Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.24.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Prior to October 20, 2021 the Company was organized under the laws of the U.K. As a result of the Business Combination, information in Note 12 Income Taxes is presented based on the change in ownership from the U.K. to the U.S. in the Predecessor and Successor periods, respectively. See Note 2 Business Combinations and Acquisitions for further discussion of the Business Combination.
The domestic and foreign components of (loss) before provision for income taxes and the provision for income taxes were as follows (in millions):
Successor
Fiscal Year Ended December 31, 2023 Fiscal Year Ended
December 31, 2022		 From
October 20, 2021 through
December 31, 2021
United States $ (125.0) $ (169.5) $ (26.8)
Foreign 19.7  (137.1) (3.0)
Net loss before benefit from income taxes $ (105.3) $ (306.6) $ (29.8)
Income tax provision (benefit):
Current:
Federal $ 8.6  $ —  $ — 
State and local 2.0  2.9  0.8 
Foreign 13.7  16.1  3.8 
Total current provision $ 24.3  $ 19.0  $ 4.6 
Deferred:
Federal $ (17.6) $ (19.6) $ (5.4)
State and local (5.5) (4.2) (1.2)
Foreign (7.8) (13.4) (4.8)
Total deferred benefit $ (30.9) $ (37.2) $ (11.4)
Total benefit from income taxes $ (6.6) $ (18.2) $ (6.8)
Predecessor
From
July 1, 2021 through
October 19, 2021		 Fiscal Year Ended
June 30, 2021
United Kingdom $ (41.2) $ (125.3)
United States (61.2) (53.8)
Other foreign (8.9) 14.8 
Net loss before benefit from income taxes $ (111.3) $ (164.3)
Income tax provision (benefit):
Current:
United Kingdom $ 0.1  $ 0.3 
United States 1.4  2.4 
Other foreign 2.0  9.4 
Total current provision $ 3.5  $ 12.1 
Deferred:
United Kingdom $ —  $ — 
United States (7.0) (15.5)
Other foreign (2.1) (2.5)
Total deferred benefit $ (9.1) $ (18.0)
Total benefit from income taxes $ (5.6) $ (5.9)

The provision (benefit) for income taxes differs from the amount computed by applying the U.S. Federal statutory income tax rate to loss before provision for income taxes as follows:
Successor
Fiscal Year Ended December 31, 2023 Fiscal Year Ended
December 31, 2022		 From
October 20, 2021 through
December 31, 2021
Income tax at U.S. Federal statutory rate 21.0  % 21.0  % 21.0  %
State and local taxes, net of federal impact 2.4  % 0.3  % 1.7  %
Foreign tax rate differential (1.5) % (0.5) % 0.3  %
U.S. tax on foreign earnings, net of foreign tax credits (2.2) % (0.9) % —  %
State and local tax legislative changes 1.3  % 0.6  % —  %
Research and development tax credits 1.7  % 0.5  % 0.2  %
U.S. foreign derived intangible income deduction 3.5  % —  % —  %
Change in valuation allowance (9.0) % (1.4) % 3.2  %
Unrecognized tax benefits (2.2) % (0.2) % 0.1  %
Stock-based compensation expense (3.2) % (1.9) % (3.7) %
Warrant liability change in fair value (5.5) % 2.8  % 0.9  %
Goodwill impairment —  % (14.5) % —  %
Other —  % 0.1  % (0.9) %
Total effective income tax rate 6.3  % 5.9  % 22.8  %
The provision (benefit) for income taxes differs from the amount computed by applying the U.K. statutory income tax rate to loss before provision for income taxes as follows:
Predecessor
From
July 1, 2021 through
October 19, 2021		 Fiscal Year Ended
June 30, 2021
Income tax at U.K. Federal statutory rate 19.0  % 19.0  %
U.S. tax on foreign earnings, net of foreign tax credits (0.3) % (0.9) %
Foreign taxes, including U.S. 0.5  % (1.3) %
Transaction costs (3.4) % (1.4) %
Change in valuation allowance (1.5) % 3.8  %
Unrecognized tax benefits (0.9) % (0.7) %
Nondeductible interest expense (6.9) % (14.4) %
Stock-based compensation expense (1.6) % —  %
Other 0.1  % (0.5) %
Total effective income tax rate 5.0  % 3.6  %

Certain reclassifications have been made to the components of Tax Rate Reconciliation for the years ending December 31, 2022 and 2021 to conform to the 2023 presentation.

