Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. INSULET CORP (1145197) 10-Q published on Nov 01, 2018 at 5:33 pm
Reporting Period: Sep 29, 2018
In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"). ASU 2018-15 requires that entities capitalize certain costs to implement a cloud computing arrangement that is service contract consistent with the rules applicable to internal use software capitalization projects. The guidance is effective no later than January 1, 2020 for the Company and can be early-adopted prospectively in any interim period or retrospectively. The Company is evaluating when and how it will adopt this new guidance. Upon adoption, the Company would defer eligible costs related to the implementation of cloud computing arrangements within other current and non-current assets and amortize these costs to the same income statement line as the associated hosting fees.
Fees To Former European Distributor
Following the expiration of its distribution agreement on June 30, 2018, the Company is required to pay to its former European Distributor a quarterly per unit fee for sales of its Omnipod device to identified customers (as that term is defined in the distribution agreement) of the former European Distributor over the twelve months following the expiration of the distribution agreement. The Company is recognizing a liability and an associated intangible asset for this fee as qualifying sales of the Omnipod device are made to these identified customers during the twelve-month period between July 1, 2018 and June 30, 2019. The actual total fee could vary significantly depending on the number of customers who qualify as eligible to be considered for purposes of calculating the fee under the terms of the distribution agreement, which is under dispute between the parties, and the number of Omnipod devices sold to those customers over the twelve month period. The Company estimates that the total fee could be in the range of approximately $10 million to $55 million over the twelve month period. The Company has accrued approximately $2 million for fees related to Omnipod devices sold to qualifying customers for the three months ended September 30, 2018.
The Company accounts for income taxes in accordance with ASC 740-10, Income Taxes (“ASC 740-10”). The Tax Cuts and Jobs Act ("Tax Reform Act"), which was enacted in December 2017, significantly changed U.S. tax law by, among other things, lowering corporate income tax rates to a flat 21% rate effective January 1, 2018 and imposing a tax on deemed repatriated earnings of foreign subsidiaries. The Company recognized the impact of the Tax Reform Act in the consolidated financial statements as of December 31, 2017. In accordance with Staff Accounting Bulletin No. 118 ("SAB 118"), the Company recorded provisional amounts reflecting the impact of certain requirements of the Tax Reform Act in its consolidated financial statements and related disclosures as of December 31, 2017, including a reduction in net operating losses in 2017 of $0.8 million offset by an associated reduction in the valuation allowance of the $0.8 million related to the deemed repatriation. The deemed repatriation tax computation will be finalized in conjunction with the filing of the Company's federal and state tax returns in the fourth quarter and are not expected to vary significantly from the original estimate. The Tax Reform Act also subjects the Company to current tax on global intangible low-taxed income, or ("GILTI") earned by certain of its foreign subsidiaries. The Company has elected to recognize the income tax related to GILTI as a period expense in the period the tax is incurred or expected to occur for the year ended December 31, 2018. The inclusion of GILTI had no impact on the Company's income tax expense or effective tax rate in the period due to the full valuation allowance applied to the U.S. entity.
On September 10, 2018, we announced that Shacey Petrovic, President and Chief Operating Officer, will succeed Patrick Sullivan as our Chief Executive Officer effective January 1, 2019. Timothy J. Scannell, who has served as a member of Insulet’s Board for the last four years, will become Chairman, effective January 1, 2019. Ms. Petrovic joined Insulet’s Board effective with the announcement. In accordance with the terms of his employment agreement and the Company's Amended and Restated Executive Severance Plan, Mr. Sullivan is entitled to severance payments, equity acceleration rights and other benefits.
Our assumption on July 1, 2018 of the distribution, sales, marketing, training and support activities of our Omnipod System in Europe creates risk associated with Brexit.
On June 23, 2016, the United Kingdom ("U.K.") held a referendum in which voters approved an exit from the European Union, commonly referred to as “Brexit.” As a result of the referendum, the U.K. government is attempting to negotiate the terms of the its future relationship with the European Union. Although it is unknown what those terms will be, it is possible that there will be greater restrictions on imports and exports and on the movement of people between the U.K. and European Union countries, and increased regulatory complexities associated with operating our business in the U.K. and Europe.