Income Taxes

6 Months Ended

Jun. 16, 2022

Income Tax Disclosure [Abstract]

Income Tax Disclosure

4. Income Taxes

The Company's income tax expense (benefit) was as follows:

	Successor				Predecessor
	Three Months Ended June 30, 2023		Period from June 17, 2022 through July 1, 2022		Period from April 2, 2022 through June 16, 2022
Current tax expense (benefit)	$	19.2	$	(3.3)	$	(18.9)
Deferred tax expense (benefit)	508.9		(6.4)		(472.5)
Income tax expense (benefit)	$	528.1	$	(9.7)	$	(491.4)

	Successor				Predecessor
	Six Months Ended June 30, 2023		Period from June 17, 2022 through July 1, 2022		Period from January 1, 2022  through June 16, 2022
Current tax expense (benefit)	$	21.8	$	(3.3)	$	(23.9)
Deferred tax expense (benefit)	475.5		(6.4)		(473.4)
Income tax expense (benefit)	$	497.3	$	(9.7)	$	(497.3)

As further discussed in Note 1, the Company concluded that there is substantial doubt about its ability to continue as a going concern within one year from the date of issuance of this report. The Company considered this in determining that certain net deferred tax assets were no longer more likely than not realizable. Therefore, a valuation allowance of $475.5 million was placed on the net deferred tax assets as of the beginning of the year. Additionally, a valuation allowance was recorded to offset the current year deferred tax activity, predominately related to intangible asset amortization, accretion expense associated with our settlement obligations and debt, and inventory step-up amortization expense. As a result, all of the Company’s net deferred tax assets as of the six months ended June 30, 2023 (Successor) are fully offset by a valuation allowance.

The Company recognized income tax expense of $528.1 million and $497.3 million on losses from continuing operations before income taxes of $219.7 million and $499.8 million for the three and six months ended June 30, 2023 (Successor), respectively. This resulted in effective tax rates of negative 240.4% and negative 99.5%, respectively. The income tax provision for both the three and six months ended June 30, 2023 (Successor) consisted of deferred income tax expense related to the valuation allowance noted above, recorded against the Company's net deferred tax assets, and current income tax expense related to a decrease in prepaid income taxes.

The income tax expense of $528.1 million for the three months ended June 30, 2023 (Successor) consisted of the valuation allowance of $475.5 million placed on the net deferred tax assets as of the beginning of the year that were no longer more likely than not realizable, $29.9 million attributed to the valuation allowance recorded on current year deferred tax activity, $20.9 million attributed to a decrease in prepaid income taxes and $1.8 million predominately attributed to pretax earnings in various jurisdictions.

The income tax expense of $497.3 million for the six months ended June 30, 2023 (Successor) consisted of the valuation allowance of $475.5 million placed on the net deferred tax assets as of the beginning of the year that were no longer more likely than not realizable, $20.9 million attributed to a decrease in prepaid income taxes and $2.2 million predominately attributed to pretax earnings in various jurisdictions, offset by $1.3 million attributed to the Coronavirus Aid, Relief, and Economic Security ("CARES") Act.

The Company recognized $9.7 million, $491.4 million, and $497.3 million of income tax benefit on $73.4 million, $685.2 million, and $811.3 million of losses from continuing operations before income taxes for the periods from June 17, 2022 through July 1, 2022 (Successor), April 2, 2022 through June 16, 2022 (Predecessor), and January 1, 2022 through June 16, 2022 (Predecessor), respectively. This resulted in effective tax rates of 13.2%, 71.7%, and 61.3%, respectively.

The income tax benefit of $9.7 million for the period from June 17, 2022 through July 1, 2022 (Successor) consisted of $8.0 million attributed to pretax earnings in various jurisdictions and $1.7 million attributed to separation costs, reorganization items, net and restructuring charges.

The income tax benefit for the period from April 2, 2022 through June 16, 2022 (Predecessor) and the period from January 1, 2022 through June 16, 2022 (Predecessor) primarily consisted of the income tax impacts from reorganization and fresh-start adjustments, including adjustments to the Company's valuation allowance. For the period January 1, 2022 through June 16, 2022 (Predecessor), the Company recorded an income tax benefit of $497.3 million, primarily for reorganization adjustments in the Predecessor period consisting of (1) $1,231.5 million of tax expense for the reduction in federal and state net operating loss (“NOL”) carryforwards from the cancellation of debt income (“CODI”) realized upon emergence and limitations under Sections 382 and 383 of the IRC; (2) $141.3 million of tax expense for the net decrease in deferred tax assets resulting from reorganization adjustments; and (3) $1,270.1 million of tax benefit for the reduction in the valuation allowance on the Company's deferred tax assets; and fresh-start

adjustments in the Predecessor period consisting of (4) $297.1 million of tax benefit for the net decrease in deferred tax liabilities resulting from fresh-start adjustments and (5) $285.3 million of tax benefit associated with the release of uncertain tax positions. The remaining tax benefit was attributable to pretax earnings in various jurisdictions during the Predecessor period.

During the six months ended June 30, 2023 (Successor), net cash refunds for income taxes were $137.8 million, including refunds of $141.6 million received as a result of provisions in the CARES Act and net payments of $3.8 million related to operational activity. During the period June 17, 2022 through July 1, 2022 (Successor) and the period January 1, 2022 through June 16, 2022 (Predecessor), net cash payments for income taxes were $0.7 million and $3.0 million, respectively.

The Company's unrecognized tax benefits, excluding interest, totaled $24.8 million as of both June 30, 2023 (Successor) and December 30, 2022 (Successor). If favorably settled, $15.4 million of unrecognized tax benefits as of June 30, 2023 (Successor) would benefit the effective tax rate. The remaining unrecognized tax benefits are reflected as a write-off of related deferred tax assets. If these unrecognized tax benefits were recognized, the related deferred tax assets would be offset by a valuation allowance. The total amount of accrued interest and penalties related to these obligations was $3.4 million and $2.8 million as of June 30, 2023 (Successor) and December 30, 2022 (Successor), respectively.

Within the next twelve months, the unrecognized tax benefits and the related interest and penalties are not expected to significantly change.

Certain of the Company's subsidiaries continue to be subject to examination by taxing authorities. The earliest open years subject to examination for both the U.S federal and state jurisdictions and various foreign jurisdictions, including Ireland, Japan, Luxembourg, Switzerland and the United Kingdom is 2013.