As of December 31, 2023, U.S. federal and state income taxes of approximately $21.2 million have not been provided on approximately $182.9 million of certain earnings and profits that are permanently reinvested. We do not expect to incur additional material U.S. federal income taxes on other earnings that are indefinitely reinvested. It is not practicable to estimate the deferred tax liability for state, foreign or withholding taxes on other earnings and profits that are indefinitely reinvested due to complex analysis and calculations considering various tax laws, exchange rates, local law restrictions that may apply to a portion of such earnings, and various tax planning alternatives we could employ if we repatriated these earnings.

The OECD (Organisation for Economic Co-operation and Development) has proposed a global minimum tax of 15% of reported profits (Pillar Two) for multinational enterprises with annual global revenues exceeding €750 million. Pillar Two has been agreed upon in principle by over 140 countries. The Pillar Two legislation is not anticipated to be effective for the Company until the Company’s annual global revenues have exceeded the €750 million threshold for two out of four years. Accordingly, we are still evaluating the potential consequences of Pillar Two on our longer-term financial position.
The components of the Company’s net deferred tax assets and liabilities consist of the following (in millions):
Successor
December 31, 2023 December 31, 2022
Deferred tax assets:
Net operating loss carryforwards $ 19.1  $ 19.0 
Federal and state credit carryforwards 4.4  10.5 
Property, plant and equipment 0.6  0.5 
Deferred and other revenue differences 7.5  7.8 
Interest carryforwards 23.2  19.1 
Other reserves and accrued expenses 18.4  14.9 
Lease liabilities 8.7  11.1 
Derivatives 5.4  2.9 
Other assets 7.7  5.0 
Capitalized research and development 10.1  5.6 
Total deferred tax assets 105.1  96.4 
Less: valuation allowance (30.0) (23.9)
$ 75.1  $ 72.5 
Successor
December 31, 2023 December 31, 2022
Deferred tax liabilities:
Purchased technologies and other intangibles $ (122.2) $ (153.4)
Deferred and other revenue differences (13.9) (7.4)
Property, plant and equipment (11.9) (15.0)
Lease right of use assets (8.2) (10.2)
Other liabilities (2.9) (2.8)
Total deferred tax liabilities (159.1) (188.8)
Net deferred tax liabilities $ (84.0) $ (116.3)
Management regularly evaluates the recoverability of deferred tax assets and recognizes the tax benefit only if reassessment demonstrates that they are more likely than not realizable. At such time, if it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be adjusted. In assessing the need for a valuation allowance, management considers all available evidence, both positive and negative, including reversals of existing temporary differences; historical levels of income; expectations and risks associated with estimates of future taxable income; and any ongoing tax planning strategies.
At December 31, 2023, the Company evaluated the realizability of the deferred tax assets and concluded that a valuation allowance of $30.0 million, mostly relating to interest carryforwards and non-U.S. net operating losses, should continue to be recorded. At December 31, 2022 the valuation allowance was $23.9 million mostly relating to U.S. foreign tax credit carryovers and non-U.S. net operating losses and restricted interest carryforwards.
Successor Predecessor
Fiscal Year Ended
December 31, 2023		 Fiscal Year Ended
December 31, 2022		 From
October 20, 2021 through
December 31, 2021		 From
July 1, 2021 through
October 19, 2021		 Fiscal Year Ended
June 30, 2021
Valuation allowance balance – beginning of period $ 23.9  $ 20.7  $ 1.0  $ 29.1  $ 29.0 
Increases/(decreases) resulting from the Mirion Business Combination —  (0.4) 19.7  —  — 
Increases resulting from other business combinations —  —  —  —  0.5 
Other increases 9.8  5.3  —  1.6  8.6 
Other decreases (3.7) (1.7) —  —  (9.0)
Valuation allowance balance – end of period $ 30.0  $ 23.9  $ 20.7  $ 30.7  $ 29.1 
For the year ended December 31, 2023, the Company increased the valuation allowance by $6.1 million primarily related to interest and capital loss carryforwards in the U.S. For the year ended December 31, 2022, the Company increased the valuation allowance by $3.2 million primarily related to losses in the U.K. In the Successor Stub Period ended December 31, 2021, the Company reflected the impact of the Business Combination but did not otherwise adjust the valuation allowance. For the Predecessor Stub Period ended October 19, 2021, and the year ended June 30, 2021, the Company increased the valuation allowance by $1.6 million, $0.1 million, respectively.
