AVIAT NETWORKS, INC.AVNW
AVIAT NETWORKS, INC. Income Taxes Disclosure
Income Taxes
Income before provision for income taxes during fiscal 2025, 2024 and 2023 consisted of the following:
| Fiscal Year | |||||||||||||||||
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| United States | $ | 1,981 | $ | 16,741 | $ | 19,113 | |||||||||||
| Foreign | 1,595 | 165 | 2,201 | ||||||||||||||
| Total income before income taxes | $ | 3,576 | $ | 16,906 | $ | 21,314 | |||||||||||
Provision for (benefit from) income taxes for fiscal 2025, 2024 and 2023 were summarized as follows:
| Fiscal Year | |||||||||||||||||
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
Current: | |||||||||||||||||
| Federal | $ | 150 | $ | 54 | $ | — | |||||||||||
| Foreign | 1,712 | 2,128 | 1,493 | ||||||||||||||
| State and local | 716 | 339 | 637 | ||||||||||||||
| 2,578 | 2,521 | 2,130 | |||||||||||||||
Deferred: | |||||||||||||||||
| Federal | 1,143 | 4,613 | 8,450 | ||||||||||||||
| Foreign | (1,261) | (2,035) | (522) | ||||||||||||||
| State and local | (225) | 1,047 | 1,087 | ||||||||||||||
| (343) | 3,625 | 9,015 | |||||||||||||||
| Total provision for income taxes | $ | 2,235 | $ | 6,146 | $ | 11,145 | |||||||||||
The provision for income taxes differed from the amount computed by applying the federal statutory rate of 21% to the Company’s income before provision for income taxes as follows:
| Fiscal Year | |||||||||||||||||
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Tax provision at statutory rate | $ | 751 | $ | 3,550 | $ | 4,476 | |||||||||||
| Valuation allowances | (1,949) | (2,354) | 302 | ||||||||||||||
| Permanent differences | 66 | (20) | 19 | ||||||||||||||
| Foreign income inclusions | 63 | 654 | 319 | ||||||||||||||
| Effect of flow-through entities | 157 | (29) | 409 | ||||||||||||||
| Transaction costs | — | 1,092 | 746 | ||||||||||||||
| State and local taxes, net of U.S. federal tax benefit | 341 | 877 | 980 | ||||||||||||||
| Foreign income taxed at rates different than the U.S. statutory rate | 805 | 411 | 233 | ||||||||||||||
| Executive compensation limitation | 343 | 729 | 663 | ||||||||||||||
Share-based compensation | 583 | (339) | (728) | ||||||||||||||
| Tax credit - generated and expired | (88) | (125) | (140) | ||||||||||||||
| Foreign withholding taxes | 698 | 698 | 88 | ||||||||||||||
| Change in uncertain tax positions | (77) | 869 | 406 | ||||||||||||||
| Return-to-provision/Deferred true-up adjustments | 599 | 119 | 359 | ||||||||||||||
| Acquisition restructuring and integration | — | — | 3,022 | ||||||||||||||
| Other | (57) | 14 | (9) | ||||||||||||||
| Total provision for income taxes | $ | 2,235 | $ | 6,146 | $ | 11,145 | |||||||||||
The Company’s provision for income taxes was $2.2 million for fiscal 2025, $6.1 million for fiscal 2024 and $11.1 million for fiscal 2023. The Company’s tax expense for fiscal 2025 was primarily due to tax expense related to U.S. and profitable foreign subsidiaries, partially offset by Canada valuation allowance release. The Company’s tax expense for fiscal 2024 was primarily due to tax expense related to U.S. and profitable foreign subsidiaries, partially offset by Canada valuation allowance release. The Company’s tax expense for fiscal 2023 was primarily due to tax expense related to U.S. and profitable foreign subsidiaries, including deferred tax expense associated with the acquisition of Redline (as defined below) in July 2022 and the subsequent restructuring and integration impact. Refer to Note 12. Acquisitions for further information.
The components of deferred tax assets and liabilities were as follows:
| (In thousands) | June 27, 2025 | June 28, 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Inventory | $ | 5,004 | $ | 5,044 | |||||||
| Accruals and reserves | 2,652 | 2,189 | |||||||||
| Bad debts | 533 | 376 | |||||||||
| Amortization | — | 628 | |||||||||
| Share-based compensation | 714 | 719 | |||||||||
| Deferred revenue | 6,223 | 3,358 | |||||||||
| Unrealized exchange gain/loss | 1,700 | 2,662 | |||||||||
| Other | 692 | 784 | |||||||||
| Capitalized research expenses | 5,543 | 4,830 | |||||||||
| Tax credit carryforwards | 4,298 | 4,699 | |||||||||
| Tax loss carryforwards | 95,031 | 93,516 | |||||||||
| Total deferred tax assets before valuation allowance | 122,390 | 118,805 | |||||||||
| Valuation allowance | (32,531) | (34,543) | |||||||||
| Total deferred tax assets | 89,859 | 84,262 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Branch undistributed earnings reserve | 35 | 40 | |||||||||
| Depreciation | 110 | 60 | |||||||||
Amortization | 4,938 | — | |||||||||
| Right of use assets | 352 | 401 | |||||||||
| Other | 1,250 | 1,061 | |||||||||
| Total deferred tax liabilities | 6,685 | 1,562 | |||||||||
| Net deferred tax assets | $ | 83,174 | $ | 82,700 | |||||||
| As reported on the consolidated balance sheets | |||||||||||
| Deferred income tax assets | $ | 88,149 | $ | 83,112 | |||||||
| Deferred income tax liabilities | 4,975 | 412 | |||||||||
Total net deferred income tax assets | $ | 83,174 | $ | 82,700 | |||||||
The Company’s valuation allowance related to deferred income taxes, as reflected on the consolidated balance sheets, was $32.5 million as of June 27, 2025 and $34.5 million as of June 28, 2024. The change in valuation allowance for the fiscal years ended June 27, 2025, and June 28, 2024, was a decrease of $2.0 million and a decrease of $2.6 million, respectively.
