FORMFACTOR INCFORM
FORMFACTOR INC Income Taxes Disclosure
Income Taxes
Components of Income Before Income Taxes
The components of income before income taxes were as follows (in thousands):
| Fiscal Year Ended | |||||||||||||||||
| December 27, 2025 | December 28, 2024 | December 30, 2023 | |||||||||||||||
| United States | $ | 48,817 | $ | 66,953 | $ | (10,681) | |||||||||||
| Foreign | 20,574 | 12,459 | 99,948 | ||||||||||||||
| $ | 69,391 | $ | 79,412 | $ | 89,267 | ||||||||||||
Provision for Income Taxes
The components of the provision for income taxes are as follows (in thousands):
| Fiscal Year Ended | |||||||||||||||||
| December 27, 2025 | December 28, 2024 | December 30, 2023 | |||||||||||||||
| Current provision: | |||||||||||||||||
| Federal | $ | 4,585 | $ | 15,688 | $ | 8,970 | |||||||||||
| State | 647 | 1,703 | 835 | ||||||||||||||
| Foreign | 5,845 | 5,762 | 9,175 | ||||||||||||||
| 11,077 | 23,153 | 18,980 | |||||||||||||||
| Deferred provision (benefit): | |||||||||||||||||
| Federal | 2,699 | (11,446) | (10,810) | ||||||||||||||
| State | (657) | (1,806) | (330) | ||||||||||||||
| Foreign | (115) | (103) | (960) | ||||||||||||||
| 1,927 | (13,355) | (12,100) | |||||||||||||||
Total provision for income taxes: | |||||||||||||||||
| Federal | 7,284 | 4,242 | (1,840) | ||||||||||||||
| State | (10) | (103) | 505 | ||||||||||||||
| Foreign | 5,730 | 5,659 | 8,215 | ||||||||||||||
| $ | 13,004 | $ | 9,798 | $ | 6,880 | ||||||||||||
Tax Rate Reconciliation
The following is a reconciliation of the difference between income taxes computed by applying the federal statutory rate of 21% and the provision from income taxes for fiscal 2025, 2024, and 2023 (dollars in thousands):
| Fiscal Year Ended | |||||||||||||||||||||||||||||||||||
| December 27, 2025 | December 28, 2024 | December 30, 2023 | |||||||||||||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
| U.S. statutory federal tax | $ | 14,572 | 21.0 | % | $ | 16,676 | 21.0 | % | $ | 18,746 | 21.0 | % | |||||||||||||||||||||||
State taxes and credits, net of federal benefit (1) | (1,457) | (2.1) | (1,309) | (1.6) | (891) | (1.0) | |||||||||||||||||||||||||||||
Foreign tax effects: | |||||||||||||||||||||||||||||||||||
| Germany: | |||||||||||||||||||||||||||||||||||
| Foreign taxes at rates different than the U.S. | 1,657 | 2.4 | 1,099 | 1.4 | 8,615 | 9.7 | |||||||||||||||||||||||||||||
| Foreign gain exclusion | — | — | — | — | (21,568) | (24.2) | |||||||||||||||||||||||||||||
| Other | (274) | (0.4) | 800 | 1.0 | 24 | — | |||||||||||||||||||||||||||||
| China: | |||||||||||||||||||||||||||||||||||
| Reversal of book gain/loss on China Sale | — | — | 1,072 | 1.4 | — | — | |||||||||||||||||||||||||||||
| Foreign Tax on China Sale | — | — | 2,395 | 3.0 | — | — | |||||||||||||||||||||||||||||
| Other | — | — | (129) | (0.2) | 21 | — | |||||||||||||||||||||||||||||
| Other foreign jurisdictions | 405 | 0.6 | 281 | 0.4 | 657 | 0.8 | |||||||||||||||||||||||||||||
| Effects of cross-border tax laws: | |||||||||||||||||||||||||||||||||||
| Global intangible low-taxed income | — | — | 660 | 0.8 | 4,783 | 5.4 | |||||||||||||||||||||||||||||
