ADTRAN Holdings, Inc. Income Taxes Disclosure

Note 12 – Income Taxes

As further described in Note 1, Summary of Significant Accounting Policies, the Company has elected to prospectively adopt the guidance in ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, or ASU 2023-09. The following table presents the income taxes paid disaggregated by domestic, state and international taxes, with further disaggregation by jurisdiction in accordance with the guidance under ASU 2023-09.

During the years ended, December 31, 2024 and 2023, the Company paid cash for income taxes, net of refunds, of $6.7 million and $18.6 million, respectively.

Loss before income taxes for international entities reflects loss based on statutory transfer pricing agreements. This amount does not correlate to consolidated international revenue, which occurs in our U.S. entity.

As of December 31, 2025 and 2024, non-current deferred taxes reflected deferred taxes on net unrealized gains and losses on available-for-sale investments and deferred taxes on unrealized losses in our pension plan. The net change in non-current deferred taxes associated with these items, which resulted in a deferred tax benefit of $0.3 million and $0.2 million in 2025 and 2024, respectively, was recorded as an adjustment to other comprehensive income (loss), presented in the Consolidated Statements of Comprehensive Income (Loss).

The Company continually reviews the adequacy of our valuation allowance and recognizes the benefits of deferred tax assets only as the reassessment indicates that it is more likely than not that the deferred tax assets will be realized in accordance with ASC 740, Income Taxes. Due to the decrease in revenue and profitability in 2023 and 2024 and all other positive and negative objective evidence considered as part of our analysis, our ability to consider other subjective evidence such as projections for future growth continues to be limited when evaluating whether our deferred tax assets will be realized. As such, the Company maintains its conclusion from 2024 that it is not more likely than not that our domestic deferred tax assets will be realized and a valuation allowance against certain domestic deferred tax assets remains through 2025. Additional valuation allowance was recorded against certain deferred tax assets on our foreign entities as not more likely than not realizable in the fourth quarter of 2024 and remains through 2025. The amount of the deferred tax assets considered realizable, however, could be adjusted in future periods in the event sufficient evidence is present to support a conclusion that it is more likely than not that all or a portion of our deferred tax assets will be realized.

As of December 31, 2025 and 2024, the Company had gross deferred tax assets totaling $113.5 million offset by a valuation allowance totaling $124.5 million and gross deferred tax assets totaling $103.1 million offset by a valuation allowance of $115.7 million, respectively. Of the current valuation allowance, $82.5 million was established against our domestic deferred tax assets and the remaining $42.0 million is related to foreign tax assets where we lacked sufficient future source of taxable income to realize those deferred tax assets. The change in our valuation allowance for the year ending December 31, 2025 was an increase of $8.8 million. The change in the valuation allowance was primarily related to the decrease in deferred tax liabilities remaining from the step up in book basis from purchase accounting and the increase in deferred tax assets associated with net operating losses and interest expense limitation during the year.

As of December 31, 2025 and 2024, the deferred tax assets for foreign and domestic loss carry-forwards, research and development tax credits, unamortized research and development costs and state credit carry-forwards totaled $141.2 million and $142.5 million, respectively. As of December 31, 2025, $30.1 million of these deferred tax assets will expire at various times between 2026 and 2041. The remaining deferred tax assets will either amortize through 2040 or carryforward indefinitely.

As of December 31, 2025 and 2024, respectively, our cash and cash equivalents were $95.7 million and $76.0 million. Of these amounts, our foreign subsidiaries held cash of $87.5 million and $52.6 million, respectively, representing approximately 91% and 78% of available short-term liquidity, which is used to fund ongoing liquidity needs of these subsidiaries. As part of our restructuring plan, the Company’s assertion on being indefinitely reinvested changed in a particular jurisdiction in a previous year. The Company has a hypothetical withholding tax liability of $0.4 million as of December 31, 2025 and 2024. The Company maintains its assertion in all other jurisdictions that it is indefinitely reinvesting its funds held in foreign jurisdictions outside of the U.S., except to the extent any of these funds can be repatriated without withholding tax. However, if all of these funds were repatriated to the U.S., or used for U.S. operations, certain amounts could be subject to tax. Due to the timing and circumstances of repatriation of such earnings, if any, it is not practicable to determine the amount of funds subject to unrecognized deferred tax liability.

During 2025, 2024 and 2023, no income tax benefit or expense was recorded for stock options exercised as an adjustment to equity.

As of December 31, 2025, 2024 and 2023, our total liability for unrecognized tax benefits was $0.3 million, $0.3 million and $1.0 million, respectively, of which $0.3 million, $0.3 million and $1.0 million, respectively, would reduce our effective tax rate if we were successful in upholding all of the uncertain positions and recognized the amounts recorded. We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense. There were no accrued interest and penalties as of December 31, 2025 and 2024, and $0.1 million in accrued interest and penalties as of December 31, 2023.

We do not anticipate a single tax position generating a significant increase or decrease in our liability for unrecognized tax benefits within 12 months of this reporting date. We file income tax returns in the U.S. for federal and various state jurisdictions and several foreign jurisdictions. The Company's 2023 tax return is currently under audit by the Internal Revenue Service. Generally, we are not subject to changes in income taxes by any taxing jurisdiction for the years prior to 2019.