

 

Financial Statements and Supplementary Data

3536

Item 9.

 

Changes in and Disagreements with Accountants On Accounting and Financial Disclosure

6562

Item 9A.

 

Controls and Procedures

6562

Item 9B.

 

Other Information

6663

Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections63

 

 

 

 

PART III

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

6763

Item 11.

 

Executive Compensation

6764

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

6764

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

6764

Item 14.

 

Principal Accountant Fees and Services

6764

 

 

 

 

PART IV

 

 

 

Item 15.

 

Exhibits

6865

 

 

Signatures

7168

 

1


 

Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These involve estimates, assumptions, risks, and uncertainties. Any statements about our expectations, beliefs, plans, objectives, assumptions, or future events or performance are not historical facts and may be forward-looking. We use words or phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “plan,” "possible," “predict,” “projects,” “may,” “will,” “should,” “continue,” “ongoing,” “future,” “potential,” and similar words or phrases to identify forward-looking statements.

Forward-looking statements include, but are not limited to, statements about: our target or expected financial performance and our ability to achieve those results; future impacts of the ongoing military conflicts between Ukraine and Russia, and in the Middle East, and the outbreak of new, or expansion of current, military conflicts or terrorism; the impact of any continuing trade or travel restrictions on the export and import of products between the U.S. and China; the impact of any deterioration in relations between Taiwan and China, and other factors affecting military, political, or economic conditions in Taiwan or elsewhere in Asia; the impact of tariffs, trade sanctions, license requirements or similar actions on our suppliers and customers; the impact of inflationary pressures; future impacts of global pandemics, epidemics, and other public health problems; the effects of climate change and disruptive natural disasters on us, our suppliers, and our consumers, including as a result of actions by governments, businesses, and consumers in response; our business strategy; our opportunities to increase our addressable market; our expectations and strategies regarding market trends and opportunities, including market segment drivers such as 5Gwireless and wireline communications infrastructure deployments, clouddata center servers and enterprise servers,networking equipment, client computing platforms, industrial Internet of Things, factory automation, robotics, automotive electronics, smart homes, prosumers, and prosumers;other applications; our expectations regarding the growth of AI-related revenue; our beliefs about who we may compete with and howwhether we are differentiated from those competitors;competitors, as well as their potential capabilities; our expectations regarding our customer base and the impacts of our customers’ actions on our business; our expectations regarding both new and existing product offerings; our gross margin growth and our strategies to achieve gross margin growth and other financial results; our future investments in research and development; our ability to take advantage of the process technology development efforts of semiconductor foundries and apply those technologies when they become most economically beneficial to us and to our research and development expense efficiency;customers; the impact of changing foundries or OSATs (as defined below) or their failure to manufacture sufficient quantities of our products at acceptable yields, as well as the impact of problems with other subcontractors or distributors; the impact if we are unable to detect product defects; the impact if our insurance proves to be inadequate to resolve claims against us; whether we will experience seasonality or cyclicality;cyclicality and the resulting effects on our business; our expectations about our patent portfolio, including the expiration of patents, whether, when and where we will make future filings, and the value of the patents and associated licensing agreements generally and to our business;business, as well as risks arising from the licensing and sale of our patents; our ability to attract and retain personnel and their importance to our performance; our target or expected financial performance and our ability to achieve those results; future financial results or accounting treatments; future impacts of the COVID-19 pandemic, including as a result of actions by governments, businesses, and individuals in response to the situation, on consumer, industrial, and financial markets, our business operations, supply chain and partners, financial performance, results of operations, financial position, and the achievement of our strategic objectives; our use of cash; our judgments involved in accounting matters, including revenue recognition, inventories and cost of revenue, and income taxes; our investments in researchactions we may take regarding the design and development; the continued effectiveness of our internal controls over financial reporting; our expectationsuse of cash; our beliefs regarding product offerings;the adequacy of our liquidity, capital resources and facilities; the impact of our debt on our future operating and financial performance, as well as the impact if we breach a loan covenant; whether we will consider and act upon acquisition opportunities to extend our product, technology and product offerings;offerings and the impact of such opportunities on our expectations regarding our customer base; the expected costs of our restructuring plans;business; our expectations regarding taxes, including unrecognized tax benefits, and tax adjustments and allowances; our beliefs regardingwhether we will pursue future stock repurchases and how any future repurchases will be funded; the adequacyfuture price volatility of our liquidity, capital resourcesstock and facilities;the effects of that volatility; our ability to prevent and respond to information technology system failures, security breaches and incidents, cyberattacks or fraud, and the occurrence and impact of such cybersecurity incidents; the costs of mitigating cybersecurity risks; the impact of artificial intelligence (“AI”); the impact of laws and regulations addressing privacy, data protection, and cybersecurity and our ability to comply with the same; our ability to comply with other laws and regulations, the costs of such compliance, and costs incurred if we fail to comply with such laws and regulations; and our beliefs regarding legal or administrative proceedings.

These forward-looking statements are based on estimates and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those statements expressed in the forward-looking statements. The key factors, among others, that could cause our actual results to differ materially from the forward-looking statements include global economic conditions and uncertainty, including as a result of trade-related restrictions or tariffs; inflationary pressures; the effect of any downturn in the economy on capital markets and credit markets; the effects of the COVID-19 pandemicglobal military conflicts, pandemics or widespread global health problems and the actions by governments, businesses, and individuals in response to the situation, the effects of which may give rise to or amplify the risks associated with many of these factors listed here; global economic conditions and uncertainty, including as a result of trade-related restrictions or tariffs, the concentration of our sales in certain end markets, particularly as it relates to the concentration of our sales in the Asia Pacific region,region; market acceptance and demand for our existing and new products,products; market and technology trends,trends; our ability to achieve yield and quality improvements; our ability to protect, license orand sell our intellectual property,property; shortages or increased costs in our supply chain; any disruption of our distributors or distribution channels,channels; the impact of competitive products and pricing, the effect of any downturn in the economy on capital marketsespecially by companies with great resources than us; unanticipated warranty claims; our failure to prevent or adequately respond to information technology system failures, security breaches and credit markets,incidents, cyberattacks, or fraud; physical and transition disruptions and costs associated with climate change; unanticipated taxation requirements or positions of the U.S. Internal Revenue Service or other taxing authority,authority; unanticipated effects of tax reform,reform; unfavorable results of legal proceedings; our ability to attract and retain key personnel; the sufficiency of our insurance coverage; the impact of our outstanding indebtedness on our strategic flexibility, liquidity and results of operations; the impact of strategic transactions; or unexpected impacts of accounting guidance. In addition, actual results are subject to other risks and uncertainties that relate more broadly to our overall business, including those more fully described herein and that are otherwise described from time to time in our filings with the Securities and Exchange Commission ("SEC"), including, but not limited to, the items discussed in Part I, Item 1A, “Risk Factors,” in this Annual Report on Form 10-K.

You should not unduly rely on forward-looking statements because our actual results could differ materially from those expressed by us. In addition, any forward-looking statement applies only as of the date of this filing. We do not plan to, and undertake no obligation to, update any forward-looking statements to reflect new information or new events, circumstances or developments, or otherwise.

2


 

PART I



 

Item 1. Business

 

Overview

 

Lattice Semiconductor Corporation and its subsidiaries (“Lattice,” the “Company,” “we,” “us,” or “our”) develop technologies that we monetize through differentiated programmable logic semiconductor products, system solutions, design services, and licenses. Lattice is the low power programmable leader. We solve customer problems across the network, from the Edge to the Cloud, in growing communications, computing, industrial, automotive,the Communications, Computing, Industrial, Automotive, and consumerConsumer markets. Our technology, long-standing relationships, and commitment to world-class support enable our customers to create a smart, secure, and connected world.

 

Our field programmable gate array ("FPGA") devices enable us to provide our customers with a strong, growing base of control, connect, and compute technologies. We believe there are multiple growth areas that will allow us to increase our addressable market. In particular, we believe there are several emerging trends in servers, infrastructure, and smart devices that are opportunities for Lattice:

 

With the growth of hyperscale data centers, our “processor agnostic” solutions are ideal for dataplane control and connect functions in enterprise and data center server applications.

With the expected continued communicationsCommunications infrastructure build-out from 5G deployment and beyond, as well as continued data center network expansion, Lattice solutions are being adopted to control and connect a variety of functions in critical systems.

With the increase in electrification and the proliferation of sensors in smart factories, smart homes, and automobiles, our low power, small form factor solutions are ideal for everything from battery powered systems and sensor applications to embedded vision.

With the increase in artificial intelligence machine learning,("AI") and a multitude of applications at the network edge, Lattice devices support applications that often act independently and need to make instantaneous decisions. Our solutions provide the computing and learning capabilities to perform functions like face detection, image recognition, and video analytics.

With the demand for more hardware security in the communications, computing, industrial, automotive,Communications, Computing, Industrial, Automotive, and consumerConsumer markets, our hardware root of trust devices provide enhanced platform firmware resilience. This provides a secure boot for systems that are dependent on processors.security.

 

To serve these emerging needs, customer solutions require low power efficiency, memory bandwidth, processing power, and the ability to integrate complex functionality into a highly compact footprint. These requirements align towith the capabilities of our FPGA devices. Our flexible, low power, small form factor, easy to useperformance optimized FPGAs put us in a unique position to meet these growing market needs.

 

Our Markets and Customers

 

We sell our products globally in three end market groups: Communications and Computing, Industrial and Automotive, and Consumer. We also provide Intellectual Property ("IP") licensing and services to these end markets.

 

In the Communications and Computing Market, our solutions play key roles in computing systems such as servers and clients,client devices, 5G wireless infrastructure, switches, / routers, and other related applications.

 

Our Communications and Computing customers need to address a variety of challenges.

 

As client compute devices become smaller and smarter, there is a need for small form factor devices with power efficiency to interface with a variety of sensors and add intelligence.

As server architectures become increasingly complex, customers need simplified control logic, enhanced hardware platform security, system status monitoring, and rigorous power and thermal management.

Networks typically require progressively higher bandwidth and increased reliability as more data is demanded by consumer and other connected devices. Bandwidth demands are also driven by the rapid transition to cloud-based infrastructure.

As wireless cellcellular sites become more compact, without fans, there is a growing requirement for smaller form factors optimized for low power consumption.consumption and thermal management.

 

Lattice FPGAs help solve these customer problems. Our FPGAs are optimized for input/output ("I/O") expansion, low cost per look-up table, hardware acceleration, and hardware management. Our FPGAs consume power at very low rates, which reduces operating costs and supports the continued miniaturization of consumer devices.costs. Their small form factor enables higher functional density in less space. Finally, our FPGAs are I/O rich, which allows for more connections with system application specific integrated circuits ("ASICs") and application specific standard products ("ASSPs").

 

3


 

Examples of where our products enable intelligent automation in the Industrial and Automotive Market include industrial Internet of Things ("IoT") and "Industry 4.0", machine vision, robotics, factory automation, advanced driver assistance systems ("ADAS"), and automotive infotainment.

 

Our Industrial and Automotive customers face numerous challenges:

 

As smart factories develop,automate to improve efficiency and employee safety, sensors, machine vision, and robotics are proliferating, and machine vision is becoming higher definition, in turn requiring increasing amounts of data to be gathered, connected, and processed.

Cars, trucks,Automobiles and trainsother forms of transportation are also becoming smarter and more connected. Drivers and passengers are demanding better in-cabin experiences including entertainment, diagnostics, and enhanced safety — often involving multiple displays, cameras, and sensors.

As factories and automotive manufacturers continue their evolution of computerization, power reduction, faster time to design-in and market, lower costs are becoming increasingly normal.

Mission-critical defense applications demand increasing reliability, while being optimized for size, weight, power, and cost ("SWaP-C").

 

Our product portfolio helps solve these challenges. Our small-sized, low-power FPGAs not only provide the I/O expansion, bridging, connectivity, and processing inherent in FPGAs, but they also form the backbone of several integrated solutions, including motor control, complete High Definition ("HD") camera and DVR solutions on a single FPGA device, and Human-Machine Interfaces ("HMI") on a chip.

 

In the Consumer Market, you can find our solutions making products smarter and thinner, including:smaller, including smart home devices, prosumer devices, sound bars, high end projectors, Augmented Reality ("AR") / Virtual Reality ("VR"), and wearables.

 

Our Consumer customers are driven by the need to deliver richer and more responsive experiences. They typically require:

 

More intelligence and computing power. Products need to be "always-on" and "always-aware."

Longer battery lives for handheld devices and reduced energy consumption for plugged-in devices.

Real-time transmission of higher resolution video content on larger screen sizes.

Fast design cycles. Products must be quickly and easily differentiated.

Smaller form factors. Products need to lay flatter on the wall or fit more easily in people’sinto pockets.

Various levels of video processing and analytics.

 

Lattice FPGAs bring multiple benefits to these customers. An FPGA’s parallel architecture enables faster processing than competing devices, such as microcontrollers, allowing for a user experience with shorter pauses and fewer delays. Our FPGAs are among the lowestmost power consumptionefficient in the industry, enabling the application processor and other high-power components to remain dormant longer, resulting in longer battery life. Finally, with some of the industry’s smallest packages, we enable thinner and more compact end products.

 

Our proprietary solutions help our customers get their products to market faster than typical development cycles.cycles of custom ASICs. With re-programmability and flexibility, our FPGAs inherently allow our customers to have quicker product development. The time-to-market advantages of Lattice's solutions are critical given the shorter product life cycles and higher competition in our customers’ end markets.

 

Our Products, Services, and Competition

 

We are focused on delivering FPGAs and related solutions to help solve our customers' problems. We also serve our customers with IP licensing and various other services.

 

Field Programmable Gate Arrays (“FPGAs”)

 

FPGAs are regular arrays of logic that can be custom-configured by the user through software. This programmability allows our customers flexibility and reduced time to market while allowing us to offer the chips to many different customers in many different markets. FourLattice FPGA product families anchor our FPGA offerings:include:

 

The Certus-NXLattice Avant™, Certus™ and ECPLatticeECP™ device families are our “General Purpose FPGAs” and address a broad range of applications across multiple markets. They offer customers the optimal cost per gate, Digital Signal Processing ("DSP") capability, and Serialize-Deserialize ("SerDes"SERDES") connectivity. ECP devices are optimized for the Communications and Computing market but also find significant use in the Industrial, Automotive, and Consumer markets. The latest introductions in our general purpose family, Lattice Avant-G™ and Lattice Avant-X™ FPGAs, are designed to solve key customer challenges by combining class-leading power efficiency, size and performance with an optimized feature set tailored to the needs of mid-range FPGA applications like sensor fusion, datapath networking, and AI.

The MachXO familiesLattice Mach™ device family are known asour “Control & Security FPGAs” and are optimizeddesigned for platform management and security applications. They are control orientedcontrol-oriented and offer the most optimized cost per I/O along with the lowestand cost per look-up table. MachXO familiesMach™ FPGAs are widely used across our three end market groups: Communications and Computing, Industrial and Automotive, and Consumer. OurThe Lattice MachXO5T™-NX family, the latest generation MachXO3Ddevices built on the award-winning Lattice Nexus™ platform are the newest addition to the Mach™ FPGA family, bringing Lattice’s long-standing leadership in control FPGAs to a broader set of control function designs and Mach-NX FPGAs come with pre-verified cryptographic functions to enable Hardware Root-of-Trust functionality, which is neededapplications for systems to have platform firmware resiliency, i.e. the ability to protect, detect,enterprise networking, machine vision, and recover from unauthorized firmware attacks.industrial IoT.

 

4


 

iCE40 familiesThe Lattice iCE™ device family are known asour “Ultra Low Power FPGAs.” Their small size and ultra-low power make them the optimal products for each of our core segments where small form factor and customizing is required. The latest member of the family, the iCE40 UltraPlus,UltraPlus™ device, is focused on IoT edgeEdge devices with its Artificial Intelligence ("AI")AI capabilities, low power, and small form factor.

Our CrossLink familiesThe Lattice CrossLink™ device family are our "Video Connectivity FPGAs" and are optimized for high speedhigh-speed video and sensor applications.applications for the Industrial, Automotive, Communications, Computing, and Consumer markets. CrossLink combines the power and speed benefits of hardened video camera and display bridging cores with the flexibility of FPGA fabric. CrossLinkPlus providesfabric and Lattice CrossLinkPlus™ devices provide users with instant-on capabilities for video display. CrossLink-NX,Lattice CrossLink-NX™ FPGAs, built on the new Lattice Nexus platform, providesprovide the lowest power in the smallest packages in itstheir class, higher performance, and high reliability. These productsThe latest device family – Lattice CrossLinkU-NX – are the industry’s first FPGAs with integrated USB device functionality in their class, designed to meet growing customer needs to simplify USB-based design for computing, industrial, automotive,applications across the Computing, Industrial, Automotive, and consumer markets, but also find use in communications.Consumer markets.

 

To enable our customers to get to market faster we support our FPGAs with intellectual propertyIP cores, reference designs, development kits, and design software. We are investing in our design software, such as Lattice Radiant,Radiant™, to deliver best-in-class tools that enable predictable design convergence, and Lattice PropelPropel™ for unparalleled ease in creating embedded processor-based designs. Further, weWe have developed integrated system-level solution stacks, such asincluding Lattice sensAI, as well asAutomate™ for industrial automation and robotics, Lattice mVisionmVision™ for low power embedded vision, Lattice ORAN™ for robust control data security, flexible fronthaul synchronization, and low power hardware acceleration for secure, adaptable, Open Radio Access Network (ORAN) deployment, Lattice SentrysensAI™ for Edge AI applications, Lattice Sentry™ for implementing hardware security. We combine all of these elements to solve specific customer problemssecurity, and our newest solution stack - Lattice Drive™ for advanced, flexible automotive system designs and applications. Further, we have application software such as Glance by Mirametrix™ that allows users to control the need to quickly implement low power AI inferencing in Edgeand computer vision experience of their end systems for Client computing, industrial, and automotive applications.

 

Depending on the application, we may compete with other FPGAsFPGA vendors, as well as producers of ASICs, ASSPs, and microcontrollers. We believe that Lattice has developed products and solutions with differentiated advantages.

 

Legacy Semiconductor Products

 

We also sell Video Connectivity ASSPs, although we are not developing new products in this area and their support requirements are minimal.

 

Intellectual Property (IP)IP Licensing and Services

 

Lattice has a broad set of technological capabilities and many U.S. and international patents. We generate revenue from our technology portfolio via upfront fees and on-going royalty payments through the following activities:

 

Standard IP Licensing - these activities include our participation in two consortia for the licensing of High-Definition Multimedia InterfaceInterface™ ("HDMI") and Mobile High-Definition LinkLink™ ("MHL") standard technologies to customers who adopt the technology into their products and voluntarily report their usage and royalties. The royalties are split among consortium members, including us.

IP Core Licensing - some customers need Lattice’s technology for specific functions or features, but for various reasons are not able to use our silicon solutions. In those cases, we may license our IP cores, which they can integrate into their own ASICs. In contrast to the use of consortia, these licensing activities are generally performed internally.

Patent Monetization - we sellconsider sales of certain patents from our portfolio generally for technology that we are no longer actively developing. The revenue from these sales generally consists of upfront payments and potential future royalties.

IP Services - we undergo projects and design services for customers who wish to develop specific solutions that harness our proven technology and expertise.

 

Research and Development

 

We place a substantial emphasis on new product development, where return on investment is the key driver. We believe that continued investment in research and development is required to maintain and improve our competitive position. Our research and development activities are focused on new proprietary products, advanced packaging, existing product enhancements, software development tools, soft IP cores, and application focused hardware and software solutions. These research and development activities occur primarily at our sites in Hillsboro, Oregon; San Jose, California; Montreal, Canada; Shanghai, China; and Muntinlupa City, Philippines.Philippines; and Penang, Malaysia.

 

We believe that a continued commitment to research and development is essential to maintaining product leadership and providing an increaseda strong cadence of innovative new product offerings and, therefore, we expect to continue to make significant future investments in research and development.

 

Operations

 

We do not manufacture our own silicon products. Weoperate primarily as a fabless semiconductor provider and, therefore, we maintain strategic relationships with large, established semiconductor foundries to source our finished silicon wafers.wafers and manufacture our silicon products. This strategy allows us to focus our internal resources on product and market development and eliminate the fixed cost of owning and operating semiconductor manufacturing facilities. We are able to take advantage of the ongoing advanced process technology development efforts of semiconductor foundries and apply those technologies when they become most economically beneficial to us and to our customers.

 

5

We rely on third party vendors to provide cost-effective and efficient supply chain services. Among other activities, these outsourced services relate to direct sales logistics, which include order fulfillment, inventory management and warehousing, lead time management, order fulfillment, and the shipment of inventory to third party distributors.

 

5

Wafer Fabrication

 

Lattice partners with Taiwan Semiconductor Manufacturing Company ("TSMC") to develop and manufacture on 16nm technology, which is used in our Avant platform of FPGA products, and to manufacture our 350nm, 130nm, 55nm and 40nm products. We partner with Samsung Semiconductor ("Samsung") to develop and manufacture the first low-power FPGA on 28nm FDSfully depleted silicon-on-insulator ("FD-SOI") technology, which is used in our latest Nexus FPGA platform of FPGA products. We partner with United Microelectronics Corporation ("UMC") and its subsidiary United Semiconductor Japan Corporation ("USJC") to manufacture our products on its 130nm, 90nm, 65nm, &and 40nm CMOS process technologies, as well as embedded flash memory in these process nodes. Taiwan Semiconductor Manufacturing Company Ltd. (“TSMC”) manufactures our 350nm, 130nm, 55nm and 40nm products.We partner with Seiko Epson ("Epson") manufacturesto manufacture our 500nm, 350nm, 250nm and 180nm products.

 

We source silicon wafers from our foundry partners, TSMC, Samsung, UMC, USJC, TSMC, and Epson, pursuant to agreements with each company and their respective affiliates. We negotiate wafer volumes, prices, and other terms with our foundry partners and their respective affiliates on a periodic basis.

 

Assembly

 

All of our assembly and test operations are performed by industry-leading outsourced assembly &and test suppliers ("OSAT's"OSATs") with our primary supplier being Advanced Semiconductor Engineering, Inc. ("ASE"). We perform certain test operations as well as reliability and quality assurance processes internally during the development process. We have achieved and maintained ISO9001:2015 Quality Management Systems Certification and released a line of products qualified to the AEC-Q100 Reliability Standard in support of Automotive product offerings in addition to ISO26262 certification on both automotiveAutomotive products and software.

 

After wafer fabrication and initial testing, we ship wafers to independent subcontractors for assembly. During assembly, wafers are separated into individual die and encapsulated in plastic packages. We have qualified two major assembly partners, ASE and Amkor Technology ("Amkor") and are second sourced where volume and customer requirements are necessary. All ASE and Amkor manufacturing of our products is in Asia. We negotiate assembly prices, volumes, and other terms with our assembly partners and their respective affiliates on a periodic basis.

 

We currently offer an extensive list of standard products in lead (Pb) free packaging. Our lead-free products meet the European Parliament Directive entitled "Restrictions on the use of Hazardous Substances" ("RoHS"). A select and growing subset of our RoHS compliant products are also offered with a "Halogen Free" material set.

 

Testing (Sort and Final Test)

 

We electrically sort test the die on most wafers prior to shipment for assembly. Wafer sort testing is primarily performed by ASE in Taiwan and Malaysia, Amkor in Japan, and our second source, King Yuan Electronics Co. (“KYEC”) in Taiwan.

 

Following assembly, but prior to customer shipment, each product undergoes final testing and quality assurance procedures. Final testing is performed by ASE and Amkor.

 

Sales and Revenue

 

We generate revenue by monetizing our technology designs and patents through product and technology sales. This involves thedistribution channel and direct sales of silicon-based hardware and silicon-enabling products, as well as the licensing or sale of intellectual propertyIP that we have developed or acquired, some of which we use in our products, and certain design services that we may provide.

 

Sales and Customers

 

We primarily sell our products to customers from Lattice Semiconductor Corporation or our wholly-owned subsidiary, Lattice SG Pte. Ltd. Independent distributors are significant customers, and a substantial portion of our sales are made tointo this channel. Additionally, we sell both directly and through a network of independent manufacturers' representatives. We also employ a direct sales management and field applications engineering organization to support our end customers and indirect sales resources. End customers for our products are primarily OEMsOriginal Equipment Manufacturers ("OEMs") in the Communications and Computing, Industrial and Automotive, and Consumer end markets. Our sales team uses our positionattempts to drive multi-generational design wins within these OEMs to drive multi-generation design wins and leverages our distribution partners to grow our broad customer base.

 

We provide global technical support to our end customers with engineering staff based at our headquarters, product development centers, and selected field sales offices. We maintain numerous domestic and international field sales offices in major metropolitan areas.

 

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In fiscal years 2020, 2019,2023, 2022, and 2018,2021, sales to distributors accounted for approximately 83%87%, 82%89%, and 83%87%, respectively, of our net revenue. We depend on our distributors to sell our products to end customers, complete order fulfillment, and maintain sufficient inventory of our products. Our distributors also provide technical support and other value-added services to our end customers. We have twomultiple global distributors. We also have regional distribution in Asia, Japan, Europe, and Israel, and we sell through three major on-line distributors. Revenue from foreign sales as a percentage of total revenue was 89%82%, 89%86%, and 90%88% for fiscal 2020, 2019,2023, 2022, and 2018,2021, respectively. We assign revenue to geographies based on ship-to location of our customers. Both foreign and domestic sales are denominated in U.S. dollars.

 

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Backlog

 

Our backlog consists of orders from distributors and certain Original Equipment Manufacturers ("OEMs")OEMs that generally require delivery within the next year. Historically, our backlog has not been a predictor of future sales or customer demand for the following reasons:

 

Purchase orders, consistent with common industry practices, generally can generally be revised or canceled up to 3060 days before the scheduled delivery date without significant penalty.

A sizable portion of our revenue comes from our "turns business," where the product is ordered and delivered within the same quarter.

 

Seasonality

 

We may periodically experience variability in our sales volumes and financial results due to seasonal trends in the end markets we serve, the cyclical nature of the semiconductor industry, and general economic conditions.

 

Intellectual Property,IP, Patents, and Licensing

 

We seek to protect our products, technologies, and intellectual propertyIP primarily through patents, trade secrets, copyrights, trademark registrations, licensing restrictions, confidentiality agreements, and other approaches designed to protect proprietary information. We hold numerous United States and international patents and have patent applications pending in the United States and internationally. In addition to protecting innovations designed into our products, our ownership and maintenance of patents is an important factor in the determination of our share of the royalties forfrom the implementation of the HDMI standard. Our current patents will expire at various times between 2021 and 2039,over the next 20 years, subject to our payment of periodic maintenance fees. We believe that our patents have value, and we expect to file future patent applications in both the United States and abroad on significant inventions, as we deem appropriate. We have acquired various licenses from third parties to certain technologies that are implemented in IP cores or embedded in our products. These licenses support our continuing ability to make and sell these products to our customers. While our various IP rights are important to our success, we believe our business as a whole is not materially dependent on any particular patent or license, or any particular group of patents or licenses.

 

Human Capital Management

 

We provide a safe and positive work environment for our employees that emphasizes respect for individuals, and ethical conduct, and learning and development that is facilitated by a direct employee engagement model. The health and safety of our employees is of utmost importantimportance to us. During the COVID-19 pandemic, we have takenWe undertake appropriate actions to safeguard the health and well-being of our employees and our business. We implemented social distancing policies at our locations around the world including working from home and eliminating substantially all travel. Recognizing and respecting our global presence, we strive to maintain a diverse and inclusive workforce everywhere we operate. As of January 2, 2021,December 30, 2023, we had 7461,156 employees worldwide.

 

We believe our employees are the foundation of our success and that our future growth depends, in part, on our ability to continue to attract and retain key executive, technical, sales, and management personnel,personnel. Due to our growth and cadence of new product introductions we are particularly highly-skilledfocused on highly skilled engineers involved in the design, development, and support of new and existing products and processes. In order for us to attract the best talent, we provide a collaborative, diverse, inclusive, and innovative work environment, competitive compensation, and recognition to give our employees the opportunity to grow. We are focused on developing diverse teams and continuing to build an inclusive culture that inspires leadership, encourages innovative thinking, and supports the development and advancement of all.

 

Our human capital management objectives include identifying, recruiting, incentivizing, and integrating our existing and future employees. We strive to attract and retain talented employees by offering competitive compensation and benefits that support their health, financial, and emotional well-being. Our compensation philosophy is based on rewarding each employee’s individual and team contributions and striving to achieve equal pay for equal work. We use a combination of fixed and variable pay including base salary, bonuses, performance awards, and stock-based compensation. The principal purposes of our equity incentive plans are to attract, retain, and motivate employees through the granting of stock-based compensation awards. We offer employees benefits that vary by country and are designed to address local laws and cultures and to be competitive in the marketplace.

