Lumentum Holdings Inc.LITE
Lumentum Holdings Inc. Income Taxes Disclosure
Note 13. Income Taxes
Our loss before income taxes consisted of the following (in millions):
| Years Ended | |||||||||||||||||
| June 28, 2025 | June 29, 2024 | July 1, 2023 | |||||||||||||||
| Domestic | $ | (174.4) | $ | (219.6) | $ | (44.3) | |||||||||||
| Foreign | 2.3 | (186.1) | (58.1) | ||||||||||||||
| Loss before income taxes | $ | (172.1) | $ | (405.7) | $ | (102.4) | |||||||||||
Our income tax (benefit) provision consisted of the following (in millions):
| Years Ended | |||||||||||||||||
| June 28, 2025 | June 29, 2024 | July 1, 2023 | |||||||||||||||
| Federal: | |||||||||||||||||
| Current | $ | (8.4) | $ | (10.6) | $ | 12.9 | |||||||||||
| Deferred | — | 124.0 | (22.5) | ||||||||||||||
| (8.4) | 113.4 | (9.6) | |||||||||||||||
| State: | |||||||||||||||||
| Current | 1.8 | 1.3 | 0.9 | ||||||||||||||
| Deferred | — | (8.0) | (0.5) | ||||||||||||||
| 1.8 | (6.7) | 0.4 | |||||||||||||||
| Foreign: | |||||||||||||||||
| Current | 55.5 | 52.1 | 55.3 | ||||||||||||||
| Deferred | (246.9) | (18.0) | (16.9) | ||||||||||||||
| (191.4) | 34.1 | 38.4 | |||||||||||||||
| Total income tax (benefit) provision | $ | (198.0) | $ | 140.8 | $ | 29.2 | |||||||||||
The provision for income taxes differs from the amount computed by applying the U.S. Federal statutory income tax rate to our income before provision for income taxes as follows (in millions):
| Years Ended | |||||||||||||||||
| June 28, 2025 | June 29, 2024 | July 1, 2023 | |||||||||||||||
| Income tax provision computed at federal statutory rate | $ | (36.1) | $ | (85.2) | $ | (21.5) | |||||||||||
| Foreign rate differential | (49.9) | 58.9 | 33.6 | ||||||||||||||
| Change in valuation allowance | (161.5) | 150.1 | (4.8) | ||||||||||||||
| Tax credits | (2.2) | (1.8) | (46.5) | ||||||||||||||
| Stock-based compensation | 22.3 | 17.8 | 19.1 | ||||||||||||||
| Permanent items | 0.3 | (3.2) | 2.9 | ||||||||||||||
| Transaction costs | — | 1.3 | 2.4 | ||||||||||||||
| Subpart F and GILTI | 22.4 | 0.2 | 44.2 | ||||||||||||||
| Unrecognized tax benefits | 8.5 | 11.7 | 8.6 | ||||||||||||||
| Change in Tax Rates | 0.5 | (9.9) | — | ||||||||||||||
BEAT | — | — | (8.0) | ||||||||||||||
| Audit settlement | (4.4) | — | — | ||||||||||||||
| State taxes | 1.9 | — | — | ||||||||||||||
| Other | 0.2 | 0.9 | (0.8) | ||||||||||||||
| Total income tax (benefit) provision | $ | (198.0) | $ | 140.8 | $ | 29.2 | |||||||||||
| Effective tax rate | 115.04 | % | (34.71) | % | (28.52) | % | |||||||||||
Our provision for income taxes for fiscal year 2025 differs from the 21% U.S. statutory rate primarily due to the income tax benefit associated with the release of a valuation allowance on our UK deferred tax assets, earnings of our foreign subsidiaries being taxed at rates that differ from the U.S. statutory rate, partially offset by the income tax expense from U.S. income inclusions from Subpart F and GILTI, non-deductible stock-based compensation and changes in unrecognized tax benefits.
Our provision for income taxes for fiscal year 2024 differs from the 21% U.S. statutory rate primarily due to the income tax expense associated with the recognition of a valuation allowance on our U.S. federal and state deferred tax assets, earnings of our foreign subsidiaries being taxed at rates that differ from the U.S. statutory rate and non-deductible stock-based compensation. Additionally, our provision for income taxes includes changes in unrecognized tax benefits, partially offset by the income tax benefit from a change in the applicable statutory income tax rate in certain jurisdictions.
