4. Income Taxes

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


(in thousands)	2015			2014			2013
United States	$	(2,670	)	$	2,201		$	(57,970	)
International		(9,108	)		(4,567	)		(2,571	)

	$	(11,778	)	$	(2,366	)	$	(60,541	)

The provision for income taxes as of December 31 was:


(in thousands)	2015		2014			2013
Current
Federal	$	265	$	(208	)	$	(782	)
State		2,386		1,285			1,712
International		218		325			356

		2,869		1,402			1,286

Deferred
Federal		—		(277	)		—
State		—		—			—
International		99		70			(272	)

		99		(207	)		(272	)

	$	2,968	$	1,195		$	1,014

The Company’s provision for income taxes in the years ended December 31, 2015, 2014 and 2013 was different from the amount computed by applying the statutory U.S. Federal income tax rate to loss from operations before income taxes, as a result of the following:


(in thousands)	2015			2014			2013
U.S. statutory rate	$	(4,122	)	$	(828	)	$	(21,181	)
Permanent items and foreign tax credits		(476	)		149			292
Uncertain tax positions		2,523			817			809
Research credits		(120	)		(1,204	)		(1,346	)
State and local taxes		478			234			(1,780	)
Impact of rate change on deferred taxes		749			61			31
True-up of prior year tax		1,191			1,065			(1,465	)
Foreign tax rate differential		46			437			92
Valuation allowance		2,704			958			25,631
Tax on repatriation		—			(500	)		(18	)
Other		(5	)		6			(51	)

	$	2,968		$	1,195		$	1,014

The components of deferred income tax assets (liabilities) at December 31 were:


(in thousands)	2015			2014
Deferred Tax Assets
Federal benefit of state tax liabilities	$	11,112		$	10,950
Reserves, accruals and other		30,564			38,285
Capitalized research and development		22,431			26,471
Amortization of intangibles other than goodwill		20,553			36,523
Net operating loss carryforwards		72,416			46,843
Depreciation		2,301			—

Deferred tax assets		159,377			159,072

Deferred Tax Liabilities
Reserves, accruals and other		(399	)		(642	)
Customer relationships		(4,558	)		(6,012	)
Depreciation		—			(95	)

Deferred tax liability		(4,957	)		(6,749	)
Less: Valuation allowance		(154,252	)		(152,138	)

	$	168		$	185

Recorded in the accompanying consolidated balance sheet as:
Current deferred tax assets	$	95		$	256
Current deferred tax liabilities		(194	)		(152	)
Noncurrent deferred tax assets		320			328
Noncurrent deferred tax liability		(53	)		(247	)

The Company files separate federal income tax returns for Lantheus Holdings and its subsidiaries.

A reconciliation of the Company’s changes in uncertain tax positions for 2015, 2014 and 2013 is as follows:


(in thousands)
Beginning balance of uncertain tax positions as of January 1, 2013	$	14,781
Additions related to current year tax positions		18
Reductions related to prior year tax positions		—
Settlements		(34	)
Lapse of statute of limitations		(763	)

Balance of uncertain tax positions as of December 31, 2013		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

As of December 31, 2015 and 2014, the total amount of unrecognized tax benefits was $11.5 million and $12.1 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. Since the Company operates in a number of countries in which it has income tax treaties, it believes that it is more-likely-than-not that the Company should be able to receive competent authority relief for potential adjustments in those countries. Included in the Company’s uncertain tax positions for transfer pricing exposures are $0.6 million, which is reflected within other long-term liabilities, and an offset of $0.2 million for expected competent authority relief, which is reflected in other long-term assets. The tabular rollforward reflected above is net of the $0.2 million of competent authority relief as of December 31, 2015.

As of December 31, 2015 and 2014, total liabilities for tax obligations and associated interest and penalties were $33.8 million and $33.2 million, respectively, consisting of income tax provisions for uncertain tax benefits of $11.7 million and $12.4 million, interest accruals of $19.9 million and $18.6 million, respectively, and penalty accruals of $2.2 million, which were included in other long-term liabilities on the consolidated balance sheets. Included in the 2015, 2014 and 2013 tax provision is $2.5 million, $1.2 million and $1.9 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 $17.6 million and $17.8 million at December 31, 2015 and 2014, 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 is no net effect on earnings related to these liabilities and no net cash outflows.

During the year ended December 31, 2015 and 2014, BMS, on behalf of the Company, made payments totaling $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 $1.6 million and $2.9 million for the year ended December 31, 2015 and 2014, respectively, which represented the release of asset balances associated with pre-acquisition years. There were no payments made on behalf of the Company in 2013.

Included in other income (expense), net for the years ended December 31, 2015 and 2014, is an expense of $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 $2.1 million and $1.9 million at December 31, 2015 and 2014, respectively, relating to the increase in the indemnification receivable for current year interest and penalties.

The Company has generated domestic pre-tax losses in two of the past three years. This loss history demonstrates negative evidence concerning the Company’s ability to utilize its domestic gross deferred tax assets. In order to overcome the presumption of recording a valuation allowance against the deferred tax assets, the Company must have sufficient positive evidence that it can generate sufficient taxable income to utilize these deferred tax assets within the carryover or forecast period. Although the Company has no history of expiring net operating losses or other tax attributes, based on the cumulative domestic loss incurred over the three-year period ended December 31, 2015, management determined that the net U.S. deferred tax assets are not more-likely-than-not recoverable. As a result of this analysis, the Company continues to maintain a full valuation allowance primarily against its net U.S. deferred tax assets in the amount of $154.3 million and $152.1 million at December 31, 2015 and 2014, respectively.

The following is a reconciliation of the Company’s valuation allowance for the years ended December 31, 2015, 2014, and 2013.


(in thousands)
Balance at January 1, 2013	$	125,782
Charged to provision for income taxes		25,557
Deductions		—

Balance at December 31, 2013		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

The Company’s U.S. income tax returns remain subject to examination for three years. The state income tax returns remain subject to examination for three to four years depending on the state’s statute of limitations.

At December 31, 2015, the Company has federal net operating loss carryovers of $175.5 million, which will begin to expire in 2031 and completely expire in 2034. The Company has $2.4 million of federal research credits, which begin to expire in 2029. The Company has foreign tax credits of approximately $4.4 million that will begin to expire in 2020. The Company has state research credits of $1.8 million, which will expire between 2024 and 2029. The Company has Massachusetts investment tax credits of approximately $0.3 million, which have no expiration date.

In 2010, the Company was granted a tax holiday from the Commonwealth of Puerto Rico, which expires on January 1, 2024. This grant provides for a 4% tax rate on activities relating to the operations of the Company’s radiopharmacies. This grant is conditioned upon the Company meeting certain employment and investment thresholds. The impact of this tax holiday was immaterial in 2015.