LATTICE SEMICONDUCTOR CORP

Note1 - Basis of Presentation and Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). They include the accounts of Lattice and its subsidiaries after the elimination of all intercompany balances and transactions.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments affecting the amounts reported in our consolidated financial statements and the accompanying notes. We base our estimates and judgments on historical experience, knowledge of current conditions, and our beliefs of what could occur in the future considering available information. While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when made, and because of the uncertainty inherent in these matters, the actual results that we experience* may*differ materially from these estimates under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis.

Certain prior year balances have been reclassified to conform to the current year’s presentation.

Fiscal Reporting Periods

We report based on a52 or53-week fiscal year ending on the Saturday closest to* December 31.Our fiscal2023,* 2022, and2021 were all52-week years that ended on* December 30, 2023,** December 31, 2022,and January 1, 2022,*respectively. All references to quarterly or annual financial results are references to the results for the relevant fiscal period.

Concentrations of Risk

Potential exposure to concentrations of risk* may*impact revenue, accounts receivable, and supply of wafers for our new products.

Distributors have historically accounted for a significant portion of our total revenue. Certain of our largest distributors each account for more than10% 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:

Three of these distributors each accounted for more than10% of net accounts receivable at certain dates presented. At* December 30, 2023and December 31, 2022*, Arrow accounted for approximately 29% and 27%, respectively, Weikeng accounted for approximately 36% and 47%, respectively, and Future accounted for approximately 18% and 9%, respectively, of net accounts receivable.

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

We rely on a limited number of foundries for our wafer purchases. We seek to mitigate the concentration of supply risk by establishing, maintaining, and managing multiple foundry relationships; however, certain of our products are sourced from a single foundry and changing fromone foundry to another can have a significant cost, or create delays in production or shipments, among other factors.

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Cash and Cash Equivalents

We consider all investments that are readily convertible into cash and that have original maturities ofthree months or less to be cash equivalents. Cash equivalents consist primarily of highly liquid investments in time deposits or money market accounts and are carried at cost, which approximates fair value. Deposits with financial institutions at times exceed Federal Deposit Insurance Corporation insurance limits.

Foreign Exchange and Translation of Foreign Currencies

While our revenues and the majority of our expenses are denominated in U.S. dollars, we also have international subsidiaries and branch operations that conduct some transactions in currencies that differ from the functional currency of that entity. Gains or losses from foreign exchange rate fluctuations on balances denominated in currencies that differ from the functional currencies are reflected in Other income (expense), net.

We translate accounts denominated in foreign currencies in accordance with ASC830, “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 ASC606, "Revenue from Contracts with Customers", we recognize revenue when we satisfy performance obligations as evidenced by the transfer of control of our products or services to customers. For sales to distributors, we have concluded that our contracts are with the distributor, rather than with the distributor’s end customer, as we hold a contract bearing enforceable rights and obligations only with the distributor. Our revenue is derived primarily from sales of silicon-based products, with additional revenue from sales of silicon-enabling products. We consider customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer. For each contract, we consider our promise to transfer each distinct product to be the identified performance obligations. Revenue for product sales is recognized at the time of product shipment, as determined by the agreed upon contract shipping terms.

Our Licensing and services revenue is comprised of revenue from our IP core licensing activity, patent monetization activities, design services, and royalty and adopter fee revenue from our standards activities. These activities are complementary to our product sales and help us to monetize our IP associated with our technology and standards. We consider licensing arrangements with our customers and agreements with the standards consortia of which we are a member to be the contract. For each contract, we consider the promise to deliver a license that grants the customer the right to use the IP, as well as any professional services provided under the contract, as distinct performance obligations. We recognize license revenue at the point in time that control of the license transfers to the customer, which is generally upon delivery, or as usage occurs.

