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Note 9 - Taxes | 12 Months Ended
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Jan. 31, 2023
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | (9) Taxes The following table presents the domestic and foreign components of income (loss) before income taxes (in thousands):
|  | Fiscal 2023 |  |  | Fiscal 2022 |  |  | Fiscal 2021 |
|  | Successor |  |  | Successor |  |  | Predecessor (SLH) |  |  | Predecessor (SLH) |  |  | Predecessor (PL) |
|  | From |  |  | From |  |  | From |  |  | From |  |  | From |
|  | February 1, 2022 to |  |  | June 12, 2021 to |  |  | February 1, 2021 |  |  | August 28, 2020 |  |  | February 1, 2020 |
|  | January 31, 2023 |  |  | January 31, 2022 |  |  | to June 11, 2021 |  |  | January 31, 2021 |  |  | to August 27, 2020 |
Domestic |  | $ | (129,542 | ) |  | $ | (12,247 | ) |  | $ | (21,838 | ) |  | $ | (75,389 | ) |  | $ | 527,248 |
Foreign |  |  | (701,497 | ) |  |  | (50,803 | ) |  |  | (32,122 | ) |  |  | (28,842 | ) |  |  | 2,463,403 |
Income (loss) before income taxes |  | $ | (831,039 | ) |  | $ | (63,050 | ) |  | $ | (53,960 | ) |  | $ | (104,231 | ) |  | $ | 2,990,651 |
Significant components of the income tax provision (benefit) consist of the following components (in thousands):
|  | Fiscal 2023 |  |  | Fiscal 2022 |  |  | Fiscal 2021 |
|  | Successor |  |  | Successor |  |  | Predecessor (SLH) |  |  | Predecessor (SLH) |  |  | Predecessor (PL) |
|  | From |  |  | From |  |  | From |  |  | From |  |  | From |
|  | February 1, 2022 |  |  | June 12, 2021 |  |  | February 1, 2021 |  |  | August 28, 2020 |  |  | February 1, 2020 |
|  | to |  |  | to |  |  | to |  |  | to |  |  | to |
|  | January 31, 2023 |  |  | January 31, 2022 |  |  | June 11, 2021 |  |  | January 31, 2021 |  |  | August 27, 2020 |
CURRENT |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (2,246 | ) |  | $ | (8,786 | ) |  | $ | 16,632 |  |  | $ | 172 |  |  | $ | 353 |
State |  |  | 583 |  |  |  | (5,571 | ) |  |  | 4,288 |  |  |  | 706 |  |  |  | (21 | )
Foreign |  |  | 4,716 |  |  |  | 643 |  |  |  | 1,267 |  |  |  | 121 |  |  |  | 982 |
Current tax provision (benefit) |  |  | 3,053 |  |  |  | (13,714 | ) |  |  | 22,187 |  |  |  | 999 |  |  |  | 1,314 |
DEFERRED |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (17,734 | ) |  |  | 12,853 |  |  |  | (14,042 | ) |  |  | (9,224 | ) |  |  | 9,264 |
State |  |  | (4,285 | ) |  |  | 5,601 |  |  |  | (6,189 | ) |  |  | (3,145 | ) |  |  | 3,297 |
Foreign |  |  | (22,007 | ) |  |  | (9,044 | ) |  |  | (5,477 | ) |  |  | (3,107 | ) |  |  | 46,818 |
Deferred tax provision (benefit) |  |  | (44,026 | ) |  |  | 9,410 |  |  |  | (25,708 | ) |  |  | (15,476 | ) |  |  | 59,379 |
Income tax provision (benefit) |  | $ | (40,973 | ) |  | $ | (4,304 | ) |  | $ | (3,521 | ) |  | $ | (14,477 | ) |  | $ | 60,693 |
The Company’s effective tax rate differed from the statutory rate as follows:
|  | Fiscal 2023 |  |  | Fiscal 2022 |  |  | Fiscal 2021 |
|  | Successor |  |  | Successor |  |  | Predecessor (SLH) |  |  | Predecessor (SLH) |  |  | Predecessor (PL) |
|  | From |  |  | From |  |  | From |  |  | From |  |  | From |
|  | February 1, 2022 to |  |  | June 12, 2021 to |  |  | February 1, 2021 |  |  | August 28, 2020 |  |  | February 1, 2020 |
|  | January 31, 2023 |  |  | January 31, 2022 |  |  | to June 11, 2021 |  |  | January 31, 2021 |  |  | to August 27, 2020 |
United States (21.0%) / Luxembourg (24.9%) / Ireland (12.5%) statutory rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 24.9 | % |  |  | 24.9 | % |  |  | 12.5 | %
Increase (decrease) resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
US State income taxes, net of federal benefit |  |  | 0.4 | % |  |  | 7.5 | % |  |  | 2.5 | % |  |  | 6.1 | % |  |  | 0.2 | %
Foreign rate differential |  |  | (6.2 | )% |  |  | (3.2 | )% |  |  | (10.0 | )% |  |  | (6.5 | )% |  |  | 0.0 | %
Global Intangible Low-Taxed Income |  |  | (0.7 | )% |  |  | 1.1 | % |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.0 | %
Non-deductible expenses |  |  | (0.1 | )% |  |  | (0.3 | )% |  |  | (0.3 | )% |  |  | (0.5 | )% |  |  | 0.2 | %
Non-deductible interest |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.1 | %
Non-deductible officer compensation |  |  | (0.1 | )% |  |  | (3.8 | )% |  |  | 0.0 | % |  |  | 0.3 | % |  |  | 0.0 | %
Warrants |  |  | 0.6 | % |  |  | 5.8 | % |  |  | 0.0 | % |  |  | 0.7 | % |  |  | 0.0 | %