The decrease in the valuation allowance in fiscal 2025 was primarily due to the release of certain foreign valuation allowances. Similarly the decrease in the valuation allowance in fiscal 2024 was primarily due to the release of certain foreign valuation allowances. As of June 27, 2025, the Company maintains a valuation allowance of $1.0 million on certain U.S. federal and state deferred tax assets that the Company believes is not more likely than not to be realized in future periods.
Tax loss and credit carryforwards as of June 27, 2025, have expiration dates ranging between one year and no expiration in certain instances. The amounts of U.S. federal tax loss carryforwards as of June 27, 2025, was $256.7 million and begin to expire in fiscal 2028. The amount of U.S. federal and state tax credit carryforwards as of June 27, 2025, was $5.5 million, and certain credits begin to expire in fiscal 2026. The amount of foreign tax loss carryforwards as of June 27, 2025, was $205.0 million and certain losses begin to expire in fiscal 2026. The amount of foreign tax credit carryforwards as of June 27, 2025, was $3.1 million, and certain credits will begin to expire in fiscal 2026.
The Company uses the flow-through method to account for investment tax credits generated on eligible scientific research and development expenditures. Under this method, the investment tax credits are recognized as a benefit to income tax in the year they are generated.
United States income taxes have not been provided on basis differences in foreign subsidiaries of $25.5 million as of June 27, 2025, because of the Company’s intention to reinvest these earnings indefinitely. Additionally, no foreign withholding taxes, federal or state taxes have been provided if these unremitted earnings of the Company’s foreign subsidiaries were distributed, as such amounts are considered permanently reinvested. It is not practicable to estimate the additional income taxes, including applicable foreign withholding taxes, that would be due upon the repatriation of these earnings.
The Company’s unrecognized tax benefit activity for fiscal 2025, 2024 and 2023 was as follows:
| (In thousands) | ||||||||
| Unrecognized tax benefit as of July 1, 2022 | $ | 17,707 | ||||||
| Additions for tax positions in prior periods | 19 | |||||||
| Additions for tax positions in current periods | 770 | |||||||
| Decreases for tax positions in prior periods | — | |||||||
| Decreases related to expiration of the statute of limitations | (457) | |||||||
| Decreases related to change of foreign exchange rate | (1,953) | |||||||
| Unrecognized tax benefit as of June 30, 2023 | 16,086 | |||||||
| Additions for tax positions in prior periods | — | |||||||
| Additions for tax positions in current periods | 971 | |||||||
| Decreases for tax positions in prior periods | — | |||||||
| Decrease related to expiration of the statute of limitations | (102) | |||||||
| Decreases related to change of foreign exchange rate | (880) | |||||||
| Unrecognized tax benefit as of June 28, 2024 | 16,075 | |||||||
| Additions for tax positions in prior periods | 95 | |||||||
| Additions for tax positions in current periods | 723 | |||||||
| Decreases for tax positions in prior periods | — | |||||||
| Decreases related to settlements with tax authorities | (186) | |||||||
| Decrease related to expiration of the statute of limitations | (819) | |||||||
| Increases related to change of foreign exchange rate | 89 | |||||||
| Unrecognized tax benefit as of June 27, 2025 | $ | 15,977 | ||||||
As of June 27, 2025, the Company had unrecognized tax benefits of $16.0 million for various federal, foreign, and state income tax matters, compared to $16.1 million as of June 28, 2024. The Company’s total unrecognized tax benefits that, if recognized, would affect its effective tax rate was $7.5 million as of June 27, 2025. These unrecognized tax benefits are presented on the accompanying consolidated balance sheets net of the tax effects of net operating loss carryforwards.
The Company accounts for interest and penalties related to unrecognized tax benefits as part of its provision for income taxes. The interest accrued was $0.5 million as of June 27, 2025. An immaterial amount of penalties have been accrued as of June 27, 2025.
We file income tax returns in the U.S., Singapore, and various state and foreign jurisdictions. We are currently under examination in Singapore for fiscal years 2015-2021 and in various other foreign jurisdictions. We remain subject to potential audits in the U.S. for fiscal years after 2021, and in Singapore for fiscal years after 2014. Additionally, all net operating losses and tax credits generated to date in these two jurisdictions are subject to adjustment.
On March 11, 2021, the US enacted the American Rescue Plan Act of 2021 (“ARPA”) which expands Section 162(m) to cover the next five most highly compensated employees for the taxable year, in addition to the “covered employees” effective for taxable years beginning after December 31, 2026. The Company will continue to examine the elements of the ARPA and the impact it may have on future business.
On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 (“IRA”) which includes a new corporate alternative minimum tax of 15% on adjusted financial statement income of corporations with profits greater than $1 billion, effective for taxable years beginning after December 31, 2022, and a 1% excise tax on stock repurchases by public corporations after December 31, 2022. The Company will continue to evaluate the applicability and effect of the IRA as more guidance is issued.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Sep 10, 2025 | Showing above |
| 2024 | Oct 4, 2024 | |
| 2023 | Aug 30, 2023 | |
| 2022 | Sep 14, 2022 | |
| 2021 | Aug 25, 2021 | |
| 2020 | Aug 27, 2020 | |
| 2019 | Aug 27, 2019 | |
| 2018 | Aug 28, 2018 | |
| 2017 | Sep 6, 2017 | |
| 2016 | Sep 9, 2016 | |
| 2015 | Oct 1, 2015 | |
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.