We measure revenue based on the amount of consideration we expect to be entitled to in exchange for products or services. Variable consideration is estimated and reflected as an adjustment to the transaction price. We determine variable consideration, which consists primarily of various sales price concessions, by estimating the most likely amount of consideration we expect to receive from the customer based on an analysis of historical rebate claims over a period of time considered adequate to account for current pricing and business trends. Sales rebates earned by customers are offset against their receivable balances. Rebates earned by customers when they donot have outstanding receivable balances are recorded within Accrued liabilities. Revenue related to licensing and services, which includes HDMI and MHL standards revenue, as well as certain IP licenses, includes variable consideration in the form of usage-based royalties.

We generally provide an assurance warranty that our products will substantially conform to the published specifications fortwelve months from the date of shipment. In some cases, the warranty period* maybe longer thantwelve* months. We donot 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 ASC340, we generally expense sales commissions when incurred because the amortization period would be less thanone year. We record these costs within Selling, general, and administrative expenses. Substantially all of our performance obligations are satisfied withintwelve months.

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Inventories and Cost of Revenue

Inventories are stated at the lower of actual cost (determined using thefirst-in,first-out method) or net realizable value. We review and set standard costs quarterly to approximate current actual manufacturing costs. Our manufacturing overhead standards for product costs are calculated assuming full absorption of actual spending over actual costs. The valuation of inventory requires us to estimate excess or obsolete inventory. Material assumptions we use to estimate necessary inventory carrying value adjustments can be unique to each product and are based on specific facts and circumstances. In determining provisions for excess or obsolete products, we consider assumptions such as changes in business and economic conditions, projected customer demand for our products, and changes in technology or customer requirements. The creation of such provisions results in a write-down of inventory to net realizable value and a charge to Cost of revenue. Lower of cost or net realizable value is based on assumptions such as recent historical sales activity and selling prices, as well as estimates of future sales activity and selling prices. Shipping and handling costs are included in Cost of revenue in our Consolidated Statements of Operations.

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets, generally three tofive years for equipment and software, andone tothree 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 athree-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) actualthird-party valuations; and/or (iii) information available regarding the current market for similar asset groups. If the fair value of the asset group is determined to be less than the carrying amount of the asset group, an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs and is included in our Consolidated Statements of Operations. Estimating future cash flows requires significant judgment and projections* may*vary from the cash flows eventually realized, which could impact our ability to accurately assess whether an asset has been impaired.

Valuation of Goodwill

Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that arenot individually identified and separately recognized. Goodwill isnot amortized, but is instead tested for impairment annually during thefourth 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 thannot that the reporting unit's fair value is less than the carrying amount. If the qualitative assessment determines that it is more likely thannot 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.

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Leases

We account for leases under the terms of ASC842, "Leases," which requires lessees to record assets and liabilities on the balance sheet for all leases with terms longer than12 months. Under this guidance, we apply the practical expedient tonot separate lease and non-lease components for all asset classes.

Right-of-use ("ROU") assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized on the commencement date of the lease based on the present value of lease payments over the lease term. As most of our leases donot 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 arenot significant to the determination of the ROU asset and lease liability.

Research and Development

Research and development expenses include costs for compensation and benefits, engineering wafers, depreciation and amortization, licenses and masks, and outside engineering services. These expenditures are for the design of new products, intellectual property cores, processes, packaging, and software solutions. Research and development costs are generally expensed as incurred, with certain licensed technology agreements capitalized as intangible assets and amortized to Research and development expense over their estimated useful lives.

Restructuring

Expenses associated with exit or disposal activities are recognized when incurred under ASC420, “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 ASC712, “Compensation - Nonretirement Postemployment Benefits.” When leased facilities are vacated, the amount of any ROU asset impairment is calculated in accordance with ASC360, "Property, Plant, and Equipment" and recorded as a part of Restructuring. Expenses from other exit or disposal activities, including the cancellation of software contracts and engineering tools or the abandonment of long-lived assets, are recorded as a part of Restructuring.

Accounting for Income Taxes

We are required to estimate our provision for income taxes and amounts ultimately payable or recoverable in numerous tax jurisdictions around the world. These estimates involve significant judgment and interpretations of regulations and are inherently complex. Resolution of income tax treatments in individual jurisdictions* may**not* be known for many years after completion of the applicable year. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse. Valuation allowances are provided to reduce deferred tax assets to an amount that in management’s judgment is more-likely-than-not to be recoverable against future taxable income. The determination of a valuation allowance and when it should be released requires complex judgment.

