|12 Months Ended|
Dec. 31, 2022
|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 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):
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:
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:
Taxes of approximately $25.5 million have not been provided on approximately $197.7 million of certain earnings and profits and approximately $118.1 million of undistributed GAAP retained earnings of non-U.S. foreign subsidiaries which are permanently reinvested.
The components of the Company’s net deferred tax assets and liabilities consist of the following (in millions):
The increase in deferred tax liabilities in the Successor Period is primarily due to the fair valuation of the Company's intangible assets as a result of the Business Combination. Beginning January 1, 2022, the Tax Cuts and Jobs Act of 2017 ("TCJA") eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to capitalize such expenses and amortize them over five years pursuant to IRC Section 174. As a result of this provision of the TCJA, a deferred tax asset of $5.6 million was recorded during the year related to capitalized research expenses.
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, 2022, the Company evaluated the realizability of the deferred tax assets and concluded that a valuation allowance of $23.9 million, mostly relating to U.S. foreign tax credit carryovers and non-U.S. net operating loss and restricted interest carryforwards, should continue to be recorded. At December 31, 2021 the valuation allowance was $20.7 million mostly relating to U.S. foreign tax credit carryovers and non-U.S. net operating losses and restricted interest carryforwards.
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 years ended June 30, 2021 and June 30, 2020, the Company increased the valuation allowance by $1.6 million, $0.1 million, and $10.3 million, respectively.
As of December 31, 2022, the Company had U.S. federal, U.S. state, and non-U.S. net operating loss carryforwards of $3.4 million, $54.6 million, and $61.3 million, respectively. The remaining U.S. federal net operating losses do not expire. A majority of the U.S. state net operating losses will continue to expire in years ending December 31, 2023 through 2042. Materially, the foreign net operating losses have an indefinite carryover period. As of December 31, 2022, the Company had U.S. federal and state tax credit carryforwards of $10.5 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, 2023 through 2042.
The ability to utilize U.S. federal and state net operating loss carryforwards 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. During the year ended December 31, 2022, the Company experienced an ownership change. 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, 2022, 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, 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. 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 related to the deductibility of certain expenses may occur in the range of zero to $1.0 million due to the expiration of various statutes of limitations, potential settlements, and anticipated corrections to the timing of deductions. As of December 31, 2021, the Company had $6.6 million of unrecognized tax benefits related to uncertain tax positions, $4.2 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):
The Company has recorded $3.5 million, $3.1 million, $2.1 million, and $0.8 million of unrecognized tax benefits as non-current income taxes payable as of December 31, 2022, December 31, 2021, June 30, 2021, and June 30, 2020, respectively. The Company has also recorded $3.4 million, $3.5 million, $2.9 million, and zero 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, 2022, December 31, 2021, June 30, 2021, and June 30, 2020, 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, 2022, December 31, 2021, June 30, 2021, and June 30, 2020, were approximately $0.9 million, $0.9 million, $0.6 million, and $0.3 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, 2016. The Company is no longer subject to U.S. state and local income tax examinations for years prior to the 2004 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, 2022:
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef