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Income Taxes
12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes

4. Income Taxes

The components of income (loss) before income taxes for the years ended December 31 were:

 

       Year Ended
December 31,
 

(in thousands)

     2016        2015      2014  

U.S.

     $     23,736         $ (2,670    $ 2,201   

International

       4,558           (9,108      (4,567
    

 

 

      

 

 

    

 

 

 

Income (loss) before income taxes

     $ 28,294         $     (11,778    $     (2,366
    

 

 

      

 

 

    

 

 

 

The provision for income taxes as of December 31 was:

 

     Year Ended
December 31,
 

(in thousands)

   2016      2015      2014  

Current

        

Federal

   $ (91    $ 265       $ (208

State

     1,689         2,386         1,285   

International

     (49      218         325   
  

 

 

    

 

 

    

 

 

 
     1,549         2,869         1,402   
  

 

 

    

 

 

    

 

 

 

Deferred

        

Federal

     —           —           (277

International

     (17      99         70   
  

 

 

    

 

 

    

 

 

 
     (17      99         (207
  

 

 

    

 

 

    

 

 

 
   $     1,532       $     2,968       $     1,195   
  

 

 

    

 

 

    

 

 

 

 

The Company’s provision for income taxes in the years ended December 31, 2016, 2015 and 2014 was different from the amount computed by applying the statutory U.S. Federal income tax rate to income (loss) from operations before income taxes, as a result of the following:

 

     Year Ended
December 31,
 

(in thousands)

   2016      2015      2014  

U.S. statutory rate

   $ 9,903      $ (4,122    $ (828

Permanent items

     (570      (782      (465

Write-off of foreign tax and research credits

     7,125        —          —    

Foreign tax credits

     (319      306        614  

Uncertain tax positions

     1,529        2,523        817  

Research credits

     90        (120      (1,204

State and local taxes

     433        478        234  

Impact of rate change on deferred taxes

     (383      749        61  

True-up of prior year tax

     (2,751      1,191        1,065  

Foreign tax rate differential

     (242      46        437  

Valuation allowance

     (13,292      2,704        958  

Tax on repatriation

     —          —          (500

Other

     9        (5      6  
  

 

 

    

 

 

    

 

 

 

Provision for income taxes

   $       1,532      $       2,968      $       1,195  
  

 

 

    

 

 

    

 

 

 

The components of deferred income tax assets (liabilities) are as follows:

 

       December 31,  

(in thousands)

     2016      2015  

Deferred Tax Assets

       

Federal benefit of state tax liabilities

     $ 11,420      $ 11,112  

Reserves, accruals and other

       10,906        16,392  

Inventory obsolescence

       14,138        14,172  

Capitalized research and development

       18,861        22,431  

Amortization of intangibles other than goodwill

       8,040        20,553  

Net operating loss carryforwards

       80,808        72,416  

Depreciation

       492        2,301  
    

 

 

    

 

 

 

Deferred tax assets

       144,665        159,377  
    

 

 

    

 

 

 

Deferred Tax Liabilities

       

Reserves, accruals and other

       (287      (399

Customer relationships

       (3,398      (4,558

Depreciation

       —          —    
    

 

 

    

 

 

 

Deferred tax liability

       (3,685      (4,957

Less: Valuation allowance

       (140,915      (154,252
    

 

 

    

 

 

 
     $ 65      $ 168  
    

 

 

    

 

 

 

Recorded in the accompanying consolidated balance sheets as:

       

Noncurrent deferred tax assets

     $ 65      $ 415  
    

 

 

    

 

 

 

Noncurrent deferred tax liability

     $ —        $ (247
    

 

 

    

 

 

 

 

A reconciliation of the Company’s changes in uncertain tax positions for 2016, 2015 and 2014 is as follows:

 

(in thousands)

   Amount  

Beginning balance of uncertain tax positions as of January 1, 2014

   $ 14,002  

Additions related to current year tax positions

     —    

Reductions related to prior year tax positions

     (8

Settlements

     (1,434

Lapse of statute of limitations

     (416
  

 

 

 

Balance of uncertain tax positions as of December 31, 2014

     12,144  

Additions related to current year tax positions

     —    

Reductions related to prior year tax positions

     —    

Settlements

     (694

Lapse of statute of limitations

     —    
  

 

 

 

Balance of uncertain tax positions as of December 31, 2015

     11,450  

Additions related to current year tax positions

     —    

Reductions related to prior year tax positions

     —    

Settlements

     (593

Lapse of statute of limitations

     (416
  

 

 

 

Balance of uncertain tax positions as of December 31, 2016

   $       10,441  
  

 

 

 

As of December 31, 2016 and 2015, the total amount of unrecognized tax benefits was $10.4 million and $11.5 million, respectively, all of which would affect the effective tax rate, if recognized. These amounts are primarily associated with domestic state tax issues, such as the allocation of income among various state tax jurisdictions and transfer pricing.