In assessing the ability to realize deferred tax assets, we evaluate both positive and negative evidence that* may*exist and consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Any adjustment to the net deferred tax asset valuation allowance is recorded in the Consolidated Statements of Operations for the period that the adjustment is determined to be required.

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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 willnot be recognized if it has less than a50% likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases as well as any interest or penalties are recorded as income tax expense or benefit in the Consolidated Statements of Operations. We recognize the tax impact of including certain foreign earnings in U.S. taxable income as a period cost.

Stock-Based Compensation

We estimate the fair value of share-based awards consistent with the provisions of ASC718, “Compensation - Stock Compensation.” We value RSUs using the closing market price on the date of grant, and we value stock options using the Black-Scholes option pricing model. We have also granted RSUs with a market condition or a performance condition to certain executives. The terms of these grants, including achievement criteria and vesting schedules, are detailed under the heading "Market-Based and Performance-Based Awards — Grants" in "Note10 - Stock-Based Compensation Plans." Our current practice is to issue new shares to satisfy option exercises. For RSUs, we issue new shares when awards vest andwithhold a portion of these shares on behalf of employees to satisfy the minimum statutory tax withholding requirements.

Segment Information

As of* December 30, 2023,*we hadone operating segment: the core Lattice business, which includes silicon-based and silicon-enabling products, evaluation boards, development hardware, and related intellectual property licensing, services, and sales. Our chief operating decision maker is the Chief Executive Officer, who reviews operating results and financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.

Note2 - Net Income Per Share

Our calculation of the diluted share count includes the number of shares from our equity awards with market conditions or performance conditions that would be issuable under the terms of such awards at the end of the reporting period. For equity awards with a market condition, the number of shares included in the diluted share count as of the end of each period presented is determined by measuring the achievement of the market condition as of the end of the respective reporting periods. For equity awards with a performance condition, the number of shares that qualified for vesting as of the end of each period presented are included in the diluted share count when the condition for their issuance was satisfied by the end of the respective reporting periods. See "Note10 - Stock-Based Compensation Plans" for further discussion of our equity awards with market or performance conditions.

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

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

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Note3 - Revenue from Contracts with Customers

Disaggregation of Revenue

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

Contract Balances

Our contract assets relate to our rights to consideration for licenses and royalties due to us as a member of the HDMI Founders consortium. The balance results primarily from the amount of estimated revenue related to HDMI that we have recognized to date, but which hasnot yet been distributed to us by the HDMI licensing agent. Contract assets are recorded in Prepaid expenses and other current assets in our Consolidated Balance Sheets.

The following table summarizes activity during the periods presented:

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

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Note4 - Balance Sheet Components

Accounts Receivable

Accounts receivable donot 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.

We hadno material bad debt expense in fiscal2023, 2022, or2021.

Inventories

Accrued Liabilities

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

Note5 - Property and Equipment

For fiscal years2023,2022, and2021 depreciation and amortization expense for property and equipment was $17.3 million, $13.8 million, and $12.0 million, respectively.

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Property and Equipment – Geographic Information

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

Note6 - Intangible Assets and Goodwill

In connection with our previous acquisitions, we have recorded identifiable intangible assets related to existing technology, customer relationships, trade names, and trademarks, based on guidance for determining fair value under the provisions of ASC820, "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 forthird-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 fiscal2023,2022, or2021.

The following tables summarize the details of our Intangible assets, net as of* December 30, 2023and December 31, 2022*:

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

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

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, 2023is comprised of approximately $315.4 million from prior acquisitions. No impairment charges relating to goodwill were recorded for fiscal2023*,2022, or2021.

Note7 - Long-Term Debt

On* September 1, 2022,we entered into an Amended and Restated Credit Agreement (the“2022* Credit Agreement”), which provides for afive-year secured revolving loan facility with an aggregate principal amount of up to $350 million, along with other components and options currentlynot in use.