 

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Corporate Information and Public Information Availability

 

Our corporate headquarters are located at 5555 NE Moore Court, Hillsboro, Oregon 97124, and our website is www.latticesemi.com.www.latticesemi.com. Information contained or referenced on our website is not incorporated by reference into, and does not form a part of, this Annual Report on Form 10-K. Our common stock trades on the NASDAQ Global Select Market under the symbol LSCC.

 

We make available, free of charge through the Investor Relations section of our website at ir.latticesemi.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports and statements as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC. You may also obtain free copies of these materials by contacting our Investor Relations Department at 5555 NE Moore Court, Hillsboro, Oregon 97124, telephone (503) 268-8000. Our SEC filings are also available at the SEC's website at www.sec.gov.www.sec.gov.

 

Our investor relationsInvestor Relations website also provides notifications of news or announcements regarding our financial performance and other items that may be material or of interest to our investors and for complying with our disclosure obligations under Regulation FD, including SEC filings, press releases, earnings releases, and webcasts of our earnings calls. Further, corporate governance information, including our corporate governance policies, director code of ethics, code of conduct, board committee charters, conflict minerals report and conflict minerals policy, is also available on the investor relations section of our website.

 

The content on any website referred to in this filing is not incorporated by reference into this filing unless expressly noted otherwise.

 

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ITEM 1A. Risk Factors

 

The following risk factors and all of the other information included in this Annual Report on Form 10-K should be carefully considered in their entirety before making an investment decision relating to our common stock. If any of the risks described below occur, our business, financial condition, operating results, and cash flows could be materially adversely affected, and the trading price of our common stock could decline. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and operating results, particularly in light of the rapidly changing nature of the COVID-19 pandemic containment measuresresults. Effects from global business or political events, and the related impacts to economic and operating conditions.conditions, may further affect the volatility or degree of known and unknown risks.

 

Risk Factor Summary

 

Factors Related to Economic, Political, Legal Regulatory & PoliticalRegulatory Business Conditions

The impact of the COVID-19 pandemic on our business.
Economic, legal, regulatory, political, and business conditions related to our global business.
The impact of tariffs, trade sanctions or similar actions on our business.
Legal and regulatory conditions related to our global business.
The impact of pandemics or widespread global health problems on our business.

 

Factors Related to Manufacturing our Products

The concentrationGeopolitical exposure of our subcontractors that we rely on to supply and fabricate silicon wafers, forpackaging, and testing to manufacture our semiconductor products.
Our achievement of continued yield improvement.
The impactsand quality improvements to meet our internal cost and customer quality goals, and the potential impact of shortages in, or increased costs of, wafers and other materials.
Potential warranty claims and other costs related to our products.
Material change in the agreements governing encryption keys that could restrict product shipment or significantly increase the cost to track products throughout the distribution chain.

 

Factors Related to Intellectual Property and Litigation

Fluctuations in our revenue and margins caused by the intellectual property licensing component of our business strategy.
Material fluctuations in our revenue and gross margins caused by our saleintermittent sales of patents and intermittent significant licensing transactions.
The impact of actual and potential litigation and unfavorable results of legal proceedings on our business.
Variability in our share of adopter fees and royalties for the HDMI standard as a result of our evolving participation in the HDMI standard.
Our ability to protect our new and existing intellectual property rights.

 

Factors Related to Overall General Business & Operations

Proper functioning of our internal processes and information technology systems, including in response to data breaches, cyber-attacks,cyberattacks, or cyber-fraud.
Goodwill impairments and other impairments under U.S. GAAP that may impact our business.
Changes to financial accounting standards applicable to us and any related changes to our business practices.
Exposure to unanticipated tax consequences as a result of changes in effective tax rates, tax laws and our global organizational structure and operations.
Weakness in our internal control over financial reporting.reporting and business processes.
Our ability to compete with others to attract and retain key personnel, and any loss of, or inability to attract, such personnel.
Limitations to our flexibility caused by our outstanding indebtedness.
Our failure to adequately foresee and insure against risks related to our business.
Limitations to our flexibility caused by incurring indebtedness.
Risks relating to the use or application of emerging technologies, including artificial intelligence ("AI")
The impact of climate change and climate change-related policies & regulations on our business.

 

Factors Related to Our Markets and Product Development

Cyclical market patterns and potential downturns in our industry or our end markets.
Our ability to develop and introduce new products that achieve customer and market acceptance.
Competition with companies that have significantly greater resources than us and numerous other product solutions.
Our reliance on independent contractors and third parties to provide key services in our product development and operations.

 

Factors Related to Our Sales and Revenue

Our dependence on our distributors and a concentrated group of end customers.
Fluctuations in and the unpredictability of our business and our sales cycles.
Accounting requirements related to sales through our distribution channel.

 

General Risk Factors Related to Strategic Transactions

Our operations are subject to the effects of rising inflation and recessionary concerns.
Disruptions to our worldwide operations and supply chain due to natural or human-induced disasters.
The trading price of our common stock has been and may continue to be subject to volatility.
The impact of actual and potential litigation and unfavorable results of legal proceedings on our business.
Disruption in and impacts of acquisitions, divestitures, strategic investments and strategic partnerships on our business.

 

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Factors Related to Economic, Political, Legal Regulatory & PoliticalRegulatory Business Conditions

The COVID-19 pandemic could adversely affect our business, results of operations, and financial condition in a material way.

COVID-19 has spread internationally and been declared a pandemic, affecting the populations of the United States as well as many countries around the world. The outbreak has resulted in significant governmental measures being implemented to control the spread of COVID-19, including, among others, restrictions on travel, manufacturing and the movement of employees in many regions of the world, and the imposition of remote or work-from-home mandates in many of our offices, including in the United States, the Philippines and, for a time, China. The majority of our products are manufactured, assembled, and tested by third parties in Asia. In addition, we rely on third party vendors for certain logistics and shipping operations throughout the world, including in Malaysia, Singapore, South Korea, Japan, and Taiwan. We also have other operations in China, the Philippines, and the United States. If the remote or work-from-home conditions in any of our offices continue for an extended period of time, we may experience delays in product development, a decreased ability to support our customers, reduced design win activity, and overall lack of productivity.

Pandemics and epidemics such as the current COVID-19 outbreak or other widespread public health problems could negatively impact our business. If, for example, the COVID-19 pandemic continues to progress in ways that significantly disrupt the manufacture, shipment, and buying patterns of our products or the products of our customers, this may materially negatively impact our operating results, including revenue, gross margins, operating margins, cash flows and other operating results, and our overall business. Our customers may also experience closures of their manufacturing facilities or inability to obtain other components, either of which could negatively impact demand for our solutions. The COVID-19 pandemic has negatively impacted the overall economy and, as a result of the foregoing, could negatively impact our operating results and may do so in a material way. In particular, the COVID-19 pandemic may increase or change the severity of our other risks reported in this Annual Report on Form 10-K, including that:

Our subcontractor suppliers who manufacture silicon wafers, packaging and testing to deliver our semiconductor products may be unable to meet delivery expectations to meet customer demand;
Our distributors and customers may experience adverse performance and any reduction in the use of our products by our end customers could harm our sales and significantly decrease our revenue;
The semiconductor industry could experience a cyclical downturn, which could cause a meaningful reduction in demand for our products and adversely affect our operating results;
Countries may adopt tariffs and trade sanctions or similar actions;
We may be delayed in our development and introduction of new products that achieve customer and market acceptance;
Our operations may be disrupted if employees are unavailable due to illness, risk of illness, travel restrictions, work from home requirements, or other factors that may limit our access to key personnel or critical skills, or reduce productivity;
Shortages in or increased costs for silicon wafers, packaging materials, testing and shipping could adversely impact our gross margin and lead to reduced revenue;
We may experience difficulty in maintaining the uninterrupted operation of our information technology systems, or be exposed to increased risk of a cyber-security incident or fraud, due to an increased reliance on remote work;
We may incur impairments of goodwill and otherwise as required under U.S. GAAP;
Our outstanding indebtedness could reduce our strategic flexibility and liquidity and may have other adverse effects on our results of operations.

The impact of COVID-19 may exacerbate the risk factors listed in this Annual Report on Form 10-K, or cause them to change in importance. Developments related to the pandemic and to vaccine rollout have been rapidly changing, and additional impacts and risks may arise that we are not aware of or able to appropriately respond to currently. The ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to: governmental, business, and individuals’ actions that have been and continue to be taken in response to the pandemic; general economic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery when the COVID-19 pandemic subsides. As of the filing of this Annual Report, the extent to which the COVID-19 pandemic will affect our business is highly uncertain and dependent on future developments that are inherently unpredictable, which makes forecasting demand and providing guidance especially difficult. Accordingly, our expectations are subject to change without warning and investors are cautioned not to place undue reliance on them.

 

Our global business operations expose us to various economic, legal, regulatory, political, and business risks, which could impact our business, operating results and financial condition.

 

We have significant domestic and international operations. Our international operations include foreign sales offices to support our international customers and distributors, which account for the majority of our revenue, and operational and research and development sites in China, the Philippines, Malaysia, and other Asian locations. In addition, we purchase our wafers from foreign foundries; have our commercial products assembled, packaged, and tested by subcontractors located outside of the United States; and rely on an international service providerproviders for a variety of services, including inventory management, lead time management, technical support, factory engagement meetings, and order fulfillment, and direct sales logistics.fulfillment.

 

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key materials that our suppliers and foundry partners require to satisfy our needs. Additionally, the U.S. government has implemented controls regarding semiconductor- and supercomputer-related products and restrictions affecting U.S. persons’ ability to send certain chips and chip-related technology and software to China without an export license. These, as well as future controls impacting the semiconductor ecosystem, may impact the global supply chain and could result in shortages of key materials that our suppliers and foundry partners require to satisfy our needs. Any deterioration in the relations between Taiwan and China, and other factors affecting military, political or economic conditions in Taiwan or elsewhere in Asia, could adversely impact our third-party manufacturing partners and suppliers located in the region, which could disrupt our business operations. Countries in Europe and Asia have proposed, or recently adopted, significant increases in their military budgets and the outbreak of new, or expansion of current, military conflicts could adversely affect our business. Furthermore, adverse macroeconomic conditions, such as rising inflation and labor shortages, may affect demand for our products or increase our product or labor costs, negatively impacting our revenues, gross margins, and overall financial results.

 

Our domestic and international business activities are subject to economic, political and regulatory risks, includingincluding: increased inflation; volatility in the financial markets; fluctuations in consumer liquidity; changes in interest rates; price increases for materials and components; trade barriers or changes in trade policies; political instability; acts of war or terrorism; natural disasters; economic sanctions; weak economic conditions,conditions; environmental regulations; labor regulations; disruptions to labor markets; import and export regulations; tax or freight rates; duties; trade restrictions; interruptions in transportation or infrastructure; anti-corruption laws; domestic and foreign governmental regulations; potential vulnerability of and reduced protection for intellectual property; disruptions or delays in production or shipments; and instability or fluctuations in currency exchange rates, any of which could lead to decreased demand for our products or a change in our results of operation. Uncertainty about future political and economic conditions makes it difficult for us to forecast operating results and to make decisions about future investments. Any or all of these factors could adversely affect our financial condition and results of operations in the future.

If we fail to comply with the many laws and regulations to which we are subject, both within the United States and internationally, we may be subject to significant fines, penalties or liabilities for noncompliance, which could harmAlthough our business and financial results. For example, effective May 2018, the European Union adopted the General Data Protection Regulation (“GDPR”), which established new requirements regarding the handling of personal data and non-compliance monetary penalties of up to the higher of 20 million Euros or 4% of worldwide revenue. California also recently adopted the California Consumer Privacy Act (“CCPA”), which imposes significant fines and penalties for violations. Any inability or perceived inability to adequately comply with applicable laws or regulations, including GDPR or CCPA, could result in additional cost and liability to our business and could adversely affect our financial condition and results of operations.

Since late 2019, COVID-19 has become a global pandemic, prompting precautionary government-imposed closures of certain travel and business. The operations of customers and the Company may be affectednot been materially impacted by this and similar public health matters. Although our supply chain does not appear to be affected by this epidemic, it may lead toconstraints, inflation, or labor market disruptions, events outside of our control which could have a material adverse impact on our business, operating results, and financial condition.condition in the future. Uncertainty about future political and economic conditions makes forecasting demand and providing guidance difficult. Accordingly, our expectations are subject to change without warning and investors are cautioned not to place undue reliance on them.


Our business could suffer as a result of tariffs and trade sanctions or similar actions.

 

The imposition by the United States of tariffs, sanctions or other restrictions on goods imported from outside of the United States or countermeasures imposed in response to such government actions could adversely affect our operations or our ability to sell our products globally, which could adversely affect our operating results and financial condition. The materials subject to these tariffs may impact the cost of raw materials used by our suppliers or in our customers’ products. The imposition of further tariffs by the United States on a broader range of imports, or further retaliatory trade measures taken in response to additional tariffs, could increase costs in our supply chain or reduce demand of our customers’ products, either of which could adversely affect our results of operations.

 

Our customers or suppliers could also become subject to U.S. regulatory scrutiny or export restrictions. For example, in 2019 the U.S. Justice Department filed criminal charges against one of our customers in China and imposed a licensing requirement on this customer with a policy of denial for some items, which has limited our ability to do business with this customer. In 2020, the U.S. imposed additional regulatory restrictions on the sale of U.S. controlled technology to customers in China, includingChina. These restrictions include establishing additional licensing requirements for the sale ofin order to sell U.S.-originated technology for certain applications or to companies that participate in the Chinese national security supply chain and limitingchain. These restrictions also limit the fabrication of devices for certain Chinese companies where U.S. technology is involved in the fabrication process. Furthermore, in August 2020 the U.S. established additional licensing requirements for one of our China customers and its affiliates that limit any sales of products to that customer or for that customer’s products absent a license. The U.S. government may add additional Chinese companies to its restricted entity list or impose additional licensing requirements that we may be unable to meet in a timely manner or at all. Additionally, in October 2022 the U.S. government announced controls regarding semiconductor- and supercomputer-related products and restrictions affecting U.S. persons’ ability to send certain chips and chip-related technology and software to China without an export license, which may impact the global supply chain and could negatively affect our business. These controls and restrictions were revised by the U.S. government in October 2023 with the intent to further restrict China’s ability to obtain such technology and to enhance U.S. national security interests.

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Where license requirements are imposed, there can be no assurance that the U.S. government will grant licenses to permit the continuation of business with these customers. Future sanctions similar to those imposed in the past and to those recently imposed could adversely affect our ability to earn revenue from these and similar customers. In addition, the imposition of sanctions or other restrictions on customers in China may cause those customers to seek domestic alternatives to our products and those of other United States semiconductor companies. Further, the Chinese government has indicated its intention to developdeveloped an unreliable entity list, which may limitlimits the ability of companies on the list to engage in business with Chinese customers. We cannot predict what impact these and future actions, sanctions or criminal charges could have on our customers or suppliers, and therefore our business. If any of our other customers or suppliers become subject to sanctions or other regulatory scrutiny, if our customers are affected by tariffs or other government trade restrictions, or if we become subject to retaliatory regulatory measures, our business and financial condition could be adversely affected.


Our global business operations expose us to various legal and regulatory risks, which could impact our business, operating results and financial condition.

If we fail to comply with the many laws and regulations to which we are subject, both within the United States and internationally, we may be subject to significant fines, penalties or liabilities for noncompliance, which could harm our business and financial results. For example, we are subject to federal, state and foreign laws and regulations concerning data privacy and security, including the EU General Data Protection Regulation (“GDPR), and U.S. state and local laws that govern the privacy and security of information, such as the California Consumer Privacy Act (“CCPA”). Other countries outside of the European Union, including the United Kingdom and China, also have enacted robust legislation addressing privacy, data protection, and cybersecurity and providing for substantial penalties for noncompliance. These and other regulatory frameworks are evolving rapidly, and we anticipate that our efforts to comply with evolving laws and regulations addressing privacy, data protection, and cybersecurity will be a rigorous and time-intensive process that may increase our cost of doing business and may require us to change our policies and practices. Additionally, as a public company, we are subject to the requirements of federal securities laws, requirements of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the rules and regulations of the SEC, and the listing standards of the Nasdaq Stock Market. Noncompliance with these requirements could result in penalties, fines, liabilities, or reputational harm, which could harm our business or financial results. We are also subject to import/export regulations and applicable executive orders. These laws, regulations, and orders are complex, may change frequently and with limited notice, and have generally and may continue to become more stringent over time.

Any inability or perceived inability to adequately comply with applicable laws or regulations could result in claims, demands, and litigation by private actors or governmental authorities, investigations and other proceedings by governmental authorities, injunctive relief, fines, penalties, and other liabilities, any of which may harm our reputation and market position and could adversely affect our business, financial condition, and results of operations.

Pandemics or other widespread public health problems could adversely affect our business, results of operations, and financial condition in a material way.

Pandemics, epidemics or other widespread public health problems could negatively impact our business. Outbreaks have resulted, and could again, result in significant government measures to control the spread of disease, including, among others, restrictions on travel, manufacturing, and the movement of employees. Jurisdictions in which we operate have had varying responses to pandemic and other widespread public health problems and the impact of such responses is difficult to anticipate. If, for example, pandemics were to occur in ways that significantly disrupt the manufacture, shipment, and buying patterns of our products or the products of our customers, this may materially negatively impact our operating results, including revenue, gross margins, operating margins, cash flows and other operating results, and our overall business. Disruptions to manufacturing and shipping could also constrain our supplies, leading to operational delays, disruptions and inflationary pressures. Our customers may also experience closures of their manufacturing facilities or inability to obtain other components, either of which could negatively impact demand for our solutions.

The ultimate impact of a pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to: governmental, business, and individuals’ responses; general economic uncertainty in key global markets; volatility in financial markets, labor markets, and supply chains; global economic conditions and levels of economic growth; and the pace of recovery when the pandemic subsides. Pandemics may negatively impact the overall economy and, as a result of the foregoing, could negatively impact our operating results and may do so in a material way. In particular, pandemics or other widespread public health problems may increase or change the severity of our other risks reported in this Annual Report on Form 10-K.

 

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Factors Related to Manufacturing our Products

 

We rely on a concentrated number of subcontractors to supply and fabricate silicon wafers and to perform assembly and test operations for our semiconductor products. If they are unable to do so on a timely and cost-effective basis in sufficient quantities and using competitive technologies, we may incur significant costs or delays.

 

We rely on a concentrated number of independent foundries in AsiaJapan, Korea and Taiwan to supply and fabricate silicon wafers for our semiconductor products, including Taiwan Semiconductor Manufacturing, Samsung Semiconductor, United Microelectronics Corporation, Taiwan Semiconductor Manufacturing, and Seiko Epson. We rely on our OSATs in Malaysia, Taiwan and Japan to support the packaging and test of our products, including Advanced Semiconductor Engineering and Amkor Technology. Our success is dependent upon our ability to successfully partner with our foundry and OSAT partnerssuppliers and their ability to produce wafers and finished semiconductor products with competitive prices and performance attributes, including smaller process geometries.geometries, which ability may be impacted by labor market disruptions and rising inflation. Establishing, maintaining and managing multiple foundry and OSAT relationships requires the investment of management resources and costs.

 

If we fail to maintain our foundry and OSAT relationships, if these partners do not provide facilities and support for our development efforts, if they are insolvent or experience financial difficulty, if their operations are interrupted by a widespread public health hazard, or if we elect or are required to change foundries or OSATs, we may incur significant costs and delays. If our foundry or OSAT partners are unable to, or do not, manufacture sufficient quantities of our products at acceptable yields, we may be required to allocate the affected products among our customers, prematurely limit or discontinue the sales of certain products, or incur significant costs to transfer products to other foundries or OSATs, which could adversely affect our customer relationships and operating results. Further, our subcontractors are themselves subject to many of the same operational and business risks that we face and describe herein that, if occur and are disruptive to their operations, could adversely affect us.


Our margins are dependent on our achieving continued yield improvement.and quality improvements, cost reductions, and the supply and cost of wafers and materials.

 

We rely on obtaining yield, quality, productivity, and logistic improvements and corresponding cost reductions in the manufacture of existing products and on introducing new products that incorporate advanced features and other price/performance factors that enable us to increase revenues while maintaining acceptable margins. To the extent that such cost reductions and new product introductions do not occur in a timely manner, because of inflation, increases in personnel costs, employee turnover, or other factors, or that our products do not achieve market acceptance or market acceptance at acceptable pricing, our forecasts of future revenue,margins, operating results, and financial condition and operating results could be materially adversely affected.

 

Shortages in, or increased costs of, wafers and materials could adversely impact our gross margins and lead to reduced revenues.

WorldwideFurthermore, worldwide manufacturing capacity for silicon wafers is relatively inelastic.our products may be impacted by many factors which may impact availability and cost. If the demand for silicon wafers or assembly material exceeds market supply, or if suppliers increase prices to cover the cost of rising inflation, our supply of silicon wafers or assembly material could quickly become limited or prohibitively expensive. We typically have short-term wafer supply agreements that do not ensure long-term supply or allocation commitments. A shortage in manufacturing capacity could hinder our ability to meet product demand and therefore reduce our revenue. In addition, siliconSilicon wafers constitute a material portion of our product cost. Ifcost, and if we are unable to purchase wafers at favorable prices, due to supply constraints, inflation, or other factors, our financial condition andmargins, results of operations, willand financial condition may be adversely affected.

 

We may be subject to warranty claims and other costs related to our products.

 

In general, we warrant our products for varying lengths of time against non-conformance to our specifications and certain other defects. Because our products, including hardware, software, and intellectual property cores, are highly complex and increasingly incorporate advanced technology, our quality assurance programs may not detect all defects, whether these are specific manufacturing defects affecting individual products or these are systematicsystemic defects that could affect numerous shipments. InabilityOur inability to detect a defect could result in a diversion of our engineering resources from product development efforts, increased engineering expenses to remediate the defect, and increased costs due to customer accommodation or inventory impairment charges. On occasion, we have also repaired or replaced certain components, made software fixes, or refunded the purchase price or license fee paid by our customers due to product or software defects. Our insurance may be unavailable or inadequate to protect against these issues. If there are significant product defects, the costs to remediate such defects, net of reimbursed amounts from our vendors, if any, or to resolve warranty claims may adversely affect our financial condition and results of operations and may harm our reputation.

 

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A material change in the agreements governing encryption keys we use could place additional restrictions on us, or our distributors or contract manufacturers, which could restrict product shipment or significantly increase the cost to track products throughout the distribution chain.

Certain components in our products contain encryption keys used in connection with High Definition Content Protection ("HDCP"). The regulation and distribution of these encryption keys are controlled through license agreements with Digital Content Protection ("DCP"), a wholly owned subsidiary of Intel Corporation. These license agreements have been modified by DCP from time to time, and such changes could impact us, our distributors, and our customers. An important element of HDMI is the ability to implement link protection for HD, and more recently, 4K UltraHD, content. We implement various aspects of the HDCP link protection within certain parts we sell. We also, for the benefit of our customers, include the necessary HDCP encryption keys in parts we ship to customers. These encryption keys are provided to us from DCP. We have a specific process for tracking and handling these encryption keys. If DCP changes any of the tracking or handling requirements associated with HDCP encryption keys, we may be required to change our manufacturing and distribution processes, which could adversely affect our manufacturing and distribution costs associated with these products. If we cannot satisfy new requirements for the handling and tracking of encryption keys, we may have to cease shipping or manufacturing certain products.

Factors Related to Intellectual Property and Litigation

 

The intellectual property licensing component of our business strategy increases our business risk and fluctuation of our revenue and margins.

 

Our business strategy includes licensing our intellectual property to companies that incorporate it into their technologies that address multiple markets, including markets where we participate and compete. Our Licensing and services revenue may be impacted by the introduction of new technologies by customers in place of the technologies we license, changes in the law that may weaken our ability to prevent the use of our patented technology by others, the expiration of our patents, and changes of demand or selling prices for products using licensed patents. We cannot assure that our licensing customers will continue to license our technology on commercially favorable terms or at all, or that these customers will introduce and sell products incorporating our technology, accurately report royalties owed to us, pay agreed upon royalties, honor agreed upon market restrictions, or maintain the confidentiality of our proprietary information, or will not infringe upon or misappropriate our intellectual property. Our intellectual property licensing agreements are complex and may depend upon many factors that require significant judgments, including completion of milestones, allocation of values to delivered items and customer acceptance.

 

Our sale of patents and intermittent significant licensing transactions can cause material fluctuations in our revenue and gross margins.

 

We have generated revenue from the sale of certain patents from our portfolio in the past, generally for non-core technology that we are no longer actively developing. While we plan to continue to monetize our patent portfolio through sales of non-core patents, we may not be able to realize adequate interest or prices for those patents. Accordingly, we cannot provide assurance that we will continue to generate revenue from these sales. In addition, although we seek to be strategic in our decisions to sell patents, we might incur reputational harm if a purchaser of our patents sues one of our customers for infringement of the purchased patent, and we might later decide to enter a space that requires the use of one or more of the patents we sold. In addition, as we sell groups of patents, we no longer have the opportunity to further sell or to license those patents and receive a continuing royalty stream.

 

Our Licensing and services revenue fluctuates, sometimes significantly, from period to period because it is heavily dependent on a few key transactions being completed in a given period, the timing of which is difficult to predict and may not match our expectations. Licensing and services revenue may include revenue from the sales of patents, which sales may be difficult to complete and which may have complex terms for the payment which affects revenue recognition. Because of its high margin, the Licensing and services revenue portion of our overall revenue can have a disproportionate impact on gross profit and profitability. In addition, generating revenue from patent sales and intellectual property licenses is a lengthy and complex process that may last beyond the period in which our efforts begin, and the accounting rules governing the recognition of revenue from patent sales and intellectual property licensing transactions are increasingly complex and require significant judgment. As a result, the amount of license revenue recognized in any period may differ significantly from our expectations.

Litigation and unfavorable results of legal proceedings could adversely affect our financial condition and operating results.

From time to time we are subject to various legal proceedings and claims that arise out of the ordinary conduct of our business. Certain claims may not yet be resolved, including but not limited to any that are discussed under "Note 14 - Contingencies" contained in the Notes to Consolidated Financial Statements, and additional claims may arise in the future. Results of legal proceedings cannot be predicted with certainty. Regardless of merit or outcome, claims or litigation may be both time-consuming and disruptive to our operations and cause significant expense and diversion of management attention and we may enter into material settlements to avoid these risks. Should we fail to prevail in certain matters or enter into a material settlement, we may be faced with significant monetary damages or injunctive relief against us that could materially and adversely affect our financial condition and operating results and certain portions of our business.

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Our participation in the HDMI standard is evolving. We no longer act as agent for the HDMI standard,evolving, and our share of adopter fees and royalties for the HDMI standard is subject to variability.

We acted as agent of the HDMI consortium until December 31, 2016 and were responsible for promoting and administering the specification. We received all of the adopter fees paid by adopters of the HDMI specification in connection with our role as agent. In September 2016, the Founders of the HDMI consortium, of which we are a member, amended the Founders Agreement resulting in changes to our role as agent for the HDMI consortium and to the model for sharing adopter fee revenues. Under the terms of the agreement, our role as the agent was terminated effective January 1, 2017 and a new independent entity was appointed to act as the new HDMI licensing agent with responsibility for licensing and the distribution of royalties among Founders. As a result of the amended model for sharing adopter fee revenue, we are entitled to a share of the adopter fees paid by parties adopting the HDMI standard.

 

We share HDMI royalties with the other HDMI Founders based on an allocation formula, which is reviewed generally every three years. In the fourth quarter of fiscal 2019, the HDMI Founders adopted a new agreement covering the five-year period beginning January 1, 2018. The HDMI Founders are currently negotiating a new agreement covering the next sharing period beginning January 1, 2023. The amount of our portion of the royalty allocation is dependent on the royalties generated by adopter sales of royalty-bearing HDMI technology, which are subject to variability in economic trends particularly in the market for consumer electronics.


If we are unable to adequately protect our new and existing intellectual property rights globally, our financial results and our ability to compete effectively may suffer.

 

Our success depends in part on our proprietary technology, and we rely upon patent, copyright, trade secret, mask work, and trademark laws to protect our intellectual property.property globally. We intend to continue to protect our proprietary technology, however, we may be unsuccessful in asserting our intellectual property rights or such rights may be invalidated, violated, circumvented, or challenged. From time to time, third parties, including our competitors, have asserted against us patent, copyright, and other intellectual property rights to technologies that are important to us. Third parties may attempt to misappropriate our intellectual property through electronic or other means or assert infringement claims against us in the future. Such assertions by third parties may result in costly litigation, indemnity claims, or other legal actions, and we may not prevail in such matters or be able to license any valid and infringed patents from third parties on commercially reasonable terms. This could result in the loss of our ability to import and sell our products or require us to pay costly royalties to third parties in connection with sales of our products. Any infringement claim, indemnification claim, or impairment or loss of use of our intellectual property could materially adversely affect our financial condition and results of operations.

