XML 43 R25.htm IDEA: XBRL DOCUMENT
v3.23.4

INCOME TAX BENEFIT | 12 Months Ended
--- | ---
Dec. 31, 2022
Income Tax Disclosure [Abstract] |
INCOME TAX BENEFIT | INCOME TAX BENEFIT The Predecessor was domiciled in the Cayman Islands. Following the Business Combination, the Company, domiciled in the Bailiwick of Jersey, is subject to taxation in the U.S. and various states jurisdictions. ASC Topic 740, Income Taxes (“ASC 740”) indicates that the federal statutory income tax rate of a foreign reporting entity be used when preparing the rate reconciliation disclosure. As such, the Company and its wholly-owned subsidiaries use the statutory income tax rate in the Bailiwick of Jersey for the Successor Period and the Cayman Islands for the Predecessor Period, which was 0%. The Company’s consolidated pretax income (loss) for the period from July 28 to December 31, 2022 (Successor Period), the period from January 1 to July 27, 2022 (Predecessor Period), the year ended December 31, 2021 (Predecessor Period) and the year ended December 31, 2020 (Predecessor Period) were generated by domestic and foreign operations as follows:
| Period from July 28 to December 31, 2022 |  |  | Period from January 1 to July 27, 2022 |  | Year ended December 31, 2021 |  | Year ended December 31, 2020
|  |  |  |  |  | (As Restated) |  | (As Restated)
(In thousands) | Successor |  |  | Predecessor
Loss before income taxes: |  |  |  |  |  |  |  |
United States | $ | (125,281) |  |  |  | $ | (17,676) |  |  | $ | (15,320) |  |  | $ | (13,243) |
Foreign | (1,079) |  |  |  | (3,268) |  |  | 5,346 |  |  | 7,479 |
Total | $ | (126,360) |  |  |  | $ | (20,944) |  |  | $ | (9,974) |  |  | $ | (5,764) |
The provision for income taxes for the period from July 28 to December 31, 2022 (Successor Period), the period from January 1 to July 27, 2022 (Predecessor Period), the year ended December 31, 2021 (Predecessor Period) and the year ended December 31, 2020 (Predecessor Period) consisted of the following:
|  | Period from July 28 to December 31, 2022 |  |  | Period from January 1 to July 27, 2022 |  | Year ended December 31, 2021 |  | Year ended December 31, 2020
|  |  |  |  |  |  | (As Restated) |  | (As Restated)
(In thousands) |  | Successor |  |  | Predecessor
Current provision (benefit): |  |  |  |  |  |  |  |  |
Federal |  | $ | — |  |  |  | $ | — |  |  | $ | — |  |  | $ | (363) |
State |  | 20 |  |  |  | 19 |  |  | 58 |  |  | (19) |
Foreign |  | — |  |  |  | 4 |  |  | 170 |  |  | 32 |
|  | 20 |  |  |  | 23 |  |  | 228 |  |  | (350) |
Deferred (income) expense: |  |  |  |  |  |  |  |  |
Federal |  | (4,557) |  |  |  | 38 |  |  | 7,597 |  |  | (2,473) |
State |  | (1,266) |  |  |  | 52 |  |  | 1,777 |  |  | (571) |
Foreign |  | — |  |  |  | — |  |  | — |  |  | — |
|  | (5,823) |  |  |  | 90 |  |  | 9,374 |  |  | (3,044) |
Net income tax (benefit) provision |  | $ | (5,803) |  |  |  | $ | 113 |  |  | $ | 9,602 |  |  | $ | (3,394) |
The components of income tax expense related to the following:
| Period from July 28 to December 31, |  |  | Period from January 1 to July 27, |  | Year ended December 31, |  | Year ended December 31,
| 2022 |  |  | 2022 |  | 2021 |  | 2020
|  |  |  |  |  | (As Restated) |  | (As Restated)
| Successor |  |  | Predecessor
Income tax benefit at Bailiwick of Jersey for Successor and Income tax benefit at Cayman Islands for Predecessor statutory rate | — | % |  |  | — | % |  | — | % |  | — | %
U.S./foreign tax rate differential | 20.7 | % |  |  | 17.7 | % |  | 30.5 | % |  | 47.7 | %
State income tax benefit, net of federal benefit | 2.4 | % |  |  | 1.4 | % |  | 1.8 | % |  | 8.2 | %
Permanent Items | 0.2 | % |  |  | (0.1) | % |  | (0.2) | % |  | (1.5) | %
Noncontrolling interest | (1.1 | %) |  |  | 0.0 | % |  | 0.0 | % |  | 0.0 | %
Change in valuation allowance | (6.1 | %) |  |  | (16.9 | %) |  | (141.0 | %) |  | 0.0 | %
Transaction bonuses | — | % |  |  | 8.6 | % |  | — | % |  | — | %
Transaction costs | — | % |  |  | (11.3) | % |  | — | % |  | — | %
PPP Loan forgiveness | — | % |  |  | — | % |  | 14.4 | % |  | — | %
True-Ups | — | % |  |  | — | % |  | (1.8) | % |  | 1.1 | %
Tax credits | — | % |  |  | — | % |  | — | % |  | 3.4 | %
Goodwill impairment | (11.4) | % |  |  | — | % |  | — | % |  | — | %
Total income tax (benefit) expense | 4.6 | % |  |  | (0.6) | % |  | (96.3) | % |  | 58.9 | %
As of each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As part of the Business Combination, the Company determined that there was sufficient positive evidence to conclude that it was more likely than not that additional deferred taxes of $28.1 million would be realizable through the reversal of existing deferred tax liabilities listed below. It therefore reduced the valuation allowance accordingly. As of December 31, 2022, a valuation allowance of $7.9 million has been provided for on the deferred tax assets related to the Company’s investment in Waldencast Partners LP. If or when recognized, the tax benefits related to any reversal of valuation allowance will be accounted for as a reduction of income tax expense. Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards. The tax effects of temporary differences that give rise to portions of the deferred tax assets and deferred tax liabilities as of December 31, 2022 (Successor Period) and December 31, 2021 (Predecessor Period) are presented below:
| As of December 31, |  |  | As of December 31, |
| 2022 |  |  | 2021 |
|  |  |  | (As Restated) |