| Foreign-derived intangible income | (1,515) | (2.2) | (3,774) | (4.8) | (2,986) | (3.3) | |||||||||||||||||||||||||||||
| Other | (18) | — | (26) | — | (19) | — | |||||||||||||||||||||||||||||
Tax credits: | |||||||||||||||||||||||||||||||||||
| Research tax credits | (5,858) | (8.3) | (4,857) | (6.1) | (7,406) | (8.3) | |||||||||||||||||||||||||||||
| Other credits | (240) | (0.3) | (241) | (0.3) | (306) | (0.3) | |||||||||||||||||||||||||||||
| Changes in valuation allowance | (160) | (0.2) | (196) | (0.2) | 181 | 0.2 | |||||||||||||||||||||||||||||
| Nontaxable or nondeductible items: | |||||||||||||||||||||||||||||||||||
| Equity compensation | 850 | 1.2 | (2,833) | (3.6) | 1,424 | 1.6 | |||||||||||||||||||||||||||||
| Officer's compensation | 964 | 1.4 | 2,258 | 2.8 | 296 | 0.3 | |||||||||||||||||||||||||||||
| Reversal of book gain/loss on China sale | — | — | (4,790) | (6.0) | — | — | |||||||||||||||||||||||||||||
| Other | 421 | 0.6 | 212 | 0.3 | 432 | 0.5 | |||||||||||||||||||||||||||||
Changes in unrecognized tax benefits | 3,745 | 5.4 | 2,669 | 3.4 | 5,107 | 5.7 | |||||||||||||||||||||||||||||
| Other adjustments | (88) | (0.4) | (169) | (0.4) | (230) | (0.4) | |||||||||||||||||||||||||||||
| Total | $ | 13,004 | 18.7 | % | $ | 9,798 | 12.3 | % | $ | 6,880 | 7.7 | % | |||||||||||||||||||||||
(1) State taxes in Oregon made up the majority (greater than 50%) of the tax effect in this category for 2023-2025.
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to be reversed.
Significant deferred tax assets and liabilities consisted of the following (in thousands):
| As of | |||||||||||
| December 27, 2025 | December 28, 2024 | ||||||||||
| Tax credits | $ | 33,886 | $ | 31,196 | |||||||
| Inventory reserve | 12,126 | 12,818 | |||||||||
| Other reserves and accruals | 11,168 | 10,600 | |||||||||
| Non-statutory stock options | 1,905 | 2,213 | |||||||||
| Lease liability | 3,481 | 4,857 | |||||||||
| Research and development expenditures capitalization | 63,372 | 65,520 | |||||||||
| Net operating loss carryforwards | 17,125 | 17,295 | |||||||||
| Gross deferred tax assets | 143,063 | 144,499 | |||||||||
| Valuation allowance | (50,418) | (47,938) | |||||||||
| Total deferred tax assets | 92,645 | 96,561 | |||||||||
| Right-of-use assets | (2,803) | (4,104) | |||||||||
| Acquired intangibles and fixed assets | (1,918) | (445) | |||||||||
| Total deferred tax liabilities | (4,721) | (4,549) | |||||||||
| Net deferred tax assets | $ | 87,924 | $ | 92,012 | |||||||
We are required to evaluate the realizability of our deferred tax assets in both our U.S. and non-U.S. jurisdictions on an ongoing basis to determine whether there is a need for a valuation allowance with respect to such deferred tax assets. As of December 27, 2025, we maintained a valuation allowance of $50.4 million, primarily related to California deferred tax assets and foreign tax credit carryovers, due to uncertainty about the future realization of these assets. We believe that future reversals of taxable temporary differences, and our forecast of continued earnings in both our U.S. and non-U.S. jurisdictions, support our decision to not record a valuation allowance on other deferred tax assets.