 

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Factors Related to Overall General Business & Operations


Our business depends on the proper functioninguse of internal processes and information technology systems. A failure of these processes and systems, data breaches, cyber-attacks,cybersecurity incidents, or cyber-fraud may cause business disruptions, compromise our intellectual property or other sensitive information, or result in losses.

 

We rely on various information technology ("IT") networks and systems to collect, process, maintain, use, share, disseminate, and dispose of our information and manage our operations, including financial reporting, and we regularly make changes to improve them as necessary by periodically implementing new, or upgrading or enhancing existing, operational andreporting. Our IT systems procedures,are subject to power and controls.telecommunication outages and other system failures. Further, despite our current security measures, our IT systems may be vulnerable to cybersecurity threats and suffer cybersecurity incidents. These systems are also supported by subcontractors and theythird-party providers who may also be subject to power and telecommunication outages or other general system failures.failures and cybersecurity threats and cybersecurity incidents. The legal, regulatory and contractual environmentenvironments surrounding information security, data privacy, and data privacy isprotection are complex and evolving. We continue to commit significant resources to implementing new systems to standardize our processes worldwide and adopt best-in-class capabilities.to develop our capabilities in these areas. We are focused on realizing the full analytical functionality of these conversions, which can be extremely complex, in part, because of the wide range of legacy systems and processes that must be integrated.

 

In the normal course of business, we may implement new or updated IT systems and, as a result, we may experience delays or disruptions in the integration of these systems, or the related procedures or controls. The policies and security measures established with our IT systems may be vulnerable to datacybersecurity incidents such as security breaches cyber-attacksand cyberattacks, or fraud.cyber-fraud. We may also encounter errors incorruption or loss of data, an inability to accurately process or record transactions, and security or technical reliability issues. All of these could harm our ability to conduct core operating functions such as processing invoices, shipping and receiving, recording and reporting financial and management information on a timely and accurate basis, and could impact our internal control compliance efforts. If the technical solution or end user training are inadequate, it could limit our ability to manufacture and ship products as planned. We have variousMoreover, the proper functioning of the internal processes that the IT systems that remain that may be nearingand networks support relies on qualified employees. Competition for qualified employees has generally increased across the economy in the United States, which, if we experience employee turnover, could lead to disruptions in our processes, inadequate end of their useful lifeuser training or vendor support, which will ultimately need to be replaced.difficulty updating our IT systems and networks.

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We maintain sensitive data on our networks and on the networks of our business partners and third-party providers, including proprietary and confidential information relating to our intellectual property, personnel, and business, and that of our customers and third-party providers. Companies have been increasingly subject to a wide variety of securitycybersecurity incidents cyber-attacks,such as cyberattacks, hacking, phishing, malware, ransomware, and other attempts to gain unauthorized access to systems or data, or to engage in fraudulent behavior. Cyber-attacksCyberattacks have become more prevalent, sophisticated and much harder to detect and defend against and it is often difficult to anticipate or detect such incidents on a timely basis and to assess the damage caused by them. In addition, our agreements with third-party providers, including but not limited to the liability limitations and insurance provisions contained in such agreements, may be inadequate to cover the liability, if any, associated with any security breaches. Increasing geopolitical tensions or conflicts have also created, and may continue to create, a heightened risk of cyberattacks, and AI and other evolving technologies may also increase the prevalence and impact of cyberattacks. Our policies and security measures cannot guarantee security, and our information technologyIT infrastructure, including our networks and systems, may be vulnerable to datasecurity breaches cyber-attacksand cybersecurity incidents, cyberattacks, or fraud.cyber-fraud. In the past, third parties have attempted to penetrate and/or infect our network and systems with malicious software and phishing attacks in an effort to gain access to our network and systems. In addition, we are subject to the risk of third parties falsifying invoices and similar fraud, frequentlyincluding by obtaining unauthorized access to our vendors’ and business partners’ networks. Although past threats and incidents have not resulted in a material adverse effect, we may incur material losses related to cybersecurity and other threats or incidents in the future.

 

In some circumstances, we may partner with third-party providers and provide them with certain data, including sensitive data, or the ability to access or otherwise process such data. If theseThese third parties failalso face substantial security risks from a variety of sources. There can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats, and we cannot guarantee that our systems and networks or those of our third-party service providers have not been breached or otherwise compromised, or that they and any software in our or their supply chains do not contain bugs, vulnerabilities, or compromised code that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us and our services. If any of our third-party providers fails to adopt or adhere to adequate data security practices, or in the event ofsuffers a security breach of their networks, thisor incident, any data, including sensitive data, that we provide them or that they otherwise may access or process for us may be improperly accessed, used, disclosed, modified, lost, destroyed, or disclosed. These datarendered unavailable. Any security breaches and any unauthorized access or disclosure of sensitive dataincidents that we or our third-party providers may suffer could compromise our intellectual property, expose sensitive business information and subject usotherwise result in unauthorized access to third party claims.or disclosure, modification, misuse, loss, destruction, or other processing of sensitive information. We may need to expend significant financial and development resources to analyze, correct, eliminate, or work around errors or defects or to eliminate or otherwise address security vulnerabilities, and we and our third-party service providers may face difficulties or delays in identifying or otherwise responding to any potential security breach or incident.

 

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The

Further, the increase in cyber-attackscyberattacks has resulted in an increased focus on cybersecurity by certain government agencies. Cyber-attacksAny cyberattack or other security breach or cybersecurity incident that we or our third-party providers may suffer, or the perception that any investigationsuch attack, breach, or incident has occurred, could result in a loss of customer confidence in our security measures, damage to our brand, reputation, and market position, result in unauthorized access to or disclosure, modification, misuse, loss, corruption, unavailability, or destruction of our data or other sensitive data that we or our third-party providers process or maintain, disrupt normal business operations, require us to spend material resources to investigate or correct any breach or incident and to prevent future security breaches and incidents, expose us to legal claims and liabilities, including litigation, regulatory investigations and enforcement actions, and indemnity obligations, and adversely affect our revenues and operating results. Further, any such actual or perceived breach or incident, and any claims, demands, litigation, or investigations or enforcement actionactions related to cybersecurity could cause us to incur significant remediation costs, result in product development delays, disrupt key business operations, and divert attention of management and key information technologyIT resources. In addition, we may incur loss as a result of cyber-fraud, such as those experienced by other companies by making unauthorized payments irrespective of robust internal controls.

 

Failure or disruptions of our IT systems or difficulties or delays in maintaining, managing, and integrating them could adversely affect the Company’sour controls and procedures and could impact the Company'sour ability to perform necessary operations, which could materially adversely affect our business. Furthermore,

The costs of maintaining our reputation, brand,cybersecurity risk management program, as well as the costs of mitigating cybersecurity risks, are significant and business could be significantly harmed, and we could be subjectare likely to third-party claims or governmental penaltiesincrease in the eventfuture. These costs include, but are not limited to, maintaining software and services to prevent and detect cybersecurity threats and incidents, retaining the services of a security breach.cybersecurity providers; compliance costs arising out of existing and future cybersecurity, data protection and privacy laws and regulations; and costs related to maintaining redundant networks, data backups and other damage-mitigation measures.

 

We cannot be certain that our insurance coverage will be adequate for cybersecurity liabilities incurred and, will cover any indemnification claims against us relating to any incident, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.

We regularly test for goodwill and other impairments as required under U.S. GAAP, and we may incur future impairments.

We are required under U.S. GAAP to test goodwill for possible impairment on an annual basis and to test goodwill and long-lived assets, including amortizable intangible assets, for impairment at any other time that circumstances arise indicating the carrying value may not be recoverable.For purposes of testing goodwill for impairment, the Company currently operates as one reporting unit: the core Lattice ("Core") business, which includes intellectual property and semiconductor devices. We hadThere were no impairment charges in either fiscal 2020to goodwill or 2019. Impairment charges related to amortizable intangible assets from the Silicon Image acquisition totaled approximately $12.5 million in fiscal 2018.years 2023, 2022, or 2021. There is no certainty that future impairment tests will indicate that goodwill or amortizable intangible assets will be deemed recoverable. As we continue to review our business operations and test for impairment or in connection with possible sales of assets, we may have impairment charges in the future, which may be material.

Changes to financial accounting standards may affect our results of operations and could cause us to change our business practices.

We prepare our consolidated financial statements to conform to generally accepted accounting principles in the United States. These accounting principles are subject to interpretation by the American Institute of Certified Public Accountants, the SEC and various bodies formed to interpret and create accounting rules and regulations. Changes in these rules such ashave occurred in the adoption of ASC 606 - Revenue from Contracts with Customers in fiscal 2018 or ASC 842 - Leases in fiscal 2019, has had a material effect on our financial resultspast and affected portions of our business differently. Futurefuture changes to these rules, or in the guidance relating to interpretation and adoption of the rules, could have a significantmaterial effect on our financial results and could affect portions of our business differently.

Accounting standards also require us to make estimates and assumptions in connection with the preparation of our financial statements, and any changes to those estimates and assumptions could adversely affect our results of operations, cash flows and financial condition.

Changes in effective tax rates, tax laws and our global organizational structure and operations could expose us to unanticipated tax consequences.

We are subject to taxation in the United States and other countries. Certain tax positions may remain open to examination for several years. Challenges by tax authorities to our previous tax positions and intercompany transfer pricing arrangements, and continuing assessments of our tax exposures may have an adverse effect on our provision for income taxes and cash tax liability. We have a global tax structure that aligns our corporate structure with our global business operations, and we currently operate legal entities in multiple countries. In some countries, we maintain multiple entities for tax or other purposes. We may choose to consolidate or integrate certain of these entities, and these integration activities, as well as changes in composition of our earnings in jurisdictions with different tax laws, rates, regulations, future jurisdictional profitability of the Company, and related regulatory interpretations in the countries in which we operate may impact the taxes we pay or tax provision we record, which could adversely affect our results of operations. Furthermore, various levels of government are focused on tax reform and other legislative actions to increase tax revenue.

We also may be impacted by changes in the tax laws of the United States and foreign jurisdictions. President Biden signed into law the Inflation Reduction Act of 2022 (“IRA”) on August 16, 2022 and the CHIPS and Science Act of 2022 on August 9, 2022. These laws implemented tax provisions, including a 1% excise tax on certain stock repurchases made by publicly traded corporations after December 31, 2022, and provided for various incentives and tax credits. The Organisation for Economic Co-operation and Development, which represents a coalition of member countries, continues to advance proposals with changes to numerous long-standing tax principles, including the introduction of global minimum tax standards. If implemented by taxing authorities, such changes, as well as changes in taxing jurisdictions’ administrative interpretations, decisions, policies, and positions, could have a material adverse effect on our business, results of operations, or financial condition. In addition, future effective tax rates could be affected by changes in the composition of our earnings in countries with differing tax rates, and by changes in the valuation of deferred tax assets and liabilities. We make no assurance as to what taxes we pay or the ability to estimate our future effective tax rate because of, among other things, uncertainty regarding the tax policies of the jurisdictions where we operate, or the potential impact of releasing our valuation allowance.

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Weakness in our internal control over financial reporting and business processes could adversely affect our business and financial results.

We are required to maintain internal controls over financial reporting. We review these controls regularly and deficiencies may be identified from time tot o time. During the quarter ended December 28, 2019, we evaluated and remediated certain deficiencies in our information technology controls over system access and no material weakness existed at the end of the period. We previously disclosed a material weakness in 2017 related to our risk assessment involving significant unusual transactions that was remediated in 2018.  InIn the future, we may identify material weaknesses in our internal controls over financial reporting. Any failure to maintain an effective system of internal controls over financial reporting could limit our ability to report our financial results accurately and timely, which could adversely affect our business, financial results, and stock price.

We must also maintain high quality business processes. We rely on our business processes to, among other things, coordinate with our suppliers, manage our supply chain efficiently, manufacture high quality products and comply with various laws and regulations. Any failure to maintain high quality business processes, or to effectively adjust our business processes to changing circumstances and needs, could limit our ability to meet our business’ needs, which could adversely affect our business, financial results, and stock price.

 

We compete with others to attract and retain key personnel, and any loss of, or inability to attract, such personnel could adversely affect our ability to compete effectively.

 

We depend on the efforts and abilities of certain key members of management and other technical personnel. Our future success depends, in part, upon our ability to retain such personnel and attract and retain other highly qualified personnel, particularly product engineers who can respond to market demands and required product innovation. Competition for such personnel is intensehas been increasing generally throughout the economy, and we may not be successful in hiring or retaining new or existing qualified personnel. If we lose existing qualified personnel or are unable to hire new qualified personnel, as needed, we could have difficulty competing in our highly competitive and innovative environment.


Our insurance may not adequately cover certain risks and, as a result, our financial condition and results may be adversely affected.

We carry insurance customary for companies in our industry, including, but not limited to, liability, property, and casualty; workers' compensation; cyber liability; and business interruption insurance. We also insure our employees for basic medical expenses. In addition, we have insurance contracts that provide director and officer liability coverage for our directors and officers. Other than the specific areas mentioned above, we are self-insured with respect to most other risks and exposures, and the insurance we carry in many cases is subject to a significant policy deductible or other limitation before coverage applies. Based on management's assessment and judgment, we have determined that it is more cost effective to self-insure against certain risks than to incur the insurance premium costs. The risks and exposures for which we self-insure include, but are not limited to, certain natural disasters, certain product defects, certain matters for which we indemnify third parties, political risk, certain theft, patent infringement, and employment practice matters. Should there be a catastrophic loss due to an uninsured event (such as an earthquake) or a loss due to adverse occurrences in any area in which we are self-insured, our financial condition or operating results could be adversely affected.

 

Our outstanding We may incur indebtedness which could reduce our strategic flexibility and liquidity and may have other adverse effects on our results of operations.

 

As of January 2, 2021, we had approximately $171.9 million outstanding under aOur amended and restated credit agreement, dated May 17, 2019September 1, 2022 (the “Current“2022 Credit Agreement”). allows us to draw up to $350 million. While as of December 30, 2023, we had no borrowings outstanding under the 2022 Credit Agreement, the incurrence of indebtedness could impact the Company. Our obligations under the Current2022 Credit Agreement are guaranteed by certain of our U.S. subsidiaries meeting materiality thresholds set forth in the 2022 Credit Agreement, and include a requirement to pay quarterly installmentsthe revolving loans under the 2022 Credit Agreement may be reborrowed and repaid at our discretion, with any remaining outstanding principal amount due and payable on the maturity date of approximately $4.4 million with the remaining balance due upon maturity in May 2024.revolving loan facility on September 1, 2027. Our ability to meet our debt service obligations depends upon our operating and financial performance, which is subject to general economic and competitive conditions and to financial, business and other factors affecting our operations, many of which are beyond our control. If we are unable to service our debt, we may need to sell material assets, restructure or refinance our debt, or seek additional equity capital. Prevailing economic conditions and global credit markets could adversely impact our ability to sell material assets, restructure or refinance our debt on terms acceptable to us, or at all, or we may not be able to restructure or refinance our debt without incurring significant additional fees and expenses.

 

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The Current2022 Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and our subsidiaries to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments, make certain restricted payments, dispose of assets, enter into transactions with affiliates, and enter into burdensome agreements, in each case, subject to limitations and exceptions set forth in the Current2022 Credit Agreement. We are also required to maintain compliance with a total net leverage ratio and an interest coverage ratio, in each case, determined in accordance with the terms of the Current2022 Credit Agreement.

 

The amount and terms of our indebtedness, as well as our credit rating, could have important consequences, including the following:

 

we may be more vulnerable to economic downturns, less able to withstand competitive pressures, and less flexible in responding to changing business and economic conditions;

our cash flow from operations may be allocated to the payment of outstanding indebtedness, and not to research and development, operations or business growth;

we might not generate sufficient cash flow from operations or other sources to enable us to meet our payment obligations under the facility and to fund other liquidity needs;

our ability to make distributions to our stockholders in a sale or liquidation may be limited until any balance on the facility is repaid in full; and

our ability to incur additional debt, including for working capital, acquisitions, or other needs, is more limited.

 

If we breach a loan covenant, the lenders could accelerate the repayment of the facility. We might not have sufficient assets to repay our indebtedness upon acceleration. If we are unable to repay or refinance the indebtedness upon acceleration or at maturity, the lenders could initiate a bankruptcy proceeding against us or collection proceedings with respect to our assets and subsidiaries securing the facility, which could materially decrease the value of our common stock.

 

Unfavorable or uncertain market conditions and risks relating to the adoption, use or application of emerging technologies, including artificial intelligence (AI), by our customers and in our business, may impact financial results and could result in reputational and financial harm and liability.

The adoption of AI solutions may not develop in the manner or in the time periods we anticipate and as the markets for AI solutions are still developing, demand for these products may be unpredictable and may vary significantly from one period to another. These factors may adversely impact demand for our AI related products including our products that support AI solutions. In addition, compliance with government regulations and unfavorable developments with evolving laws and regulations worldwide related to these products and suppliers may increase the costs related to the development of AI products and solutions and limit global adoption, which may also adversely impact demand for our AI related products.

Concerns relating to the responsible use of new and evolving technologies, such as AI, in our and our customers’ products and services may result in reputational and financial harm and liability. We and our customers are increasingly building AI capabilities into many products and services. AI poses emerging ethical issues and presents risks and challenges that could affect its adoption, and therefore our business. If we or our customers enable or offer solutions that draw controversy due to their perceived or actual impact on society, such as AI solutions that have unintended consequences or are controversial, we may experience reputational harm, competitive harm or legal liability.

Additionally, while we restrict the use of third-party and open source AI tools, such as ChatGPT, the internal governance of the adoption of these technologies can be challenging, and our employees and consultants may use these tools on an unauthorized basis and our partners may use these tools, which poses additional risks relating to the protection of data, including the potential exposure of our proprietary confidential information to unauthorized recipients and the misuse of our or third-party intellectual property. Use of AI tools may result in allegations or claims against us related to violation of third-party intellectual property rights, unauthorized access to or use of proprietary information and failure to comply with open source software requirements. AI tools may also produce inaccurate responses that could lead to errors in our decision-making, product development or other business activities, which could have a negative impact on our business, operating results and financial condition. Our ability to mitigate these risks will depend on our continued effective maintaining, training, monitoring and enforcement of appropriate policies and procedures governing the use of AI tools, and the results of any such use, by us or our partners.

Climate change and climate change-related policies and regulations may have a long-term impact on our business.

Climate-related risks are inherent wherever our business is conducted. Global climate change is causing, and is projected to continue to cause, an increase in the frequency and intensity of certain natural disasters and adverse weather, such as drought, wildfires, storms, sea-level rise, flooding, heat waves, and cold waves, occurring more frequently or with greater intensity. Such extreme events are driving changes in market dynamics, stakeholder expectations, and local, national and international climate change policies and regulations, any of which could result in disruptions to us, our suppliers, vendors, customers and logistics hubs, and may impact employees’ abilities to commute or to work from home effectively. These disruptions could make it more difficult and costly for us to deliver our products and services, obtain components or other supplies through our supply chain, maintain, or resume operations or perform other critical corporate functions, and could reduce customer demand for our products and services.

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WeThe increasing concern over climate change could also result in transition risks such as shifting customer preferences. Changing customer preferences may have failedresult in increased expectations regarding our solutions, products, and services, including the use of packaging materials and other components in our products and their environmental impact. These expectations may cause us to adequately insure against certainincur additional costs or make other changes to our operations to respond to them, which could adversely affect our financial results. If we fail to manage transition risks and customer expectations in an effective manner, customer demand for our solutions, products, and services could diminish, and our profitability could suffer. Concerns over climate change, as well as the adoption of new laws or regulations, may also impact market dynamics and may result in shifts in customer expectations, preferences, or requirements, which may require us to change our practices or incur increased costs or adversely impact customer demand for our products and services.

Additionally, concerns over climate change have resulted in, and are expected to continue to result in, the adoption of legal and regulatory requirements designed to address climate change, as well as legal and regulatory requirements requiring certain climate-related disclosures. Where new laws or regulations are more stringent than current legal or regulatory requirements, we may experience increased compliance burdens and costs to meet such obligations. These laws could cause us to incur additional direct costs for compliance, as well as indirect costs resulting from our customers, suppliers or both incurring additional compliance costs that are passed on to us. These legal and regulatory requirements, as well as investor expectations, on corporate environmental and social responsibility practices and disclosure, are subject to change, can be unpredictable, and may be difficult and expensive for us to comply with, given the complexity of our supply chain and our significant outsourced manufacturing. If we are unable to comply, or are unable to cause our suppliers or subcontractors to comply, with such policies or provisions or meet the requirements of our customers and investors, a result,customers may stop purchasing products form us or an investor may sell their shares, and may take legal action against us, which could harm our financial conditionreputation, revenue, and results may be adversely affected.of operations.

 

We carryClimate change also may reduce the availability or increase the cost of insurance customary for companies in our industry, including, but not limited to, liability, property, and casualty; workers' compensation; and business interruption insurance. We also insure our employees for basic medical expenses. In addition, we have insurance contracts that provide director and officer liability coverage for our directors and officers. Other than the specific areas mentioned above, we are self-insured with respect to most other risks and exposures, and the insurance we carry in many cases is subject to a significant policy deductible or other limitation before coverage applies. Based on management's assessment and judgment, we have determined that it is more cost effective to self-insure against certain risks than to incur the insurance premium costs. The risks and exposures for which we self-insure include, but are not limited to, certainthese negative impacts of natural disasters certain product defects, certain matters for which we indemnify third parties, political risk, certain theft, patent infringement, and employment practice matters. Should there be a catastrophic loss dueby contributing to an uninsured eventincrease in the incidence and severity of such natural disasters. Ultimately, the impacts of climate change, whether involving physical risks (such as an earthquake)disruptions resulting from climate-related events or a loss duerising sea levels) or transition risks (such as regulatory changes, changes in market dynamics or increased operating costs, including the cost of insurance) are expected to adverse occurrences in any area in which we are self-insured,be widespread and unpredictable and may materially adversely affect our business and financial condition or operating results could be adversely affected.results.

 

Factors Related to Our Markets and Product Development

 

The semiconductor industry routinely experiences cyclical market patterns and our products are used across different end markets. A significant downturn in the industry or in any of these end markets could cause a meaningful reduction in demand for our products and adversely affect our operating results.

 

OurThe semiconductor industry is highly cyclical and subject to downturns, such as we are currently seeing, and our revenue and gross margin can fluctuate significantly due to downturns in the highly cyclical semiconductor industry.such downturns. These downturns can be severe and prolonged and can result in price erosion and weak demand for our products. Weak demand for our products resulting from general economic conditions affecting the end markets we serve, or the semiconductor industry specifically, and reduced spending by our customers can result, and in the past has resulted, in diminished product demand, high inventory levels, erosion of average selling prices, excess and obsolete inventories and corresponding inventory write-downs. Our expense levels are based, in part, on our expectations of future sales. Many of our expenses, particularly those relating to facilities, capital equipment, and other overhead, are relatively fixed. We might be unable to reduce spending quickly enough to compensate for reductions in sales. Accordingly, shortfalls in sales could adversely affect our operating results. Furthermore, any significant upturn in the semiconductor industry could result in increased competition for access to raw materials and third-party service providers.

 

Additionally, our products are used across different end markets, and demand for our products is difficult to predict and may vary within or among our Industrial and Automotive, Communications and Computing, and Consumer end markets. Our target markets may not grow or develop as we currently expect, and demand may increase or change in one or more of our end markets, and changes in demand may reduce our revenue, lower our gross margin and effect our operating results. We have experienced concentrations of revenue at certain customers and within certain end markets, and we regularly compete for design opportunities at these customers and within these markets. Any deterioration in these end markets, reductions in the magnitude of revenue streams, our inability to meet design and pricing requirements, or volatility in demand for our products could lead to a reduction in our revenue and adversely affect our operating results. Our success in our end markets depends on many factors, including the strength or financial performance of the customers in our end markets, our ability to timely meet rapidly changing product requirements, market needs, and our ability to maintain design wins across different markets and customers to dampen the effects of market volatility. The dynamics of the markets in which we operate make prediction of and timely reaction to such events difficult.

 

Due to these and other factors, our past results may not be reliable predictors of our future results. If we are unable to accomplish any of the foregoing, or to offset the volatility of cyclical changes in the semiconductor industry or our end markets through diversification into other markets, these factors could materially and adversely affect our business, financial condition, and operating results.

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Our success and future revenue depend on our ability to develop and introduce new products that achieve customer and market acceptance.

 

We compete in a dynamic environment characterized by rapid technology and product evolution, generally followed by a relatively longer process of ramping up to volume production on advanced technologies. Our end customers’ continued use of our products is frequently reevaluated, as certain of our customers' product life cycles are relatively short and they continually develop new products. The selection process for our products to be included in our customers' new products is highly competitive. There are no guarantees that our products will be included in the next generation of products introduced by these customers. Additionally, our markets are also characterized by evolving industry standards and increased demand for more features and performance, which requires higher levels of integration and smallermore advanced process geometry.technology. Our competitive position and success depend on our ability to innovate, develop, and introduce new products that compete effectively on the basis of price, density, functionality, power consumption, form factor, and performance, and our addressingability to address the evolving needs of the markets we serve, among other things. With increased introduction of new products, we expect revenue related to mature products to decline over time in a normal product life cycle. As a result, we may be increasingly dependent on revenue derived from our newer products.

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Our future growth and the success of new product introductions depend upon numerous factors, including:

 

timely completion and introduction of new product designs;

ability to generate new design opportunities and design wins, including those which result in sales of significant volume;

achievement of necessary volume of production to achieve acceptable cost;

availability of specialized field application engineering resources supporting demand creation and customer adoption of new products;

ability to utilize advanced manufacturing process technologies;

achieving acceptable yields and obtaining adequate production capacity from our wafer foundries and assembly and test subcontractors;

ability to obtain advanced packaging;

availability of supporting software design tools;

utilization of predefined IP logic;

customer acceptance of advanced features in our new products; and

market acceptance of our customers' products.

 

The failure of any of these factors, among others, could adversely affect our product innovation, development and introduction efforts and our financial condition and results of operations.

 

We compete against companies that have significantly greater resources than us and numerous other product solutions.

 

The semiconductor industry is highly competitive and many of our direct and indirect competitors have substantially greater financial, technological, manufacturing, marketing, and sales resources.resources than us. Consolidation in our industry may increasingly mean that our competitors have greater consolidated resources, or other synergies, including the ability to attract qualified employee or incorporate higher costs into product and service prices, that could put us at a competitive disadvantage. We currently compete directly with companies that have licensed our technology or have developed similar products, as well as numerous semiconductor companies that offer products based on alternative solutions, such as applications processor, application specific standard product, microcontroller, analog, and digital signal processing technologies. Competition from these semiconductor companies may intensify as we offer more products in any of our end markets. These competitors include established, multinational semiconductor companies, as well as emerging companies.

 

We depend on independent contractors and third parties to provide key services in our product development and operations, and any disruption of their services, or an increase in cost of these services, could negatively impact our financial condition and results of operations.

 

We depend on subcontractors to provide cost effective and efficient services in our product development and supply chain functions, including test and assembly services, software and hardware development, support of intellectual property cores, inventory management, lead time management, technical support, and order fulfillment and direct sales logistics.fulfillment.

 

Our operations and operating results may be adversely affected if we experience problems with our subcontractors that impact the delivery of product to our customers. These problems may include: schedule delays or defects in software or hardware development timelines,deliverables; prolonged inability to obtain wafers or packaging materials with competitive performance and cost attributes; inability to achieve adequate yields or timely delivery; inability to meet customer timelines or demands,demands; disruption or defects in assembly, test, or shipping services; or delays in stabilizing manufacturing processes or ramping up volume for new products. If our third-party supply chain providers were to reduce or discontinue services for us or their operations are disrupted as a result of a fire, earthquake, act of terrorism, political unrest, governmental uncertainty, war, disease, or other natural disaster or catastrophic event, weak economic conditions, inflation, recession, labor market disruptions, or any other reason, our financial condition and results of operations could be adversely affected.

19

 

Factors Related to Our Sales and Revenue

 

Our revenues depend on our relationships with our distributors and on a concentrated group of end customers. An adverse change in the relationships with, or performance of, our distributors, or any reduction in the use of our products by our end customers, could harm our sales and significantly decrease our revenue.

