| Income Taxes | Income Taxes The components of (loss) income before income taxes for the years ended twelve months ended December 31, are as follows: (Loss) Income Before Income Taxes: 2019 2018 2017 Ireland $ (50,134 ) $ (42,604 ) $ (3,123 ) U.S. 10,401 (70,340 ) 92,754 France 1,151 (253 ) 3,029 Total (loss) income before income taxes $ (38,582 ) $ (113,197 ) $ 92,660 The income tax provision consists of the following for the years ended December 31: Income Tax (Benefit) Provision: 2019 2018 2017 Current: U.S. - Federal $ — $ — $ 18,064 U.S. - State 97 330 331 France — — 265 Total current 97 330 18,660 Deferred: Ireland (1,256 ) — — U.S. - Federal (4,093 ) (19,503 ) 4,686 U.S. - State (104 ) 1,280 1,043 Total deferred (5,453 ) (18,223 ) 5,729 Income tax (benefit) provision $ (5,356 ) $ (17,893 ) $ 24,389 The reconciliation between income taxes at the statutory rate and the Company’s (benefit) provision for income taxes is as follows for the years ended December 31: Reconciliation to Effective Income Tax Rate: 2019 2018 2017 Statutory tax rate 12.5 % 12.5 % 12.5 % Differences in international tax rates 3.2 % 8.0 % 22.2 % Nondeductible changes in fair value of contingent consideration (0.3 )% 4.0 % (11.6 )% Intercompany asset transfer 21.2 % — % — % Change in valuation allowances (19.1 )% (5.3 )% (0.7 )% Nondeductible stock-based compensation (2.7 )% (1.3 )% (0.4 )% Cross border merger — % — % 0.3 % Unrealized tax benefits 0.7 % (1.3 )% 1.4 % State and local taxes (net of federal) — % (0.3 )% 0.3 % Change in U.S. tax law — % (0.2 )% 3.8 % Nondeductible interest expense (2.5 )% (1.1 )% — % Other 0.9 % 0.7 % (1.5 )% Effective income tax rate 13.9 % 15.7 % 26.3 % Income tax (benefit) provision - at statutory tax rate $ (4,823 ) $ (14,149 ) $ 11,582 Differences in international tax rates (1,218 ) (9,039 ) 20,557 Nondeductible changes in fair value of contingent consideration 121 (4,559 ) (10,779 ) Intercompany asset transfer (8,190 ) — — Change in valuation allowances 7,379 5,998 (610 ) Nondeductible stock-based compensation 1,039 1,499 (375 ) Cross-border merger — — 265 Unrecognized tax benefits (261 ) 1,440 1,296 State and local taxes (net of federal) (7 ) 299 252 Change in U.S. tax law — 274 3,513 Nondeductible interest expense 982 1,269 — Other (378 ) (925 ) (1,312 ) Income tax (benefit) provision - at effective income tax rate $ (5,356 ) $ (17,893 ) $ 24,389 In 2019, the income tax benefit decreased by $12,537 when compared to the same period in 2018. The decrease in the income tax benefit in 2019 was primarily driven by the impairment of the Noctiva intangible asset in 2018, which did not recur in 2019. In addition to the non-recurring impairment, an increase in the valuation allowance in 2019, when compared to the same period in 2018 also contributed to the decrease in tax benefit recorded in 2019. As a part of a corporate reorganization, the Company entered into an internal sale transaction in December 2019. The internal sale transaction included transfer of intangible assets from an Irish entity to a U.S. entity. The internal sale transaction resulted in a decrease of $5,536 to Irish deferred tax asset with corresponding decrease of $5,536 to valuation allowance, an increase of $8,190 to U.S. deferred tax asset associated with amortization of intangible assets, and a $8,190 deferred tax benefit. In 2018, the income tax provision decreased by $42,282 when compared to the same period in 2017, resulting in an income tax benefit. The decrease in the income tax provision was primarily driven by a significant reduction in the amount of taxable income recorded in the U.S. and Ireland in 2018, when compared to 2017. There was also a significant increase in valuation allowance in 2018, when compared to the same period in 2017 as a result of this. In 2018, there was a significant decrease in amounts related to change in U.S. tax law due to the 2017 U.S. Tax Cuts and Jobs Act. Unrecognized Tax Benefits The Company or one of its subsidiaries files income tax returns in Ireland, France, U.S. and various states. The Company is no longer subject to Irish, French, U.S. Federal, and state and local examinations