UNIVERSAL DISPLAY CORP \PA\ Income Taxes Disclosure

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About Income Taxes Disclosures

Historical Timeline

About Income Taxes Disclosures

Other Available Disclosures

20.

INCOME TAXES:

During the year ended December 31, 2025, the Company adopted ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The standard enhances the annual income tax disclosures to address investor requests for more information about the tax risks and opportunities present in an entity's worldwide operations.

The components of income before income taxes are as follows (in thousands):


	Year ended December 31,
	2025		2024		2023
United States	$	95,422	$	72,823	$	71,514
Foreign		199,374		199,305		173,657
Income before income taxes	$	294,796	$	272,128	$	245,171

The components of income tax expense are as follows (in thousands):


	Year ended December 31,
	2025			2024			2023
Current income tax expense:
U.S. Federal	$	19,230		$	34,199		$	15,848
U.S. State		1,965			3,452			3,048
Foreign		32,562			31,515			27,030
		53,757			69,166			45,926
Deferred income tax benefit:
U.S. Federal		(388	)		(16,799	)		460
U.S. State		179			(2,995	)		(3,936	)
Foreign		(827	)		677			(290	)
		(1,036	)		(19,117	)		(3,766	)
Total income tax expense:
U.S. Federal		18,842			17,400			16,308
U.S. State		2,144			457			(888	)
Foreign		31,735			32,192			26,740
Total income tax expense	$	52,721		$	50,049		$	42,160

A reconciliation of the U.S. federal statutory income tax rate to the Company's effective tax rate is as follows (in thousands, except percentages):


	Year-ended December 31,
	2025						2024						2023
	Amount			Percent			Amount			Percent			Amount			Percent
U.S. tax effects:
Federal statutory income tax rate	$	61,907			21.0	%	$	57,147			21.0	%	$	51,486			21.0	%
Domestic federal
R&D credits		(4,295	)		-1.5	%		(7,842	)		-2.8	%		(6,239	)		-2.5	%
Nontaxable and nondeductible items:
Executive compensation disallowed under §162(m)		4,348			1.5	%		4,193			1.5	%		4,072			1.7	%
Other		887			0.3	%		331			0.1	%		147			0.1	%
Federal effect of cross-border tax
Global intangible low-taxed income		1,894			0.6	%		5,429			2.0	%		3,861			1.6	%
Subpart F income		462			0.2	%		2,835			1.0	%		(746	)		-0.3	%
Other		(89	)		0.0	%		(406	)		-0.1	%		(245	)		-0.1	%
Federal reconciling items
Interest income		(3,644	)		-1.2	%		—			—			—			—
Other		215			0.1	%		(1,241	)		-0.5	%		410			0.2	%
Changes in federal valuation allowances		(720	)		-0.2	%		(67	)		-0.1	%		(157	)		-0.1	%
Domestic state and local income taxes, net of federal effect		1,786			0.6	%		322			0.1	%		(702	)		-0.3	%
Foreign tax effects:
Ireland
Statutory income tax rate differential		(16,964	)		-5.8	%		(16,580	)		-6.0	%		(13,525	)		-5.5	%
Foreign tax credits		(3,604	)		-1.2	%		(2,964	)		-1.1	%		(2,104	)		-0.9	%
Other		(431	)		-0.2	%		167			0.1	%		(105	)		0.0	%
China
Withholding tax on license fees and royalties		10,587			3.6	%		9,225			3.4	%		6,185			2.5	%
Other		(27	)		0.0	%		(24	)		0.0	%		(33	)		0.0	%
Other foreign jurisdictions		409			0.1	%		(476	)		-0.2	%		(145	)		-0.1	%
Total	$	52,721			17.9	%	$	50,049			18.4	%	$	42,160			17.2	%

As of December 31, 2025 and 2024 the Company had $57.0 million and $40.7 million, respectively, of taxes receivable included in other current assets on the Consolidated Balance Sheets. In January 2026, the Company received $39.0 million of the taxes receivable from the United States Treasury.

