Item 4.02.
Non-Reliance
on Previously Issued Financial Statements or a Related Audit Report or Completed
Interim Review.
(a) On May 26, 2017, management of the Company, after consultation with Ernst & Young LLP (EY), the
Companys independent registered public accounting firm, concluded that, due to an accounting error, as described below, the previously issued audited consolidated financial statements and other financial information contained in the
Companys Annual Report on Form
10-K
for the fiscal year ended December 31, 2016 and the previously issued unaudited consolidated financial statements and other financial information contained in the
Companys Quarterly Reports on Form
10-Q
for the fiscal periods ended June 30, 2016, September 30, 2016 and March 31, 2017 (the Original Filings) should no longer be relied
upon. The Audit Committee of the Board of Directors of the Company, acting on the recommendations of management and after consultation with EY, also concluded that, due to such accounting error, the previously issued audited and unaudited
consolidated financial statements and other financial information contained in the Original Filings should no longer be relied upon. Similarly, related earnings releases and other financial communications for these periods should no longer be relied
upon.
The Company has become aware of an error in the calculation of the valuation allowance on the deferred tax asset balances in the Original Filings.
The Companys methodology effectively resulted in a duplication of the reversal of taxable temporary differences. Accordingly, the Company is in the process of revising its calculation to eliminate the duplication.
Although the Company has not determined the precise amount of the adjustments to the valuation allowance on the deferred tax asset balances included in the
Original Filings, such amounts are anticipated to be material. The Companys net deferred tax asset balances were $273.8 million as of June 30, 2016, $425.9 million as of September 30, 2016, $299.9 million as of
December 31, 2016, and $299.6 million as of March 31, 2017. The impact of these adjustments will be to materially reduce the overall net deferred tax asset balances by increasing the valuation allowance, and reducing the tax benefit
recorded in the Companys previously issued consolidated statements of comprehensive loss.
These adjustments are not anticipated to have an effect
on the reported net operating cash flows of the Company for the restated periods reflected in the Original Filings.
The Company will work with the Audit
Committee to determine the amendments required to be made to the Original Filings to reflect the adjustment to the valuation allowance on the deferred tax asset balances as expeditiously as possible. Upon the completion of this process, which could
identify further adjustments in addition to those discussed above, the Company anticipates filing required amendments to the Original Filings with the Securities and Exchange Commission (the SEC) as soon as practicable to reflect the
impact of the correction of the error.
The Company has reassessed the Companys internal control over financial reporting and disclosure controls
and procedures in light of the error. The Company has determined that a material weakness relating to the ineffective review of the tax calculations associated with the valuation allowance on the deferred tax asset balances existed for the affected
periods, and therefore the Companys internal controls over financial reporting and disclosure controls and procedures were ineffective. Further details and remediation plans will be reflected in the amended filings.
The Audit Committee and the Companys management have discussed the matters disclosed in this
Item 4.02(a) with EY, the Companys independent registered public accounting firm.
The need to restate the Companys financial statements
will require that the Company seek appropriate amendments, waivers and / or forbearances to a number of its and its subsidiaries credit and financing arrangements, including the agreements described in Items 1.01 and 2.03 above, and certain
other agreements.
Cautionary Statements Regarding Forward-Looking Information
This Current Report on Form
8-K
includes forward-looking statements within the meaning of the safe harbor
provisions of the United States Private Securities Litigation Reform Act of 1995. Certain of these forward-looking statements can be identified by the use of words such as believes, expects, intends,
plans, estimates, assumes, may, should, will, seeks, targets, or other similar expressions. Such statements may include, but are not limited to,
statements about the adjustments to the Companys valuation allowance for the deferred tax asset balances, future financial and operating results, any need to restate financial statements and related matters, the Companys plans,
objectives, expectations and intentions and other statements that are not historical facts.
Forward-looking statements are subject to significant known
and unknown risks, uncertainties and other important factors, and our actual results, performance or achievements could differ materially from future results, performance or achievements expressed in these forward-looking statements. These
forward-looking statements are based on the Companys current beliefs, intentions and expectations and are not guarantees or indicative of future performance, nor should any conclusions be drawn or assumptions be made as to any potential
outcome of any strategic review we conduct. Risks and uncertainties relating to the error in the valuation allowance for deferred tax assets include: the timing of and definitive findings regarding the Companys assessment of the error in its
valuation allowance, including the expected materiality of the adjustments; whether any additional accounting errors or other issues are identified; reactions from the Companys creditors, stockholders, or business partners; potential delays in
the preparation of restated financial statements; our ability to remediate control deficiencies and material weaknesses, and the timing and expense of such remediation; our ability to successfully negotiate and obtain any necessary waivers,
amendments and / or forbearances to credit and financing arrangements and certain other agreements; and the impact and result of any litigation or regulatory inquiries or investigations related to the findings of the Companys assessment or the
Companys restatement of its financial statements. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, those factors,
risks and uncertainties described above and in more detail under the heading Risk Factors in the Companys annual and quarterly reports filed with the SEC.
The above factors, risks and uncertainties are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond the
Companys control. New factors, risks and uncertainties emerge from time to time, and it is not possible for management to predict all such factors, risks and uncertainties. Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore any of these statements included herein may prove to be inaccurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or our objectives and plans will
be achieved. The Company makes no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made, except as otherwise required under the federal securities laws. If
the Company were in any particular instance to update or correct a forward-looking statement, investors and others should not conclude that the Company would make additional updates or corrections thereafter except as otherwise required under the
federal securities laws.