 

We depend on a concentrated group of distributors to sell our products to end customers, complete order fulfillment, maintain sufficient inventory of our products and provide services to our end customers. In fiscal 2020,2023, revenue attributable to sales to distributors accounted for 83%87% of our total revenue, with two distributors accounting for 60%52% of total revenue. We have significant outstanding receivables with our top distributors, and expect our distributors to generate a significant portion of our revenue in the future. Any adverse change to our relationships or agreements with our distributors, or a failure by one or more of our distributors to perform its obligations to us, a reduction in a distributor's business volume with us, or consolidation in the distribution industry could have a material impact on our business, including a reduction in our access to certain end customers, or our ability to sell our products.

 

If our relationships with any material customers were to diminish, if these customers were to develop their own solutions or adopt alternative solutions or competitors' solutions, if any one or more of our concentrated groups of customers were to experience significantly adverse financial conditions, including as a result of inflation, economic slowdown or recession, or labor market disruptions, or if as a result of trade disputes or sanctions these customers were restricted from purchasing our products, our results could be adversely affected.

18

 

In addition, the inability of customers to obtain credit, the insolvency of one or more customers, or tariffs applicable to our customers’ products, could impact our sales. Any of these effects could impact our ability to effectively manage inventory levels and collect receivables, require additional restructuring actions, and decrease our revenue and profitability.

 

The nature of our business and length of our sales cycle makes our revenue, gross margin, and net income, and inventory subject to fluctuation and difficult to accurately predict.

 

A number of factors, including how products are manufactured to support end markets, yield, wafer pricing, cost of packaging raw materials, product mix, market acceptance of our new products, competitive pricing dynamics, product quality, geographic and/or end market mix, and pricing strategies, can cause our revenue, gross margins, and net income, and inventory to fluctuate significantly either positively or negatively from period to period.

 

We have limited visibility into the demand for our products, particularly new products, because demand for our products depends upon our products being designed into our end customers' products and those products achieving market acceptance. During our sales cycle, our customers typically test and evaluate our products prior to deciding to include our products into the design of their own products, and then require additional time to begin volume production of their products. This lengthy sales cycle may cause us to incur significant expenses, experiencewhich could be exacerbated by rising inflation, significant production delays, and to incuror additional inventory costs before we receive a customer order that may be delayed or never get placed. A key strategic customer may demand certain design or production resources to meet their requirements or work on a specific solution, which could cause delays in our normal development schedule and result in significant investment of our resources or missed opportunities with other potential customers. We may incur these expenses without generating revenue from our products to offset the expenses.

 

While our sales cycles are typically long, our average product life cycles tend tocan be short as a result of the rapidly changing technology environment in which we operate. OurFrom time to time, our inventory levels may be higher than historical norms from time to time, due to inventory build decisions aimed at meeting expected demand, from a single large customer,ramping for new products, reducing direct material cost, or enabling responsiveness to expected demand. In the event the expected demand does not materialize, or if our short sales cycle does not generate sufficient revenue, we may be subject to incremental excess and obsolescence costs.

 

These factors make it difficult for us to accurately forecast future sales and project quarterly revenues. The difficulty in forecasting future sales weakens our ability to project our inventory requirements, which could result, and in the past has resulted, in inventory write-downs or failure to meet customer product demands in a timely manner. While we may giveissue guidance, the difficulty in forecasting revenues as well as thefinancial performance, relative customer and product mix, and the unpredictability of those revenues limitsunknown variables and their impact on our ability to provide accuratefinancial performance may impair the accuracy of our forward-looking revenue and gross margin guidance.financial measures.

20

 

Accounting requirements related to sales through our distribution channel could result in our reporting revenue in excess of demand.

 

Revenue recognition standards require recognition of revenue based on estimates and may require us to record revenue from distributors that is in excess of actual end customer demand. Since we have limited ability to forecast inventory levels of our end customers, we depend on the timeliness and accuracy of resale reports from our distributors. Late or inaccurate resale reports could mask significant build-up of inventories in our distribution channel, have a detrimental effect on our ability to properly recognize revenue, and impact our ability to forecast future sales. An inventory build-up in our distribution channel could result in a slowdown in orders, requests for returns from customers, or requests to move out planned shipments. If our distributors do not ultimately sell the inventory and our estimates change, we could be required to materially correct our recognized revenue in a future period, depending on actual results. Any failure to manage these challenges could disrupt or reduce sales of our products and unfavorably impact our financial results.

General Risk Factors

Our operations are subject to the effects of inflationary pressures and recessionary concerns.

Global economic conditions have recently experienced historically high levels of inflation, and there is increasing concern about the potential for recession. Recent inflation caused by global supply chain disruptions, strong economic recovery and associated widespread demand for goods, and government stimulus packages, among other factors, continues to impact our business. For instance, global supply chain disruptions have resulted in shortages in materials and services. Such shortages have resulted in inflationary cost increases for labor, materials, and services across the economy, and could continue to cause costs to increase as well as scarcity of certain products. To the extent inflation, or government responses to inflation, results in rising interest rates and has other adverse effects on the market, including the possibility of recession, it may adversely affect our consolidated financial condition and results of operations.

 

Factors RelatedBusiness disruptions could seriously harm our future revenue, cash flows, and financial condition and increase our costs and expenses.

Our worldwide operations and supply chain could be disrupted by natural or human-induced disasters including, but not limited to, Strategic Transactionsearthquakes, tsunamis, or floods; hurricanes, cyclones, or typhoons; fires, or other extreme weather conditions; power or water shortages; telecommunications failures; materials scarcity and price volatility; manufacturing equipment failures; IT system failures; cybersecurity attacks; data breaches; medical epidemics or pandemics; terrorist acts, civil unrest, military actions, conflicts, or wars; or other natural or man-made disasters or catastrophic events.

The occurrence of any of these business disruptions could adversely affect our competitive position and result in significant losses, decrease demand for our products, seriously harm our revenue, profitability and financial condition, increase our costs and expenses, make it difficult or impossible to provide services or deliver products to our customers or to receive components from our suppliers, create delays and inefficiencies in our supply chain, result in the need to impose employee travel restrictions, and require substantial expenditures and recovery time in order to fully resume operations. The impacts and frequency of any of the above could furthermore be exacerbated by climate change, particularly in countries where we, or our suppliers or customers, operate that have limited infrastructure and disaster recovery resources.

Our operations and those of our significant suppliers and distributors could be adversely affected if manufacturing, logistics, or other operations in key locations, including logistics hubs in Asia, are disrupted for any reason, such as those described above or other economic, business, labor, environmental, public health, regulatory or political reasons. In addition, even if our operations are unaffected or recover quickly, if our customers cannot timely resume their own operations due to a catastrophic event, they may reduce or cancel their orders, or these events could otherwise result in a decrease in demand for our products. Although it is impossible to completely predict the occurrences or consequences of any such events, forecasting disruptive events and building additional resiliency into our operations accordingly will become an increasing business imperative.

21

The trading price of our common stock has been and may continue to be subject to volatility in response to a variety of factors.

Our common stock has experienced substantial price volatility in the past and may continue to do so in the future. Additionally, the technology industry and the stock market as a whole has experienced extreme volatility that often has been unrelated to the performance of particular companies. The trading price of our common stock has and may continue to fluctuate widely due to various factors, including, but not limited to, actual or anticipated fluctuations in our financial condition and operating results; changes in financial estimates by us or financial or other market estimates and ratings by securities and other analysts; our ability to develop new products, enter new market segments, gain market share, manage cybersecurity and litigation risk, diversify our customer base, and successfully secure manufacturing capacity; news regarding our products or products of our competitors; any mergers, acquisitions or divestitures of assets undertaken by us; inflationary conditions, interest rate changes, and recessionary concerns; regulatory changes to international trade policies, economic sanctions, or export controls, such as new licensing requirements for exporting certain chip-related technology to China; terrorist acts or acts of war, including the ongoing conflict between Ukraine and Russia; epidemics and pandemics; trading activity in our common stock, including stock repurchases, actions by institutional or other large stockholders, or our inclusion in market indices; or general economic, industry, and market conditions worldwide.

The volatility of our stock may cause the value of a stockholder’s investment to change rapidly. Investors in our common stock may not realize any return on their investment in us and may lose some or all of their investment. Additionally, if our stock price declines, it may be more difficult for us to raise capital and may have other adverse effects on our business. Stock price fluctuations could impact the value of our equity compensation, which could affect our ability to recruit and retain employees. Volatility in the trading price of our common stock could also result in the filing of securities class action litigation matters, which could result in substantial costs and the diversion of management time and resources. For these reasons, investors should not rely on recent or historical trends to predict future trading prices of our common stock, financial condition, results of operations, or cash flows.

Litigation and unfavorable results of legal proceedings could adversely affect our financial condition and operating results.

From time to time, we are subject to various legal proceedings and claims that arise out of the ordinary conduct of our business. Certain claims may not yet be resolved, including but not limited to any that are discussed under Note 14 - Contingencies to our Consolidated Financial Statements in Part II, Item 8 of this report, and additional claims may arise in the future. Results of legal proceedings cannot be predicted with certainty. Regardless of merit or outcome, claims or litigation may be both time-consuming and disruptive to our operations and cause significant expense and diversion of management attention and we may enter into material settlements to avoid these risks. Should we fail to prevail in certain matters or enter into a material settlement, we may be faced with significant monetary damages or injunctive relief against us that could materially and adversely affect our financial condition and operating results and certain portions of our business.

 

Acquisitions, divestitures, strategic investments and strategic partnerships could disrupt our business and adversely affect our financial condition and operating results.

 

We may pursue growth opportunities by acquiring complementary businesses, solutions or technologies through strategic transactions, investments or partnerships. The identification of suitable acquisition, strategic investment or strategic partnership candidates can be costly and time consuming and can distract our management team from our current operations. If such strategic transactions require us to seek additional debt or equity financing, we may not be able to obtain such financing on terms favorable to us or at all, and such transaction may adversely affect our liquidity and capital structure. We may also choose to divest certain non-core assets, which divestitures could lead to charges against earnings and may expose us to additional liabilities and risks. Any strategic transaction might not strengthen our competitive position, may increase some of our risks, and may be viewed negatively by our customers, partners or investors. Even if we successfully complete a strategic transaction, we may not be able to effectively integrate the acquired business, technology, systems, control environment, solutions, personnel or operations into our business or global tax structure. We may experience unexpected changes in how we are required to account for strategic transactions pursuant to U.S. GAAP and may not achieve the anticipated benefits of any strategic transaction. We may incur unexpected costs, claims or liabilities that we incur during the strategic transaction or that we assume from the acquired company, or we may discover adverse conditions post acquisition for which we have limited or no recourse. We may also be a target for unsolicited acquisition or business combination offers. Appropriately reviewing and responding to any such offer can be costly and complex, and diverts the efforts and attention of management.

 

1922


 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 1C. Cybersecurity

Our cybersecurity risk management process is a component of our overall enterprise risk management process, through which our Chief Executive Officer and other members of senior management assess, identify, and manage material risks from cybersecurity threats we face. Our cybersecurity process seeks to protect our information systems by managing and reducing material risks from cybersecurity threats and by responding to and mitigating cybersecurity incidents. The Board of Directors (the “Board”), and the Audit Committee of the Board (the “Audit Committee”), provide oversight of our cybersecurity risk management process. The Audit Committee reviews our cybersecurity program and cybersecurity risk management process quarterly, and our Board reviews our cybersecurity program annually. Our cybersecurity program is directly managed by the Chief Information Officer (“CIO”), who is experienced in information systems and cybersecurity and whose team is responsible for leading enterprise-wide cybersecurity strategy, policy, standards, architecture, and processes. The CIO provides periodic updates to our Board and Audit Committee, as well as our Chief Executive Officer and other members of our senior management. These updates cover the Company’s material cybersecurity threats, the status of projects to strengthen our cybersecurity posture, and assessments of the cybersecurity program. Our cybersecurity risk management process is evaluated by internal and external cybersecurity experts, and the material results of those reviews are reported to senior management and the Board and Audit Committee as part of their oversight role. We also engage with third-party service providers deemed to have subject matter expertise in cybersecurity matters, industry participants, and law enforcement communities as part of our continuing efforts to evaluate and enhance the effectiveness of our cybersecurity policies and processes. We require each third-party service provider to certify that they implement and maintain appropriate security measures in connection with their work with us, and to promptly report any suspected breach of its security measures that may affect us. We use various tools and methodologies to manage cybersecurity risk and to prevent, detect, and mitigate cybersecurity incidents. Our tools and methodologies are tested regularly, including vulnerability scans, red-teaming exercises and other penetration testing, and review of cybersecurity threat intelligence feeds. We face risks from cybersecurity threats that could have a material adverse effect on our business, financial condition, results of operations, cash flows or reputation. We have experienced, and will continue to experience, cybersecurity incidents in the normal course of our business. However, prior cybersecurity incidents have not had a material adverse effect on our business, financial condition, results of operations, or cash flows. See “Risk Factors – Factors Related to Overall Business & Operations – Our business depends on the use of information technology systems. A failure of these systems, cybersecurity incidents, or cyber-fraud may cause business disruptions, compromise our intellectual property or other sensitive information, or result in losses.”

 

Item 2. Properties

 

We lease a 47,800 square foot of space in Hillsboro, Oregon as our corporate headquarters and a research and development facility through November 2022. October 2028.

In San Jose, California, we have 98,874 square feet under lease through September 2026, of which we use 49,579 square feet as aprimarily for research and development facility, while we vacated 49,295 square feet during the fourth quarter of 2018 and intend to sublease the vacated space.development. During 2019, we vacated a 23,680 square foot office space in Portland, Oregon, which we have subleased through the end of the lease in March 2025.

 

In Muntinlupa City, Philippines, we lease a total of 48,56550,503 square feet through May 2025 and 1,938 square feet through June 2025 for research and development and operations facilities.

In Shanghai, China, we lease 68,027 square feet through May 20212024 for research and development operations.

In Penang, Malaysia, we lease 23,272 square feet through September 2029 for research and development and operations facilities. We also lease office facilities in multiple other metropolitan locations for our domestic and international sales staff. We believe that our existing facilities are suitable and adequate for our current and foreseeable future needs.

 

Item 3. Legal Proceedings

 

The information contained under the heading "Legal Matters" in Note 14 - Contingencies to our Consolidated Financial Statements in Part II, Item 8 of this report is incorporated by reference into this Part I, Item 3. Also, see “Litigation and unfavorable results of legal proceedings could adversely affect our financial condition and operating results” in “Risk Factors” in Item 1A of Part I of this Annual Report on Form 10-K.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

2023


 

PART II



 

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

 

Market Information

 

Our common stock is traded on the NASDAQ Global Select Market under the symbol "LSCC".

 

Holders

 

As of February 19, 2021,12, 2024, we had approximately 203160 stockholders of record.

 

Dividends

 

The payment of dividends on our common stock is within the discretion of our Board of Directors. We intend to retain earnings to finance our business. We have never paid cash dividends.

 

Recent Sales of Unregistered Securities

 

None.

 

Issuer Purchases of Equity Securities

 

On February 24, 2020,August 8, 2022, we announced that our Board of Directors had approved a stock repurchase program with apursuant to which up to $150 million of outstanding common stock could be repurchased from time to time (the "2023 Repurchase Program"). The duration of twelve months. Under this program duringthe 2023 Repurchase Program was through December 30, 2023. During the fourth quarter of fiscal 2020,2023, we maderepurchased 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 purchasestransactions funded from available working capital totaling approximately $15.0 million. capital. All shares repurchased sharespursuant to the 2023 Repurchase Program were retired by the end of the 2020fourth quarter of fiscal year.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.

 

The following table contains information regarding our purchasesrepurchases of our common stock that is registered pursuant to Section 12 of the Securities Exchange Act of 1934 during the fourth quarter of fiscal 2020:2023:

 

Period

 

Total Number of Shares Purchased

  

Average Price Paid per Share

  

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a)

  

Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs as of Report Filing Date (b)

  

Total Number of Shares Purchased

  

Average Price Paid per Share

  

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a)

  

Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs ($M) (b)

 

November 1, 2020 through November 30, 2020

  384,538  $38.98   384,538  $ 

October 1, 2023 through October 28, 2023

  $  $99.7 

October 29, 2023 through November 25, 2023

 838,602 $57.46 838,602 $51.5 

November 26, 2023 through December 30, 2023

  34,392  $58.37   34,392  $250.0 

Total

  384,538  $38.98   384,538  $   872,994  $57.49   872,994  $250.0 

 

(a) All open-market purchasesrepurchases during the quarter were open-market transactions funded from available working capital made under the authorization from our boardBoard of directorsDirectors to purchase up to $40.0$150.0 million of LSCCour common stock announced February 24, 2020.August 8, 2022
(b) 

At December 30, 2023, this amount consists of the remaining portion of the $250 million program authorized through December 28, 2024 that was announced November 30, 2023. The twelve-month 2020remaining portion of the $150 million program authorized through December 30, 2023 expired during the first quarter of fiscal 2021, during whichwith no additional shares were repurchased.

 

2124


 

Comparison of Total Cumulative Stockholder Return

 

The following graph shows the five-year comparison of cumulative stockholder return on our common stock, the Standard and Poor's (“S&P”) 500 Index and the Philadelphia Semiconductor Index (“PHLX”) from December 20152018 through December 2020.2023. Cumulative stockholder return assumes $100 invested at the beginning of the period in our common stock, the S&P and PHLX. Historical stock price performance is not necessarily indicative of future stock price performance.

 

Lattice Cumulative Stockholder Return

 

totalreturngraph2020.jpg
totalreturngraph2023b.jpg

 

22

 

Item 6. Selected Financial DataReserved

  

Year Ended *

 
STATEMENT OF OPERATIONS: January 2,  December 28,  December 29,  December 30,  December 31, 
(In thousands, except per share data) 2021 **  2019  2018  2017  2016 

Revenue

 $408,120  $404,093  $398,799  $385,961  $427,054 

Cost of revenue

  162,814   165,671   179,360   169,382   180,620 

Gross margin

  245,306   238,422   219,439   216,579   246,434 

Operating expenses:

                    

Research and development

  89,223   78,617   82,449   103,357   117,518 

Selling, general, and administrative

  95,331   82,542   91,054   90,718   98,602 

Amortization of acquired intangible assets

  4,449   13,558   17,690   31,340   33,575 

Restructuring charges

  3,937   4,664   17,349   7,196   9,267 

Impairment of acquired intangible assets and goodwill

        12,486   32,431   7,866 

Acquisition related charges

        1,531   3,781   6,305 

Gain on sale of building

           (4,624)   

Total operating expenses

  192,940   179,381   222,559   264,199   273,133 

Income (loss) from operations

  52,366   59,041   (3,120)  (47,620)  (26,699)

Interest expense

  (3,702)  (11,731)  (20,600)  (18,807)  (20,327)

Other (expense) income, net

  (208)  (2,245)  (249)  (3,286)  2,844 

Income (loss) before income taxes

  48,456   45,065   (23,969)  (69,713)  (44,182)

Income tax expense

  1,064   1,572   2,353   849   9,917 

Net income (loss)

 $47,392  $43,493  $(26,322) $(70,562) $(54,099)
                     

Net income (loss) per share:

                    

Basic

 $0.35  $0.33  $(0.21) $(0.58) $(0.45)

Diluted

 $0.34  $0.32  $(0.21) $(0.58) $(0.45)
                     

Shares used in per share calculations:

                    

Basic

  135,220   132,471   126,564   122,677   119,994 

Diluted

  141,276   137,274   126,564   122,677   119,994 

 

 

BALANCE SHEET: January 2,  December 28,  December 29,  December 30,  December 31, 
(In thousands) 2021  2019  2018  2017  2016 

Cash, cash equivalents, and short-term marketable securities

 $182,332  $118,081  $128,675  $111,797  $116,860 

Total assets

 $680,067  $612,016  $623,687  $635,961  $766,883 

Long term liabilities

 $215,909  $184,538  $295,812  $334,621  $338,903 

Total liabilities

 $295,640  $284,357  $365,230  $418,268  $496,453 

Total stockholders' equity

 $384,427  $327,659  $258,457  $217,693  $270,430 

*

Results for periods prior to 2018 are presented in accordance with ASC 605, which was in effect during those fiscal years.

**

The year ended January 2, 2021 was a 53-week year as compared to the other years presented, which were based on our standard 52-week year

2325


 

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

Lattice Semiconductor Corporation and its subsidiaries (“Lattice,” the “Company,” “we,” “us,” or “our”) develop technologies that we monetize through differentiated programmable logic semiconductor products, silicon-enabling products, system solutions, design services, and licenses. Lattice is the low power programmable leader. We solve customer problems across the network, from the Edge to the Cloud, in the growing communications, computing, industrial, automotive, and consumer markets. Our technology, long-standing relationships, and commitment to world-class support lets our customers quickly and easily unleash their innovation to create a smart, secure, and connected world.

 

Lattice has focused its strategy on delivering programmable logic products and related solutions based on low power, small size, and ease of use. We also serve our customers with IP licensing and various other services. Our product development activities include new proprietary products, advanced packaging, existing product enhancements, software development tools, soft IP, and system solutions for high-growth applications such as Edge Artificial Intelligence,AI, 5G infrastructure, platform security, and factory automation.

 

This discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes included in Part II, Item 8. "Financial Statements and Supplementary Data" of this report. Discussions of results for prior periods (fiscal 20192022 compared to fiscal 2018)2021) are incorporated by reference from our Annual Report on Form 10-K for the year ended December 28, 201931, 2022.

 

Impact of the COVID-19 pandemicGlobal Economic Activity on our Business


The COVID-19 pandemic has caused,

Increased financial market volatility, inflationary pressure, rising interest rates, recessionary concerns, uncertainty in the financial and is expected tobanking industry, and geopolitical tension continue to cause, the global slowdown of economic activity (including the decrease in demand for goodsimpact business globally and services), and significant volatility in andmay impact our operations by causing disruption to our labor markets and supply chains. The extent to which increased financial markets. Because the severity, magnitudemarket volatility, inflationary pressures, global pandemics, and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing, and difficult to predict, the pandemic’srelated uncertainty will impact on our operations and financial performance, as well as its impact on our ability to successfully execute our business strategy and initiatives, remains uncertain. We continue to take actions to safeguard the health and well-being of our employees and our business. We implemented social distancing policies at our locations around the world including working from home and eliminating virtually all travel. Furthermore, we continue to manage our cash position and liquidity needs in light of the rapidly changing environment, and we have additional resources available under our Current Credit Agreement, if needed. As a result of the accelerated debt payments we made during the second quarter of fiscal 2020 to reduce our future interest rate expense, we do not have any required debt payments until June 30, 2021.

As COVID-19 has spread globally and been declared a pandemic, the full extent of this outbreak, the related governmental, business and travel restrictions in order to contain this virus are continuing to evolve globally. We anticipate that these actions and the global health crisis caused by the COVID-19 pandemic will negatively impact business activity across the globe. We expect our demand to be impacted in Q1 and potentially beyond Q1 given the global reach and economic impact of the virus. For example, governmental actions or policies or other initiatives to contain the virus, could lead to reductions in our end customers’ demand under which we would expect to lose revenue. We have previously seen and could again see delays or disruptions in our supply chain due to governmental restrictions. If our suppliers experience similar impacts, we may have difficulty sourcing materials necessary to fulfill customer production requirements and transporting completed products to our end customers.

We will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities. It is not clear what the potential effects of any such alterations or modifications may have on our business, including the effects on our customers, employees, and prospects, or on our financial results. The full extent of the impact of the COVID-19 pandemic on our business, results of operations and financial position is currently uncertain andactivities will depend on many factorsfuture developments that are not withinhighly uncertain and cannot be predicted at this time. Additionally, our control, including, but not limited to:business is impacted by the duration and scope ofcyclic correction affecting the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; general economic uncertainty in key globalbroader semiconductor industry, which has seen softened demand across our end markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery when the COVID-19 pandemic subsides. See the section entitled “Risk Factors” in Item 1A of Part I of this report for further information about related risks and uncertainties.customers reducing or rebalancing their inventory levels.

 

Critical Accounting Policies and Use of Estimates

 

Critical accounting policies are those that are both most important to the portrayal of a company's financial condition and results of operations, and that require management's most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

 

24

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 condensed 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, actual results may differ materially from these estimates under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis.

 

We believe the following accounting policies and the related estimates are critical in the portrayal of our financial condition and results of operations, and require management's most difficult, subjective, or complex judgments. See "Note 1 - Nature of Operations and Significant Accounting Policies" under to our Consolidated Financial Statements in Part II, Item 8 of this report for further information on the significant accounting policies and methods used in the preparation of the consolidated financial statements.

 

Revenue from Contracts with Customers

 

We recognize revenue upon satisfaction of performance obligations when control of promised goods or services has been transferred to our customers. We measure revenue based on the amount of consideration we expect to be entitled to in exchange for products or services. For revenue recognized on both sales to distributors and related to HDMI royalties, the amount of consideration we expect to be entitled to receive is based on estimates that require assumptions and judgments relating to trends in recent and historical activity. See "Note 1 - Basis of Presentation and Significant Accounting Policies" under to our Consolidated Financial Statements in Part II, Item 8 of this report for further information on our recognition of revenue. Sales to most distributors are made under terms allowing certain price adjustments upon sale to their end customers and limited rights of return of our products held in their inventory. The revenue recognized based on estimated price adjustments and stock rotation reserves may be materially different from the actual consideration received if the actual distributor price adjustments and stock rotation returns differ significantly from the historical trends used in the estimates.

26

 

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. If in any period we anticipate a change in assumptions such as future market or economic conditions to be less favorable than our previous estimates, additional inventory write-downs may be required and would be reflected in Cost of revenue, resulting in a negative impact to our gross margin in that period. If in any period we are able to sell inventories that had been written down to a level below the ultimate realized selling price in a previous period, related revenue would be recorded with a lower or no offsetting charge to Cost of revenue resulting in a net benefit to our gross margin in that period.

 

Accounting for Income Taxes

 

OurWe are required to estimate our provision for income taxes and amounts ultimately payable or recoverable in numerous tax is comprisedjurisdictions around the world. These estimates involve significant judgment and interpretations of our currentregulations and are inherently complex. Resolution of income tax liability and changestreatments in deferred tax assets and liabilities.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 regularly 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. In determining the need to establish or maintain a valuation allowance, we consider the four sources of jurisdictional taxable income: (i) future reversals of existing taxable temporary differences; (ii) future taxable income exclusive of reversing temporary differences and carryforwards; (iii) taxable income in prior carryback year(s) if carryback is permitted under the tax law; and (iv) viable and prudent tax planning strategies.

Through the end of fiscal 2023, we demonstrated consistent and continued profitability over the preceding three-year period. In assessing the realizability of the deferred tax assets, we considered our operating environment and estimates about our ability to generate taxable income in future periods within the United States. As a result, in the fourth quarter of fiscal 2023, we concluded that our history of profitable operating results, including the current period results, along with our expectations about generating sufficient U.S. Federal taxable income, provided sufficient positive evidence supporting the realizability of our U.S. Federal deferred tax assets. Accordingly, 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. The amount of the deferred tax asset considered realizable could be adjusted if sufficient positive evidence exists. We do not maintain a valuation allowance in any foreign jurisdictions as we have concluded that it is more likely than not that we will realize those net deferred tax assets in the future periods.

 

As part of our regular financial review process, we also assess the likelihood that our tax reporting positions will ultimately be sustained.sustained on examination by the taxing authorities, based on the technical merits of the position. To the extent it is determined it is more likely than not (a likelihood of more than 50 percent) that some portion or all of a tax reporting position will ultimately not be recognized and sustained, a provision for unrecognized tax benefit is provided by either reducing the applicable deferred tax asset or accruing an income tax liability. Our judgment regarding the sustainability of our tax reporting positions may change in the future due to changes in U.S. or international tax laws and other factors. These changes, if any, may require material adjustments to the related deferred tax assets or accrued income tax liabilities and an accompanying reduction or increase in income tax expense which may result in a corresponding increase or decrease in net income in the period when such determinations are made. We recognize the tax impact of including certain foreign earnings in U.S. taxable income as a period cost.

