Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.22.4
INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Income Tax Expense
The Company’s income tax (expense) benefit consisted of the following components (in thousands):
Successor Predecessor
Year Ended December 31, 2022
November 9, 2021
Through
December 31, 2021
January 1, 2021
Through
November 8, 2021
 Year Ended December 31, 2020
Current:
Luxembourg $ —  $ (1) $ (11) $ (118)
U.S. Federal (13,561) 1,295  (15,123) (7,546)
U.S. state and local (5,453) 519  (6,201) (4,091)
Other foreign jurisdictions (3,455) 2,192  (4,045) (1,412)
Total current (22,469) 4,005  (25,380) (13,167)
Deferred:
Luxembourg —  —  —  (930)
U.S. Federal 11,029  2,060  7,062  1,966 
U.S. state and local 5,397  390  1,922  (213)
Other foreign jurisdictions 574  (295) 2,260  1,861 
Total deferred 17,000  2,155  11,244  2,684 
Total income tax (expense) benefit $ (5,469) $ 6,160  $ (14,136) $ (10,483)
The Company’s income (loss) before income taxes consists of the following components (in thousands):
Successor Predecessor
Year Ended December 31, 2022
November 9, 2021
Through
December 31, 2021
January 1, 2021
Through
November 8, 2021
 Year Ended December 31, 2020
Luxembourg $ 81,308  $ (657,511) $ (15,309) $ (1,230)
U.S. 9,063  (25,102) 49,186  35,703 
Other foreign jurisdictions 6,856  (5,696) 888  259 
Total income (loss) before taxes $ 97,227  $ (688,309) $ 34,765  $ 34,732 
The Company’s income tax expense differs from the amount computed by applying the Luxembourg statutory rate of 24.94% for the reasons set forth in the following table:
Successor Predecessor
Year Ended December 31, 2022
November 9, 2021
Through
December 31, 2021
January 1, 2021
Through
November 8, 2021
 Year Ended December 31, 2020
Luxembourg statutory tax rate 24.94  % 24.94  % 24.94  % 24.94  %
(Increase)/reduction in income tax rate:
U.S. state and local income taxes, net (0.14) 0.14  7.61  6.25 
Effect of rates different from statutory 0.36  (0.10) (5.84) (3.78)
Nondeductible officer compensation 1.59  —  —  — 
Tax on unremitted earnings 3.73  —  —  — 
Section 250 deduction (0.71) (0.05) (2.20) (1.36)
Transaction costs —  (0.11) 0.02  — 
Nontaxable gain/loss on earn-out liability (2.71) —  —  — 
Founders advisory fees (30.09) (23.67) —  — 
Tax rate changes (0.94) —  1.38  3.57 
Changes in prior year estimates (1.95) —  —  (2.73)
Change in valuation allowance 10.90  (0.07) 12.47  5.12 
Other, net 0.64  (0.19) 2.28  (1.83)
Effective tax rate 5.62  % 0.89  % 40.66  % 30.18  %
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting. Significant portions of the Company’s deferred tax assets and deferred tax liabilities are as follows (in thousands):
December 31,
2022		 December 31,
2021
Deferred Tax Assets:
Net operating loss carryforwards $ 16,394  $ 7,360 
Inventory 610  — 
Interest 2,502  4,161 
Accrued liabilities 2,925  2,315 
Goodwill and other intangibles 5  35 
Lease liability 5,051  — 
Other 3,450  1,821 
Valuation allowance (16,142) (5,598)
Total deferred tax assets 14,795  10,094 
Deferred Tax Liabilities:
Property, plant and equipment (9,857) (10,077)
Goodwill and other intangibles (268,418) (284,297)
Inventory —  (6,621)
Unremitted earnings (9,622) (6,000)
Right-of-use asset (4,934) — 
Other (234) (247)
Total deferred tax liabilities (293,065) (307,242)
Net deferred tax liability $ (278,270) $ (297,148)
At December 31, 2022, the Company had net operating loss carryforwards in Luxembourg of $58.0 million, which will expire, if unused, starting in 2034 and $0.3 million, which can be carried forward indefinitely. The Company has U.S. state net operating loss carryforwards of approximately $4.0 million on a net, post-apportionment basis, that will expire, if unused, starting in 2041. The Company has other foreign net operating loss carryforwards of $5.8 million, of which, the majority can be carried forward indefinitely.
On August 15, 2022, President Biden signed the Inflation Reduction Act into law. Management has reviewed the tax provisions of this legislation and has determined that there are no provisions that would have a material impact on the Company.
In assessing the realizability of deferred tax assets, the Company considers whether it is more-likely- than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. While the Company expects to realize the remaining net deferred tax assets, changes in future taxable income or in tax laws may alter this expectation and result in future increases to the valuation allowance.
The valuation allowance for deferred tax assets as of December 31, 2022 and 2021 primarily relates to net operating loss and interest deduction limitation carryforwards that, in the judgment of the Company, are not more-likely-than-not to be realized. The change in valuation allowance for deferred tax assets for the year ending December 31, 2022 was a net increase of $10.5 million.
As of December 31, 2022, the Company has provided deferred taxes of $9.6 million associated with withholding taxes on accumulated undistributed earnings generated by foreign subsidiaries. Earnings of countries within the European Union would be subject to zero withholding tax on future distributions of unremitted earnings. The Company continues to assert permanent reinvestment of the remaining undistributed earnings for which deferred taxes have not been provided for as of
December 31, 2022. The computation of the potential deferred tax liability associated with these undistributed earnings is not practicable. If there are policy changes, the Company would record the applicable taxes in the period of change.
Uncertain Tax Benefits
The Company evaluates its tax positions and recognizes only tax benefits that, more likely than not, will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax position is measured at the largest amount of benefit that has a greater than 50.0% likelihood of being realized upon settlement. As of December 31, 2022, the Company had $36.3 million of uncertain tax positions that, if recognized, would not affect the effective tax rate. The Company did not have any uncertain tax benefits as of December 31, 2021. As of December 31, 2022 and 2021, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts had been recognized in the consolidated statement of operations and comprehensive income (loss).
The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):
2022 2021
Balance at beginning of year $ —  $ — 
Increase in prior years’ tax positions 36,257  — 
Balance at end of year $ 36,257  $ — 
The Company files income tax returns in Luxembourg, U.S. federal and state jurisdictions, and other foreign jurisdictions. As of December 31, 2022, tax years 2019 through 2021 are subject to examination by the tax authorities in the U.S.