for years before 2015. The Internal Revenue Service (IRS) commenced an examination of the Company's U.S. income tax return for 2015 in the 4th quarter of 2016. In the second quarter of 2019, the IRS added the 2016 and 2017 U.S. income tax return to the ongoing 2015 audit. The French tax authority commenced an examination of the Company's French tax return for 2017 in the first quarter of 2019. The following table summarizes the activity related to the Company’s unrecognized tax benefits for the twelve months ended December 31: Unrecognized Tax Benefit Activity 2019 2018 2017 Balance at January 1: $ 5,315 $ 3,954 $ 1,686 Additions based on tax positions related to the current year — 1,087 2,268 Increases (decreases) for tax positions of prior years 2,416 274 — Statute of limitations expiration (1,266 ) — — Balance at December 31: $ 6,465 $ 5,315 $ 3,954 We expect that within the next twelve months the unrecognized tax benefits could decrease by $2,000 - $3,000 . Additionally, interest could increase by up to $400 . At December 31, 2019 , 2018, and 2017, there are $3,806 , $4,597 , and $3,349 of unrecognized tax benefits that if recognized would affect the annual effective tax rate. We recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2019 , 2018, and 2017, we recognized approximately $555 , $725 , and $304 in interest and penalties. We had approximately $1,612 , and $1,057 for the payment of interest and penalties accrued at December 31, 2019 , and 2018, respectively. Deferred Tax Assets (Liabilities) Deferred income tax provisions reflect the effect of temporary differences between consolidated financial statement and tax reporting of income and expense items. The net deferred tax assets/liabilities at December 31, 2019 and 2018 resulted from the following temporary differences: Net Deferred Tax Assets and Liabilities: 2019 2018 Deferred tax assets: Net operating loss carryforwards $ 30,275 $ 19,510 Amortization 11,602 6,830 Stock based compensation 3,577 4,587 Accounts receivable 53 — Fair value contingent consideration 264 384 Restructuring costs (Noctiva) — 13,812 Other 901 479 Gross deferred tax assets 46,672 45,602 Deferred tax liabilities: Amortization (172 ) (308 ) Accounts receivable — (661 ) Prepaid expenses (35 ) (405 ) Gross deferred tax liabilities (207 ) (1,374 ) Less: valuation allowances (17,038 ) (21,199 ) Net deferred tax assets $ 29,427 $ 23,029 At December 31, 2019, we had $95,771 of net operating losses in Ireland that do not have an expiration date and $75,537 of net operating loss in the U.S. Of the $75,537 of net operating loss in the U.S., $10,365 were acquired due to the acquisition of FSC and $65,172 is due to the losses at US Holdings. The portion due to the acquisition of FSC will expire in 2034 through 2035. A valuation allowance is recorded if, based on the weight of available evidence, it is more likely than not that a deferred tax asset will not be realized. This assessment is based on an evaluation of the level of historical taxable income and projections for future taxable income. For the year ended December 31, 2019 we recorded $13,320 of valuation allowances related to Irish net operating losses and $309 of valuation allowances related to the U.S. net operating losses. The U.S. net operating losses are subject to an annual limitation as a result of the FSC acquisition under Internal Revenue Code Section 382 and will not be fully utilized before they expire. We recorded a valuation allowance against all of our net operating losses in Ireland as of December 31, 2019, and all of our net operating losses in Ireland and France as of December 31, 2018. We intend to continue maintaining a full valuation allowance on the Irish net operating losses until there is sufficient evidence to support the reversal of all or some portion of these allowances. In 2019, we removed $3,259 of French net operating losses and the corresponding valuation allowance as a result of the 2019 restructuring activities in France. See Note 18: Restructuring Cost s. While we believe it is more likely than not that it will be able to realize the deferred tax assets in the U.S., we