As of December 31, 2023, the Company had U.S. state and non-U.S. net operating loss carryforwards of $47.8 million, and $60.6 million, respectively. A majority of the U.S. state net operating losses will continue to expire in years ending December 31, 2024 through 2043. Materially, the foreign net operating losses have an indefinite carryover period. As of December 31, 2023, the Company had U.S. federal and state tax credit carryforwards of $4.4 million available to offset future U.S. federal and state income taxes payable. U.S. federal and state tax credit carryforwards will expire in years ending December 31, 2024 through 2043.
The ability to utilize U.S. federal and state attributes may be limited under Section 382 of the Internal Revenue Code, in the event of an "ownership change." An "ownership change" is defined by Section 382 as a cumulative change in ownership of the Company of more than 50% within a three-year period. Section 382 imposes an annual limitation on the amount of post-ownership change taxable income that may be offset with pre-ownership change net operating losses or income tax liability that may be offset with pre-ownership change tax credit carryforwards of the loss corporation experiencing the ownership change. As of December 31, 2023, the Company does not expect the use of the U.S. federal and state attributes to be limited under Section 382 of the Internal Revenue Code and similar state tax laws. The Company continues to monitor the impact of the ownership change on attributes as future changes in the business could further limit the use of these attributes.
As of December 31, 2023, the Company had $8.4 million of unrecognized tax benefits related to uncertain tax positions, all of which would affect its effective tax rate if recognized. Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next twelve months a reduction in unrecognized tax benefits may occur in the range of zero to $1.0 million due to the expiration of various statutes of limitations and potential settlements. As of December 31, 2022, the Company had $6.9 million of unrecognized tax benefits related to uncertain tax positions, $6.3 million of which would affect its effective tax rate if recognized. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
Successor Predecessor
Fiscal Year Ended
December 31, 2023		 Fiscal Year Ended
December 31, 2022		 From
October 20, 2021 through
December 31, 2021		 From
July 1, 2021 through
October 19, 2021		 Fiscal Year Ended
June 30, 2021
Balance, beginning of period $ 6.9  $ 6.6  $ —  $ 5.0  $ 0.8 
Increases resulting from the Mirion Business Combination —  1.4  6.5  —  — 
Current year additions to positions 2.7  1.3  0.1  1.5  2.6 
Additions from other business combinations 0.2  —  1.7 
Lapse of applicable statute of limitations (0.2) (0.4) —  —  (0.1)
Reductions to prior year positions (1.0) (2.0) (0.2) —  — 
Foreign currency translation adjustments —  —  —  —  — 
Balance, end of period $ 8.4  $ 6.9  $ 6.6  $ 6.5  $ 5.0 
The Company has recorded $7.1 million, $3.5 million, $3.1 million, and $2.1 million, of unrecognized tax benefits as non-current income taxes payable as of December 31, 2023, December 31, 2022, December 31, 2021, and June 30, 2021, respectively. The Company has also recorded $1.3 million, $3.4 million, $3.5 million, and $2.9 million of unrecognized tax benefits as a reduction of net deferred tax assets included in other liabilities in the accompanying consolidated balance sheets at December 31, 2023, December 31, 2022, December 31, 2021, and June 30, 2021, respectively.
The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. Accrued interest and penalties as of December 31, 2023, December 31, 2022, December 31, 2021, and June 30, 2021, were approximately $1.2 million, $0.9 million, $0.9 million, and $0.6 million, respectively. The ultimate amount and timing of any future cash settlements cannot be predicted with reasonable certainty.
The Company conducts business globally and, as a result, one or more of its subsidiaries files U.S. federal and state income tax returns and income tax returns in other foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United Kingdom, France, Germany, Canada, and the United States. With the exception of the 2015 tax year returns for Canada, and a few insignificant jurisdictions, the Company is no longer subject to U.S. federal or non-U.S. income tax examinations for years prior to June 30, 2017. The Company is no longer subject to U.S. state and local income tax examinations for years prior to the 2005 tax year.
In many cases, the Company’s uncertain tax positions are related to tax years that remain subject to examination by tax authorities. The following describes open tax years by major tax jurisdictions as of December 31, 2023:
  Years Open
Jurisdiction:  
Canada
2015 – 2023
France
2021 – 2023
Germany
2017 – 2023
United Kingdom
2017 – 2023
United States—Federal
2017 – 2023
United States—State
2005 – 2023