Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted and implements comprehensive tax legislation which, among other changes, reduces the federal statutory corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred, creates new provisions related to foreign sourced earnings, eliminates the domestic manufacturing deduction and moves to a territorial system. Additionally, in December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. The measurement period, as defined in SAB 118, ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. During the measurement period, provisional amounts may also be adjusted for the effects, if any, of interpretative guidance issued after December 31, 2017, by U.S. regulatory and standard-setting bodies.

Based on the provisions of the Tax Act, the Company re-measured its U.S. deferred tax assets and liabilities and adjusted its deferred tax balances to reflect the lower U.S. corporate income tax rate at December 31, 2017. The re-measurement of the Company's U.S. deferred tax assets and liabilities at the lower enacted U.S. corporate tax rate resulted in an income tax benefit of $26.9 million which was included as a discrete item in the 2017 income tax benefit. The Company’s foreign subsidiaries do not have accumulated earnings that can be distributed; therefore, the provisions of the Act related to the repatriation of foreign earnings are not applicable to the Company at December 31, 2017. No additional re-measurement adjustments have been made since December 31, 2017.

The following table sets forth information about the Company’s income tax (benefit) provision for the periods indicated (dollar amounts in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
(Loss) Income before income taxes	$	(88,539	)	$	(1,937	)	$	(228,822	)	$	70,139
Income tax (benefit) provision	(18,399		)	960			(41,951		)	29,472
Net (loss) income	$	(70,140	)	$	(2,897	)	$	(186,871	)	$	40,667

Income tax (benefit) provision as a percentage of (loss) income before income taxes	20.8		%	(49.6		)%	18.3		%	42.0		%

During the three and nine month periods ended September 30, 2018, the Company recorded an income tax benefit of $18.4 million and $42.0 million, or 20.8% and 18.3%, of (loss) before income tax in the applicable periods, respectively, while during the three and nine month periods ended September 30, 2017, the Company recorded an income tax provision of $1.0 million and $29.5 million, or (49.6)% and 42.0% of (loss) income before income tax in the applicable periods, respectively. The decreases in the income tax rate as a percentage of (loss) income before income tax for the three and nine month periods ended September 30, 2018 as compared to the same periods in 2017, were principally the result of the enactment of the Tax Act in December 2017, and the incurrence of non-deductible fees in connection with the Delaware Action. The Company used the discrete method to calculate the quarterly provision.

As of September 30, 2018, the Company could not conclude that it was more likely than not that tax benefits from certain foreign net operating losses would be realized. Accordingly, as of September 30, 2018, the Company increased its valuation allowance to $11.9 million for certain of the losses at its Indian subsidiary and the entire amount of the loss at its Swiss subsidiary, compared to a valuation allowance of $10.5 million as of December 31, 2017.

In accordance with ASC 740-10-25, Income Taxes - Recognition, the Company reviews its tax positions to determine whether it is “more likely than not” that its tax positions will be sustained upon examination, and if any tax positions are deemed to fall short of that standard, the Company establishes reserves based on the financial exposure and the likelihood that its tax positions would not be sustained. Based on its evaluations, the Company determined that it would not recognize tax benefits on $25.2 million related to uncertain tax positions as of September 30, 2018. If recognized, $2.5 million of the above positions would impact the Company’s effective rate, while the remaining $22.6 million would result in adjustments to the Company’s deferred taxes. The Company accounts for interest and penalties as income tax expense. During the nine month period ended September 30, 2018, the Company recorded no penalties and $0.9 million interest related to unrecognized tax benefits. As of September 30, 2018, the Company had an accrual balance of $8.9 million and $6.9 million of penalties and interest, respectively.