We drew down an initial $150 million revolving loan at closing, which we used along with $1.9 million of cash to (i) repay the $150.5 million term loan, revolving loan, and accrued interest obligations outstanding under our previous credit agreement (the*“2019* Credit Agreement”), and (ii) pay fees and expenses totaling $1.4 million incurred in connection with the2022 Credit Agreement. We intend to use the revolving loan facility for working capital and general corporate purposes.

At our option, the revolving loans accrue interest at a per annum rate based on ranges determined by our consolidated total leverage ratio of either (i) the base rate (as defined in the2022 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 of1, 3 or6 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 eachthree-month interval in the case of loans with interest periods greater thanthree months) in the case of loans bearing interest at the adjusted Term SOFR. In addition, we pay a quarterly commitment fee of 0.20% on the unused portion of the revolving facility.

With the amendment of our2019 Credit Agreement pursuant to the2022 Credit Agreement, we capitalized $0.9 million of the new debt costs, and expensed $0.7 million of debt costs and existing original issue discount ("OID") as a loss on refinancing in Other income (expense), net on our Consolidated Statements of Operations for fiscal2022. We determine the Current portion of long-term debt, if any, as the sum of the required debt payments to be made over the nexttwelve months, reduced by the OID and the debt issuance costs to be amortized over the nexttwelve months.

The revolving loans under the2022 Credit Agreement* maybe 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 fiscal2023,* we made discretionary payments totaling $130 million on the revolving loans outstanding under the2022 Credit Agreement.

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

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

Note8 - Restructuring

Inthethird quarter of2023, our management approved and executed an internal restructuring plan (the*“Q3* 2023 Plan”), which included a targeted workforce reduction intended to reorganize critical roles and focus skillsets in key growth markets. We incurred restructuring costs of approximately $2.0 million in fiscal2023. Under this plan, approximately $2.0 million of total costs have been incurred through* December 30, 2023.TheQ3* 2023 plan is expected to be largely complete by the end of fiscal year2024.

In* September 2022,our management approved and implemented additional contract cancellations and workforce reductions under theQ2* 2019 Sales Plan, an internal restructuring plan that our management approved and executed in* April 2019.TheQ2* 2019 Sales Plan focused on a restructuring of the global sales organization through cancellation of certain contracts and a workforce reduction. Under theQ2 2019 Sales Plan, we incurredno restructuring costs in fiscal2023, approximately $1.0 million of incremental restructuring costs in fiscal2022, andno restructuring costs in fiscal2021. Under this plan, approximately $3.1 million of total expense has been incurred through* December 30, 2023.All actions planned under theQ2* 2019 Sales Plan have been implemented.

In* June 2017,our Board of Directors approved an internal restructuring plan (the "June 2017Plan"), which included actions, among others, to reconfi gure our use of certain leased properties. Under the June 2017Plan, we incurred restructuring costs of approximately $0.1 million in fiscal2023,* approximately $1.6 million in fiscal2022 (which includes approximately $1.1 million of incremental restructuring costs in fiscal2022 related to an impairment of the operating lease right-of-use asset for our partially vacated facility in San Jose, California), andapproximately $0.7 million in fiscal2021. 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:

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Note9 - 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 through2029. 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 fiscal2023*,2022, and2021.

The following table presents the lease balance classifications within the Consolidated Balance Sheets and summarizes their activity during fiscal2023:

Lease obligations for facilities restructured prior to the adoption of Topic842 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:

Note10 - Stock-Based Compensation Plans

Employee and Director Stock Options, Restricted Stock, and ESPP Plans

As of* December 30, 2023,we havetwo* active equity incentive plans, the*"2023* Equity Incentive Plan" (which was adopted in2023 and superseded the*"2013* Incentive Plan"such thatno additional shares will be granted under the2013 Incentive Plan) and the*"2011* Non-Employee Director Equity Incentive Plan", under which shares remain available for grants to employees and non-employee directors, respectively. "Incentive stock options" under Section422 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 afour-year period beginning on the grant date. The contractual terms of options granted donot exceedten years.

