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Income Taxes
3 Months Ended
Mar. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full year, adjusted for any discrete events which are recorded in the period they occur. The Company’s effective tax rate in fiscal 2018 differs from the U.S. federal statutory rate of 21% principally due to the impact of state taxes, uncertain tax positions, and losses in certain foreign jurisdictions for which no tax benefit is recorded. The Company’s effective rate in fiscal 2017 was impacted by the valuation allowance the Company had on all its U.S. deferred tax assets until the fourth quarter of fiscal 2017. Cumulative adjustments to the tax provision are recorded in the interim period in which a change in the estimated annual effective tax rate is determined. The Company’s income tax expense was $3.8 million and $0.8 million for the three months ended March 31, 2018 and 2017, respectively.
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act of 2017 (the “Act”). The Act is significant and has wide-ranging effects.
The Company is still studying all of the ramifications of the Act, but expects the primary material impact of the Act to be the remeasurement of the Company’s deferred tax assets which was recorded in fiscal 2017 as a result of the reduction in U.S. corporate tax rates from 35% to 21%. As of December 31, 2017, the Company determined it had no accumulated unrepatriated foreign earnings, and therefore had recorded no liability for the repatriation transition tax. No changes have been made to these estimates.
The Company is continuing to evaluate other changes resulting from the Act, including the impact of Global Intangible Low Tax Income, Base Erosion and Anti-abuse Tax and revisions to Section 162(m). The Company has incorporated estimates of these items in its fiscal 2018 effective tax rate and expects to complete its accounting for these items within the prescribed measurement period.
The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realizability 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 weighed the objective evidence and expected impact.The Company released its full valuation allowance recorded against its domestic deferred tax assets during the year ended December 31, 2017. The Company continues to record a partial valuation allowance against its foreign net deferred tax assets.
In connection with the Company’s acquisition of the medical imaging business from Bristol Myers Squibb (“BMS”) in 2008, the Company entered into 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. A long-term receivable is recorded to account for the expected value to the Company of future indemnification payments, net of actual U.S. federal tax benefits. The tax indemnification receivable is recognized within other long-term assets. The changes in the tax indemnification asset are recognized within other income in the condensed 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 income tax expense. Accordingly, as these reserves change, adjustments are included in income tax expense while the offsetting adjustment is included in other income. 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.