 

2527


 

Results of Operations

 

Key elements of our Consolidated Statements of Operations, including as a percentage of revenue, are presented in the following table:

 

 

Year Ended

 
 

Year Ended *

  

December 30,

  

December 31,

  

January 1,

 

(In thousands)

 January 2, 2021  December 28, 2019  December 29, 2018  

2023

  

2022

  

2022

 

Revenue

 $408,120  100.0% $404,093  100.0% $398,799  100.0% $737,154  100.0% $660,356  100.0% $515,327  100.0%
                                  

Gross margin

 245,306  60.1   238,422  59.0   219,439  55.0  514,670  69.8   452,050  68.5   321,675  62.4 
                                  

Research and development

 89,223  21.9   78,617  19.5   82,449  20.7  159,770  21.7   135,767  20.6   110,518  21.4 

Selling, general and, administrative

 95,331  23.4   82,542  20.4   91,054  22.8  137,244  18.6   122,076  18.5   105,617  20.5 

Amortization of acquired intangible assets

 4,449  1.1   13,558  3.4   17,690  4.4  3,478  0.5   3,778  0.6   2,613  0.5 

Restructuring charges

 3,937  1.0   4,664  1.2   17,349  4.4 

Impairment of acquired intangible assets

           12,486  3.1 

Acquisition related charges

              1,531   0.4 

Restructuring

 1,908  0.3   2,551  0.4   940  0.2 

Acquisition related

        511   0.1   1,171   0.2 

Income from operations

 $52,366   12.8% $59,041   14.6% $(3,120)  (0.8)% $212,270  28.8% $187,367  28.4% $100,816  19.6%

 

* The year ended January 2, 2021 was a 53-week year as compared to the other years presented, which were based on our standard 52-week year

 

Revenue

 

 

Year Ended

         
 

Year Ended

  

% Change in

  

December 30,

  

December 31,

  

January 1,

  

% Change in

 

(In thousands)

 January 2, 2021  December 28, 2019  December 29, 2018  

2020

  

2019

  

2023

  

2022

  

2022

  

2023

  

2022

 

Revenue

 $408,120  $404,093  $398,799   1.0%  1.3% $737,154  $660,356  $515,327   11.6%  28.1%

 

Revenue increased $4.0$76.8 million, or 1%11.6%, in fiscal 20202023 compared to fiscal 2019,2022, primarily driven byfrom increased demand for our products used in computing solutions, 5Gindustrial automation, robotics applications, and data center servers, partially offset by lower demand for our products used in wireless infrastructure and industrial applications, offset by broad market weakness and decreases in IP revenue.consumer applications.

 

Revenue by End Market

 

We sell our products globally to a broad base of customers in three primary end marketsmarket groups: Communications and Computing, Industrial and Automotive, and Consumer. Across our end markets, our products are increasingly used for Artificial Intelligence ("AI")-related applications, including device usage in AI-optimized servers in data centers, AI-enabled PCs, and AI-enabled robotics and ADAS systems, among others. We also provide Intellectual PropertyIP licensing and services to theseour end markets.

 

Within these end markets, there are multiple segment drivers, including:

 

Communications and computing: 5G infrastructure deployments,Computing: data center servers and networking equipment, client computing platforms, and cloudwireless and enterprise servers,wireline communications infrastructure deployments,

 

Industrial and automotive:Automotive: factory automation, robotics, automotive electronics, and industrial IoT, factory automation, and automotive electronics,

 

Consumer: smart home, prosumer, and prosumer.other applications.

We also generate revenue from the licensing of our IP, the collection of certain royalties, patent sales, the revenue related to our participation in consortia and standard-setting activities, and services. While these activities may be associated with multiple markets, Licensing and services revenue is reported as a separate end market as it has characteristics that differ from other categories, most notably a higher gross margin.

 

The end market data belowwe use is derived from data provided to us by our customers. With a diverse base of customers who may manufacture end products spanning multiple end markets, the assignment of revenue to a specific end market requires the use of judgment. We also recognize certain revenue for which end customers and end markets are not yet known. We assign this revenue first to a specific end market using historical and anticipated usage of the specific products, if possible, and allocate the remainder to the end markets based on either historical usage for each product family or industry application data for certain product types.

 

2628


 

The following are examples of end market applications for the fiscal years presented:

 

Communications and Computing

Industrial and Automotive

Consumer

Licensing and Services

Wireless

Security and Surveillance

Cameras

IP Royalties

Wireline

Machine Vision

Displays

Adopter Fees

Data Backhaul

Industrial Automation

Wearables

IP Licenses

Server Computing

Robotics

Televisions

Patent Sales

Client Computing

Automotive

Home Theater

Data Storage

Drones

 

 

The composition of our revenue by end market is presented in the following table:

 

 

Year Ended

        
 

Year Ended

  

% Change in

  

December 30,

  

December 31,

  

January 1,

  

% Change in

 

(In thousands)

 January 2, 2021  December 28, 2019  December 29, 2018  

2020

  

2019

  

2023

  

2022

  

2022

  

2023

  

2022

 

Communications and Computing

 $174,656  42.8% $155,821  38.6% $123,195  30.9%  12.1%  26.4% $257,536  34.9% $282,913  42.8% $227,911  44.2%  (9.0)% 24.1%

Industrial and Automotive

 168,323  41.2   151,607  37.5   157,979  39.6   11.0   (4.0) 433,482  58.8   319,398  48.4   226,260  43.9   35.7  41.2 

Consumer

 45,523  11.2   75,120  18.6   99,294  24.9   (39.4)  (24.3)  46,136   6.3   58,045   8.8   61,156   11.9   (20.5)  (5.1)

Licensing and Services

  19,618   4.8   21,545   5.3   18,331   4.6   (8.9)  17.5 

Total revenue

 $408,120   100.0% $404,093   100.0% $398,799   100.0%  1.0%  1.3% $737,154   100.0% $660,356   100.0% $515,327   100.0%  11.6% 28.1%

 

Revenue from the Communications and Computing end market increaseddecreased by 12%9% in fiscal 20202023 compared to fiscal 20192022 primarily due to the continued adoption of our products usedsofter end market demand in serversboth wireless and client computing platforms, as well as ongoing 5Gwireline communications infrastructure, deployments.partially offset by strong demand in data center applications.

 

Revenue from the Industrial and Automotive end market increased by 11%36% in fiscal 20202023 compared to fiscal 2019,2022, primarily due to increased demand for our products usedstrong customer adoption in a broad range of applications, including industrial automation and safety, robotics, embedded vision,robotics. Growth in Automotive was driven by the adoption of new designs in advanced driver assistance ("ADAS") and automotive electronics.infotainment applications.

 

Revenue from the Consumer end market decreased by 39%21% in fiscal 20202023 compared to fiscal 2019. This segment has been impacted by lower2022 primarily due to macroeconomic weakness in Consumer.

While we do not consider AI applications as a distinct end market, demand duewe expect AI-related revenue to grow over the COVID-19 pandemic, as well asnext few years based on the expected shift in the mixgrowing pipeline of revenue towards our other market segments.AI-related design wins.

 

Revenue from the Licensing and Services end market decreased by 9% in fiscal 2020 compared to fiscal 2019 primarily due to lower HDMI revenue.

Revenue by Geography

 

We assignhave a diverse base of customers where distributors represent a significant portion of our total revenue. Our revenue to geographiesby geographical market is based on the ship-to location of our customers, which can vary from time to time. Revenue from Asia decreased in fiscal 2023 compared to fiscal 2022 primarily due to the customer.macroeconomic environment in the region, while revenue from the Americas and Europe increased due to increased demand in these regions driven by our Industrial and Automotive end market.

 

The composition of our revenue by geography is presented in the following table:

 

 

Year Ended

        
 

Year Ended

  

% Change in

  

December 30,

  

December 31,

  

January 1,

  

% Change in

 

(In thousands)

 January 2, 2021  December 28, 2019  December 29, 2018  

2020

  

2019

  

2023

  

2022

  

2022

  

2023

  

2022

 

Asia

 $305,183  74.8% $298,765  73.9% $298,119  74.8%  2.1%  0.2% $443,765  60.2% $464,904  70.5% $384,568  74.6%  (4.5)% 20.9%

Americas

 62,137  15.2   57,936  14.4   55,134  13.8   7.3   5.1  145,839  19.8   100,260  15.2   80,870  15.7   45.5  24.0 

Europe

  40,800   10.0   47,392   11.7   45,546   11.4   (13.9)  4.1   147,550   20.0   95,192   14.3   49,889   9.7   55.0  90.8 

Total revenue

 $408,120   100.0% $404,093   100.0% $398,799   100.0%  1.0%  1.3% $737,154   100.0% $660,356   100.0% $515,327   100.0%  11.6% 28.1%

 

2729


 

Revenue from Customers

 

We sell our products to independent distributors and directly to customers. Distributors have historically accounted for a significant portion of our total revenue, and the two distributors groups noted below individually accounted for more than 10% of our total revenue in thecertain periods covered by this report.

 

The composition of our revenue by customer is presented in the following table:

 

 

% of Total Revenue

  

% of Total Revenue

 
 

Year Ended

  

Year Ended

 
 January 2, 2021  December 28, 2019  December 29, 2018  

December 30,

 

December 31,

 

January 1,

 

Weikeng Group

 34.8%  29.8%  25.4%

Arrow Electronics Inc.

 25.1   25.4   28.7 
 

2023

  

2022

  

2022

 

Arrow

 31.6% 28.5% 27.1%

Weikeng

 20.5  30.3  37.2 

Future

 12.6 8.3 6.5 

Macnica

 10.8  9.7  6.6 

Other distributors

  23.2   26.9   28.8   11.9   12.7   9.9 

All distributors

  83.1%  82.1%  82.9% 87.4  89.5  87.3 
Direct customers 12.1   12.6   12.5   12.6   10.5   12.7 
Licensing and services revenue  4.8   5.3   4.6 
Total revenue  100.0%  100.0%  100.0%  100.0%  100.0%  100.0%

 

Gross margin

 

The composition of our gross margin, including as a percentage of revenue, is presented in the following table:

 

 

Year Ended

 
 

Year Ended

  

December 30,

 

December 31,

 

January 1,

 

(In thousands)

 January 2, 2021  December 28, 2019  December 29, 2018  

2023

  

2022

  

2022

 

Gross margin

 $245,306  $238,422  $219,439  $514,670  $452,050  $321,675 

Gross margin percentage

 60.1%  59.0%  55.0% 69.8% 68.5% 62.4%

Product gross margin %

 58.1%  56.7%  52.9%

Licensing and services gross margin %

 100.0%  100.0%  98.6%

 

Gross margin percentage increased 110130 basis points from fiscal 20192022 to fiscal 2020. 2023. Improved margins were driven by benefits from pricing optimization programs, product cost reductions, and productour gross margin expansion strategy including mix.

Because of its higher margin, the licensing and services portion of our overall revenue can have a disproportionate impact on Gross Margin.

 

Operating Expenses

 

Research and development expenseDevelopment Expense

 

The composition of our Research and development expense, including as a percentage of revenue, is presented in the following table:

 

 

Year Ended

        
 

Year Ended

  

% Change in

  

December 30,

 

December 31,

 

January 1,

  

% Change in

 

(In thousands)

 January 2, 2021  December 28, 2019  December 29, 2018  

2020

  

2019

  

2023

  

2022

  

2022

  

2023

  

2022

 

Research and development

 $89,223  $78,617  $82,449   13.5%  (4.6)% $159,770  $135,767  $110,518   17.7% 22.8%

Percentage of revenue

 21.9%  19.5%  20.7%         21.7% 20.6% 21.4%      

 

Research and development expense includes costs for compensation and benefits, stockstock-based compensation, engineering wafers, depreciation and amortization, licenses, and outside engineering services. These expenditures are for the design of new products, IP cores, processes, packaging, and software solutions.

 

The increase in Research and development expense for fiscal 20202023 compared to fiscal 20192022 was due primarily primarily to increased expenses for stockheadcount-related costs, including stock-based compensation, as we continue to invest in our long-term product roadmap, and increased headcountdepreciation and amortization related to support the expansion of our programmable logic product portfolioresearch and acceleration of our new product introduction cadence.development equipment.

 

We believe that a continued commitment to Researchinvesting in research and development is essentialimportant to maintaining product leadership and providingdelivering innovative new product offeringsproducts to our customers and, therefore, we expect to continue to increase our investment in Researchresearch and development, particularly with expanded investment in the development of software solutions.development.

 

2830


 

Selling, general,General, and administrative expenseAdministrative Expense

 

The composition of our Selling, general, and administrative expense, including as a percentage of revenue, is presented in the following table:

 

 

Year Ended

        
 

Year Ended

  

% Change in

  

December 30,

 

December 31,

 

January 1,

  

% Change in

 

(In thousands)

 January 2, 2021  December 28, 2019  December 29, 2018  

2020

  

2019

  

2023

  

2022

  

2022

  

2023

  

2022

 

Selling, general, and administrative

 $95,331  $82,542  $91,054   15.5%  (9.3)% $137,244  $122,076  $105,617   12.4% 15.6%

Percentage of revenue

 23.4%  20.4%  22.8%         18.6% 18.5% 20.5%      

 

Selling, general, and administrative expense includes costs for compensation and benefits related to selling, general, and administrative employees, commissions, depreciation, professional and outside services, trade show, and travel expenses.

 

The increase in Selling, general, and administrative expense for fiscal 20202023 compared to fiscal 20192022 was due primarily to increased expenses for stockheadcount-related costs, including stock-based compensation and salaries, partially offset by reduced commissions resulting fromother costs, related to demand creation to support the growth of our restructuring under the Q2 2019 Sales Plan, as discussed in "Note 7 - Restructuring" to our Consolidated Financial Statements in Part II, Item 8 of this report.business.

 

Amortization of acquired intangible assetsAcquired Intangible Assets

 

The composition of our Amortization of acquired intangible assets, including as a percentage of revenue, is presented in the following table:

 

 

Year Ended

        
 

Year Ended

  

% Change in

  

December 30,

 

December 31,

 

January 1,

  

% Change in

 

(In thousands)

 January 2, 2021  December 28, 2019  December 29, 2018  

2020

  

2019

  

2023

  

2022

  

2022

  

2023

  

2022

 

Amortization of acquired intangible assets

 $4,449  $13,558  $17,690   (67.2)%  (23.4)% $3,478  $3,778  $2,613   (7.9)% 44.6%

Percentage of revenue

 1.1%  3.4%  4.4%         0.5% 0.6% 0.5%      

 

The decrease in Amortization of acquired intangible assets for fiscal 20202023 compared to fiscal 20192022 was due to the end of the amortization period for the majority of our acquired intangible assets during the first quarter of fiscal 2020.2022 for acquired intangible assets from previous acquisitions.

 

Restructuring charges

 

The composition of our Restructuring charges,activity, including as a percentage of revenue, is presented in the following table:

 

 

Year Ended

        
 

Year Ended

  

% Change in

  

December 30,

 

December 31,

 

January 1,

  

% Change in

 

(In thousands)

 January 2, 2021  December 28, 2019  December 29, 2018  

2020

  

2019

  

2023

  

2022

  

2022

  

2023

  

2022

 

Restructuring charges

 $3,937  $4,664  $17,349   (15.6)%  (73.1)%

Restructuring

 $1,908  $2,551  $940   (25.2)% 171.4%

Percentage of revenue

 1.0%  1.2%  4.4%         0.3% 0.4% 0.2%      

 

Restructuring charges areactivity is generally comprised of expenses resulting from workforce reductions, in our worldwide workforce,cancellation of contracts, and consolidation of our facilities, removal of fixed assets from service, and cancellation of software contracts and engineering tools.facilities. Details of our restructuring plans and expenses incurred under them are discussed in "Note 78 - Restructuring" to our Consolidated Financial Statements in Part II, Item 8 of this report.

 

The decrease in Restructuring chargescosts decreased in fiscal 20202023 compared to fiscal 2019 was driven was driven by2022 due to lower chargescosts in the current year for facility closures implemented under an earlier restructuring plan adopted in June 2017, and by lower charges in the current yearperiods for severance under the Q1 2020 Plan compared to chargeshigher costs in the prior year period resulting fromperiods for lease right-of-use impairment and contract cancellations under the Q2 2019 Sales Plan.

29

Impairment of acquired intangible assets

The composition of our Impairment of acquired intangible assets, including as a percentage of revenue, is presented in the following table:

  

Year Ended

  

% Change in

 

(In thousands)

 

January 2, 2021

  

December 28, 2019

  

December 29, 2018

  

2020

  

2019

 

Impairment of acquired intangible assets

 $  $  $12,486   %  (100.0)%

Percentage of revenue

  %  %  3.1%        

We had no Impairments of acquired intangible assets in fiscal 2020 or 2019.termination fees.

 

Acquisition related chargesRelated Charges

 

The composition of our Acquisition related charges, including as a percentage of revenue, is presented in the following table:

 

 

Year Ended

        
 

Year Ended

  

% Change in

  

December 30,

 

December 31,

 

January 1,

  

% Change in

 

(In thousands)

 

January 2, 2021

  

December 28, 2019

  

December 29, 2018

  

2020

  

2019

  

2023

  

2022

  

2022

  

2023

  

2022

 

Acquisition related charges

 $  $  $1,531   %  (100.0)%

Acquisition related

 $  $511  $1,171   (100.0)% (56.4)%

Percentage of revenue

 %  %  0.4%         % 0.1% 0.2%      

31

 

Acquisition related charges include legal and professional fees directly related to acquisitions. We incurred noFor fiscal 2022 and 2021, Acquisition related charges were attributable to our acquisition of Mirametrix in fiscal 2020 or 2019.November 2021 and were comprised primarily of professional services including legal and accounting fees, as well as closing costs.

 

Interest ExpenseIncome (Expense), net

 

The composition of our Interest expense, including as a percentage of revenue, is presented in the following table:

  

Year Ended

  

% Change in

 

(In thousands)

 January 2, 2021  December 28, 2019  December 29, 2018  

2020

  

2019

 

Interest expense

 $(3,702) $(11,731) $(20,600)  (68.4)%  (43.1)%

Percentage of revenue

  (0.9)%  (2.9)%  (5.2)%        

Interest expense is primarily related to our long-term debt, which is further discussed under the Credit Arrangements heading in the Liquidity and Capital Resources section, below. This interest expense is comprised of contractual interest and amortization of original issue discount and debt issuance costs based on the effective interest method.

The decrease in Interest expense for fiscal 2020 compared to fiscal 2019 was largely driven by the significant reduction in the effective interest rate on our long-term debt, coupled with the reduction in the principal balance of our long-term debt due to the additional principal payments made in the current and previous periods.

Other expense, net

The composition of our Other expense,income (expense), net, including as a percentage of revenue, is presented in the following table:

 

 

Year Ended

        
 

Year Ended

  

% Change in

  

December 30,

 

December 31,

 

January 1,

  

% Change in

 

(In thousands)

 January 2, 2021  December 28, 2019  December 29, 2018  

2020

  

2019

  

2023

  

2022

  

2022

  

2023

  

2022

 

Other expense, net

 $(208) $(2,245) $(249)  (90.7)%  100+% 

Interest income (expense), net

 $2,041  $(4,146) $(2,738)  (149.2)% 51.4%

Percentage of revenue

 (0.1)%  (0.6)%  (0.1)%         0.3% (0.6)% (0.5)%      

The change in Interest income (expense) for fiscal 2023 compared to fiscal 2022 was driven by increased interest income, coupled with lower interest expense as we paid off the outstanding balance of our long-term debt during the third quarter of fiscal 2023.

Other Income (Expense), net

The composition of our Other income (expense), net, including as a percentage of revenue, is presented in the following table:

  

Year Ended

         
  

December 30,

  

December 31,

  

January 1,

  

% Change in

 

(In thousands)

 

2023

  

2022

  

2022

  

2023

  

2022

 

Other income (expense), net

 $545  $(1,109) $(452)  (149.1)%  145.4%

Percentage of revenue

  0.1%  (0.2)%  (0.1)%        

 

For fiscal 20202023 compared to fiscal 2019,2022, the change in Other expense,income (expense), net decreased was primarily due to a research credit of $0.9 million in the current year compared to the non-recurrence of the $2.2$0.7 million of loss on the refinancing charge taken to write off the remaining unamortized balance of debt costs and original issue discount related to theour long-term debt refinanced duringin the prior year.year, and to foreign currency effects.

30

 

Income taxesTaxes

 

The composition of our Income tax (benefit) expense is presented in the following table:

 

 

Year Ended

        
 

Year Ended

  

% Change in

  

December 30,

 

December 31,

 

January 1,

  

% Change in

 

(In thousands)

 January 2, 2021  December 28, 2019  December 29, 2018  

2020

  

2019

  

2023

  

2022

  

2022

  

2023

  

2022

 

Income tax expense

 $1,064  $1,572  $2,353   (32.3)%  (33.2)%

Income tax (benefit) expense

 $(44,205) $3,230  $1,704   (100+)%  89.6%

 

Our Income tax (benefit) expense is composed primarily ofincludes taxes on foreign income and withholding taxes, partially offset by benefits resulting from excess tax benefits from stock-based compensation. 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. The income tax benefit from the release of uncertain tax positions ("UTP") due to statutea portion of limitation expirations that occurred in the respective periods. The decreasevaluation allowance was partially offset by an increase in expense in fiscal 20202023 as compared to fiscal 2019 is2022 primarily due to the release of uncertainincreased worldwide income and U.S. tax positions due to statute of limitations expirations.on foreign operations.

 

We are not currently paying U.S. federal income taxes and do not expect to pay such taxes until we fully utilize our tax net operating loss and credit carryforwards. We expect to pay a nominal amount of state income tax. We are paying foreign income taxes, which are primarily related to withholding taxes on income from foreign royalties, foreign sales, and the cost of operating offshore research and development, marketing, and sales subsidiaries. We updated our evaluation of the valuation allowance position in the United States through January 2, 2021December 30, 2023. In making this evaluation, we considered our operating environment and concludedestimates 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 we shouldthere is sufficient evidence that our U.S. Federal deferred tax assets are more likely than not to be realized.

We continue to maintain a full valuation allowance against the net federal andour state deferred tax assets.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 those deferred tax assets. The amount of the deferred tax assets.asset considered realizable could be adjusted if sufficient positive evidence exists. We accrue interestdo not maintain a valuation allowance in any foreign jurisdictions as we have concluded that it is more likely than not that we will realize those net deferred tax assets in the future periods. Details of our deferred tax assets and penalties relatedvaluation allowance are discussed in Note 12 - Income Taxes to uncertain tax positions in income tax expense on our Consolidated Financial Statements in Part II, Item 8 of Operations. The inherent uncertainties related to the geographical distribution and relative level of profitability among various high and low tax jurisdictions make it difficult to estimate the impact of the global tax structure on our future effective tax rate.this report.

 

32

 

Liquidity and Capital Resources

 

The following sections discuss material changes in our financial condition from the end of fiscal 2019,2022, including the effects of changes in our Consolidated Balance Sheets, and the effects of our credit arrangements and contractual obligations on our liquidity and capital resources. There continues to be uncertainty around the extent of market volatility, inflationary pressures, rising interest rates, recessionary concerns, uncertainty in the financial and banking industry, and geopolitical tension, which may impact our liquidity and working capital needs in future periods.

 

We have historically financed our operating and capital resource requirements through cash flows from operations, and from the issuance of long-term debt to fund acquisitions. Cash provided by or used in operating activities will fluctuate from period to period due to fluctuations in operating results, the timing and collection of accounts receivable, and required inventory levels, among other things.

There is significant uncertaintyaround the extent and duration of the disruption to our business from the COVID-19 pandemic, and our liquidity and working capital needs may be impacted in future periods.

We believe that our financial resources, including current cash and cash equivalents, cash flow from operating activities, and our credit facilities, will be sufficient to meet our liquidity and working capital needs through at least the next 12 months. On September 1, 2022, we entered into our 2022 Credit Agreement, as described in Note 7 - Long-Term Debt to our Consolidated Financial Statements in Part II, Item 8 of this report. As of January 2, 2021,December 30, 2023, we did not have significant long-term commitments for capital expenditures. For further information on our cash commitments for operating lease liabilities, see Note 9 - Leases to our Consolidated Financial Statements in Part II, Item 8 of this report.

In the future, we may continue to consider acquisition opportunities to further extend our product or technology portfolios and further expand our product offerings. In connection with funding capital expenditures, acquisitions, securing additional wafer supply, increasing our working capital, or other operations, we may seek to obtain equity or additional debt financing, or advance purchase payments or similar arrangements with wafer manufacturers.financing. We may also seek to obtain equity or additional debt financing if we experience downturns or cyclical fluctuations in our business that are more severe or longer than we anticipated when determining our current working capital needs. On May 17, 2019, we entered into a Credit Agreement with Wells Fargo Bank, National Association, as administrative agent, and other lenders (our “Current Credit Agreement”) that is discussed under the "Credit Arrangements" heading, below.

 

Liquidity

 

Cash and cash equivalents

 

(In thousands)

 January 2, 2021  December 28, 2019  

$ Change

  

% Change

  December 30, 2023  December 31, 2022  

$ Change

  

% Change

 

Cash and cash equivalents

 $182,332  $118,081  $64,251  54.4% $128,317  $145,722  $(17,405) (11.9)%

 

As of January 2, 2021,December 30, 2023, we had Cash and cash equivalents of $182.3$128.3 million, of which approximately $121.8$36.1 million in Cash and cash equivalents was held by our foreign subsidiaries.

31

We manage our global cash requirements considering, among other things, (i) available funds among our subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. The repatriation of non-US earnings may require us to withhold and pay foreign income tax on dividends. This should not result in our recording significant additional tax expense as we have accrued expense based on current withholding rates. As of January 2, 2021,December 30, 2023, we could access all cash held by our foreign subsidiaries without incurring significant additional expense.

 

The net increasedecrease in Cash and cash equivalents of $64.3$17.4 million between December 28, 201930, 2023 and January 2, 2021December 31, 2022 was primarily driven by cash flows from the following activities:

 

Operating activities — Cash provided by operating activities results from net income adjusted for certain non-cash items and changes in assets and liabilities. Cash provided by operating activities was $91.7$269.6 million in fiscal 20202023 compared to $124.1$238.8 million in fiscal 2019.2022. This $32.4increase of $30.8 million decrease was primarily driven by $45.7an increase of $40.1 million inprovided by improved operating performance, partially offset by $9.3 million of changes in working capital, primarily the increase infrom cash used for inventories, prepaid expenses and other current assets,by accrued liabilities, payroll obligations, and accounts payable, partially offset by thenet of cash provided by accrued expenses and accounts receivable. This was partially offset by an increase of $13.3 million provided by improved operating performance. We are using cash provided by operating activities to fund our operations.inventories.

 

Investing activities — Investing cash flows consist primarily of transactions related to capital expenditures and payments for software licenses, and in the prior year, short-term marketable securities.intellectual property licenses. Net cash used by investing activities in fiscal 20202023 was $20.9$33.3 million compared to $15.5$34.9 million in fiscal 2019.2022. This $5.4$1.6 million increasedecrease was primarily due to the non-recurrencea result of the $9.7 million provided by our liquidation of all short-term investments in the first quarter of fiscal 2019. Total cash used fordecreased capital expenditures and payments for software licenses decreased $4.3 million to $20.9 million in fiscal 2020 from $25.2 million in fiscal 2019 primarily due to lower expenditures for software enhancements, office consolidation, and test equipment.expenditures.

 

Financing activities — Financing cash flows consist primarily of activity on our long-term debt, proceeds from the exerciserepurchases of options to acquire common stock, tax payments related to the net share settlement of restricted stock units, and purchasesproceeds from the exercise of treasuryoptions to acquire common stock. Net cash used by financing activities in fiscal 2023 was $253.7 million compared to $188.1 million in fiscal 2022. This $65.6 million increase was due to the following activities. During fiscal 2020,2023, we drew $50.0made discretionary payments totaling $130.0 million on our revolving loan facility to further strengthen our liquidity position,loans under the 2022 Credit Agreement, an increase of $99.8 million from the $30.2 million of net payment and we paid quarterly installments totaling $26.3 millionrefinancing activity on our long-term debt which fulfilled the required quarterly installments through the first quarterin fiscal 2022. We repurchased approximately 1.2 million shares of fiscal 2021. During fiscal 2019, we made a total of $117.0common stock for $80.0 million in principal paymentsfiscal 2023 compared to repurchases of approximately 2.0 million shares of common stock for $110.1 million in addition to the cash flows related to refinancing our long-term debt.fiscal 2022. Payments for tax withholdings on vesting of RSUs partially offset by employee exercises of stock options used net cash flows of $16.9$43.7 million in fiscal 2020, which is2023, a changedecrease of approximately $24.0$4.1 million from the $7.1net $47.8 million providedused in fiscal 2019. During fiscal 2020, we also purchased $15.0 million2022.