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We also maintain the2012 Employee Stock Purchase Plan ("2012 ESPP"), pursuant to which eligible employees* maycontribute through payroll deductions up to 10% of base compensation, subject to certain income limits, to purchase shares of our common stock. The purchase price of the shares is the lower of 85% of the fair market value of the stock at the beginning of eachsix*-month offering period or 85% of the fair market value at the end of such period. We have treated the2012 ESPP as a compensatory plan. At* December 30, 2023*, a total of 0.9 million shares of our common stock were available for future purchases under the2012 ESPP.

At* December 30, 2023*, a total of 11.7 million shares of our common stock were available for future grants under the2023 Equity Incentive Plan and the2011 Non-Employee Director Equity Incentive Plan. Neither the2023 Equity Incentive Plan nor the 2011 Non-Employee Director Equity Incentive Plan have any fungible share ratio or counting provision. Shares subject to stock option grants that expire or are canceled, without delivery of such shares, generally become available for re-issuance under equity incentive plans.

Stock-Based Compensation Expense

Total stock-based compensation expense included in our Consolidated Statements of Operations is presented in the following table:

The income tax benefit related to total stock-based compensation expense was $7.6 million for fiscal2023, which is reflected in Income tax (benefit) expense in the Consolidated Statements of Operations. The income tax benefit related to awards vested or exercised during fiscal2023 was $10.4 million. The income tax benefits related to stock-based compensation werenot significant for the periods presented prior to fiscal2023 as they were offset by an increase in valuation allowance.

ESPP and Stock Options

The fair values of the shares expected to be issued under the employee stock purchase plan and of each option award on the date of grant were estimated using the Black-Scholes valuation model and the assumptions noted in the following table.No new stock options were granted during fiscal2023, 2022, or2021. The expected volatility of both ESPP shares and stock options is based on the daily historical volatility of our stock price, measured over the ESPP purchase period or the expected term of the option. The risk-free interest rate is based on the implied yield on a U.S. Treasuryzero-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 hasno valuation impact, as we havenot paid any cash dividends since inception and donot intend to pay any cash dividends in the foreseeable future.

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

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 years2023,2022, and2021, respectively.

At* December 30, 2023,there wasno unrecognized compensation cost related to unvested employee and director stock options. Compensation expense for all stock-based compensation awards is recognized using the straight-line method. We recorded stock-based compensation expense related to the ESPPof approximately$2.2 million, $1.5 million, and $1.2 million in fiscal2023*,2022, and2021, respectively. Related to stock options, we recordedno expense in fiscal2023 and 2022, andapproximately$1.0 million infiscal2021.

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

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 fiscal2023,2022, and2021 was $37.3 million, $24.3 million, and $44.7 million, respectively.

Time-Based Restricted Stock Unit Awards

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

At* December 30, 2023,there was$121.3 million of unrecognized compensation expense related to unvested time-based RSUs. Compensation expense for RSUs is recognized using the straight-line method over the related vesting period. In fiscal2023*,2022, and2021, we recorded stock-based compensation expense related to time-based RSUsof approximately $41.5 million,$30.1 million, and $21.7 million, respectively.

Market-Based and Performance-Based Awards

In2021 through2023, 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 thefirst andthird quarters of fiscal2023, and in thefirst quarters of fiscal2022 and2021, we granted awards of RSUs with a market condition to certain executives. Under the terms of these grants, the RSUs with a market condition vest over athree-year period based on the Company's total shareholder return ("TSR") relative to a specified index. For the2023 grants, the TSR condition is measured relative to the Russell3000 index oneither thethird anniversary of the grant date, or equally on the first, second, andthird anniversary of the grant date, depending on the executive. For the2022 and2021 grants, the TSR condition is measured relative to the Russell2000 index on thethird anniversary of the grant date. The awards* may*vest at 250% or 200%, depending on the executive, if the 75th percentile of the market conditionis achieved, with 100% of the units vesting at the 55th percentile, zero vesting if relative TSR is below the 25th percentile, and vesting scaling for achievement between the 25th and 75th percentile.