continue to monitor changes in the U.S. hospital products market as unfavorable changes could ultimately impact our assessment of the realizability of our U.S. deferred tax assets. If we experience an ownership change under Internal Revenue Code Section 382, the U.S. net operating losses could also be limited in their utilization. At December 31, 2019, we have unremitted earnings of $3,961 outside of Ireland as measured on a U.S. GAAP basis. Whereas the measure of earnings for purposes of taxation of a distribution may be different for tax purposes, these earnings, which are considered to be invested indefinitely, would become subject to income tax if they were remitted as dividends or if we were to sell our stock in the subsidiaries, net of any prior income taxes paid. It is not practicable to estimate the amount of deferred tax liability on such earnings, if any. Research and Development Tax Credits Receivable The French and Irish governments provide tax credits to companies for spending on innovative R&D. These credits are recorded as an offset of R&D expenses and are credited against income taxes payable in years after being incurred or, if not so utilized, are recoverable in cash after a specified period of time, which may differ depending on the tax credit regime. As of December 31, 2019, our net research tax credit receivable amounts to $8,429 and represents a French gross research tax credit of $7,608 and an Irish gross research tax credit of $821 . As of December 31, 2018, our net Research tax credit receivable amounts to $7,555 and represents a French gross research tax credit of $6,922 and an Irish gross research tax credit of $633 . Income Tax Deferred Charge On December 16, 2014, we transferred all of our intangible intellectual property from our French entity to our Irish entity as part of a global reorganization. The intellectual property includes patents on drug delivery platforms, clinical data sets and other intangible assets related to the pipeline of proprietary products in development. This intra-entity transaction resulted in a charge of $14,088 of related taxes to the French government in December 2014. As this represents an intra-entity transaction, no deferred tax asset was originally recognized, but rather was recorded as $986 of prepaid expenses and $13,102 of a long-term income tax deferred charge asset in accordance with ASC 740-10-25-3 (e). This income tax deferred charge asset is amortized over the tax life of the asset at a rate of 7% per year and will result in tax relief in Ireland of $8,500 from 2016 to 2029, subject to the ability to realize tax benefits for additional deductions. At December 31, 2016, the balance of these respective accounts was classified as prepaid expenses of $814 and income tax deferred charge asset of $10,342 . In 2017, we adopted the provisions of ASU 2016-16, related to Intra-Entity Transfers of Assets Other Than Inventory. Adoption of ASU 2016-16 eliminated the $11,156 income tax deferred charge recorded within the consolidated balance sheet as of December 31, 2016. In addition to the elimination of the income tax deferred charge, we recorded a deferred tax asset of $7,954 related to the remaining unamortized tax basis of the intangible intellectual property. A full valuation allowance was recorded against the deferred tax asset as sufficient evidence does not exist at this time that we will be able to utilize these benefits. 2017 Tax Cuts and Jobs Act On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes significant changes to the U.S. corporate income tax system including: a federal corporate rate reduction from 35% to 21%; limitations on the deductibility of interest expense and executive compensation; creation of the base erosion anti-abuse tax (“BEAT”) and a new minimum tax. As a result of the Act being signed into law, we recognized a provisional charge of $274 and $3,513 in 2018 and 2017, respectively, related to the re-measurement of its U.S. net deferred tax assets and certain unrecognized tax benefits at the lower enacted corporate tax rates. A majority of the provisions in the Tax Act were effective January 1, 2018. |