33

 

Accounts receivable, net

 

(In thousands)

 January 2, 2021  December 28, 2019  

$ Change

  

% Change

  December 30, 2023  December 31, 2022  

$ Change

  

% Change

 

Accounts receivable, net

 $64,581  $64,917  $(336) (0.5)% $104,373  $94,018  $10,355  11.0%

Days sales outstanding - Overall

 55  59   (4)    56  49   7    

 

Accounts receivable, net as of January 2, 2021 decreasedDecember 30, 2023 increased by approximately $0.3$10.4 million, or approximately 1%11%, compared to December 28, 2019.31, 2022. This resulted primarily from the timing of shipments in December 2020when our customers wanted our products to be shipped during the fourth quarter of fiscal 2023 compared to December 2019.the fourth quarter of fiscal 2022. We calculate Days sales outstanding on the basis of a 365-day year as Accounts receivable, net at the end of the quarter divided by sales during the quarter annualized and then multiplied by 365.

 

Inventories

 

(In thousands)

 January 2, 2021  December 28, 2019  

$ Change

  

% Change

  December 30, 2023  December 31, 2022  

$ Change

  

% Change

 

Inventories

 $64,599  $54,980  $9,619  17.5% $98,826  $110,375  $(11,549) (10.5)%

Days of inventory on hand

 139  123   16     175  187   (12)   

 

Inventories as of January 2, 2021 increased $9.6December 30, 2023 decreased $11.5 million, or approximately 18%11%, compared to December 28, 201931, 2022 primarily as a result of increased product shipments to meet the increased demands of our customers.customer demand.

 

The Days of inventory on hand ratio compares the inventory balance at the end of a quarter to the cost of sales in that quarter. We calculate Days of inventory on hand on the basis of a 365-day year as Inventories at the end of the quarter divided by Cost of sales during the quarter annualized and then multiplied by 365. Our Days of inventory on hand increased to 139 days at January 2, 2021 from 123 days at December 28, 2019. This increase resulted from inventory increases to meet the increased demands of our customers.365.

 

32

Credit Arrangements

 

On May 17, 2019,September 1, 2022, we entered into our Current2022 Credit Agreement. The details of this arrangement are described in "Note 67 - Long-Term Debt" in the accompanying Notes to our Consolidated Financial Statements.

Statements in Part II, Item 8 of this report. As of January 2, 2021,December 30, 2023, we had no significant long-term purchase commitments for capital expenditures or existing used or unused credit arrangements beyond the secured revolving loan facility described above.in the 2022 Credit Agreement.

 

Share Repurchase Program

 

On February 14, 2020, our BoardSee "Issuer Purchases of Directors approved a stockEquity Securities" under Part II, Item 5 of this Annual Report on Form 10-K for more information about the share repurchase program pursuant to which up to $40.0 million of outstanding common stock could be repurchased from time to time. The duration of the repurchase program was twelve months. Under this program during the fourth quarter of fiscal 2020, approximately 0.4 million shares were repurchased for $15.0 million, or an average price paid per share of $38.98. All repurchased shares were retired by the end of the 2020 fiscal year. All repurchases were open market transactions funded from available working capital. The twelve-month 2020 program expired during the first quarter of fiscal 2021, during which no additional shares were repurchased.program.

Contractual Cash Obligations

The following table summarizes our contractual cash obligations at January 2, 2021:

Fiscal year      

(In thousands)

 

Operating leases (1)

  

Long-term Debt (2)

 

2021

 $5,615  $15,512 

2022

  5,378   19,648 

2023

  5,057   19,402 

2024

  4,861   124,414 

2025

  3,552    

Thereafter

  3,229    
  $27,692  $178,976 

(1)

Certain of our facilities and equipment are leased under operating leases, which expire at various times through 2027.

(2)

Cash payments due for long-term debt include estimated interest payments, which are based on outstanding principal amounts, currently effective interest rates as of January 2, 2021, timing of scheduled payments, and the debt term. See Liquidity section of Item 7 for further discussion pertaining to our Credit Arrangements.

The table above does not include amounts related to uncertain tax positions because we cannot reliably estimate the timing of the settlement of such liabilities.

Our significant operating leases are for our facilities in Hillsboro and Portland, Oregon; San Jose, California; Muntinlupa City, Philippines; and Shanghai, China.

Our corporate headquarters is located in our facility in Hillsboro, Oregon, which is leased until November 2022. Annual rental costs are estimated at $0.6 million with 3% annual increases.

The lease for our former office space in Portland, Oregon expires in March 2025. Annual rental costs are estimated at $0.7 million with average annual increases of approximately 5%. Under a previously approved restructuring plan, we fully vacated the space in Portland, Oregon in early 2019 and subleased the vacated space.

Our lease in San Jose, California expires September 2026 with total annual rental costs estimated to be $2.4 million and annual increases of approximately 3%. Under a previously approved restructuring plan, we vacated approximately 50% or our facility in San Jose, California in the fourth quarter of fiscal 2018 and intend to sublease the vacated space.

Two of our leases in Muntinlupa City, Philippines expire in May 2025 and June 2025, with total annual rental costs estimated to be $0.7 million and annual increases of approximately 5%. Our lease in Shanghai expires in May 2021, with total annual rental costs estimated to be $1.8 million.

33

 

New Accounting Pronouncements

 

The information contained under the heading "New Accounting Pronouncements" in Note 1 - Nature of Operations and Significant Accounting Policies to our Consolidated Financial Statements in Part II, Item 8 of this report is incorporated by reference into this Part II, Item 7.

 

Off-Balance Sheet Arrangements

As

34

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates. We assess these risks on a regular basis and have established policies that are designed to protect against the adverse effects of these and other potential exposures.

 

Foreign Currency Exchange Rate Risk

 

While our revenues and the majority of our expenses are denominated in U.S. dollars, our financial position and results of operations are subject to foreign currency exchange rate risk as a result of having various international subsidiary and branch operations. Historically, exposure to foreign currency exchange rate risk has not had a material impact on our results from operations. At times in the past, we have entered into foreign currency forward exchange contracts in relation to certain activities, which mitigated the foreign currency exchange rate exposure from an economic perspective, but these were not designated as "effective" hedges under U.S. GAAP. The two foreign currency forward exchange contracts that we held at December 28, 2019 matured in June 2020, and we did not enter into any new contracts during fiscal 2020. As of January 2, 2021, we had no foreign currency foreign exchange contracts.

 

Interest Rate Risk

 

Interest Income

Our interest income is sensitive to changes in the general level of interest rates. As of December 30, 2023, a hypothetical 100 basis point change in interest rates would have resulted in less than $1.5 million change in interest income.

Interest Expense

We aremay be exposed to interest rate risk related tovia the terms of our indebtedness. At January 2, 2021,2022 Credit Agreement, which specifies an interest rate on revolving loans that consists of a variable-rate of interest and an applicable margin. While we had $171.9 million outstanding under our Current Credit Agreement. A hypothetical increasehave drawn from this credit facility in the one-month LIBOR by 1% (100 basis points) would increase ourpast, we have no borrowings outstanding as of December 30, 2023. If we borrow from the credit facility in the future, we will again be exposed to interest expense by approximately $0.4 million per quarter.rate fluctuations.

 

3435


 

Item 8. Financial Statements and Supplementary Data

 

Index to Consolidated Financial Statements:

Page

 

 

Consolidated Statements of Operations

3637

Consolidated Statements of Comprehensive Income (Loss)

3738

Consolidated Balance Sheets

3839

Consolidated Statements of Cash Flows

3940

Consolidated Statements of Stockholders' Equity

4041

Notes to Consolidated Financial Statements

4142

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

(PCAOB ID: 42)

6260

Report of Independent Registered Public Accounting Firm (KPMG LLP)64

 

3536


 

 

LATTICE SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS



 

 

Year Ended

  

Year Ended

 
 

January 2,

 

December 28,

 

December 29,

  

December 30,

 

December 31,

 

January 1,

 

(In thousands, except per share data)

 

2021

  

2019

  

2018

  

2023

  

2022

  

2022

 

Revenue

 $408,120  $404,093  $398,799  $737,154  $660,356  $515,327 

Cost of revenue

  162,814   165,671   179,360   222,484   208,306   193,652 

Gross margin

  245,306   238,422   219,439   514,670   452,050   321,675 

Operating expenses:

        

Research and development

 89,223  78,617  82,449  159,770  135,767  110,518 

Selling, general, and administrative

 95,331  82,542  91,054  137,244  122,076  105,617 

Amortization of acquired intangible assets

 4,449  13,558  17,690  3,478  3,778  2,613 

Restructuring charges

  3,937   4,664   17,349 
Impairment of acquired intangible assets 0 0 12,486 
Acquisition related charges  0   0   1,531 

Restructuring

 1,908  2,551  940 

Acquisition related

     511   1,171 

Total operating expenses

  192,940   179,381   222,559   302,400   264,683   220,859 

Income (loss) from operations

 52,366  59,041  (3,120)

Interest expense

 (3,702) (11,731) (20,600)

Other expense, net

  (208)  (2,245)  (249)

Income (loss) before income taxes

 48,456  45,065  (23,969)

Income tax expense

  1,064   1,572   2,353 

Net income (loss)

 $47,392  $43,493  $(26,322)

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 (loss) per share:

       

Net income per share:

 

Basic

 $0.35  $0.33  $(0.21) $1.88  $1.30  $0.70 

Diluted

 $0.34  $0.32  $(0.21) $1.85  $1.27  $0.67 
  

Shares used in per share calculations:

        

Basic

  135,220   132,471   126,564   137,694   137,321   136,619 

Diluted

  141,276   137,274   126,564   139,790   140,667   142,143 

 

 

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

 

3637


 

 

LATTICE SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)



 

  

Year Ended

 
  

January 2,

  

December 28,

  

December 29,

 

(In thousands)

 

2021

  

2019

  

2018

 

Net income (loss)

 $47,392  $43,493  $(26,322)

Other comprehensive income (loss):

            

Translation adjustment, net of tax

  1,533   341   (1,271)

Change in actuarial valuation of defined benefit pension

  (678)  (602)  369 

Unrealized gain related to marketable securities, net of tax

  0   42   41 

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

  0   (53)  (18)

Comprehensive income (loss)

 $48,247  $43,221  $(27,201)
  

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 StatementsStatements.

 

3738


 

 

LATTICE SEMICONDUCTOR CORPORATION

CONSOLIDATED BALANCE SHEETS



 

 

January 2,

 

December 28,

  

December 30,

 

December 31,

 

(In thousands, except share and par value data)

 

2021

  

2019

  

2023

  

2022

 

ASSETS

            

Current assets:

          

Cash and cash equivalents

 $182,332  $118,081  $128,317  $145,722 

Accounts receivable, net of allowance for credit losses

 64,581  64,917  104,373  94,018 

Inventories, net

 64,599  54,980  98,826  110,375 

Prepaid expenses and other current assets

  22,331   24,452   36,430   29,052 

Total current assets

 333,843  262,430  367,946  379,167 

Property and equipment, net

 39,666  39,230  49,546  47,614 

Operating lease right-of-use assets

 22,178  23,591  14,487  17,590 

Intangible assets, net

 6,321  6,977  20,974  25,070 

Goodwill

 267,514  267,514  315,358  315,358 

Deferred income taxes

 577  478  57,762 1,022 

Other long-term assets

  9,968   11,796   14,821   12,892 

Total assets

 $680,067  $612,016  $840,894  $798,713 
  

LIABILITIES AND STOCKHOLDERS' EQUITY

            

Current liabilities:

          

Accounts payable

 $27,530  $44,350  $34,487  $42,036 

Accrued expenses

 21,411  20,591 

Accrued liabilities

 36,048  48,467 

Accrued payroll obligations

 18,028  13,404   26,865   36,870 

Current portion of long-term debt

  12,762   21,474 

Total current liabilities

 79,731  99,819  97,400  127,373 

Long-term debt, net of current portion

 157,934  125,072 

Long-term debt

   128,752 

Long-term operating lease liabilities, net of current portion

 18,906  21,438  10,739  13,618 

Other long-term liabilities

  39,069   38,028   40,735   41,807 

Total liabilities

  295,640   284,357   148,874   311,550 
Contingencies (Note 14)               

Stockholders' equity:

          

Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued and outstanding

 0  0     

Common stock, $.01 par value, 300,000,000 shares authorized; 136,236,000 shares issued and outstanding as of January 2, 2021 and 133,883,000 shares issued and outstanding as of December 28, 2019

 1,362  1,339 

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

 770,711  762,213  545,586  599,300 

Accumulated deficit

 (385,898) (433,290)

Retained earnings (Accumulated deficit)

 147,967  (111,094)

Accumulated other comprehensive loss

  (1,748)  (2,603)  (2,906)  (2,414)

Total stockholders' equity

  384,427   327,659   692,020   487,163 

Total liabilities and stockholders' equity

 $680,067  $612,016  $840,894  $798,713 

 

 

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

 

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LATTICE SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS



 

 

Year Ended

  

Year Ended

 
 

January 2,

 

December 28,

 

December 29,

  

December 30,

 

December 31,

 

January 1,

 

(In thousands)

 

2021

  

2019

  

2018

  

2023

  

2022

  

2022

 

Cash flows from operating activities:

        

Net income (loss)

 $47,392  $43,493  $(26,322)

Adjustments to reconcile net income to net cash provided by 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

 25,140  33,056  39,261  34,432  29,323  24,429 

Stock-based compensation expense

 40,372  18,899  13,646  70,197  55,530  46,475 

Change in deferred income tax provision

 (58,614) (1,420) (324)

Amortization of right-of-use assets

 5,960  5,797  0  6,764  6,512  6,587 

Amortization of debt issuance costs and discount

 400  1,659  2,230 

Loss on refinancing of long-term debt

 0  2,235  0 

Impairment of operating lease right-of-use asset

 0  977  0    1,149   
Impairment of acquired intangible assets 0 0 12,486 

Other non-cash adjustments

 (256) (374) (79) 253  754  137 

Changes in assets and liabilities:

        

Accounts receivable, net

 336  (4,027) (3,978) (10,355) (14,159) (12,013)

Inventories, net

 (9,619) 12,116  13,177  11,549  (42,781) (2,995)

Prepaid expenses and other assets

 (6,441) 3,740  (11,667) (6,001) (6,276) 1,918 

Accounts payable

 (16,820) 12,470  (3,470) (7,549) 7,439  7,046 
Accrued expenses 5,715 (3,209) 16,795 

Accrued liabilities

 (12,664) 21,409  (2,907)

Accrued payroll obligations

 4,624  4,039  (1,051) (10,005) 8,903  9,692 

Operating lease liabilities, current and long-term portions

 (5,715) (6,896) 0   (7,480)  (6,459)  (6,245)

Income taxes payable

  599   162   498 
Deferred licensing and services revenue  0   0   (68)

Net cash provided by operating activities

  91,687   124,137   51,458 

Net cash provided by (used in) operating activities

  269,588   238,806   167,722 

Cash flows from investing activities:

        

Capital expenditures

 (12,121) (15,590) (8,384) (20,098) (23,338) (9,835)

Cash paid for software licenses

 (8,747) (9,601) (8,123)

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

 0  9,655  5,000 
Purchases of marketable securities  0   0   (9,603)

Net cash used in investing activities

  (20,868)  (15,536)  (21,110)

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

 (26,965) (10,084) (2,370) (52,078) (54,946) (54,191)

Proceeds from issuance of common stock

 10,103  17,166  29,288  8,365  7,159  8,827 
Purchases of treasury stock (14,989) 0 0 

Proceeds from long-term debt

 50,000  206,500  0 

Original issue discount and debt issuance costs

 0  (2,086) 0 

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

  (26,250)  (321,408)  (43,759)  (130,000)  (178,750)  (13,125)

Net cash used in financing activities

  (8,101)  (109,912)  (16,841)

Net cash provided by (used in) financing activities

  (253,717)  (188,072)  (128,613)

Effect of exchange rate change on cash

  1,533   341   (1,271)  (26)  (1,650)  (75)

Net increase (decrease) in cash and cash equivalents

 64,251  (970) 12,236  (17,405) 14,152  (50,762)

Beginning cash and cash equivalents

  118,081   119,051   106,815   145,722   131,570   182,332 

Ending cash and cash equivalents

 $182,332  $118,081  $119,051  $128,317  $145,722  $131,570 
  

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

               

Interest paid

 $3,700  $10,995  $18,607  $3,240  $3,973  $2,313 

Income taxes paid, net of refunds

 $15,754  $4,621  $3,304 

Operating lease payments

 $7,713  $8,425  $0  $8,344  $7,419  $7,639 

Income taxes paid, net of refunds

 $1,868  $3,393  $3,054 

Accrued purchases of plant and equipment

 $975  $826  $110  $392  $1,357  $1,360 

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

 $2,645  $747  $0  $3,718  $2,134  $8,134 

 

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

 

3940


 

 

LATTICE SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



 

                

Accumulated

          Retained Accumulated   
 

Common Stock

 

Additional

       

Other

    Common Stock Additional Earnings Other   
 

($.01 par value)

  

Paid-in

 

Treasury

 

Accumulated

 

Comprehensive

    

($.01 par value)

 

Paid-in

 

(Accumulated

 

Comprehensive

   

(In thousands, except par value data)

 

Shares

  

Amount

  

Capital

  

Stock

  

Deficit

  

Income (Loss)

  

Total

  

Shares

  

Amount

  

Capital

  

Deficit)

  

Income (Loss)

  

Total

 

Balances, December 30, 2017 (1)

 123,895  $1,239  $695,768  $0  $(450,461) $(1,452) $245,094 

Components of comprehensive income, net of tax:

                     

Net loss

   0  0  0  (26,322) 0  (26,322)
Other comprehensive income (loss)     0   0   0   0   (879)  (879)

Total comprehensive loss

      0   0   0   0   0   (27,201)

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

 5,833  58  26,860  0  0  0  26,918 

Stock-based compensation expense

     0   13,646   0   0   0   13,646 

Balances, December 29, 2018

 129,728  $1,297  $736,274  $0  $(476,783) $(2,331) $258,457 

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

   0  0  0  43,493  0  43,493        95,922    95,922 
Other comprehensive income (loss)     0   0   0   0   (272)  (272)         297   297 

Total comprehensive income

      0   0   0   0   0   43,221          96,219 

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

 4,155  42  7,040  0  0  0  7,082  2,270  23  (45,387)     (45,364)

Stock-based compensation expense

     0   18,899   0   0   0   18,899      46,475      46,475 

Balances, December 28, 2019

 133,883  $1,339  $762,213  $0  $(433,290) $(2,603) $327,659 

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

   0  0  0  47,392  0  47,392        178,882    178,882 
Other comprehensive income (loss)     0   0   0   0   855   855          (963)  (963)

Total comprehensive income

      0   0   0   0   0   48,247              177,919 

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

 2,738  27  (16,889) 0  0  0  (16,862) 1,812  18  (47,806)     (47,788)

Stock-based compensation expense

   0  40,372  0  0  0  40,372      55,530      55,530 

Stock repurchase

   0  0  (14,989) 0  0  (14,989)

Retirement of treasury stock

  (385)  (4)  (14,985)  14,989   0   0   0 

Balances, January 2, 2021

  136,236  $1,362  $770,711  $0  $(385,898) $(1,748) $384,427 

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 

 

(1)Balances as of December 30, 2017 include opening balance adjustments to Accumulated deficit made as a result of changes in accounting principle due to the adoption of ASC 606, Revenue from Contracts With Customers, which we adopted as of the beginning of fiscal 2018 using the modified retrospective transition method.

 

 

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

 

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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 condensed financial statements and the accompanying notes. TheWe 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.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 2020 was a 53-week year that ended on January 2,2023, 2021.2022, Our fiscal 2019, and 20182021 were all 52-week years that ended on December 28, 201930, 2023, December 31, 2022, and December 29, 2018January 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, andand supply of wafers for our new products.products.

 

Distributors have historically accounted for a significant portion of our total revenue. Our twoCertain of our largest distributor groups, the Weikeng Group ("Weikeng") and Arrow Electronics, Inc. ("Arrow"),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

  

Year Ended

 
 January 2, 2021  December 28, 2019  December 29, 2018  December 30,  December 31,  January 1, 

Weikeng Group

 35%  30%  25%

Arrow Electronics Inc.

 25   25   29 
 2023  2022  2022 

Arrow

 32%  28%  27%

Weikeng

 21   30   37 

Future

 13   8   6 

Macnica

 11   10   7 

Other distributors

  23   27   29   10   13   10 

Revenue attributable to distributors

  83%  82%  83%  87%  89%  87%

 

Three of these distributors each accounted for more than 10% of net accounts receivable at certain dates presented. At January 2, 2021December 30, 2023 and December 28, 201931, 2022, Arrow accounted for approximately 29% and 27%, respectively, Weikeng accounted for 47%approximately 36% and 38%47%, respectively, and ArrowFuture accounted for 45%approximately 18% and 40%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

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.

41

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,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. The majority of ourOur revenue is derived primarily from product sales.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 intellectual property ("IP")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 expenses. Licensingliabilities. Revenue related to licensing and services, revenuewhich includes HDMI and MHL standards revenue, as well as certain IP licenses, includeincludes 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

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.

42

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. There has been no occurrence of events to date that would trigger an impairment analysis of property and equipment. The results of our assessments of amortizable intangible assets are detailed in "Note 9 - Intangible Assets."

 

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.

 

No44 impairment charges relating to goodwill were recorded for either fiscal 2020 or 2019, as no indicators

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,Under this guidance, 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 electedapply the practical expedient to not separate lease and non-lease components which we applied tofor 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.

 

43

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 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.Restructuring. Expenses from other exit or disposal activities, including the cancellation of software contracts and engineering tools or the abandonment of long-lived assets, isare recorded as a part of restructuring charges.

Restructuring.

 

Accounting for Income Taxes

 

OurWe are required to estimate our provision for income taxes and amounts ultimately payable or recoverable in numerous tax is comprisedjurisdictions around the world. These estimates involve significant judgment and interpretations of our currentregulations and are inherently complex. Resolution of income tax liability and changestreatments in deferred tax assets and liabilities.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

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.

 

44

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 awards with a market condition have a three-yearterms of these grants, including achievement criteria and vesting periodschedules, are detailed under the heading "Market-Based and vest between 0% and 250% of the target amount, based on the Company's relative Total Shareholder Return ("TSR") over the measurement period comparedPerformance-Based Awards — Grants" in "Note 10 - Stock-Based Compensation Plans." Our current practice is to the TSR of a component of companies of the PHLX Semiconductor Sector Index forissue new shares to satisfy option exercises. For RSUs, we issue new shares when awards granted in fiscal 2018 and 2019 or the Russell 2000 index for awards granted in 2020. TSR is measured as stock price appreciation in the performance period. We have also granted RSUs with a performance condition to our President and Chief Executive Officer, which will vest and become payable based uponwithhold a portion of these shares on behalf of employees to satisfy the Company’s generating specified “adjusted” EBITDA levels on a trailing four-quarter basis in any 2 consecutive trailing four-quarter periods. We assess the probability of achieving the performance condition on a quarterly basis. We valued the RSUs with a performance condition using the market price on the date of grant.

minimum statutory tax withholding requirements.

 

Segment Information

 

As of January 2, 2021December 30, 2023, , we had one operating segment: the core Lattice business, which includes semiconductor devices,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.

 

New Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12,Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which adds new guidance for accounting for tax law changes, year-to-date losses in interim periods, and determining how to apply the income tax guidance to franchise taxes that are partially based on income, as well as other changes to simplify accounting for income taxes. The ASU is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Entities may early adopt the ASU in any interim period for which financial statements have not yet been issued (or made available for issuance). We are currently assessing the impact of ASU 2019-12 on our consolidated financial statements and related disclosures.

 

Note 2 - Net Income (Loss) 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 maximum number of shares issuable are included in the diluted share count as of January 2, 2021, asthe end of each period presented is determined by measuring the achievement of the market condition would have been achieved at the highest level of vesting if measured as of the end of the respective reporting period.periods. For equity awards with a performance condition, nothe number of shares that qualified for vesting as of the end of each period presented are included in the diluted share count as of January 2, 2021, as vesting of future tranches of these awards is contingent upon achievementwhen the condition for their issuance was satisfied by the end of the performance condition over two consecutive trailing four-quarter periods, which has not yet been achieved.respective reporting periods. See "Note 10 - Stock-Based Compensation Plans" to our consolidated financial statements for further discussion of our equity awards with market or performance conditions.

 

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

 
  

Year Ended

 
  

January 2,

  

December 28,

  

December 29,

 

(in thousands, except per share data)

 

2021

  

2019

  

2018

 

Net income (loss)

 $47,392  $43,493  $(26,322)
             

Shares used in basic Net income (loss) per share

  135,220   132,471   126,564 

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

  6,056   4,803   0 

Shares used in diluted Net income (loss) per share

  141,276   137,274   126,564 
             

Basic Net income (loss) per share

 $0.35  $0.33  $(0.21)

Diluted Net income (loss) per share

 $0.34  $0.32  $(0.21)

 

45

  

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 (loss) 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

 
  

January 2,

  

December 28,

  

December 29,

 

(in thousands)

 

2021

  

2019

  

2018

 

Stock options, RSUs, ESPP shares, and equity awards with a market condition or performance condition excluded as they are antidilutive

  316   890   7,567 

 

  

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

 

Note 3 - Revenue from Contracts with Customers

 

Disaggregation of Revenue

 

The following tables provide information about revenue from contracts with customers disaggregated by major class of revenue, revenue by channel and by geographical market, based on ship-to location of the customer:

 

Major Class of Revenue

 

Year Ended

 
  

January 2,

  

December 28,

  

December 29,

 

(In thousands)

 

2021

  

2019

  

2018

 

Product

 $388,502   95% $382,548   95% $380,468   95%

Licensing and services

  19,618   5%  21,545   5%  18,331   5%

Total revenue

 $408,120   100% $404,093   100% $398,799   100%

Revenue by Channel

 

Year Ended

 
  

January 2,

  

December 28,

  

December 29,

 

(In thousands)

 

2021

  

2019

  

2018

 

Product revenue - Distributors

 $339,100   83% $331,941   82% $330,719   83%

Product revenue - Direct

  49,402   12%  50,607   13%  49,749   12%

Licensing and services revenue

  19,618   5%  21,545   5%  18,331   5%

Total revenue

 $408,120   100% $404,093   100% $398,799   100%

 

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

 

Year Ended

                     
 

January 2,

  

December 28,

  

December 29,

 

(In thousands)

 

2021

  

2019

  

2018

                     
United States $43,945 11% $44,330 11% $38,585 10%
Other Americas  18,192   4%  13,606   3%  16,549   4%
Americas  62,137   15%  57,936   14%  55,134   14%
China 213,714 52%  206,107 51%  202,983 51% 239,192  32%  296,917  45%  281,237  55%
Taiwan 30,972 8%  19,746 5%  16,124 4%
Japan 25,435 6%  42,658 11%  44,033 11% 110,403  15%  90,902  14%  47,915  9%
Other Asia  35,062   9%  30,254   7%  34,979   9%  94,170   13%  77,085   12%  55,416   10%
Asia  305,183   75%  298,765   74%  298,119   75% 443,765  60%  464,904  71%  384,568  74%

Americas

 145,839  20%  100,260  15%  80,870  16%
Europe  40,800   10%  47,392   12%  45,546   11%  147,550   20%  95,192   14%  49,889   10%

Total revenue

 $408,120   100% $404,093   100% $398,799   100% $737,154   100% $660,356   100% $515,327   100%

 

Contract balancesBalances

 

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.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 collecteddistributed to us by the HDMI licensing agent. Contract assets are recorded in Prepaid expenses and other current assets in our Consolidated Balance Sheets.

 

46

The following table summarizes activity during the periods presented:

 

(In thousands)

      

Contract assets as of December 29, 2018

 $9,143 

Contract assets as of January 1, 2022

 $5,672 

Revenues recorded during the period

 17,356  15,848 

Transferred to Accounts receivable or collected

  (20,930)  (14,173)

Contract assets as of December 28, 2019

 $5,569 

Contract assets as of December 31, 2022

 $7,347 

Revenues recorded during the period

 15,860  12,941 

Transferred to Accounts receivable or collected

  (15,818)  (9,094)

Contract assets as of January 2, 2021

 $5,611 

Contract assets as of December 30, 2023

 $11,194 

 

Contract liabilities are included in Accrued expensesliabilities on our Consolidated Balance Sheets. The following table summarizes activity during the periods presented:

 

(In thousands)

      

Contract liabilities as of December 29, 2018

 $1,614 

Contract liabilities as of January 1, 2022

 $4,768 

Prepaid customer deposit

 12,811 

Accruals for estimated future stock rotation and scrap returns

 5,763  6,142 

Less: Release of accruals for recognized stock rotation and scrap returns

  (5,064)  (6,055)

Contract liabilities as of December 28, 2019

 $2,313 

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

 5,976  9,867 

Less: Release of accruals for recognized stock rotation and scrap returns

  (5,221)  (9,283)

Contract liabilities as of January 2, 2021

 $3,068 

Contract liabilities as of December 30, 2023

 $5,304 

 

The impact to revenue in fiscal years

202047 and 2019 from the release

 

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.