(In thousands) | Successor |  |  | Predecessor
Deferred tax assets: |  |  |  |  |
Accrued interest to foreign related parties | $ | 1,660 |  |  |  | $ | 581 |  |
Lease liability | 2,434 |  |  |  | — |  |
Intangibles | — |  |  |  | 4,108 |  |
Formation costs | 1,509 |  |  |  | 1,629 |  |
Net operating losses | 13,117 |  |  |  | 4,995 |  |
Inventory reserve | 1,731 |  |  |  | 81 |  |
Transaction costs | — |  |  |  | 1,358 |  |
Other temporary differences | 646 |  |  |  | 1,148 |  |
Accrued compensation | 1,377 |  |  |  | 831 |  |
R&D tax credits | 379 |  |  |  | 379 |  |
Non-deductible interest carryover | 3,350 |  |  |  | 1,422 |  |
Below market contract | 2,373 |  |  |  | — |  |
Capitalized research | 2,538 |  |  |  | — |  |
Investment in Waldencast LP | 3,466 |  |  |  | — |  |
Total deferred tax assets | 34,580 |  |  |  | 16,532 |  |
Deferred tax liabilities: |  |  |  |  |
Goodwill | (285) |  |  |  | (2,794) |  |
Fixed asset basis | (370) |  |  |  | (226) |  |
Lease asset | (2,025) |  |  |  | — |  |
Intangibles | (46,206) |  |  |  | — |  |
Inventory | — |  |  |  | — |  |
Total deferred tax liabilities | (48,886) |  |  |  | (3,020) |  |
Net deferred tax (liabilities) assets | (14,306) |  |  |  | 13,512 |  |
Less: valuation allowance | (7,944) |  |  |  | (14,060) |  |
Net deferred tax liabilities | $ | (22,250) |  |  |  | $ | (548) |  |
Net operating losses and tax credit carryforwards as of December 31, 2022 (Successor Period) and December 31, 2021 (Predecessor Period) were as follows:
| As of December 31, 2022 |  |  | As of December 31, 2021 |  |
|  |  |  | (As Restated) |  |
| Successor |  |  | Predecessor
(In thousands) | Amount |  | Expiration Year |  |  | Amount |  | Expiration Year |  |  |  |
Net operating losses, federal | $ | 50,772 |  |  | Do Not Expire |  |  | $ | 20,880 |  |  | Do Not Expire |  |  |  |
Net operating losses, state | $ | 39,366 |  |  | 2039-2042 |  |  | $ | 9,772 |  |  | 2039-2041 |  |  |  |
Tax Credits, federal | $ | 283 |  |  | 2038-2039 |  |  | $ | 283 |  |  | 2038-2039 |  |  |  |
Tax Credits, state | $ | 121 |  |  | Do Not Expire |  |  | $ | 121 |  |  | Do Not Expire |  |  |  |
Pursuant to Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “IRC”) annual use of the Company’s net operating losses (“NOLs”) and R&D credit carryforwards may be limited in the event a cumulative change in ownership of more than 50.0% occurs within a three-year period. The Company has not undergone an analysis to determine whether this limitation would apply to the utilization of the NOL carryforward. However, as the federal NOLs do not expire, the Company does not believe that any potential limitations to federal or state NOL’s, or federal credit carryforwards, if applicable, would be material to the financial statements. The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits, and uncertain income tax positions must meet a more likely than not recognition threshold to be recognized. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the consolidated statements of operations and comprehensive loss. There were no unrecognized tax benefits as of December 31, 2022 (Successor Period) or December 31, 2021 (Predecessor Period). The Company does not expect material changes to its unrecognized tax benefits for the twelve month period following the reporting date. As of December 31, 2022, (Successor Period) there were no active taxing authority examinations in any of the Company's major tax jurisdictions. The Company remains subject to examination for federal and state income tax purposes for the tax years ending 2018 through 2022 (Successor Period). For the tax years beginning on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to currently deduct R&D expenses and requires taxpayers to capitalize and amortize them over five years for research activities performed in the U.S. and 15 years for research activities performed outside the U.S. pursuant to IRC Section 174. Although Congress is considering legislation that would repeal or defer this capitalization and amortization requirement, it is not certain that this provision will be repealed or otherwise modified. If the requirement is not repealed or replaced, it will decrease our tax deduction for research and development expense in future years.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 946 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 13 -Publisher FASB -URI https://asc.fasb.org//1943274/2147480990/946-20-50-13 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 235 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480678/235-10-S99-1 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//740/tableOfContent Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 14 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-14 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 21 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-21 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 270 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482526/740-270-50-1 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 17 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-17 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479360/740-10-S99-1 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479360/740-10-S99-2 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 30 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org//1943274/2147482603/740-30-50-2 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration