INCOME TAXES

12 Months Ended

Jul. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXESThe components of income (loss) before provision for income taxes are as follows:

	Successor		Predecessor
	May 1 to July 31,		August 1, 2022 to April 30,		Fiscal Year Ended July 31,
	2023		2023		2022
	(In thousands)
Income (loss) from operations before income taxes:
U.S.	$	9,866	$	2,021	$	(5,189)
Foreign	(2,115)		7,069		7,321
Total income (loss) from operations before income taxes	$	7,751	$	9,090	$	2,132

The components of income tax expense from operations consist of the following:

	Successor		Predecessor
	May 1 to July 31,		August 1, 2022 to April 30,		Fiscal Year Ended July 31,
	2023		2023		2022
	(In thousands)
Current (benefit) provision:
Federal	$	72	$	487	$	—
State	(110)		48		429
Foreign	(110)		1,095		1,918
	(148)		1,630		2,347
Deferred (benefit) provision:
Federal	—		—		8,849
State	—		—		76
Foreign	(250)		—		116
	(250)		—		9,041
Total tax (benefit) provision	$	(398)	$	1,630	$	11,388

As of July 31, 2023, the Company recorded a non-current deferred tax asset of $0.3 and a non-current deferred tax liability of $0.8 million in "Other Assets" and "Other Long-term Liabilities", respectively. As of July 31, 2022, the Company recorded a non-current deferred tax asset of $0.1 million and a non-current deferred tax liability of $0.1 million in "Other Assets" and "Other Long-term Liabilities," respectively. The components of deferred tax assets and liabilities are as follows:

	Successor		Predecessor
	July 31, 2023		July 31, 2022
	(In thousands)
Deferred tax assets:
Accruals and reserves	$	2,645	$	4,295
Tax basis in excess of financial basis for intangible and fixed assets	175		901
Lease liability	3,574		2,288
Interest expense disallowance	—		2,357
Credit carry forwards	25		25
Net operating loss and capital loss carry forwards	95,832		474,496
Total gross deferred tax assets	102,251		484,362
Less: valuation allowance	(90,436)		(481,178)
Net deferred tax assets	$	11,815	$	3,184
Deferred tax liabilities:
Financial basis in excess of tax basis for intangible and fixed assets	$	(8,446)	$	(69)
Right of use asset	(3,454)		(2,154)
Convertible debt	(404)		(917)
Total gross deferred tax liabilities	(12,304)		(3,140)
Net deferred tax liabilities	$	(489)	$	44

The net change in the total valuation allowance for the fiscal year ended July 31, 2023 was an decrease of approximately $390.7 million. This decrease is primarily due to the U.S. valuation allowance. A valuation allowance has been recorded against the gross deferred tax asset in the U.S and certain foreign subsidiaries since management believes that after considering all the available objective evidence, both positive and negative, historical and prospective, it is more likely than not that certain assets will not be realized. The net change in the total valuation allowance for the fiscal year ended July 31, 2022 was an increase of approximately $24.6 million.

The Company has certain deferred tax benefits, including those generated by net operating losses and certain other tax attributes (collectively, the "Tax Benefits"). The Company's ability to use these Tax Benefits could be substantially limited if it were to experience an "ownership change," as defined under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). In general, an ownership change would occur if there is a greater than 50-percentage point change in ownership of securities by stockholders owning (or deemed to own under Section 382 of the Code) five or more of a corporation's securities over a rolling three year period.

The Company determined that the beginning balances related to its deferred tax accounts for both the cumulative net operating loss carryover along with valuation allowance balances needed to be updated due to an immaterial error associated with the return to provision true up. The return to provision true up adjustment related to the calculation of the Company’s stock basis for the IWCO worthless stock deduction. The net impact of the reduction to the beginning balances for the net operating losses and valuation allowances was approximately $4.0 million and did not change any amounts recognized in the consolidated balance sheets or consolidated statements of operations.

On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law in the United States. Among other provisions, the IRA includes a 15% corporate minimum tax rate applied to certain large corporations and a 1% excise tax on corporate stock repurchases made after December 31, 2022. We do not expect the IRA to have a material impact on our consolidated financial statements.

On March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security ("CARES") Act into law which is intended to respond to the COVID-19 pandemic and its impact on the economy, public health, state and local governments, individuals and businesses. The CARES Act contains numerous tax provisions including temporary changes to the future limitations on interest deductions related to section 163j.