 

 

January 2,

 

December 28,

  

December 30,

 

December 31,

 

(In thousands)

 

2021

  

2019

  

2023

  

2022

 

Accounts receivable

 $64,635  $65,023  $104,373  $94,018 

Less: Allowance for credit losses

  (54)  (106)      

Accounts receivable, net of allowance for credit losses

 $64,581  $64,917  $104,373  $94,018 

 

We had no material bad debt expense in fiscal 2020,2023, 2019,2022, or 2018.2021.

 

Inventories

 

 

January 2,

 

December 28,

  

December 30,

 

December 31,

 

(In thousands)

 

2021

  

2019

  

2023

  

2022

 

Work in progress

 $34,724  $39,855  $65,396  $58,269 

Finished goods

  29,875   15,125   33,430   52,106 

Total inventories, net

 $64,599  $54,980  $98,826  $110,375 

 

47

Accrued ExpensesLiabilities

 

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

 

  

January 2,

  

December 28,

 

(In thousands)

 

2021

  

2019

 

Liability for non-cancelable contracts

 $8,492  $6,964 

Current portion of operating lease liabilities

  4,149   4,686 

Other accrued expenses

  8,770   8,941 

Total accrued expenses

 $21,411  $20,591 

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 fiscal 2020:

(In thousands)

    

Cloud based computing implementation costs as of December 28, 2019

 $2,543 

Costs capitalized

  983 

Amortization

  (695)

Cloud based computing implementation costs as of January 2, 2021

 $2,831 

  

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

 

 January 2, December 28,  December 30, December 31, 

(In thousands)

 2021  2019  2023  2022 

Production equipment and software

 $135,774  $150,591  $159,950  $149,787 

Leasehold improvements

 12,913  12,517  13,519  12,416 

Office furniture and equipment

  2,161   2,112   1,933   1,760 
 150,848  165,220  175,402  163,963 

Accumulated depreciation and amortization

  (111,182)  (125,990)  (125,856)  (116,349)
 $39,666  $39,230 

Total property and equipment, net

 $49,546  $47,614 

 

For fiscal yearyears 20202023,2022, and 2021 depreciation and amortization expense for property and equipment was $11.8 million. For fiscal year 2019, depreciation$17.3 million, $13.8 million, and amortization expense for property and equipment was $11.6$12.0 million, including $0.4 million of restructuring expense. For fiscal year 2018, depreciation and amortization expense for property and equipment was $13.4 million, including $0.6 million of restructuring expense.respectively.

 

48

Property and Equipment – Geographic Information

 

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

 

 January 2, December 28,  December 30, December 31, 

(In thousands)

 2021  2019  2023  2022 

United States

 $29,440  $32,313  $29,467  $29,118 
     

Taiwan

 10,222  10,732 

Philippines

 4,602  3,596 

China

 1,537  1,683  2,778  2,229 

Philippines

 2,912  2,683 

Taiwan

 5,171  1,885 

Japan

 476  283 

Other

  130   383   2,477   1,939 

Total foreign property and equipment, net

  10,226   6,917   20,079   18,496 

Total property and equipment, net

 $39,666  $39,230  $49,546  $47,614 

 

48

 

Note 6 - Long-Term Debt

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

We used the $175.0 million term loan proceeds and an initial $31.5 million revolving loan draw at closing to (i) repay the $204.4 million obligation outstanding under our previous credit agreement (the “Previous Credit Agreement”), and (ii) pay fees and expenses totaling $2.1 million incurred in connection with the Current Credit Agreement. The revolving loan may be used for working capital and general corporate purposes. With the repayment of our obligations under the Previous Credit Agreement, we wrote off the remaining unamortized balance of the related original issue discount and debt costs, which we recorded as a $2.2 million loss on refinancing in Other expense, net on our Consolidated Statements of Operations in fiscal 2019.

At our option, the term loan and the revolving loan (collectively, "long-term debt") accrue interest at a per annum rate based on either (i) the base rate plus a margin ranging from 0.25% to 1.00%, determined based on our total leverage ratio or (ii) the London Interbank Offered Rate ("LIBOR") for interest periods of 1,2,3 or 6 months plus a margin ranging from 1.25% to 2.00%, determined based on our total leverage ratio. The base rate is defined as the highest of (i) the federal funds rate, plus 0.50%, (ii) Wells Fargo Bank, National Association’s prime rate or (iii) the LIBOR rate for a 1-month interest period plus 1.00%. As of January 2, 2021, the effective interest rate on the term loan was 1.61%, and the effective interest rate on the revolving loan was 1.40%. We pay a commitment fee of 0.20% on the unused portion of the revolving loan.

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

The Current Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments, make certain restricted payments, dispose of assets, enter into transactions with affiliates, and enter into burdensome agreements, in each case, subject to limitations and exceptions set forth in the Current Credit Agreement. We are also required to maintain compliance with a total leverage ratio and an interest coverage ratio, in each case, determined in accordance with the terms of the Current Credit Agreement.

We account for the original issue discount and the debt issuance costs as a reduction to the carrying value of our long-term debt on our Consolidated Balance Sheets. We amortize the discount and costs to Interest expense in our Consolidated Statements of Operations over the contractual term using the effective interest method. We determine the Current portion of long-term debt as the sum of the required quarterly installments to be made over the next twelve months, reduced by the original issue discount and the debt issuance costs to be amortized over the next twelve months.

During fiscal 2020, we made principal payments totaling $26.3 million, including $13.1 million in accelerated principal payments made during the second quarter of fiscal 2020 that fulfilled the required quarterly installments through the first quarter of fiscal 2021. We drew $50.0 million on our revolving loan facility during the first quarter of fiscal 2020. The fair value of our long-term debt approximates the carrying value, which is reflected in our Consolidated Balance Sheets as follows:

  

January 2,

  

December 28,

 

(In thousands)

 

2021

  

2019

 

Principal amount

 $171,875  $148,125 

Unamortized original issuance discount and debt costs

  (1,179)  (1,579)

Less: Current portion of long-term debt

  (12,762)  (21,474)

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

 $157,934  $125,072 

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

  

Year Ended

 
  

January 2,

  

December 28,

  

December 29,

 

(In thousands)

 

2021

  

2019

  

2018

 

Contractual interest

 $3,319  $10,278  $18,600 

Amortization of original issuance discount and debt costs

  400   1,659   2,230 

Total interest expense related to long-term debt

 $3,719  $11,937  $20,830 

49

Expected future principal payments are based on the schedule of required quarterly installments. With the accelerated principal payments we made during the second quarter of fiscal 2020, our next required quarterly installment is due in the second quarter of fiscal 2021. As of January 2, 2021, expected future principal payments on our long-term debt were as follows:

Fiscal year

 

(in thousands)

 

2021

 $13,125 

2022

  17,500 

2023

  17,500 

2024

  123,750 
  $171,875 

Note 7 - Restructuring

In March 2020, our management approved and executed an internal restructuring plan (the “Q12020 Plan”), which included a workforce reduction in order to reduce our operating cost structure by leveraging our low-cost regions as well as enhancing efficiency. Under this plan, we incurred restructuring expense of approximately $2.0 million during fiscal 2020. Substantially all actions planned under this plan have been implemented.

In April 2019, our management approved and executed an internal restructuring plan (the “Q22019 Sales Plan”), which focused on a restructuring of the global sales organization through cancellation of certain contracts and a workforce reduction. Under this plan, we incurred restructuring expense of approximately $0.1 million and $2.0 million, respectively, during fiscal 2020 and 2019. Approximately $2.1 million of total expense has been incurred through January 2, 2021 under the Q22019 Sales Plan. All actions planned under this plan have been implemented.

In December 2018, our management approved and executed an internal restructuring plan (the “December 2018 Plan”), which included a global workforce reduction. This plan also included the abandonment of long-lived assets related to the restructuring of our agreements with a privately-held investee. Under this plan, no restructuring expense was incurred during either fiscal 2020 or 2019, and approximately $4.8 million of restructuring expense was incurred during fiscal 2018. Approximately $4.8 million of total expense has been incurred through January 2, 2021 under the December 2018 Plan. All actions planned under this plan have been implemented.

In June 2018, our Board of Directors approved an internal restructuring plan (the "June 2018 Plan"), which included the discontinuation of our millimeter wave business and the use of certain assets related to our Wireless products, and a workforce reduction. Under this plan, 0 restructuring expense was incurred during fiscal 2020. We recorded a total credit adjustment of approximately $0.1 million during fiscal 2019 due to the final reconciliation of expenses incurred, and we incurred approximately $4.2 million of restructuring expense during fiscal 2018. Approximately $4.1 million of total expense has been incurred through January 2, 2021 under the June 2018 Plan. All actions planned under this plan have been implemented.

In June 2017, our Board of Directors approved an internal restructuring plan (the "June 2017 Plan"), which included the sale of 100% of the equity of our Hyderabad, India subsidiary and the transfer of certain assets related to our Simplay Labs testing and certification business, a worldwide workforce reduction, and an initiative to reduce our infrastructure costs, including reconfiguring our use of certain leased properties. Under this plan, we incurred restructuring expense of approximately $1.9 million, $2.7 million, and $8.4 million, respectively, during fiscal 2020,2019, and 2018. Approximately $21.0 million of total expense has been incurred through January 2, 2021 under the June 2017 Plan, and all planned actions have been implemented. We expect the total cost of the June 2017 Plan to be approximately $21.5 million to $23.5 million as ROU asset amortization expenses related to our partially vacated facility in San Jose, California will be incurred over the remaining lease term.

These expenses and credits were recorded to Restructuring charges on our Consolidated Statements of Operations. The restructuring accrual balance is presented in Accrued expenses and Other long-term liabilities on our Consolidated Balance Sheets.

50

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

(In thousands)

 

Severance & Related (1)

  

Lease Termination & Fixed Assets

  

Software Contracts & Engineering Tools (2)

  

Other (3)

  

Total

 

Accrued Restructuring at December 30, 2017

 $1,192  $870  $360  $25  $2,447 

Restructuring charges

  5,696   7,379   913   3,361   17,349 

Costs paid or otherwise settled

  (5,074)  381   (1,055)  (3,368)  (9,116)

Accrued Restructuring at December 29, 2018

 $1,814  $8,630  $218  $18  $10,680 
Restructuring charges  625   2,716   0   1,323   4,664 
Costs paid or otherwise settled  (2,279)  (4,761)  (218)  (476)  (7,734)

Accrued Restructuring at December 28, 2019

 $160  $6,585  $0  $865  $7,610 

Restructuring charges

  1,669   1,896   0   372   3,937 

Costs paid or otherwise settled

  (1,583)  (248)  0   (573)  (2,404)

Accrued Restructuring at January 2, 2021

 $246  $8,233  $0  $664  $9,143 

(1)

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

(2)

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

(3)

In fiscal 2018, "Other" includes the abandonment of long-lived assets related to the restructuring of our agreements with a privately-held investee. In fiscal and 2019 and 2020, "Other" included termination fees on the cancellation of certain contracts under the Q22019 Sales Plan

Note 8 - Leases

Our facilities for corporate offices, sales offices, research and development facilities, storage facilities, and a data center, are all leased under operating leases, which expire at various times through 2027. Our leases have remaining lease terms of 1 to 8 years, some of which include options to extend for up to 5 years, and some of which include options to terminate within 1 year. The weighted-average remaining lease term was 4.6 years and the weighted-average discount rate is 6.5% as of January 2, 2021. We recorded fixed operating lease expense of $7.6 million and $7.7 million, respectively, for fiscal 2020 and 2019. Rental expense under the previous guidance for operating leases was $8.3 million for fiscal 2018.

The following table presents the lease balance classifications within the Consolidated Balance Sheets and summarizes their activity during fiscal 2020:

Operating lease right-of-use assets

 

(in thousands)

 

Balance as of December 28, 2019

 $23,591 

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

  4,297 

Amortization of right-of-use assets during the period

  (5,960)

Adjustments for present value and foreign currency effects

  250 

Balance as of January 2, 2021

 $22,178 

Operating lease liabilities

 

(in thousands)

 

Balance as of December 28, 2019

 $26,124 

Lease liabilities incurred for new lease contracts during the period

  2,646 

Accretion of lease liabilities

  1,629 

Operating cash used by payments on lease liabilities

  (7,713)

Adjustments for present value and foreign currency effects

  369 

Balance as of January 2, 2021

  23,055 

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

  (4,149)

Long-term operating lease liabilities, net of current portion

 $18,906 

Lease obligations for facilities restructured prior to the adoption of Topic 842 totaled approximately $8.2 million at January 2, 2021 and continued to be recorded in Other long-term liabilities on our Consolidated Balance Sheets.

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Maturities of operating lease liabilities as of January 2, 2021 are as follows:

Fiscal year

 

(in thousands)

 

2021

 $5,615 

2022

  5,378 

2023

  5,057 

2024

  4,861 

2025

  3,552 

Thereafter

  3,229 

Total lease payments

  27,692 

Less: amount representing interest

  (4,637)

Total lease liabilities

 $23,055 

Note 9 - Intangible AssetsGoodwill

 

In connection with our previous acquisitions, of Silicon Image, Inc. in March 2015 and SiliconBlue Technologies, Inc. in December 2011, we have recorded identifiable intangible assets related to developedexisting technology, customer relationships, licensed technology, patents,trade names, and in-process research and developmenttrademarks, 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 January 2, 2021December 30, 2023 and December 28, 201931, 2022:

 

 

January 2, 2021

  

December 30, 2023

 

(In thousands)

 

Weighted Average Amortization Period (in years)

  

Gross

  

Accumulated Amortization

  

Intangible assets, net

  

Weighted Average Amortization Period (in years)

  

Gross

  

Accumulated Amortization

  

Intangible assets, net

 

Developed technology

 5.0  $110,987  $(109,162) $1,825 

Existing technology

 5.1  $124,487  $(115,085) $9,402 

Customer relationships

 5.8  22,934  (22,281) 653  6.1  32,734  (25,909) 6,825 

Trade name / trademarks

 10.0  1,500  (319) 1,181 

Licensed technology

 6.6   4,376   (533)  3,843  6.2   7,127   (3,561)  3,566 

Total identified intangible assets

    $138,297  $(131,976) $6,321     $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 

 

  

December 28, 2019

 

(In thousands)

 

Weighted Average Amortization Period (in years)

  

Gross

  

Accumulated Amortization

  

Intangible assets, net

 

Developed technology

 5.0  $110,987  $(105,594) $5,393 

Customer relationships

 5.8   22,934   (21,400)  1,534 

Licensed technology

 5.0   459   (409)  50 

Total identified intangible assets

    $134,380  $(127,403) $6,977 

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We recorded amortization expense related to intangible assets on the Consolidated Statements of Operations as presented in the following table:

 

 

Year Ended

  

Year Ended

 
 

January 2,

 

December 28,

 

December 29,

  

December 30,

 

December 31,

 

January 1,

 

(In thousands)

 

2021

  

2019

  

2018

  

2023

  

2022

  

2022

 

Research and development

 $124  $55  $277  $1,074  $1,054  $901 

Amortization of acquired intangible assets

  4,449   13,558   17,690   3,478   3,778   2,613 
 $4,573  $13,613  $17,967  $4,552  $4,832  $3,514 

 

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The annual expected amortization expense of acquired intangible assets is as follows:

 

Fiscal year

 

(in thousands)

  

(In thousands)

 

2021

 $2,877 

2022

  876 

2023

  600 
2024 501  $4,417 
2025 501  4,370 

2026

 4,362 

2027

  4,268 

2028

  3,125 
Thereafter  966   432 

Total

 $6,321  $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 acquired intangible assetsgoodwill were recorded for either fiscal 20202023, 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 asCredit Agreement”), and (ii) pay fees and expenses totaling $1.4 million incurred in connection with the no2022 indicatorsCredit 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 impairment were present. During fiscaleither (i) the base rate (as defined in the 2018,2022 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 recorded an impairment chargepay a quarterly commitment fee of $11.90.20% 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 relating to intangible assetsof the new debt costs, and expensed $0.7 million of debt costs and existing original issue discount ("OID") as a result of the strategic decision to discontinueloss on refinancing in Other income (expense), net on our millimeter wave business, and we recorded an impairment charge of $0.6 million to an intangible asset associated with a certain product line that we concluded had limited future revenue potential due to a decline in customer demand for that product. These charges were recorded to Impairment of acquired intangible assets in the 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

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 “Q32023 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 Q32023 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 Q22019 Sales Plan, an internal restructuring plan that our management approved and executed in April 2019. The Q22019 Sales Plan focused on a restructuring of the global sales organization through cancellation of certain contracts and a workforce reduction. Under the Q22019 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 Q22019 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 reconfigure 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

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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

 

WeAs 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. 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.

 

52

In May 2012, the Company's stockholders approvedWe also maintain the 2012 Employee Stock Purchase Plan ("2012 ESPP"), pursuant to which authorizes the issuance of 3.0 million shares of common stock to eligible employeesmay contribute through payroll deductions up to 10% of base compensation, subject to certain income limits, to purchase shares of our common stock through payroll deductions, which cannot exceed 10% of an employee's compensation. 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 January 2, 2021December 30, 2023, a total of 1.20.9 million shares of our common stock were available for future purchases under the 2012 ESPP.

 

At January 2, 2021December 30, 2023, a total of 11.611.7 million shares of our common stock were available for future grants under the 20132023 Equity Incentive Plan and the 2011 Non-Employee Director Equity Incentive Plan. Following ourNeither the 20182023 Shareholder meeting, aEquity Incentive Plan nor the 2011 Non-Employee Director Equity Incentive Plan have any fungible share ratio of or counting provision2.2:1 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 2020, a total of 2.0 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

  

Year Ended

 
 

January 2,

 

December 28,

 

December 29,

  

December 30,

 

December 31,

 

January 1,

 

(In thousands)

 

2021

  

2019

  

2018

  

2023

  

2022

  

2022

 

Cost of revenue

 $3,179  $1,422  $940  $4,506  $3,674  $3,049 

Research and development

 10,124  5,640  4,357  27,782  19,645  14,563 

Selling, general, and administrative

  27,069   11,837   8,349   37,909   32,211   28,863 

Total stock-based compensation

 $40,372  $18,899  $13,646  $70,197  $55,530  $46,475 

 

The income tax benefit related to total stock-based compensation expense included in Selling, general, and administrative expensewas $7.6 million for fiscal 20182023, includes approximately $1.4 millionwhich is reflected in Income tax (benefit) expense in the Consolidated Statements of additional one-time expense for acceleration of stock compensation under the CEO separation agreement executed with our former CEOOperations. The income tax benefit related to awards vested or exercised during the first quarter of fiscal 2018.2023 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.

 

53

ESPP and Stock Options and ESPP

 

The fair values of each option award on the date of grant and 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. The expected term is based on historical vested option exercises and includes an estimate of the expected term forNo new stock options that are fully vested and outstanding.were granted during fiscal 2023,2022, or 2021. The expected volatility of both ESPP shares and stock options and ESPP shares is based on the daily historical volatility of our stock price, measured over the ESPP purchase period or the expected term of the option or the ESPP purchase period.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 stock option and ESPP compensation:compensation for the periods presented:

 

 

Year Ended

  

Year Ended

 January 2, 2021  December 28, 2019  December 29, 2018  

December 30,

 

December 31,

 

January 1,

Employee and Director Stock Options *

         

Expected volatility

 n/a  n/a  39.87% to 41.11% 

Risk-free interest rate

 n/a  n/a  2.29% to 2.78% 

Expected term (years)

 n/a  n/a  4.08 to 4.25 
 

2023

 

2022

 

2022

Employee Stock Purchase Plan

             

Weighted average expected volatility

 48.2%  31.6%  36.4%  

48.2%

 

60.3%

 

39.9%

Weighted average risk-free interest rate

 0.89%  2.51%  1.61%  

5.37%

 

3.74%

 

0.07%

Expected term (in months)

 6  6  6  

6

 

6

 

6

 

* No stock options granted during fiscal 2020 or 2019

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 January 2, 2021December 30, 2023, , there was $1.0 million of totalno unrecognized compensation cost related to unvested employee and director stock options, which is expected to be recognized over a weighted average period of 0.7 years. Our current practice is to issue new shares to satisfy option exercises.options. Compensation expense for all stock-based compensation awards is recognized using the straight-line method. In fiscal 2020, 2019, and 2018, weWe recorded stockstock-based compensation expense related to the ESPP of approximately $2.02.2 million, $1.5 million, and $1.2 million $2.4 million,in fiscal 2023, 2022, and $4.1 million, respectively, related2021, respectively. Related to stock options, we recorded no expense in fiscal 2023 and2022, and approximately $1.0 million in fiscal $0.52021 million, and $0.6 million, respectively, related to the ESPP..

 

53

The following table summarizes our stock option activity and related information for the year ended January 2, 2021December 30, 2023::

 

(Shares and aggregate intrinsic value in thousands)

 

Shares

  

Weighted average exercise price

  

Weighted average remaining contractual term (years)

  

Aggregate Intrinsic Value

  

Shares

  

Weighted average exercise price

  

Weighted average remaining contractual term (years)

  

Aggregate Intrinsic Value

 

Balance, December 28, 2019

 3,332  $6.16      

Balance, December 31, 2022

 918  $6.70      

Granted

 0  0               

Exercised

 (1,057) 5.70       (487) 6.66      

Forfeited or expired

  (75)  5.69           (3)  5.84      

Balance, January 2, 2021

  2,200  $6.39         

Vested and expected to vest at January 2, 2021

  2,200  $6.39   3.86  $86,739 

Exercisable, January 2, 2021

  1,589  $6.40   3.66  $62,661 

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 20202023, 20192022, and 20182021 was $21.5$37.3 million, $17.8$24.3 million, and $6.5$44.7 million, respectively.

 

NaN stock options were granted during fiscal 2020 or 2019. For fiscal 2018, the grant date weighted-average fair value for stock options granted, calculated using the Black-Scholes option pricing model with the noted assumptions for stock options, was $2.73. The weighted average fair values for the ESPP, calculated using the Black-Scholes option pricing model with the noted assumptions for the ESPP, were $6.62, $1.69, and $1.50 for fiscal years 2020, 2019, and 2018, respectively.

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Time-Based Restricted Stock Unit Awards

 

The following table summarizes the activity for our time-based RSUs for the year ended January 2, 2021December 30, 2023::

 

(Shares in thousands)

 

Shares

  

Weighted average grant date fair value

  

Shares

  

Weighted average grant date fair value

 

Balance, December 28, 2019

 3,611  $11.50 

Balance, December 31, 2022

 1,821  $50.18 

Granted

 984  26.48  995  84.80 

Vested

 (1,424) 10.72  (880) 41.63 

Forfeited or expired

  (173)  12.03   (55)  56.69 

Balance, January 2, 2021

  2,998  $16.76 

Balance, December 30, 2023

  1,881  $72.31 

 

At January 2, 2021December 30, 2023, , there was $44.3121.3 million of unrecognized compensation expense related to unvested time-based RSUs. Our current practice is to issue new shares when RSUs vest. Compensation expense for RSUs is recognized using the straight-line method over the related vesting period. In fiscal 20202023, 20192022, and 20182021, we recorded stockstock-based compensation expense related to time-based RSUs of approximately $41.5 million, $16.630.1 million, $10.3 million, and $8.0$21.7 million, respectively.

 

Market-Based and Performance-Based Awards

 

In 20182021 through 20202023, 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 quarterand third quarters of fiscal 2020,2023, 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 and become payable over a three-year period based on the Company’sCompany's total shareholder return ("TSR") relative to a specified index. For the 2023 grants, the TSR condition is measured relative to the Russell 20003000 index which condition is tested for oneon -halfeither the third anniversary of the grantsgrant date, or equally on the first, second, and third anniversary of the grant date. 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 uponon 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

In fiscal years 2018 and 2019, we granted inducement awards outside of, but subject to the terms and conditions of the 2013 Incentive Plan to certain executives. These awards consisted of RSUs with either a market condition or a performance condition that vest and become payable upon achievement of TSR or Adjusted EBITDA targets, respectively. These TSR-based awards vest and become payable over a three-year period based on the Company’s TSR relative to the PHLX Semiconductor Sector Index, with either 250% or 200% of the units vesting at the 75th percentile, depending upon the executive, 100% of the units vesting at the 50th percentile and zero vesting if relative TSR is below the 25th percentile, and vesting scaling linearly for achievement between the 25th and 75th percentile. The Adjusted EBITDA-based awards will vest and become payable based upon the Company’s generating specified “adjusted” EBITDA levels on a trailing four quarter basis in any two consecutive trailing four-quarter periods. During the first quarter of fiscal 2020,2021, we also granted awards of RSUs with a performance condition to certain executives, to specifically drive additional executive attention and focus on the BoardCompany’s revenue growth priorities. Under the terms of Directors approvedthese grants, the RSUs with a modification toperformance condition will vest based on the market condition measurement periods associated with the unvested portionsCompany generating specified levels of certainyear-over-year revenue growth, which will be measured annually for one-fourth of the Company’sgrants 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 a market condition that were granted priormaximum vesting up to fiscal 2020. The modification extended the duration of the measurement period by adjusting the beginning date200%. Vesting of each measurement period totranche of these awards occurs 13 months after the original grant date, resulting in approximately $1.8 million additional stock compensation expense duringperformance conditions is met, and the entire award cannot be fully earned until firstfive quarteryears from grant. For the second and third tranches of fiscalthese 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 2020.December 31, 2022 and December 30, 2023.

 

Market-Based and Performance-Based Awards — Vesting

During the first quarter of fiscal 2020,2023, the market condition for awards granted to certain executives in the first quarter of fiscal 2019previous years exceeded the 75th percentile of thetheir TSR condition, and the first trancheapplicable tranches of these awards vested at 250% or 200%. During for the respective executives. Also during second quarter of fiscal 2020,2023, the first tranche of 33.3%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 generatedmet the specified "adjusted"adjusted EBITDA levelsperformance criteria on a trailing four quarter-quarter basis for two consecutive trailing four-quarter periods as of the end of the first quarter ofrespective measurement periods.
During fiscal 2020. During the third and fourth quarters of fiscal 2020,2021, the market condition for awards granted to certain executives in previous years exceeded the 75th75th percentile of thetheir TSR condition, and one-thirdapplicable tranches of these awards vested at 250% or 200%, as applicable for the respective executive.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 stockstock-based compensation expense including the effect of the modification in the first quarter of fiscal 2020,of approximately $20.8$26.4 million, $5.7$24.0 million, and $0.9$22.1 million in fiscal years 20202023, 20192022, and 20182021, respectively.respectively, which is recorded as a component of total stock-based compensation. At January 2, 2021December 30, 2023, , there was $14.827.3 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.