Tax Credits and Carryforwards
Tax credits and carryforwards available to us at December 27, 2025 consisted of the following (in thousands):
| Amount | Expiration Date(s) | |||||||||||||
| Federal research and development tax credit | $ | 12,042 | 2043-2045 | |||||||||||
| Foreign tax credit carryforwards | 592 | 2026-2027 | ||||||||||||
| California research credits | 66,627 | Indefinite | ||||||||||||
| State net operating loss carryforwards | 239,068 | 2026-Indefinite | ||||||||||||
| Singapore net operating loss carryforwards | 2,900 | Indefinite | ||||||||||||
Undistributed Earnings
As of December 27, 2025, unremitted earnings of foreign subsidiaries was estimated at $37.7 million. We intend to permanently invest $15.0 million of undistributed earnings indefinitely outside of the U.S. To the extent we repatriate the remaining $22.7 million of undistributed foreign earnings to the U.S., we have not established a deferred tax liability for foreign withholding taxes. Foreign earnings that can be remitted back to the U.S. are from jurisdictions with current tax treaties, which exempt us from withholding taxes. Our estimates are provisional and subject to further analysis.
Unrecognized Tax Benefits
We recognize the benefits of tax return positions if we determine that the positions are “more-likely-than-not” to be sustained by the taxing authority. Interest and penalties accrued on unrecognized tax benefits are recorded as tax expense in the period incurred.
The following table reflects changes in the unrecognized tax benefits (in thousands):
| Fiscal Year Ended | |||||||||||||||||
| December 27, 2025 | December 28, 2024 | December 30, 2023 | |||||||||||||||
| Unrecognized tax benefit, beginning balance | $ | 48,364 | $ | 45,574 | $ | 40,098 | |||||||||||
| Additions based on tax positions related to the current year | 3,504 | 3,813 | 4,726 | ||||||||||||||
| Additions based on tax positions from prior years | 163 | — | 858 | ||||||||||||||
| Reductions for tax positions of prior years | (7) | (990) | — | ||||||||||||||
| Reductions due to lapse of the applicable statute of limitations | (36) | (33) | (108) | ||||||||||||||
| Unrecognized tax benefit, ending balance | $ | 51,988 | $ | 48,364 | $ | 45,574 | |||||||||||
Interest and penalties recognized as a component of provision (benefit) for income taxes | $ | 728 | $ | 205 | $ | 34 | |||||||||||
| Interest and penalties accrued at period end | 997 | 269 | 63 | ||||||||||||||
Of the unrecognized tax benefits at December 27, 2025, $27.2 million would impact the effective tax rate if recognized.
The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities which might result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is judgmental in nature. However, we believe we have adequately provided for any reasonably foreseeable outcome related to those matters. Our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire.
At December 27, 2025, our tax years 2022 through 2025, 2021 through 2025 and 2020 through 2025, remain open for examination in the federal, state and foreign jurisdictions, respectively. However, to the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses and credits were generated and carried forward, and make adjustments up to the net operating loss and credit carryforward amounts.
Cash Taxes Paid
Income taxes paid, net of refunds received, by jurisdiction are as follows (in thousands):
| Fiscal Year Ended | |||||||||||||||||
| December 27, 2025 | December 28, 2024 | December 30, 2023 | |||||||||||||||
US federal | $ | 1,859 | $ | 2,246 | $ | 4,184 | |||||||||||
| Domestic state and local | |||||||||||||||||
| Oregon | * | 1,229 | * | ||||||||||||||
| Other | 605 | 339 | 304 | ||||||||||||||
| Foreign | |||||||||||||||||
| Germany - Federal | 3,093 | 4,332 | 7,152 | ||||||||||||||
Germany - Thiendorf | 2,149 | 3,911 | 3,087 | ||||||||||||||
Germany - Bergisch Gladbach | * | * | 1,765 | ||||||||||||||
| China | * | 2,120 | * | ||||||||||||||
| Other | 1,226 | 1,407 | 893 | ||||||||||||||
| Total | $ | 8,932 | $ | 15,584 | $ | 17,385 | |||||||||||
* The amount of income taxes paid during the year does not meet the five percent disaggregation threshold.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 20, 2026 | Showing above |
| 2024 | Feb 21, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 18, 2022 | |
| 2020 | Feb 22, 2021 | |
| 2019 | Feb 21, 2020 | |
| 2018 | Feb 26, 2019 | |
| 2017 | Feb 27, 2018 | |
| 2016 | Mar 15, 2017 | |
| 2015 | Mar 4, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.