Significant components of the provision (benefit) for income taxes for continuing operations are as follows

 

(in thousands)		2017				2016				2015
Current:
U.S. Federal		$	12			$	11			$	5
U.S. State			18				8				28
Foreign			6,005				3,793				1,956
Total current			6,035				3,812				1,989
Deferred:
U.S. Federal			(3,451	)			91				89
U.S. State			(481	)			47				49
Foreign			141				(1,203	)			84
Total deferred			(3,791	)			(1,065	)			222
		$	2,244			$	2,747			$	2,211

 

Income (loss) before income taxes from continuing operations consisted of the following

 

(in thousands)		2017				2016				2015
U.S.		$	1,430			$	(13,420	)		$	(5,214	)
Foreign			33,935				19,427				13,217
Total		$	35,365			$	6,007			$	8,003

 

The Tax Act was enacted on and introduces significant changes to U.S. income tax law. Effective in the Tax Act reduces the U.S. statutory tax rate from to and creates new taxes on certain foreign-sourced earnings and related-party payments, which are referred to as the global intangible low-taxed income tax and the base erosion and anti-abuse tax, respectively. In addition, in we were subject to a -time transition tax on accumulated foreign subsidiary earnings previously subject to U.S. income tax. The Tax Act also repealed the alternative minimum tax (AMT) effective and made changes to net operating loss provisions, expensing of certain assets and capitalization of research and development expense with such changes effective for and later years.

 

Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we have made reasonable estimates of the effects and recorded provisional amounts in our financial statements as of As we collect and prepare necessary data, and interpret the Tax Act and any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we make adjustments to the provisional amounts. Those adjustments materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made. The accounting for the tax effects of the Tax Act will be completed in in accordance with SAB

 

Provisional amounts for the following income tax effects of the Tax Act have been recorded as of and are subject to change during

 

 

The Tax Act requires us to pay U.S. income taxes on accumulated foreign subsidiary earnings previously subject to U.S. income tax at a rate of to the extent of foreign cash and certain other net current assets and on the remaining earnings. Foreign tax credits and net operating losses be used to reduce this tax which is referred to as a transition or deemed repatriation tax. We recorded a provisional amount for our -time transition tax liability of million and used foreign tax credits and net operating losses to fully offset this liability. We have recorded provisional amounts based on estimates of the effects of the Tax Act as the analysis requires significant data from our foreign subsidiaries that is regularly collected or analyzed.

 

 

The Tax Act reduces the U.S. statutory tax rate from to for years after Accordingly, we have remeasured our deferred taxes as of to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. We recognized a deferred tax benefit of million, net of a reduction in the related valuation allowance, to reflect the reduced U.S. tax rate and other effects of the Tax Act including the change in the life of NOL carryforwards from years to indefinite. Although the tax rate reduction is known, we have collected the necessary data to complete our analysis of the effect of the Tax Act on the underlying deferred taxes and as such, the amounts recorded as of are provisional.

 

Beginning in the Tax Act provides a deduction for dividends received from -percent owned foreign corporations by U.S. corporate shareholders, subject to a -year holding period. Although dividend income is now exempt from U.S. federal tax i

 

As we complete our analysis of the Tax Act and incorporate additional guidance that be issued by the U.S. Treasury Department, the IRS or other standard-setting bodies, we identify additional effects reflected as of

 

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)		2017				2016
Deferred tax assets:
Inventory, receivable and warranty reserves		$	3,417			$	5,868
Net operating loss carryforwards			7,467				11,681
Tax credit carryforwards			14,724				13,715
Accrued employee benefits			4,796				5,002
Deferred profit and gain on facility sale			3,617				5,412
Stock-based compensation			1,897				4,189
Acquisition basis differences			1,606				1,334
Other			208				103
Gross deferred tax assets			37,732				47,304
Less valuation allowance			(31,491	)			(44,731	)
Total deferred tax assets			6,241				2,573
Deferred tax liabilities:
Depreciation and fixed asset related			120				53
Acquisition basis differences			5,518				7,423
Unremitted earnings of foreign subsidiaries			2,002				-
Other			437				662
Total deferred tax liabilities			8,077				8,138
Net deferred tax liabilities		$	(1,836	)		$	(5,565	)