Transaction costs |  |  | 0.0 | % |  |  | (2.4 | )% |  |  | (0.1 | )% |  |  | 8.5 | % |  |  | 0.0 | %
Unrecognized tax benefit |  |  | 0.2 | % |  |  | (7.6 | )% |  |  | 2.4 | % |  |  | 0.4 | % |  |  | 0.0 | %
Change in valuation allowance |  |  | 4.6 | % |  |  | (15.8 | )% |  |  | (7.0 | )% |  |  | (10.4 | )% |  |  | (4.7 | )%
Impairment of goodwill |  |  | (10.1 | )% |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.5 | %
Reorganization and fresh start adjustments |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.0 | % |  |  | (9.8 | )% |  |  | (7.5 | )%
Return to provision adjustment |  |  | (0.2 | )% |  |  | 3.5 | % |  |  | (5.5 | )% |  |  | 0.0 | % |  |  | 0.7 | %
Expired deferred tax assets |  |  | (3.9 | )% |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.0 | %
Internal restructuring |  |  | 1.1 | % |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.0 | %
Other |  |  | (1.7 | )% |  |  | 1.0 | % |  |  | (0.4 | )% |  |  | 0.2 | % |  |  | 0.0 | %
Effective tax rate |  |  | 4.9 | % |  |  | 6.8 | % |  |  | 6.5 | % |  |  | 13.9 | % |  |  | 2.0 | %
Deferred income taxes are provided for the effects of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of the periods presented were as follows (in thousands):
|  | Successor |  |  | Successor |
|  | January 31, 2023 |  |  | January 31, 2022 |
ASSETS |  |  |  |  |  |  |  |
Loss carryforwards |  | $ | 102,563 |  |  | $ | 77,586 |
Deferred interest expense |  |  | 34,194 |  |  |  | 58,237 |
Reserves and accruals |  |  | 7,500 |  |  |  | 16,309 |
Lease liabilities |  |  | 2,635 |  |  |  | 2,702 |
Tax credits |  |  | 72 |  |  |  | 880 |
Transaction costs |  |  | 4,247 |  |  |  | 6,049 |
Capitalized research and development expenses |  |  | 8,133 |  |  |  | — |
Other intangibles |  |  | 12,839 |  |  |  | — |
Other |  |  | 2,800 |  |  |  | — |
Gross deferred tax assets |  |  | 174,983 |  |  |  | 161,763 |
Less: Valuation allowance |  |  | (133,146 | ) |  |  | (144,717 | )
Net deferred tax assets |  |  | 41,837 |  |  |  | 17,046 |
LIABILITIES |  |  |  |  |  |  |  |
Intangibles |  |  | (108,208 | ) |  |  | (102,819 | )
Property and equipment, net |  |  | (1,489 | ) |  |  | (5,823 | )
Accrued interest |  |  | (1,188 | ) |  |  | (4,007 | )
Right-of-use asset |  |  | (2,737 | ) |  |  | (2,549 | )
Other |  |  | (2,191 | ) |  |  | (1,243 | )
Gross deferred tax liabilities |  |  | (115,813 | ) |  |  | (116,441 | )
Total deferred tax liabilities, net |  | $ | (73,976 | ) |  | $ | (99,395 | )
In assessing the realization 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 Company considers the scheduled reversal of deferred tax assets and liabilities in assessing the realization of deferred tax assets. As of January 31, 2023 and January 31, 2022, the Company has established a valuation allowance of $133.1 million and $144.7 million, respectively, against its deferred tax assets due to uncertainty about whether the deferred tax assets will be realized. The change in total valuation allowance from January 31, 2022 to January 31, 2023 was a decrease of $11.6 million. Due to the acquisition of Codecademy on April 4, 2022, the Company released valuation allowances on existing deferred tax assets resulting in a $21.6 million deferred tax benefit which is included in the Company’s overall $44.0 million deferred tax benefit. As of January 31, 2023, the Company had U.S. federal, state and foreign net operating loss (NOL) carryforwards of $222.5 million, $251.3 million, and $100.5 million, respectively. If not utilized, certain of the federal, state and foreign NOL carryforwards will expire at various dates beginning in 2024 with the remainder of the NOL carryforwards not subject to an expiration date. The United States enacted the Tax Cuts and Jobs Act in December 2017, which requires companies to capitalize all their research and development costs for U.S. tax purposes, including software development costs, incurred in tax years beginning after December 31, 2021. Beginning in 2022, the Company began capitalizing and amortizing research and development costs over a five-year period for domestic research and a fifteen-year period for international research rather than expensing these costs. The utilization of the Company’s NOL, other attributes, and credit carryforwards may be subject to a limitation due to the “ownership change” provisions under Section 382 of the Internal