As of December 31, 2016 and 2015, total liabilities for tax obligations and associated interest and penalties were $34.4 million and $33.8 million, respectively, consisting of income tax provisions for uncertain tax benefits of $10.4 million and $11.7 million, interest accruals of $21.9 million and $19.9 million, and penalty accruals of $2.1 million and $2.2 million, respectively. As of December 31, 2016 and 2015, $33.2 million and $32.9 million, respectively, were included in other long-term liabilities on the consolidated balance sheets and $1.2 million and $0.9 million, respectively have reduced the Company’s deferred tax assets. Included in the 2016, 2015 and 2014 tax provision is $2.0 million, $2.5 million and $1.2 million, respectively, relating to interest and penalties, net of benefits for reversals of uncertain tax position interest and penalties recognized upon settlements and lapse of statute of limitations.

In accordance with the Company’s acquisition of the medical imaging business from Bristol Myers Squibb (“BMS”) in 2008, the Company obtained a tax indemnification agreement with BMS related to certain tax obligations arising prior to the acquisition of the Company, for which the Company has the primary legal obligation. The tax indemnification receivable is recognized within other noncurrent assets. The total noncurrent asset related to the indemnification was $17.9 million and $17.6 million at December 31, 2016 and 2015, respectively. The changes in the tax indemnification asset are recognized within other income (expense), net, in the consolidated statement of operations. In accordance with the Company’s accounting policy, the change in the tax liability and penalties and interest associated with these obligations (net of any offsetting federal or state benefit) is recognized within the tax provision. Accordingly, as these reserves change, adjustments are included in the tax provision while the offsetting adjustment is included in other income (expense), net. Assuming that the receivable from BMS continues to be considered recoverable by the Company, there will be minimal net effect on earnings and net cash outflows related to these liabilities.

During the year ended December 31, 2016, 2015 and 2014, BMS, on behalf of the Company, made payments totaling $0.7 million, $1.9 million and $6.3 million, respectively to a number of states in connection with prior year state income tax filings. The amount due from BMS, included within other long-term assets, decreased by $1.3 million, $1.6 million and $2.9 million for the year ended December 31, 2016, 2015, and 2014, respectively, which represented the release of asset balances associated with pre-acquisition years.

 

Included in other income (expense), net for the years ended December 31, 2016, 2015 and 2014, is an expense of $0.8 million, $0.4 million and $1.1 million, respectively, relating to the reduction in the indemnification receivable from BMS associated with the expiration of statute of limitations and income of $1.8 million, $2.1 million and $1.9 million at December 31, 2016, 2015 and 2014, respectively, relating to the increase in the indemnification receivable for current year interest and penalties.

The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant management judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighted the evidence based on its objectivity. Evidence the Company considered included its history of net operating losses, which resulted in the Company recording a full valuation allowance for domestic deferred tax assets in 2011 and each year thereafter. The Company was profitable on a cumulative basis for the three years ended December 31, 2016, but substantially all of that profitability was achieved during 2016.

The Company continues to evaluate other negative evidence including customer concentration and contractual risk, the risk of Moly supply availability and cost, DEFINITY supplier risk and certain product development risks, all of which provide for uncertainties around the Company’s future level of profitability. Based on the review of all available evidence, the Company determined that it has not yet attained a sustained level of profitability and the objectively verifiable negative evidence outweighed the positive evidence and it has recorded a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realizable as of December 31, 2016. The Company will continue to assess the level of the valuation allowance required. If sufficient positive evidence exists in future periods to support a release of some or all of the valuation allowance, such a release would likely have a material impact on the Company’s results of operations.

The following is a reconciliation of the Company’s valuation allowance for the years ended December 31, 2016, 2015, and 2014.

 

(in thousands)

   Amount  

Balance at January 1, 2014

   $ 151,339   

Charged to provision for income taxes

     958   

Foreign currency

     (159

Deductions

     —     
  

 

 

 

Balance at December 31, 2014

     152,138   

Charged to provision for income taxes

     2,704   

Foreign currency

     (590

Deductions

     —     
  

 

 

 

Balance at December 31, 2015

     154,252   

Charged to provision for income taxes

     (13,292

Foreign currency

     (45

Deductions

     —     
  

 

 

 

Balance at December 31, 2016

   $ 140,915   
  

 

 

 

The Company’s U.S. federal income tax returns remain subject to examination for three years. The state and foreign income tax returns remain subject to examination for periods varying from three to four years depending on the specific jurisdictions’ statute of limitations.

At December 31, 2016, the Company has federal net operating loss carryovers of $200.3 million, which will begin to expire in 2030 and completely expire in 2036. The Company has state research credits of $1.6 million, which will expire between 2024 and 2031. The Company has Massachusetts investment tax credits of approximately $0.4 million, which have no expiration date.

 

The Company has concluded that an ownership change occurred during 2016, as defined under Section 382 of the Internal Revenue Code. A Section 382 limitation now applies to the Company’s U.S. federal net operating loss carryforwards, as well as its other U.S. tax attributes. The limitation was computed based on the value of the Company just prior to the ownership change. It is the Company’s view that its ability to utilize U.S. federal net operating losses within the carryforward period is not reduced by the limitation imposed by this ownership change. However, the Company’s U.S. research credit carryforwards and U.S. foreign tax credit carryforwards will not be utilizable and as such these credits totaling $7.1 million have been removed from the gross deferred tax asset balances as of December 31, 2016.