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In thefirst quarter of fiscal2021, we also granted awards of RSUs with a performance condition to certain executives, to specifically drive additional executive attention and focus on the Company’s revenue growth priorities. Under the terms of these grants, the RSUs with a performance condition will vest based on the Company generating specified levels of year-over-year revenue growth, which will be measured annually forone-fourth of the grants after each fiscal year-end through the end of fiscal2024. Vesting of these awards scales for achievement of year-over-year revenue growth compared to certain targets, with maximum vesting up to 200%. Vesting of each tranche of these awards occurs13 months after the performance conditions is met, and the entire award cannot be fully earned untilfive years from grant. For thesecond andthird tranches of these awards, the Company had met the year-over-year revenue growth performance criteria at the 200% and 116.3% level of achievement, respectively, as of* December 31, 2022and December 30, 2023.*

Market-Based and Performance-Based Awards — Vesting

During fiscal2023, 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 during2023, thefirst tranche of awards granted in fiscal2021 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 the13*-month vesting period had been met.

During fiscal2022, the market condition for awards granted to certain executives in previous years exceeded the75th percentile of their TSR condition, and applicable tranches of these awards vested at 250% or 200% for the respective executives. Also during fiscal2022, thefifth andsixth tranches of 40% and 70%, respectively, of the base number of the awards with an EBITDA performance condition vested, as the Company had met the adjusted EBITDA performance criteria on a trailingfour-quarter basis fortwo consecutive trailingfour-quarter periods as of the end of the respective measurement periods.

During fiscal2021, the market condition for awards granted to certain executives in previous years exceeded the75th percentile of their TSR condition, and applicable tranches of these awards vested at 250% or 200% for the respective executives. Also during fiscal2021, thesecond andthird tranches, each33.3% 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 trailingfour-quarter basis fortwo consecutive trailingfour-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 trailingfour*-quarter basis fortwo consecutive trailingfour-quarter periods, and thefourth tranche of the awards with an EBITDA performance condition qualified for vesting at40% of the base number.

Market-Based and Performance-Based Awards — Compensation Expense

For our awards with a market condition or a performance condition, we incurred stock-based compensation expense of approximately $26.4 million, $24.0 million, and $22.1 million in fiscal years2023,2022, and2021, respectively, which is recorded as a component of total stock-based compensation. At* December 30, 2023,*there was$27.3 million of unrecognized compensation expense related to unvested RSUs with a market condition or a performance condition. Awards with a TSR market condition were valued using a Monte Carlo simulation model.

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

The following table summarizes the activity for our awards with a market condition or performance condition:

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Note11 - Common Stock Repurchase Program

On* August 8, 2022,we announced that our Board of Directors had approved a stock repurchase program pursuant to which up to $150 million of outstanding common stock could be repurchased from time to time (the"2023* Repurchase Program"). The duration of the2023 Repurchase Program was through* December 30, 2023.During thefourth* quarter of fiscal2023, we repurchased 872,994 shares for $50.2 million, or an average price paid per share of $57.49, under the2023 Repurchase Program. All repurchases were open market transactions funded from available working capital. All shares repurchased pursuant to the2023 Repurchase Program were retired by the end of thefourth quarter of fiscal2023. 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 year2023.

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 the2024 Repurchase Program is through* December 28, 2024.No shares were repurchased under the2024* Repurchase Program during thefourth quarter of fiscal2023.

Note12 - Income Taxes

We are subject to federal and state income tax as well as income tax in the various foreign jurisdictions in which we operate.

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

The components of Income tax (benefit) expense are as follows:

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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:

We updated our evaluation of the valuation allowance position in the United States through* December 30, 2023.In making this evaluation, we considered our operating environment and estimates about our ability to generate taxable income in future periods within the United States. As a result of our consistent and continued profitability over the precedingthree*-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 thannot to be realized. In thefourth quarter of fiscal2023, we reduced the valuation allowance against a significant portion of our U.S. deferred tax assets resulting in the inclusion of $56.9 million of U.S. Federal deferred tax assets on our Consolidated Balance Sheets.