Revenue Code and similar state and foreign provisions. Such limitation may result in the expiration of the NOL, other attributes, and credit carryforwards prior to their utilization. Certain attributes and carryforwards will be permanently disallowed due to historical Section 382 ownership changes and have been removed from the Company’s deferred tax assets. As of January 31, 2023, the Company has written off $32.2 million of net operating loss, deferred interest, and credit carryforwards that will expire unused due to Section 382 limitations along with the corresponding valuation allowance. We provide for United States income taxes on the undistributed earnings and the other outside basis temporary differences of foreign subsidiaries unless they are considered indefinitely reinvested outside the United States. As of January 31, 2023, the Company has accrued $1.1 million related to undistributed earnings from foreign subsidiaries as they are not considered indefinitely reinvested outside the United States. Any basis differences not related to undistributed earnings continues to be considered indefinitely reinvested outside the United States. The Tax Cuts & Jobs Act of 2017 created a new requirement that certain income earned by foreign subsidiaries, known as global intangible low-tax income (GILTI), must be included in the gross income of their U.S. shareholder. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current-period expense when incurred. The Company has elected to treat the tax effect of GILTI as a current-period expense when incurred. Uncertain Tax Positions As of January 31, 2023, the Company had $12.3 million of unrecognized tax benefits associated with uncertain tax positions and an additional $0.5 million of accrued interest and penalties, all of which, if recognized, would affect the Company’s effective tax rate. A reconciliation of the beginning and ending balance of unrecognized tax benefit is as follows (in thousands):
|  | Fiscal 2023 |  |  | Fiscal 2022 |  |  | Fiscal 2021 |
|  | Successor |  |  | Successor |  |  | Predecessor (SLH) |  |  | Predecessor (SLH) |  |  | Predecessor (PL) |
|  | From |  |  | From |  |  | From |  |  | From |  |  | From |
|  | February 1, 2022 to |  |  | June 12, 2021 to |  |  | February 1, 2021 |  |  | August 28, 2020 |  |  | February 1, 2020 |
|  | January 31, 2023 |  |  | January 31, 2022 |  |  | to June 11, 2021 |  |  | January 31, 2021 |  |  | to August 27, 2020 |
Unrecognized tax benefits, beginning balances |  | $ | 14,340 |  |  | $ | 3,115 |  |  | $ | 3,918 |  |  | $ | 3,768 |  |  | $ | 3,773 |
Increases for tax positions taken during the current period |  |  | — |  |  |  | 6,161 |  |  |  | — |  |  |  | — |  |  |  | — |
Increases for tax positions taken during a prior period |  |  | 952 |  |  |  | 5,975 |  |  |  | — |  |  |  | 37 |  |  |  | 35 |
Decreases for tax positions taken during a prior period |  |  | (210 | ) |  |  | — |  |  |  | (788 | ) |  |  | — |  |  |  | (40 | )
Other |  |  | (720 | ) |  |  | (64 | ) |  |  | (15 | ) |  |  | 452 |  |  |  | — |
Decreases resulting from the expiration of statute of limitations |  |  | (2,042 | ) |  |  | (847 | ) |  |  | — |  |  |  | (339 | ) |  |  | — |
Unrecognized tax benefits, ending balance |  | $ | 12,320 |  |  | $ | 14,340 |  |  | $ | 3,115 |  |  | $ | 3,918 |  |  | $ | 3,768 |
The Company recognized ($0.3) million, ($0.5) million, ($0.6) million, ($0.1) million, $0.2 million of interest and penalties during the periods ending January 31, 2023, January 31, 2022, June 11, 2021, January 31, 2021, and August 27, 2020, respectively. The Company has accrued $0.5 million and $0.8 million for the payment of interest and penalties as of January 31, 2023, and January 31, 2022, respectively. We are not currently aware of uncertain tax positions that could result in significant additional payments, accruals, or other material deviation in the next 12 months. The Company and its subsidiaries filed tax returns for the United States, multiple state and localities, and for various non-United States jurisdictions. The Company has identified the United States and Ireland as its major tax jurisdictions. The Company's tax filings are subject to examination by U.S. federal, state, and various non-United States jurisdictions. The Company’s U.S. federal tax returns are open for years after January 31, 2018.

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