Income Taxes

6 Months Ended

Jun. 30, 2020

In connection with the bankruptcy filing, the Company’s tax attributes may be subject to reduction under the Internal Revenue Code, but the effect cannot be determined as of the date of these condensed financial statements.

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 June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
(Loss) before income taxes	$	(94,426)	$	(110,117)	$	(374,598)	$	(190,878)
Income tax (benefit)/provision	(25,764)		1,482		(49,209)		2,902
Net (loss)	$	(68,662)	$	(111,599)	$	(325,389)	$	(193,780)

Income tax as a percentage of (loss) before income taxes	27.3%		(1.3)%		13.1%		(1.5)%

During the three month periods ended June 30, 2020 and 2019, the Company recorded income tax (benefit)/provision of $(25.8) million and $1.5 million, respectively, on (loss) before income taxes. The reason for the overall tax benefit during the three month period ended June 30, 2020, was principally due to the reversal of the $(13.9) million of current year tax expense booked in the first quarter (described below) and additional $(12.1) million tax benefit recognized in 2020 as a result of the loss carryback provision of the CARES Act. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted to provide relief to taxpayers due to the COVID-19 pandemic. Among other things, this law change allows companies to carryback tax net operating (losses) generated during 2018 – 2020. In the quarter ended March 31, 2020, the company recorded a $37.1 million receivable for the 2018 and 2019 tax years. The $37.1 million was updated to $36.8 million as of June 30, 2020. Additionally, $12.1 million income taxes receivable was recorded as a result of the current year tax loss. Therefore, the principal balance of the tax receivable, due to the recognition of tax losses from the CARES act, is $48.9 million as of June 30, 2020. The Company will continue to monitor the impact of the CARES Act as additional guidance is released and evaluate how these provisions in the CARES Act impact our financial position, results of operations and cash flows.

During the quarter ended March 31, 2020, the Company had an unfavorable difference between book and taxable income related to revenue recognition. In connection with the sale of an unapproved product that has since been discontinued (see Note 4 - Accounts Receivable, Sales and Allowances), a significant refund liability was recorded for GAAP purposes that was not deductible for tax purposes. During the quarter ended June 30, 2020, the Company executed a contract amendment with the customer which modified the payment terms. The amendment resulted in a change to the tax treatment for the sale and recognize revenue as it is realized for tax purposes. The Company used the discrete method to calculate the quarterly provision due to its inability to reliably estimate annual ordinary income (loss).

The Company records a valuation allowance to reduce net deferred income tax assets to the amount that is more likely than not to be realized. In performing its analysis of whether a valuation allowance to reduce the deferred income tax asset was necessary, the Company evaluated the data and believes that it is not more likely than not that the deferred tax assets in the U.S., India, and Switzerland will be realized. Accordingly, the Company has recorded a full valuation allowance against U.S., India, and Switzerland deferred tax assets. The Company has a valuation allowance of $110.5 million against its deferred tax assets as of June 30, 2020.

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 $2.4 million related to uncertain tax positions as of June 30, 2020. If recognized, $2.4 million of the above positions would impact the Company’s effective rate. The Company accounts for interest and penalties related to uncertain tax positions as income tax expense. As of June 30, 2020, the Company had accrued no penalties and a total of $0.3 million of interest.

- 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.

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