COHU INC Income Taxes Disclosure

10.	Income Taxes

 

Total income tax expense (benefit) was allocated as follows:

 

(in thousands)		2025				2024				2023
Income from operations		$	11,866			$	4,872			$	17,660
Other comprehensive income			64				396				(984	)
Total		$	11,930			$	5,268			$	16,676

 

Significant components of income tax expense (benefit) are as follows:

 

(in thousands)		2025				2024				2023
Current:
U.S. Federal		$	(1,725	)		$	717			$	694
U.S. State			47				36				86
Foreign			15,346				7,841				21,654
Total current			13,668				8,594				22,434
Deferred:
U.S. Federal			(150	)			(13	)			61
Foreign			(1,652	)			(3,709	)			(4,835	)
Total deferred			(1,802	)			(3,722	)			(4,774	)
		$	11,866			$	4,872			$	17,660

 

Income (loss) before income taxes consisted of the following:

 

(in thousands)		2025				2024				2023
U.S.		$	(95,310	)		$	(85,450	)		$	(37,799	)
Foreign			32,903				20,504				83,615
Total		$	(62,407	)		$	(64,946	)		$	45,816

 

Income tax payments, net of refunds, in fiscal 2025 were as follows:

 

(in thousands)		2025
U.S. State		$	48
Non-U.S.
China			169
Germany			(8,436	)
Japan			1,093
Malaysia			2,474
Philippines			681
Singapore			763
Switzerland			275
Other			104
Total Non-U.S.			(2,877	)
Total net income tax payments		$	(2,829	)

 

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Deferred tax effects

 

Except for working capital requirements in certain foreign jurisdictions, we provide for substantially all taxes, including withholding and other residual taxes, related to unremitted earnings of our foreign subsidiaries.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and tax purposes.

 

Significant components of our deferred tax assets and liabilities were as follows:

 

(in thousands)		2025				2024
Deferred tax assets:
Inventory, receivable and warranty reserves		$	10,802			$	11,034
Net operating loss carryforwards			63,339				39,572
Tax credit carryforwards			34,738				35,788
Capitalized R&D			27,117				35,348
Accrued employee benefits			2,783				3,742
Stock-based compensation			4,855				4,511
Lease liabilities			6,831				2,544
Uniform capitalization			243				2,553
Other			13,701				3,064
Gross deferred tax assets			164,409				138,156
Less valuation allowance			(143,482	)			(114,517	)
Total deferred tax assets			20,927				23,639
Deferred tax liabilities:
Intangible assets and other acquisition basis differences			18,330				25,848
Operating lease right-of-use assets			5,534				2,226
Unremitted earnings of foreign subsidiaries			6,583				4,898
Other			3,837				4,986
Total deferred tax liabilities			34,284				37,958
Net deferred tax liabilities		$	(13,357	)		$	(14,319	)

 

The components of total net deferred tax assets (liabilities), net of valuation allowances, as shown in our consolidated balance sheets are as follows:

 

(in thousands)		2025				2024
Other assets (long-term)		$	2,112			$	5,083
Long-term deferred income tax liabilities			(15,469	)			(19,402	)
Net deferred tax liabilities		$	(13,357	)		$	(14,319	)

 

Companies are required to assess whether a valuation allowance should be recorded against their deferred tax assets (“DTAs”) based on the consideration of all available evidence, using a “more likely than not” realization standard. The four sources of taxable income that must be considered in determining whether DTAs will be realized are, (1) future reversals of existing taxable temporary differences (i.e. offset of gross deferred tax assets against gross deferred tax liabilities); (2) taxable income in prior carryback years, if carryback is permitted under the tax law; (3) tax planning strategies and (4) future taxable income exclusive of reversing temporary differences and carryforwards.

 

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In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be objectively verified. We have evaluated our DTAs each reporting period, including an assessment of taxable income in prior carryback years, future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, and prudent and feasible tax planning strategies that we would be willing to undertake to prevent a deferred tax asset from otherwise expiring.

 

The assessment regarding whether a valuation allowance is required or whether a change in judgement regarding the valuation allowance has occurred also considers all available positive and negative evidence, including but not limited to:

 

•

Nature, frequency, and severity of cumulative losses in recent years

•

Duration of statutory carryforward and carryback periods

•

Statutory limitations against utilization of tax attribute carryforwards against taxable income

•

Historical experience with tax attributes expiring unused

•

Near- and medium-term financial outlook

 

The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. Accordingly, it is generally difficult to conclude a valuation allowance is not required when there is significant objective and verifiable negative evidence, such as cumulative losses in recent years. We use the actual results for the last two years and current year results as the primary measure of cumulative losses in recent years.