We continue to maintain a full valuation allowance against our state deferred tax assets due to insufficient income sources. We will continue to evaluate both positive and negative evidence in future periods to determine if we will realize the deferred tax assets. We donot maintain a valuation allowance in any foreign jurisdictions as we have concluded it is more likely thannot that we will realize those net deferred tax assets in future periods.

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

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

At* December 30, 2023,we had U.S. federal net operating loss ("NOL") carryforwards (pretax) of approximately $8.0 million which will expire between2027* and2028. We had state NOL carryforwards (pretax) of approximately $134.5 million that substantially all expire at various dates from2024 through2041. We also had federal credit carryforwards of $45.0 million that expire at various dates from2033 through2043, and $78.9 million state credit carryforwards, of which substantially all donot expire.

Future utilization of federal and state net operating losses and tax credit carry forwards* maybe limited if cumulative changes to ownership exceed50%* within anythree-year period. However, if there is a significant change in ownership, future tax attribute utilization* may*be limited and NOL carryforwards and/or R&D credits will be reduced to reflect the limitation.

Foreign earnings* maybe subject to withholding taxes in local jurisdictions if they are distributed. At December 30, 2023,*U.S. income taxes and foreign withholding taxes werenot provided for on a cumulative total of approximately $3.0 million of the undistributed earnings of our foreign subsidiaries. We intend to reinvest these earnings indefinitely.

At* December 30, 2023and December 31, 2022,our unrecognized tax benefits associated with uncertain tax positions were $61.4 million and $58.9 million, respectively, of which $58.7 million and $56.3 million, respectively, if recognized, would affect the effective tax rate, subject to valuation allowance. As of December 30, 2023and December 31, 2022,interest and penalties associated with unrecognized tax benefits were $11.3 million and $10.6 million, respectively, which arenot* reflected in the table below. We accrue interest and penalties related to uncertain tax positions in Income tax expense.

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

Our liability for uncertain tax positions (including penalties and interest) was $21.9 million and $21.6 million at* December 30,2023* and* December 31, 2022*, respectively, and is recorded as a component of Other long-term liabilities on our Consolidated Balance Sheets.

At* December 30, 2023,it is reasonably possible that $0.3 million of unrecognized tax benefits and $0.1 million of associated interest and penalties could be recognized during the nexttwelve* months.

The years that remain subject to examination are2017 for federal income taxes,2019 for state income taxes, and2017 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.

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Note13 - Employee Benefit Plans

Qualified Investment Plan

In1990, we adopted a401(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* maycontribute up to the amount allowable as a deduction for federal income tax purposes. The plan doesnot* allow investments in the Company's common stock. The plan allows for the Company to make discretionary matching contributions in cash. We recorded matching contributions of approximately $3.1 million, $2.8 million, and $2.6 million in fiscal years2023,2022, and2021, respectively.

Cash Incentive Plans

For2023,2022, and2021, 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 Companynot 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 thefirst quarter of the respective fiscal year. We recorded approximately $15.0 million, $25.2 million, and $18.0 million of expense under the Cash Plans in fiscal2023,2022, and2021, respectively.

Note14 - Contingencies

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 around2008.* The Plaintiffs alleged that we violated the Lanham Act, engaged in negligence, fraud, and breach of contract by failing to disclose to the Plaintiffs the export-controlled status of the subject parts. In* January 2019,we removed the action to the United States District Court for the District of Oregon (the “Court”). On May 24, 2023,the Plaintiffs filed asecond* amended complaint, which added Apex-Micro Manufacturing Corporation as a plaintiff and removed the violation of the Lanham Act claim. The Plaintiffs sought damages of $180 million, punitive damages, and other remedies. On* January 18, 2024,the court dismissed the claims against the Company by Perienne De Jaray and Darrell R. Oswald. The trial for the remainder of the claims was held from January 30, 2024to 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 Rule50* 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 Rule50 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 wasnot* liable for all outstanding claims and the presiding judge stated he would enter the judgment in favor of the Company.

From time to time, we are exposed to certain additional asserted and unasserted potential claims. We review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and a range of possible losses can be estimated, we then accrue a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and* may*revise estimates.