The following table summarizes the Company's cash paid for income taxes, net of refunds received by jurisdiction (in thousands):


	December 31,
	2025		2024		2023
United States:
Federal	$	33,507	$	45,527	$	57,263
State		2,629		2,545		2,523
Total United States		36,136		48,072		59,786
Foreign:
Ireland		24,127		13,174		28,110
China		10,783		9,236		6,161
Other foreign jurisdictions		392		1,491		2,119
Total foreign		35,302		23,901		36,390
Total cash taxes paid	$	71,438	$	71,973	$	96,176

The following table summarizes the Company's tax credit carry forwards for tax return purposes as of December 31, 2025 (in thousands):

Significant components of the Company's net deferred tax assets and liabilities are as follows (in thousands):


	December 31,
	2025			2024
Deferred tax asset:
Capitalized research expenditures	$	54,931		$	55,277
Retirement plan		14,185			13,633
Tax credit carry forwards		9,628			9,542
Accruals and reserves		7,100			6,988
Lease liabilities		5,874			6,073
Stock-based compensation		1,701			1,475
Deferred revenue		588			655
Other		3,706			2,783
		97,713			96,426
Valuation allowance		(9,159	)		(10,167	)
Deferred tax assets		88,554			86,259
Deferred tax liability:
Lease assets		(4,891	)		(5,297	)
Acquisition goodwill		(2,088	)		(1,854	)
Other		(2,121	)		(788	)
Deferred tax liabilities		(9,100	)		(7,939	)
Net deferred tax assets	$	79,454		$	78,320

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the Company's ability to generate future taxable income to obtain benefit from the reversal of temporary differences, net operating loss carryforwards and tax credits. As part of its assessment, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. During the year ended December 31, 2025, based on our previous earnings history, a current evaluation of expected future taxable income and other evidence, we determined to retain the valuation allowance that relates to New Jersey research and development credits. As of December 31, 2025, there is not sufficient evidence to release the valuation allowance that has been recorded for New Jersey research and development credits. Additionally, the Company recognized a gain on available-for-sale securities during the year that, if sold, would offset the capital loss, and, as a result, the valuation allowance on the capital loss was reversed. There are no indicators against the realizability of the remaining net deferred tax asset.

On December 27, 2018, the Korean Supreme Court, citing prior cases, held that only royalties paid with respect to Korean registered patents are considered Korean source income and subject to Korean withholding tax under the applicable law and interpretation of the Korea-U.S. Tax Treaty. The Company has incurred Korean withholding tax of $14.9 million for each of the years ended December 31, 2018, through December 31, 2022. Based on the Korean Supreme Court decision, a tax refund request on behalf of the Company was filed with the Korean National Tax Service (KNTS) for the period from January 1, 2018, to December 31, 2022. The Company received a formal rejection from the KNTS; and in May 2022 filed an appeal with the Korean Tax Tribunal. On December 18, 2023, the Company received a formal rejection from the Tax Tribunal. Anticipating the rejection of the appeal, in September 2023 the Company filed a petition to the District Court.

On September 18, 2025, the Korean Supreme Court issued a decision, changing its long-standing position on the taxation of royalties for patents not registered in Korea. The court held that royalties paid for licensing of a patent constitute Korean source income if the patented technology is actually used in the territory of the Republic of Korea. Based on discussions with a prominent Korean law firm, the Company has been advised that there is still a more likely-than-not chance of success, as the manufacturing and sales process occurs within and without the Republic of Korea. During the latest court appearance in November 2025, the judge requested additional information from the Korean Tax Authority regarding what amount of royalties would be considered Korean use. The next court date is scheduled for March 2026.

As a result, the Company has recorded a long-term receivable of $53.8 million and $52.9 million as of December 31, 2025 and 2024, respectively, for the receipt of the Korean withholding tax. The Company also recorded foreign exchange gain of $935,000, foreign exchange loss of $7.2 million and foreign exchange loss of $732,000 for the years ended December 31, 2025, 2024 and 2023, respectively, due to the fluctuation of the Korean Won to the U.S. Dollar and resulting remeasurement of this Won-denominated receivable. The Company will amend U.S. federal tax returns for the 2018 to 2022 years when the anticipated refund from KNTS is received to offset the additional tax liability. The Company has recorded a long-term payable of $15.7 million as of December 31, 2025 and 2024, for the estimated amounts due to the U.S. federal government based on the amendment of the Company's U.S. tax returns, indicating that lower withholding amounts were required.

The Company is not subject to examinations by the federal tax authority for the years prior to 2022. The Company is presently undergoing a federal tax audit for the 2023 tax year and a state of California tax audit for the 2021 and 2022 tax years. Both audits are currently in the information-gathering phase.

The above estimates may change in the future and upon settlement.

Fiscal Year	Filed
2025	Feb 19, 2026	Showing above
2024	Feb 20, 2025

2023	Feb 22, 2024

2022	Feb 23, 2023

2021	Feb 23, 2022

2020	Feb 18, 2021

2019	Feb 20, 2020

2018	Feb 21, 2019

2017	Feb 22, 2018

2016	Feb 23, 2017

2015	Feb 25, 2016

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.

Tax Benefit

Expiration Date

Tax credit carry forwards:

U.S. State research tax credits

Total credit carry forwards