 

The evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events recognized in the financial statements or tax returns and future profitability. The recognition of deferred tax assets represents our best estimate of those future events. Changes in the current estimates, due to unanticipated events or otherwise, could have a material effect on our results of operations and financial condition.

 

In certain tax jurisdictions, our analysis indicates that it has cumulative losses in recent years. This is considered significant negative evidence, which is objective and veritable and, therefore, difficult to overcome. However, the cumulative loss position is not solely determinative and, accordingly, we consider all other positive and negative evidence available in this analysis. Based on the evidence available, including a lack of sustainable earnings and history of expiring unused net operating losses and tax credits, we continue to maintain the judgement that a previously recorded valuation allowance against substantially all net deferred tax assets in the U.S. is required. In addition, due to the cumulative loss position in Switzerland and the worldwide consolidated cumulative loss, we recorded valuation allowances against the net deferred tax assets in Switzerland and Malaysia during fiscal 2025. If a change in judgement regarding these valuation allowances were to occur in the future, we will record a potentially material deferred tax benefit, which could result in a favorable impact on the effective tax rate in that period.

 

Our valuation allowance on our DTAs at December 27, 2025, and December 28, 2024, was approximately $143.5 million and $114.5 million, respectively. The remaining gross DTAs for which a valuation allowance was not recorded are realizable primarily through future reversals of existing taxable temporary differences and to a lesser extent future taxable income in certain jurisdictions exclusive of reversing temporary differences and carryforwards.

 

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The reconciliation of income tax computed at the U.S. federal statutory tax rate to the provision for income taxes, applying ASU 2023-09 prospectively, is as follows:

 

						2025
(in thousands)		Amount				Percent
Tax provision at U.S. Federal statutory rate		$	(13,105	)			21.0	%
State and local income taxes, net of federal income tax effect (1)			902				(1.4	)%
Effects of cross-border tax laws
Tax on Global Intangible Low-Taxed Income (GILTI)			2,543				(4.1	)%
Tax on Subpart F Income			1,031				(1.7	)%
Tax credits
Reversal of previously recognized unborn foreign tax credits			4,853				(7.8	)%
Research and development credits			(2,002	)			3.2	%
Change in valuation allowance			12,918				(20.7	)%
Nontaxable or nondeductible items
Equity based employee compensation			1,886				(3.0	)%
Other			(232	)			0.4	%
Changes in unrecognized tax benefits			(3,164	)			5.1	%
Foreign tax effects
Germany
Foreign rate differential			646				(1.0	)%
Local income taxes			1,460				(2.3	)%
Other			(269	)			0.4	%
Philippines
Local country tax holiday			(756	)			1.2	%
Other			313				(0.5	)%
Switzerland
Withholding taxes			1,326				(2.1	)%
Other			683				(1.1	)%
Malaysia
Changes in valuation allowance			3,490				(5.6	)%
Other			34				(0.1	)%
Other jurisdictions			(255	)			0.4	%
Other
FX of net investment hedge			(745	)			1.2	%
Other			309				(0.5	)%
Income tax expense		$	11,866				(19.0	)%
(1) State and local taxes in CA and TX comprise the majority of this category.

 

The reconciliation of income tax computed at the U.S. federal statutory tax rate to the provision for income taxes, applying ASC 740 prior to the adoption of ASU 2023-09, is as follows:

 

(in thousands)		2024				2023
Tax provision at U.S. 21% statutory rate		$	(13,638	)		$	9,470
State income taxes, net of federal tax benefit			(2,126	)			(633	)
Accruals, adjustments and releases from statute expirations			(2,372	)			579
Federal R&D credits			(1,103	)			(1,360	)
Stock-based compensation			502				(1,504	)
Excess executive compensation			715				1,375
Change in valuation allowance			14,844				10,654
GILTI, net of foreign tax credits			2,613				1,735
Foreign rate differential			146				2,093
Withholding and other foreign taxes, net of foreign tax credit			1,206				254
Other, net			4,085				(5,003	)
		$	4,872			$	17,660

 

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An accounting policy may be selected to either (i) treat taxes due on future U.S. inclusions in taxable income related to global intangible low-taxed income (“GILTI”) as a current-period expense when incurred or (ii) factor such amounts into a company’s measurement of its deferred taxes. We have elected to account for GILTI as a period cost.