Our provision for income taxes for fiscal year 2023 differs from the 21% U.S. statutory rate primarily due to the income tax expense from foreign income inclusions in the U.S., earnings of our foreign subsidiaries being taxed at rates that differ from the U.S. statutory rate and non-deductible stock-based compensation. Additionally, our provision for income taxes includes income tax benefits from various tax credits and change in valuation allowance as it is more-likely-than-not that certain deferred tax assets will be realizable in the future. During fiscal year 2023, we also effectuated certain tax planning actions which reduced the amount of BEAT for fiscal year 2022.
The components of our net deferred taxes consisted of the following (in millions):
| Years Ended | |||||||||||
| June 28, 2025 | June 29, 2024 | ||||||||||
| Gross deferred tax assets: | |||||||||||
| Intangibles | $ | 20.3 | $ | 27.0 | |||||||
| Tax credit carryforwards | 143.2 | 109.3 | |||||||||
| Net operating loss carryforwards | 232.1 | 226.0 | |||||||||
| Inventories | 14.9 | 11.1 | |||||||||
| Accruals and reserves | 28.1 | 14.1 | |||||||||
| Fixed assets | 17.2 | 26.2 | |||||||||
| Capital loss carryforwards | 11.2 | 11.2 | |||||||||
| Capitalized and unclaimed R&D expenditure | 178.1 | 77.0 | |||||||||
| Stock-based compensation | 8.9 | 5.9 | |||||||||
| Lease liabilities | 7.5 | 13.4 | |||||||||
| Other | 2.4 | 1.0 | |||||||||
| Gross deferred tax assets | 663.9 | 522.2 | |||||||||
| Valuation allowance | (440.8) | (490.4) | |||||||||
| Deferred tax assets | 223.1 | 31.8 | |||||||||
| Gross deferred tax liabilities: | |||||||||||
| Intangible amortization | (10.5) | (59.1) | |||||||||
| Convertible notes | — | (0.1) | |||||||||
| Right-of-use assets | (5.8) | (15.0) | |||||||||
| Inventories | (3.6) | (2.2) | |||||||||
| Other | (0.1) | (0.4) | |||||||||
| Deferred tax liabilities | (20.0) | (76.8) | |||||||||
| Total net deferred tax assets | $ | 203.1 | $ | (45.0) | |||||||
We regularly assess our ability to realize our deferred tax assets on a quarterly basis and will establish a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. We weigh all available positive and negative evidence, including our earnings history and results of recent operations, reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies. In fiscal year 2025, after considering both positive and negative evidence, we determined that there is sufficient objectively verifiable positive evidence to conclude that it is more-likely-than-not that our UK deferred tax assets are realizable in the future. As a result, we released a valuation allowance against such deferred tax assets except for the non-trading deficit carryforward resulting in an income tax benefit of $153.1 million. We continue to maintain our valuation allowance on U.S. and Canada deferred tax assets, and a partial valuation allowance on our Slovenia deferred tax asset. The total valuation allowance against our deferred tax assets decreased by $49.6 million in fiscal year 2025. We will continue to assess the need for a valuation allowance against our remaining deferred tax assets and may increase or decrease our valuation allowance materially in the future. Based on the information currently available, we do not believe that a significant portion of our valuation allowance for the U.S., California, Canada, and UK will be released in the next 12 months. Such a release would result in the recognition of certain deferred tax assets and a decrease in the income tax expense for the period in which the release is recorded.
As of June 28, 2025, the Company had federal and foreign net operating loss carryforwards of $217.3 million and $750.1 million, respectively. These carryforwards will begin to expire in the fiscal year ending 2027. The federal and foreign tax attributes carried forward are subject to various rules which impose limitations on the utilization. Additionally, the Company has federal, state, and foreign research and other tax credit carryforwards of $55.4 million, $90.4 million, and $34.4 million, respectively. The federal credits will begin to expire in the fiscal year ending 2026 and California credits can be carried forward indefinitely. The foreign tax credits will begin to expire in the fiscal year ending 2026. The Company’s U.S. federal and state net operating loss and credit carryforwards are subject to annual limitations due to ownership change provisions of Section 382 of the Internal Revenue Code and similar state provisions.