 

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 realization standard. The sources of taxable income that must be considered in determining whether DTAs will be realized are, () future reversals of existing taxable temporary differences (i.e. offset of gross deferred tax assets against gross deferred tax liabilities); () taxable income in prior carryback years, if carryback is permitted under the tax law; () tax planning strategies and () future taxable income exclusive of reversing temporary differences and carryforwards.

 

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 our cumulative income or loss over the prior -year period and future periods, to determine if a valuation allowance was required. A significant negative factor in our assessment was Cohu's -year cumulative U.S. loss history at the end of various fiscal periods including

 

As a result of our cumulative, -year U.S. GAAP pretax loss from continuing operations at the end of we were unable to conclude at that it was “more likely than that our U.S. DTAs would be realized. We will evaluate the realizability of our DTAs at the end of each quarterly reporting period in and should circumstances change it is possible the remaining valuation allowance, or a portion thereof, will be reversed in a future period.

 

Our valuation allowance on our DTAs at and was approximately

 

As the realization of DTAs is determined by tax jurisdiction, the deferred tax liabilities recorded as part of the acquisition of Rasco, a German corporation, the fiscal acquisition of Ismeca, a Swiss Corporation, and the fiscal acquisition of Kita Japan, a Japanese company were a source of taxable income in assessing the realization of our DTAs in the U.S.

 

The reconciliation of income tax computed at the U.S. federal statutory tax rate to the provision for income taxes for continuing operations is as follows:

 

(in thousands)		2017				2016				2015
Tax provision at U.S. 35% statutory rate		$	12,378			$	2,102			$	2,801
Impact of Tax Act, before reduction in valuation allowance			12,397				-				-
State income taxes, net of federal tax benefit			56				168				(152	)
Settlements, adjustments and releases from statute expirations			(1,731	)			(312	)			(104	)
Federal tax credits			(371	)			(183	)			(221	)
Stock-based compensation			(2,801	)			168				156
Change in valuation allowance			(13,484	)			2,430				2,181
Non-deductible transaction related costs			577				463				-
Foreign income taxed at different rates			(4,866	)			(2,378	)			(2,601	)
Other, net			89				289				151
		$	2,244			$	2,747			$	2,211

 

Our effective tax rate for each of the years presented was impacted by earnings realized in foreign jurisdictions with statutory tax rates lower than the U.S. federal statutory tax rate. Included in foreign income taxed at different rates is million of foreign withholding tax that we accrued in the event we repatriate funds from certain of our foreign subsidiaries. Beginning in earnings realized in foreign jurisdictions will be subject to U.S. tax in accordance with the Tax Act. State income taxes, net of federal benefit, have been reduced by research tax credits totaling approximately

 

At we had federal and state net operating loss carryforwards of approximately

 

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 The impact of these holidays was an increase in net income of approximately million or per share in

 

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

 

(in thousands)		2017				2016				2015
Balance at beginning of year		$	10,075			$	10,444			$	10,841
Gross additions for tax positions of current year			200				125				215
Gross additions for tax positions of prior years			958				58				248
Reductions due to lapse of the statute of limitations			(1,148	)			(446	)			(243	)
Foreign exchange rate impact			236				(106	)			(617	)
Balance at end of year		$	10,321			$	10,075			$	10,444

 

The gross additions for tax positions of prior years is primarily related to the Kita acquisition.

 

If the unrecognized tax benefits at are ultimately recognized, approximately

 

We recognize interest and penalties related to unrecognized tax benefits in income tax expense. Cohu had approximately

 

Our U.S. federal and state income tax returns for years after and respectively, 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 to years after the year for which the tax return is due or the tax is assessed.