 

55

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

 

  

Year Ended

 
  January 2, 2021  December 28, 2019  December 29, 2018 

Executive RSUs with a market condition or performance condition

         
Weighted average expected volatility 42.38%  40.15% to 41.10%  41.06% to 41.74% 

Weighted average risk-free interest rate

 1.40%  1.66% to 2.55%  2.71% to 2.87% 

Expected term (years)

 3.00  3.00  3.00 to 3.16 

  

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

  

Shares

  

Weighted average grant date fair value

 

Balance, December 28, 2019

 1,163  $14.49 

Balance, December 31, 2022

 985  $60.15 

Granted

 349  32.23  172  146.69 

Effect of vesting multiplier

 472    334   

Vested

 (963) 15.63   (639)  40.22 

Canceled

  0    

Balance, January 2, 2021

  1,021  $20.42 

Balance, December 30, 2023

  852  $84.73 

 

 

55

Note 11 - Common Stock Repurchase Program

 

On February 14, 2020,August 8, 2022, we announced that our Board of Directors had approved a stock repurchase program pursuant to which up to $40.0$150 million of outstanding common stock could be repurchased from time to time.time (the "2023 Repurchase Program"). The duration of the repurchase program2023 Repurchase Program was through twelveDecember 30, 2023. months. Under this program duringDuring the fourth quarter of fiscal 2020,2023, approximately 0.4 millionwe repurchased 872,994 shares were repurchased for $15.0$50.2 million, or an average price paid per share of $38.98. All repurchased shares were retired by$57.49, under the end of the 20202023 fiscal year.Repurchase Program. All repurchases were open market transactions funded from available working capital. The 12-month 2020 program expired duringAll shares repurchased pursuant to the first2023 Repurchase Program were retired by the end of the fourth quarter of fiscal 2021,2023. 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 0up 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.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 (loss) before income taxes were as follows:

 

 

Year Ended

 
 

Year Ended

  

December 30,

 

December 31,

 

January 1,

 

(In thousands)

 January 2, 2021  December 28, 2019  December 29, 2018  

2023

  

2022

  

2022

 

Domestic

 $11,772  $33,417  $(8,274) $55,069  $30,362  $24,003 

Foreign

  36,684   11,648   (15,695)  159,787   151,750   73,623 

Income (loss) before taxes

 $48,456  $45,065  $(23,969)

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

 

The components of Income tax expense are as follows:

  

Year Ended

 

(In thousands)

 January 2, 2021  December 28, 2019  December 29, 2018 

Current:

            

Federal

 $54  $499  $536 

State

  68   45   38 

Foreign

  1,025   1,345   1,869 
   1,147   1,889   2,443 

Deferred:

            

Federal

  0   0   0 

State

  0   0   0 

Foreign

  (83)  (317)  (90)
   (83)  (317)  (90)

Income tax expense

 $1,064  $1,572  $2,353 

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

 

Year Ended

  

December 30,

 

December 31,

 

January 1,

 January 2, 2021  December 28, 2019  December 29, 2018  

2023

 

2022

 

2022

 

%

 

%

 

%

  

%

 

%

 

%

Statutory federal rate

 21  21  (21)  

21

 

21

 

21

Adjustments for tax effects of:

             

State taxes, net

 (4)  3  (6)  

(1)

 

(2)

 

(4)

Research and development credits

 (3)  3  (5) 

Stock compensation

 (23)  (11)  8 

Federal tax credits

 

(4)

 

(1)

 

(3)

Excess tax benefit from stock-based compensation

 

(2)

 

 

(8)

Foreign rate differential

 (12)  (2)  20  

(15)

 

(16)

 

(14)

Foreign dividends

 15  0  0 

Foreign withholding taxes

 3  3  5 

162(m) executive compensation limitation

 13  5  2 

Other deferred tax asset adjustment

 3    13 

U.S. tax on foreign operations

 

9

 

33

 

3

Capital loss expiration

 

 

1

 

3

Valuation allowance

 (13)  (19)  (11)  

(29)

 

(33)

 

8

Change in uncertain tax benefit accrual

 2  0  2  

 

(2)

 

(5)

Other

 0  1  3  

 

1

 

1

Effective income tax rate

 2  4  10  

(21)

 

2

 

2

 

ASC 740,Income Taxes”, provides for the recognitionWe updated our evaluation of deferred tax assets if realization of these assets is more-likely-than-not. We evaluate both positive and negative evidence to determine if some or all of our deferred tax assets should be recognized on a quarterly basis.

Through January 2, 2021, we continued to evaluate the valuation allowance position in the United States through December 30, 2023. In making this evaluation, we considered our operating environment and concludedestimates 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 shouldreduced 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 the net federal andour state deferred tax assets. In making this evaluation, we exercised significant judgment and considered estimates about our abilityassets due to generate revenue and taxable profits sufficient to offset expenditures in future periods within the United States.insufficient income sources. 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 havedo not maintain a valuation allowance in any foreign jurisdictions as we have concluded it is more likely than not that we will realize thethose net deferred tax assets in future periods.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

 

The components of our net deferred tax assets are as follows:

(In thousands)

 January 2, 2021  December 28, 2019 

Deferred tax assets:

        

Accrued expenses and reserves

 $5,464  $3,527 

Stock-based and deferred compensation

  3,851   2,812 

Lease liability

  4,190   4,369 

Intangible assets

  10,082   12,294 

Fixed assets

  351   256 

Net operating loss carry forwards

  87,443   86,899 

Tax credit carry forwards

  83,534   90,339 

Capital loss carry forwards

  4,018   4,235 

Other

  934   1,059 

Total deferred tax assets

  199,867   205,790 

Less: valuation allowance

  (192,478)  (198,499)

Net deferred tax assets

  7,389   7,291 

Deferred tax liabilities:

        

Fixed assets

  2,809   2,620 
Unremitted earnings  1,746   0 

Deferred revenue

  64   434 

Right-of-use asset

  3,939   3,759 

Total deferred tax liabilities

  8,558   6,813 
Net deferred taxes  (1,169)  478 

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 

January 2, 2021

 $198,499  $(6,021) $0  $192,478 

December 28, 2019

 $207,108  $(8,609) $0  $198,499 

December 29, 2018

 $209,691  $(2,583) $0  $207,108 

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 January 2, 2021December 30, 2023, , we had U.S. federal net operating loss ("NOL") carryforwards (pretax) of approximately $359.5$8.0 million thatwhich will expire at various dates between 20212027 and 2037.2028. We had state NOL carryforwards (pretax) of approximately $147.6$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 20212033 through 2037.2043, We also had federal and $78.9 million state credit carryforwards, of $51.7 million and $64.9 million, respectively. Of the $64.9 million state credit carryforwards, $64.5 millionwhich substantially all do not expire. The federal and remaining state credits expire at various dates from 2021 through 2040.

 

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. IfHowever, if there is a significant change in ownership, future tax attribute utilization may be restrictedlimited and an allowance will be recorded against 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 and repatriated in the United States.distributed. At January 2, 2021December 30, 2023, , U.S. income taxes and foreign withholding taxes were not provided for on a cumulative total of approximately $3.1$3.0 million of the undistributed earnings of our Chinese subsidiary.foreign subsidiaries. We intend to reinvest these earnings indefinitely.

 

At January 2, 2021December 30, 2023 , and December 31, 2022, our unrecognized tax benefits associated with uncertain tax positions were $55.7$61.4 million and $58.9 million, respectively, of which $53.6$58.7 million and $56.3 million, respectively, if recognized, would affect the effective tax rate, subject to valuation allowance. As of January 2, 2021December 30, 2023 , and December 31, 2022, interest and penalties associated with unrecognized tax benefits were $9.1$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.

 

58

The following table summarizes the changes to unrecognized tax benefits for the fiscal years presented:

 

  

(in thousands)

 

Balance at December 30, 2017

 $58,377 

Additions based on tax positions related to the current year

  389 

Additions based on tax positions of prior years

  759 

Reduction for tax positions of prior years

  (5)

Reduction as a result of lapse of applicable statute of limitations

  (1,235)

Balance at December 29, 2018

  58,285 

Additions based on tax positions related to the current year

  238 

Additions based on tax positions of prior years

  1,084 

Reductions for tax positions of prior years

  (213)

Reduction as a result of lapse of applicable statute of limitations

  (2,432)

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 

Reductions for tax positions of prior years

  0 

Reduction as a result of lapse of applicable statute of limitations

  (2,401)

Balance at January 2, 2021

 $55,737 

The balance of the unrecognized tax benefit at December 30, 2017 included in the table above summarizing the changes to the unrecognized tax benefit has been updated from $44,832 thousand to $58,377 thousand. Additionally, the amounts in this table for Additions based on tax positions of prior years during 2018 and 2019 have been updated from $19 thousand and $334 thousand to $759 thousand and $1,084 thousand, respectively.

  

(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 $22.3$21.9 million and $24.6$21.6 million at January 2, 2021December 30, 2023 and December 28, 201931, 2022, respectively, and is recorded as a component of Other long-term liabilities on our Consolidated Balance Sheets. The remainder of our uncertain tax position exposure of $42.5 million is netted against deferred tax assets.

 

At January 2, 2021December 30, 2023, , it is reasonably possible that $2.7$0.3 million of unrecognized tax benefits and $0.4$0.1 million of associated interest and penalties could be recognized during the next twelve months. The $3.1 million potential change would represent a decrease in unrecognized tax benefits, comprised of items related to tax filings for years that will no longer be subject to examination under expiring statutes of limitations.

 

The years that remain subject to examination are are 2017 for federal income taxes, 20162019 for state income taxes, and 20132017 for foreign income taxes, including years ending thereafter. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating losses or credit carryforward amount.

 

Our Philippines 2016 and 2017 and Israeli 2013 through 2017 income tax returns are currently under examination. We are not under examination in any other jurisdiction.

We are not currently paying U.S. federal income taxes and do not expect to pay such taxes until we fully utilize our tax NOL and credit carryforwards. We expect to pay a nominal amount of state income tax. We are paying foreign income and withholding taxes, which are reflected in income tax expense in our Consolidated Statements of Operations and are primarily related to the cost of operating offshore activities and subsidiaries. We accrue interest and penalties related to uncertain tax positions in income tax expense.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (2017 Tax Act).  The CARES Act eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018,2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020.  The CARES Act makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. In addition, the CARES Act allows companies to defer making certain payroll tax payments until future years. With the enactment of the CARES Act, the Company does not expect a financial statement impact from income taxes.  The Company has not recorded any income tax expense or benefit relate to the Act for the year ended January 2, 2021. 

5958

 
 

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 $2.4$3.1 million, $0.8$2.8 million, and $0.6$2.6 million in fiscal years 20202023, 20192022, and 20182021, respectively.

 

Cash Incentive Plans

 

For 20202023, 20192022, and 20182021, 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 $7.9$15.0 million, $5.8$25.2 million, and $5.9$18.0 million of expense under the Cash Plans in fiscal 20202023, 20192022, and 20182021, respectively.

 

 

Note 14 - Contingencies

 

Legal MattersProceedings

 

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 allegealleged that we violated Thethe Lanham Act, engaged in negligence, fraud, and fraudbreach of contract by failing to disclose to the Plaintiffs the export-controlled status of the subject parts. The Plaintiffs seek damages of $138 million, treble damages, and other remedies. In January 2019, we removed the action to the United States District Court for the District of Oregon. At this stageOregon (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 proceedings, we doLanham 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 have an estimateliable for all outstanding claims and the presiding judge stated he would enter the judgment in favor 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.Company.

 

From time to time, we are exposed to certain additional asserted and unasserted potential claims. Periodically, weWe 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.

 

Note 15 - Quarterly Financial Data (Unaudited)

A summary of the Company's consolidated quarterly results of operations is as follows:

  

2020

  

2019

 

(In thousands, except per share data)

 

Q4

  

Q3

  

Q2

  

Q1

  

Q4

  

Q3

  

Q2

  

Q1

 

Revenue

 $107,173  $103,042  $100,589  $97,316  $100,237  $103,469  $102,296  $98,091 

Gross margin

  64,861   62,306   60,577   57,562   59,293   61,439   60,038   57,652 

Restructuring charges

  (241)  2,692   546   940   (55)  252   3,126   1,341 

Net income

 $15,989  $12,607  $10,629  $8,167  $13,987  $13,539  $8,559  $7,408 
                                 

Net income per share - basic

 $0.12  $0.09  $0.08  $0.06  $0.10  $0.10  $0.06  $0.06 

Net income per share - diluted

 $0.11  $0.09  $0.08  $0.06  $0.10  $0.10  $0.06  $0.05 

60

Note 16 - Subsequent Event

Subsequent to January 2, 2021, the Company's Board of Directors approved a stock repurchase program pursuant to which up to $60.0 million of outstanding common stock may be repurchased from time to time. The duration of the repurchase program is twelve months. All repurchases will be open market transactions and funded from available working capital.

6159

 

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 sheetsheets of Lattice Semiconductor Corporation (the Company) as of January 2, 2021,December 30, 2023 and December 31, 2022, the related consolidated statements of operations, comprehensive income, (loss), stockholders'stockholders’ equity and cash flows for each of the yearthree years in the period ended January 2, 2021,December 30, 2023, and the related notes(collectively (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 2, 2021,December 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for each of the yearthree years in the period ended January 2, 2021,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 January 2, 2021,December 30, 2023, based on criteria established in Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 26, 202116, 2024 expressed an unqualified opinion thereon.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit.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 auditaudits 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 auditaudits 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 auditaudits 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 audit providesaudits 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’sCompany's net inventory totaled $64.6$98.8 million as of January 2, 2021.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’sCompany'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’smanagement'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 26, 202116, 2024

6260


 

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 January 2, 2021,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 January 2, 2021,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 January 2, 2021,December 30, 2023 and December 31, 2022, the related consolidated statements of operations, comprehensive income, (loss), stockholders’ equity and cash flows for each of the yearthree years in the period ended January 2, 2021,December 30, 2023, and the related notesand our report dated February 26, 202116, 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 over FinancialOverFinancial 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 26, 202116, 2024

 

6361

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Lattice Semiconductor Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Lattice Semiconductor Corporation and subsidiaries (the Company) as of December 28, 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the two-year period ended December 28, 2019 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 28, 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 28, 2019, in conformity with U.S. generally accepted accounting principles.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of December 30, 2018, due to the adoption of ASC 842, Leases, and related amendment ASU 2019-01, Leases (Topic 842): Codification Improvements.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our 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 consolidated 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 consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

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

Portland, Oregon
February 24. 2020 except for Note 12, as to which the date is February 26, 2021

64


 

Item 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure

 

None.

 

Item 9A. Controls and Procedures

 

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

 

In connection with the filing of this Annual Report on Form 10-K, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of January 2, 2021.December 30, 2023. These disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that we accumulate and communicate correct information to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls are effective as of January 2, 2021.December 30, 2023.

 

Management's Report on Internal Control Over Financial Reporting

 

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding reliability of financial reporting and the preparation and fair presentation of published financial statements for external purposes in accordance with generally accepted accounting principles.

 

Our internal control over financial reporting includes those policies and procedures that:

 

 

(i)

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 

(ii)

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

 

(iii)

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.

 

We do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met, and may not prevent or detect misstatements. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's internal control over financial reporting as of January 2, 2021.December 30, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on this assessment, management concluded that, as of January 2, 2021,December 30, 2023, the Company's internal control over financial reporting was effective.

 

Ernst & Young LLP, our independent registered public accounting firm, has audited the Company's internal control over financial reporting and has issued its opinion on the effectiveness of the Company's internal control over financial reporting, which appears on page 6361 in this Annual Report on Form 10-K.

 

6562


 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) that occurred during the fourth quarter of fiscal 20202023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We do not believe there has been any material impact to our internal controls over financial reporting notwithstanding that most of our employees are working remotely due to the COVID-19 pandemic. We continue to monitor and assess the COVID-19 situation on our internal controls to address any potential impact on their design and operating effectiveness.

 

Item 9B. Other Information

 

None.Rule 10b5-1 Trading Plans

On November 29, 2023, Stephen Douglass, Senior Vice President and Chief Technology Officer, adopted a Rule 10b5-1 trading arrangement intended to satisfy the affirmative defense condition of Rule 10b5-1(c), pursuant to which an estimated aggregate of 8,275 shares of our Common Stock may be sold. The aggregate number of shares sold may differ based on tax withholdings for vesting stock awards, actual market achievement for performance RSUs, and actual number of future shares purchased under the Employee Stock Purchase Plan. The duration of the trading arrangement is until February 27, 2025, or earlier if all transactions under the trading arrangement are completed.

On November 29, 2023, Tracy Feanny, Senior Vice President and General Counsel, adopted a Rule 10b5-1 trading arrangement intended to satisfy the affirmative defense condition of Rule 10b5-1(c), pursuant to which an estimated aggregate of 11,984 shares of our Common Stock may be sold. The aggregate number of shares sold may differ based on tax withholdings for vesting stock awards and actual market achievement for performance RSUs. The duration of the trading arrangement is until March 4, 2025, or earlier if all transactions under the trading arrangement are completed.

On November 29, 2023, Mark Jensen, a Lattice Director, adopted a Rule 10b5-1 trading arrangement intended to satisfy the affirmative defense condition of Rule 10b5-1(c), pursuant to which an estimated aggregate of 10,855 shares of our Common Stock may be sold. The duration of the trading arrangement is until January 9, 2026, or earlier if all transactions under the trading arrangement are completed.

On November 29, 2023, Sherri Luther, Senior Vice President and Chief Financial Officer, adopted a Rule 10b5-1 trading arrangement intended to satisfy the affirmative defense condition of Rule 10b5-1(c), pursuant to which an estimated aggregate of 42,141 shares of our Common Stock may be sold. The aggregate number of shares sold may differ based on tax withholdings for vesting stock awards and actual market achievement for performance RSUs. The duration of the trading arrangement is until December 3, 2024, or earlier if all transactions under the trading arrangement are completed.

 

66

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

 

PART III



 

Certain information required by Part III is incorporated by reference from our definitive proxy statement (the “Proxy Statement”) for the 20202024 Annual Meeting of Stockholders, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, which we will file not later than 120 days after the end of the fiscal year covered by this report. With the exception of the information expressly incorporated by reference from the Proxy Statement, the Proxy Statement is not to be deemed filed as a part of this report.

 

Item 10. Directors, Executive Officers and Corporate Governance

 

Information regarding our directors that is required by this item is incorporated by reference from the information contained under the captions “Proposal 1: Election of Directors” and “Corporate Governance and Other Matters--Board Meetings and Committees” in the Proxy Statement. Information regarding our executive officers that is required by this item is incorporated by reference from the information contained under the caption "Executive Compensation--The Executive Officers of the Company” in the Proxy Statement.

 

Information regarding Section 16(a) reporting compliance that is required by this item is incorporated by reference from the information contained under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.

 

63

We have adopted a Code of Conduct that applies to all of our directors, employees, including our principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions.functions, consultants, contractors, and agents. The Code of Conduct is posted on our website at www.latticesemi.com. There were no changes towww.latticesemi.com. In fiscal 2022, we rescinded our Director Code of Ethics and expanded our Code of Conduct during fiscal 2020.to cover directors, consultants, and agents. In addition, we revised our Code of Conduct to provide general guidance on how to handle ethical business decisions, and to expand and/or clarify provisions in the Code of Conduct related to antitrust, conflicts of interest, improper conduct and activities, and public disclosures. We also revised our Corporate Governance Policies to incorporate any items previously addressed in the Director Code of Conduct that the revised Code of Conduct did not address. Amendments to the Code of Conduct or any grant of a waiver from a provision of the Code of Conduct requiring disclosure under applicable SEC rules, if any, will be disclosed on our website at www.latticesemi.com.www.latticesemi.com.

 

Information about our Corporate Governance Policies our “Director Code of Ethics” and written committee charters for our Audit Committee, Compensation Committee, and Nominating and Governance Committee are available free of charge on the Company's website at www.latticesemi.com and are available in print to any shareholder upon request.

 

Information regarding our Audit Committee that is required by this Item is incorporated by reference from the information concerning our Audit Committee contained under the caption “Corporate Governance and Other Matters--Board Meetings and Committees” in the Proxy Statement.

 

Item 11. Executive Compensation

Clawback Policy

We recently adopted a written compensation recovery policy in accordance with applicable Nasdaq rules, a copy of which is filed as an exhibit to this Annual Report on Form 10-K. The policy provides that the Company will seek to recover any incentive-based compensation erroneously awarded to any current or former executive officer due to the material noncompliance with any financial reporting requirement under the securities laws during the three completed fiscal years immediately preceding the date the Company determines that an accounting restatement is required.

 

The information contained under the captions “Executive Compensation,” "Director Compensation," “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” in the Proxy Statement is incorporated herein by reference.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The information contained under the captions “Security Ownership of Certain Beneficial Owners and Management” and "Equity Compensation Plan Information" in the Proxy Statement is incorporated herein by reference.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

The information contained under the captions entitled “Certain Relationships and Related Transactions” and “Corporate Governance and Other Matters--Director Independence” in the Proxy Statement is incorporated herein by reference.

 

Item 14. Principal Accountant Fees and Services

 

The information contained under the caption entitled “Proposal 5: Ratification of Appointment of Independent Registered Public Accounting Firm--Audit and Related Fees” in the Proxy Statement is incorporated herein by reference.

 

6764


 

PART IV



 

Item 15. Exhibits

 

(a) List of Documents Filed as Part of this Report

 

(1) All financial statements

 

The following financial statements are filed as part of this report under Item 8.

 

Consolidated Financial Statements:

Page

Consolidated Statements of Operations

3637

Consolidated Statements of Comprehensive Income (Loss)

3738

Consolidated Balance Sheets

3839

Consolidated Statements of Cash Flows

3940

Consolidated Statements of Stockholders' Equity

4041

Notes to Consolidated Financial Statements

4142

 

All other schedules have been omitted because the required information is included in the Consolidated Financial Statements or the notes thereto, or is not applicable or required.

 

(2) Exhibits

 

Exhibit Number

 

Description

 

 

 

3.1

 

The Company’s Restated Certificate of Incorporation, as amended on June 4, 2009 (Incorporated by reference to Exhibit 3.1 filed with the Company's Current Report on Form 8-K filed June 4, 2009).

 

 

 

3.2

 

The Company’s Bylaws, as amended as of November 3, 2016December 14, 2023 (Incorporated by reference to Exhibit 3.23.1 filed with the Company's AnnualCurrent Report on Form 10-K for the fiscal year ended8-K filed December 31, 2016)15, 2023).

 

 

 

4.1

 

Description of Securities (Incorporated by reference to Exhibit 4.1 filed with the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019).Securities.

 

 

 

10.1*

 

Form of Indemnification Agreement executed by each director and executive officer of the Company and certain other officers and employees of the Company and its subsidiaries (Incorporated by reference to Exhibit 10.41 filed with the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004).

 

 

 

10.2*

 

Form of Notice of Grant of Restricted Stock Units to Executive Officer (Incorporated by reference to Exhibit 99.1 filed with the Company’s Current Report on Form 8-K filed on February 8, 2007).

 

 

 

10.3* Lattice Semiconductor Corporation 2012 Employee Stock Purchase Plan (incorporated by reference to Annex 1 to the Company's Definitive Proxy Statement on Schedule 14A for the 2012 Annual Meeting of Stockholders filed on April 12, 2012).
   
10.4* Lattice Semiconductor Corporation 2011 Non-Employee Director Equity Incentive Plan. (Incorporated by reference to Exhibit 99.2 filed with the Company’s Registration Statement on Form S-8 filed June 25, 2019).
   
10.5* Form of 2011 Non-Employee Director Equity Incentive Plan Outside Director Option Agreement. (Incorporated by reference to Exhibit 10.5 filed with the Company's Annual Report on Form 10-K filed on February 17, 2023).
10.6*Form of 2011 Non-Employee Director Equity Incentive Plan Restricted Stock Unit Agreement. (Incorporated by reference to Exhibit 10.6 filed with the Company's Annual Report on Form 10-K filed on February 17, 2023).

*Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Annual Report on Form 10-K pursuant to Item 15(b) thereof.

65

Exhibit NumberDescription
10.7*Lattice Semiconductor Corporation 20132023 Incentive Plan as amended and restated.related form agreements. (Incorporated by reference to Exhibit 10.2 filed with the Registrant’s Current Report on Form 8-K, filed with the Commission on May 8, 2023).
   
10.610.8 Lattice Semiconductor Corporation Form of Indemnification Agreement. (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K, filed with the Commission on May 8, 2023).
10.9Amended and Restated Credit Agreement, dated as of September 1, 2022, by and among Lattice Semiconductor Corporation, as borrower, the lenders from time to time party thereto and Wells Fargo Bank, National Association, as administrative agent. (Incorporated by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K filed May 20, 2019)September 2, 2022).

*Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Annual Report on Form 10-K pursuant to Item 15(b) thereof.

68

Exhibit NumberDescription
   

10.7*10.10*

 

Lattice Semiconductor Corporation 20182021 Cash Incentive Plan (Incorporated(Incorporated by reference to Exhibit 10.1310.9 filed with the Company’s Annual Report on Form 10-K filed on February 26, 2019)23, 2022).

10.8*

10.11*Lattice Semiconductor Corporation 20192022 Cash Incentive Plan (incorporatedPlan. (Incorporated by reference to Exhibit 10.1410.16 filed with the Company’s Annual Report on Form 10-K filed on February 24, 2020)17, 2023).

 

 

 

10.9*

10.12*

Lattice Semiconductor Corporation 20202023 Cash Incentive Plan.

10.10*10.13*

 

Amended Employment Agreement, by and between Lattice Semiconductor Corporation and James R. Anderson, effective February 21, 2020. (Incorporated by reference to Exhibit 10.23 of the Company’s Annual Report on Form 10-K filed on February 24, 2020).
   
10.11*10.14* Form of Amended Employment Agreement (Incorporated by reference to Exhibit 10.24 of the Company’s Annual Report on Form 10-K filed on February 24, 2020).

 

 

 

10.12*10.15 EmploymentCredit Agreement, between Lattice Semiconductor Corporation and Byron Milstead effectivedated as of December 30, 2008 (IncorporatedMay 17, 2019, by reference to Exhibit 10.66 filed with the Company's Annual Report on Form 10-K filed for the fiscal year ended January 3, 2009).

10.13*

Employment Agreement, by and between Lattice Semiconductor Corporation and Stephen Douglass, effective September 4, 2018 (Incorporated by reference to Exhibit 10.2 filed with the Company’s Quarterly Report on Form 10-Q filed on October 29, 2018).

10.14*

Employment Agreement, by and between Lattice Semiconductor Corporation and Sherri Luther, effective January 2, 2019 (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed on January 2, 2019).

10.15*

Employment Agreement, by and between Lattice Semiconductor Corporation and Esam Elashmawi, dated September 24, 2018 (Incorporated by reference to Exhibit 10.20 filed with the Company’s Annual Report on Form 10-K filed on February 26, 2019.).

10.16Credit Agreement among Lattice Semiconductor Corporation, as borrower, the Subsidiary Guarantorslenders from time to time party thereto the various Lenders from time to time party thereto, Jefferies Finance LLCand Wells Fargo Bank, National Association, as Administrative Agent, Jefferies Finance LLC and HSBC Securities (USA) Inc. as lead arrangers and book runners, Jefferies Finance LLC as syndication agent and HSBC Securities (USA) Inc. and ING Capital LLC as co-documentation agentsadministrative agent. (Incorporated by reference to Exhibit 10.1 filed with the Company's Current Report on Form 8-K filed March 11, 2015)May 20, 2019).

 

 

 

10.1710.16 Office Lease, effective as of October 21, 2014, between 555 SW Oak, LLC and Lattice Semiconductor Corporation (Incorporated by reference to Exhibit 10.1 filed with the Company’s Current Report on Form 8-K filed October 27, 2014).
   

16.1

Letter from KPMG LLP dated May 8, 2020 (Incorporated by reference to Exhibit 16.1 of the Company’s Current Report on Form 8-K filed on May 8, 2020).

21.1 Subsidiaries of the Registrant.
   
23.1 Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP).
   
23.224.1 ConsentPower of Independent Registered Public Accounting Firm (KPMG LLP)Attorney (reference is made to the signature page hereto).

 

 

*Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Annual Report on Form 10-K pursuant to Item 15(b) thereof.

 

6966


 

Exhibit Number Description

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to the Securities Exchange Act of 1934 Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to the Securities Exchange Act of 1934 Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

97.1

 

Lattice Semiconductor Corporation Compensation Recovery Policy

101.INS

 

Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Labels Linkbase Document

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

   
104 

Cover Page Interactive Data File - formatted in Inline XBRL and included in Exhibit 101

 

 

7067


 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

LATTICE SEMICONDUCTOR CORPORATION

(Registrant)

 

By:

/s/ Sherri Luther

 

Sherri Luther

Chief Financial Officer

(Duly Authorized Officer and Principal Financial and Accounting Officer)

Date:

February 26, 202116, 2024

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James Anderson and Sherri Luther, or either of them, his or her attorneys-in-fact, each with the power of substitution, for such person in any and all capacities, to sign any amendments to this report and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated and on the dates indicated:

 

Signature

Title

Date

Principal Executive

 

 

Officer

/s/ James Anderson

 

February 26, 202116, 2024

James Anderson

President, Chief Executive Officer, and Director

 

   

Principal Financial and

 

 

Accounting Officer

 

 

/s/ Sherri Luther

 

February 26, 202116, 2024

Sherri Luther

Chief Financial Officer

 

Directors

 

 

   

/s/ Robin Abrams

 

February 26, 202116, 2024

Robin Abrams

Director

 

   

/s/ Doug Bettinger

February 16, 2024
Doug BettingerDirector
/s/ Que Thanh DallaraFebruary 16, 2024
Que Thanh DallaraDirector
/s/ John Bourgoin

Forsyth

February 26, 202116, 2024

John BourgoinForsyth

Director

   

/s/ Mark Jensen

 

February 26, 202116, 2024

Mark Jensen

Director

 

   

/s/ Anjali JoshiJames Lederer

 

February 26, 2021

Anjali Joshi

Director

/s/ James Lederer

February 26, 202116, 2024

James Lederer

Director

 

   

/s/ John MajorJeff Richardson

February 26, 202116, 2024

John MajorJeff Richardson

Director

 

   

/s/ Krishna RangasaveeElizabeth Schwarting

 

February 26, 202116, 2024

Krishna RangasayeeElizabeth Schwarting

Director

 

   

/s/ Jeff RichardsonRaejeanne Skillern

 

February 26, 2021

16, 2024

Jeff RichardsonRaejeanne Skillern

Director

 

 

7168