We have certain tax incentives with respect to our operations in China. These tax incentives require compliance with certain conditions and expire at various dates through calendar year 2025. The impact of these tax incentives was an increase in net income of approximately $0.5 million, or $0.01 per share in fiscal year 2025, $3.1 million, or $0.05 per share in fiscal year 2024, and $0.6 million or $0.01 per share in fiscal year 2023. The Company has also obtained a tax holiday related to certain business activities in Thailand, but to date, has not met the requirements to obtain the benefits of the tax holiday. Accordingly, the earned income is subject to regular Thailand statutory rates.
Current U.S. tax law generally provides greater flexibility for us to access and utilize our cash held by certain of our foreign subsidiaries and we intend to repatriate all or some of the earnings of our subsidiaries in the Cayman Islands, Japan, and Hong Kong. As to all other foreign subsidiaries, we intend to reinvest these earnings indefinitely in our foreign subsidiaries. As a result, U.S. income and foreign withholding taxes associated with the repatriation of $47.3 million of earnings from our foreign subsidiaries, other than the Cayman Islands, Japan, and Hong Kong subsidiaries, have not been provided for. We estimate that an additional $5.7 million of foreign withholding taxes would have to be provided if these earnings were repatriated back to the U.S. and such withholding taxes may be available as foreign tax credit or deduction to reduce U.S. tax liability.
The aggregate changes in the balance of our unrecognized tax benefits between June 29, 2024 and June 28, 2025 are as follows (in millions):
| Balance as of July 2, 2022 | $ | 61.7 | |||
| Increases based on tax positions related to prior year | 2.8 | ||||
| Decreases based on tax positions related to prior year | (5.5) | ||||
| Decreases related to Statute of Limitations | (0.1) | ||||
| Additions based on tax positions related to current year | 7.7 | ||||
Increases due to acquisition | 47.3 | ||||
| Balance as of July 1, 2023 | $ | 113.9 | |||
| Increases based on tax positions related to prior year | 19.6 | ||||
| Decreases based on tax positions related to prior year | (9.4) | ||||
| Decreases related to Statute of Limitations | (24.8) | ||||
| Additions based on tax positions related to current year | 7.3 | ||||
Increases due to acquisition | 9.1 | ||||
| Balance as of June 29, 2024 | $ | 115.7 | |||
| Increases based on tax positions related to prior year | 10.4 | ||||
| Decreases based on tax positions related to prior year | (4.9) | ||||
| Decreases related to Statute of Limitations | (13.6) | ||||
| Additions based on tax positions related to current year | 14.8 | ||||
Increases due to acquisition | 4.4 | ||||
| Decreases due to audit settlement | (13.9) | ||||
| Decreases due to reclass | (14.3) | ||||
| Balance as of June 28, 2025 | $ | 98.6 | |||
As of June 28, 2025, we had $55.3 million of unrecognized tax benefits, which, if recognized, would affect the effective tax rate. We are subject to examination of income tax returns by various domestic and foreign tax authorities. The timing of resolutions and closures of tax audits is highly unpredictable. Although it is possible that certain tax audits may be concluded within the next 12 months, we cannot reasonably estimate the impact to tax expense and net income from tax exams that could be resolved or closed within next 12 months. However, we believe that we have adequately provided under GAAP for potential audit outcomes. Subject to audit timing and uncertainty, we expect the amount of unrecognized tax benefit that would become recognized due to expiration of the statute of limitations and affect the effective tax rate to be $2.5 million over the next 12 months.
Our policy is to recognize accrued interest and penalties related to unrecognized tax benefits within the income tax provision. The amount of interest and penalties accrued as of June 28, 2025 and June 29, 2024 were $12.5 million and $21.0 million, respectively.
The major tax jurisdictions where we file tax returns are the U.S. federal government, the state of California, Japan, the United Kingdom, Thailand, China and Canada. As of June 28, 2025, our fiscal years 2012 to 2024 tax returns are open to potential examination in one or more jurisdictions. In addition, certain net operating loss and credit carryforwards may extend the ability of the tax authorities to examine our tax returns beyond the regular limits.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Aug 19, 2025 | Showing above |
| 2024 | Aug 21, 2024 | |
| 2023 | Aug 23, 2023 | |
| 2022 | Aug 24, 2022 | |
| 2021 | Aug 31, 2021 | |
| 2020 | Aug 25, 2020 | |
| 2019 | Aug 27, 2019 | |
| 2018 | Aug 28, 2018 | |
| 2017 | Aug 29, 2017 | |
| 2016 | Sep 2, 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.