The Company has estimated its fiscal year 2023 global intangible low-taxed income ("GILTI") inclusion based on its current year foreign activity. The foreign entities have minor earnings and profit adjustments that will be factored in as part of the tax return filing. These amounts are not material and will not have a significant impact on the overall tax provision or disclosure. Due to the net operating losses available in the U.S., the Company is not entitled to a Section 250 deduction, which

is why the total income amount has been recorded as the GILTI inclusion. The Company has made an accounting policy election, as allowed by the SEC and FASB, to recognize the impact of GILTI within the period incurred. Therefore, no U.S. deferred taxes are provided in GILTI inclusions of future foreign subsidiary earnings.

The Company has net operating loss carryforwards for federal and state tax purposes of approximately $369.9 million and $138.8 million, respectively, at July 31, 2023. As of July 31, 2023, approximately $1.7 billion of net operating loss carryforwards for federal and state tax purposes expired. $273.3 million of the company's federal net operating losses will expire from the fiscal year ending July 31, 2024 through the fiscal year ended July 31, 2038 and the remainder federal net operating losses of $96.6 million has an indefinite carryforward period. The state net operating losses will expire from the fiscal year ended July 31, 2024 through the fiscal year ended July 31, 2042. The Company has a foreign net operating loss carryforward of approximately $69.8 million, of which $67.2 million has an indefinite carryforward period.

Income tax expense attributable to income from continuing operations differs from the expense computed by applying the U.S. federal income tax rate of 21.0% to (loss) income from continuing operations before income taxes as a result of the following:

	Successor		Predecessor
	May 1 to July 31,		August 1, 2022 to April 30,		Fiscal Year Ended July 31,
	2023		2023		2022
			(In thousands)
Computed "expected" income tax expense (benefit)	$	1,627	$	1,909	$	448
Increase (decrease) in income tax expense resulting from:
Change in valuation allowance	(350,469)		(424)		21,703
Foreign tax rate differential	(255)		(50)		56
Nondeductible expenses	459		—		159
Foreign withholding taxes	245		147		134
Foreign other adjustments	(246)		—		951
GILTI	1,141		—		4,775
Addition of uncertain tax position reserves	(430)		11		58
Worthless stock deduction	—		—		(16,860)
State income taxes, net of federal benefit	(1,916)		37		(603)
Expiration of net operating loss	347,462		—		—
Deferred true-up	1,786		—		751
Other	198		—		(184)
Actual income tax (benefit) expense	$	(398)	$	1,630	$	11,388

The calculation of the Company's income tax liabilities involves dealing with uncertainties in the application of complex tax regulations in several tax jurisdictions. The Company is periodically reviewed by domestic and foreign tax authorities regarding the amount of taxes due. These reviews include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various filing positions, the Company records estimated reserves when necessary. Based on the evaluation of current tax positions, the Company believes it has appropriately accrued for exposures.

The Company operates in multiple taxing jurisdictions, both within and outside of the United States. At July 31, 2023 and 2022, the total amount of the liability for unrecognized tax benefits, including interest, related to federal, state and foreign taxes was approximately $0.4 million and $0.8 million, respectively. To the extent the unrecognized tax benefits are recognized, the entire amount would impact income tax expense. The Company expects that there will be a $0.3 million reduction of the unrecognized tax benefits in the next twelve months related to the U.S. state income tax exposure as a result of a lapse in the applicable statute of limitations.

The Company files income tax returns in the U.S., various states and in foreign jurisdictions. The federal and state income tax returns are generally subject to tax examinations for the tax years ended July 31, 2020 through July 31, 2023. To the extent the Company has tax attribute carryforwards, the tax year in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period. In addition, a

number of tax years remain subject to examination by the appropriate government agencies for certain countries in the Europe and Asia regions. In Europe, the Company's 2015 through 2022 tax years remain subject to examination in most locations while the Company's 2011 through 2022 tax years remain subject to examination in most Asia locations.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:

	Successor		Predecessor
	July 31, 2023		July 31, 2022
	(In thousands)
Balance as of beginning of year	$	571	$	2,140
Additions for current year tax positions	—		—
Currency translation	—		(4)
Reductions for lapses in statute of limitations	(297)		(67)
Reductions for member leaving consolidated group	—		(1,498)
Balance as of end of year	$	274	$	571

In accordance with the Company's accounting policy, interest related to income taxes is included in the provision for income taxes line of the consolidated statements of operations. For the fiscal years ended July 31, 2023 and 2022, the Company has not recognized any material interest expense related to uncertain tax positions. As of July 31, 2023 and 2022, the Company had recorded liabilities for increases in interest expense related to uncertain tax positions for an immaterial amount. The Company expects $0.3 million of unrecognized tax benefits and related interest will reverse in the next twelve months.