 

At December 27, 2025, we had federal, state and foreign net operating loss carryforwards of approximately $244.8 million, $132.3 million and $17.4 million, respectively, that expire in various tax years beginning in 2026 through 2044 or have no expiration date. We also have federal and state tax credit carryforwards at December 27, 2025, of approximately $6.1 million and $28.9 million, respectively, certain of which expire in various tax years beginning in 2026 through 2044 or have no expiration date. The federal and state loss and credit carryforwards are subject to annual limitations under Sections 382 and 383 of the Internal Revenue Code and applicable state tax laws. We analyzed and determined that there were no ownership changes during the three-year period ending December 27, 2025. We will continue to assess the realizability of these carryforwards in subsequent periods. Future changes in the ownership of Cohu could further limit the utilization of these carryforwards.

 

We have certain tax holidays with respect to our operations in Malaysia and the Philippines. These holidays require compliance with certain conditions and expire at various dates through 2038. The impact of these holidays was an increase in net income of approximately $0.8 million or $0.02 per share in 2025, $1.0 million or $0.02 per share in 2024, and $3.8 million or $0.08 per share in fiscal 2023.

 

A reconciliation of our gross unrecognized tax benefits, excluding accrued interest and penalties, is as follows:

 

(in thousands)		2025				2024				2023
Balance at beginning of year		$	33,765			$	35,900			$	33,368
Additions for tax positions of current year			947				858				899
Additions/(Reductions) for tax positions of prior years			(1,096	)			(788	)			1,802
Reductions due to lapse of the statute of limitations			(1,492	)			(2,089	)			(295	)
Reductions due to settlements			(1,833	)			-				-
Foreign exchange rate impact			129				(116	)			126
Balance at end of year		$	30,420			$	33,765			$	35,900

 

If the unrecognized tax benefits at December 27, 2025 are ultimately recognized, excluding the impact of U.S. tax benefits netted against deferred taxes that are subject to a valuation allowance, approximately $3.5 million ($5.2 million at December 28, 2024, and $7.5 million at December 30, 2023) would result in a reduction in our income tax expense and effective tax rate.

 

We recognize interest and penalties related to unrecognized tax benefits in income tax expense. Cohu had approximately $0.5 million and $0.5 million accrued for the payment of interest and penalties at December 27, 2025 and December 28, 2024, respectively. Interest expense, net of accrued interest reversed, was $(0.3) million in 2025, $(0.2) million in 2024, and $(0.1) million in 2023.

 

Our U.S. federal income tax returns for years after fiscal 2022 remain open to examination, subject to the statute of limitations. Our U.S. state income tax returns for years after fiscal 2020 remain open to examination, subject to the statute of limitations. Net operating loss and credit carryforwards arising prior to these years are also open to examination if and when utilized. The statute of limitations for the assessment and collection of income taxes related to our foreign tax returns varies by country. In the foreign countries where we have significant operations these time periods generally range from four to ten years after the year for which the tax return is due or the tax is assessed.

 

We conduct business globally and as a result, Cohu or one or more of its subsidiaries files income tax returns in the U.S. and various state and foreign jurisdictions. In the normal course of business, we are subject to examinations by taxing authorities throughout the world and are currently under examination in Germany, Maylasia, the Philippines and the state of California. We believe our financial statement accruals for income taxes are appropriate.

 

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Tax positions have been reflected in the consolidated financial statements in accordance ASC Topic 740, Income Taxes (“ASC 740”), Income Taxes. Such tax positions are, based solely on their technical merits, more likely than not to be sustained upon examination by taxing authorities and reflect the largest amount of benefit, determined on a cumulative probability basis, that is more likely than not to be realized upon settlement with the applicable taxing authority with full knowledge of all relevant information. We have both intent and ability to initiate a claim pursuant to the competent authority (e.g., Mutual Agreement Procedure) for reasonable and prudent situations such as, for example, when the resulting tax benefit exceeds the costs involved to obtain such tax benefit, and the success of prevailing upon pursuing the competent authority is more-likely-than-not achievable.