Income Taxes

Income before income taxes is categorized geographically as follows:



	Year Ended December 31,
	2016		2015		2014
	(In thousands)
United States	$	299,304	$	248,932	$	270,373
Foreign	281,869		238,718		212,938
Total income before income taxes	$	581,173	$	487,650	$	483,311

The provision for income taxes consisted of the following:



	Year Ended December 31,
	2016		2015		2014
	(In thousands)
Current expense (benefit):
Federal	$	34,842	$	13,601	$	4,643
State	240		156		(14		)
Foreign, including withholding tax	19,268		17,241		69,614
	54,350		30,998		74,243
Deferred expense (benefit):
Federal	64,301		65,168		76,614
State	21,492		15,767		15,402
Foreign	385		481		(38,208		)
	86,178		81,416		53,808
Total income tax expense	$	140,528	$	112,414	$	128,051

The difference between income tax expense and the amount resulting from applying the federal statutory rate of 35% to Income before income taxes is attributable to the following:



	Year Ended December 31,
	2016			2015			2014
	(In thousands)
Income tax expense at federal statutory rate	$	203,410		$	170,677		$	169,159
State taxes, net of federal benefit	14,517			9,616			11,308
Differences between statutory rate and foreign effective tax rate	(79,087		)	(66,238		)	(57,876		)
Reorganization of certain non-U.S. operations	—			—			14,474
Changes in estimates related to worthless stock deduction	—			—			14,497
Change in valuation allowance	(511		)	434			(41,700		)
Accrual for uncertain tax positions	963			706			22,719
Other	1,236			(2,781		)	(4,530		)
Total income tax expense	$	140,528		$	112,414		$	128,051

During 2014 the Company repatriated $740.9 million of cash held by foreign subsidiaries, net of $28.1 million of foreign withholding taxes which were accrued during 2013. During 2014, the Company recognized a net income tax benefit of $8.6 million, resulting from the completion of the repatriation and changes to estimates related to the 2013 worthless stock deduction. The components of this net benefit are included in the table above for changes in valuation allowances, adjustments to the benefit from the worthless stock deduction, changes to the accrual for uncertain tax positions and other.

Deferred income taxes have not been provided on the undistributed earnings of foreign subsidiaries because these earnings are intended to be indefinitely reinvested. As of December 31, 2016, the amount of such earnings was $926.7 million. The amount of unrecognized deferred tax liability related to undistributed foreign earnings is estimated to be $264.1 million.

Beginning in 2015, the Company qualified for a tax holiday in Switzerland which does not expire, unless the required thresholds are no longer met, or there is a law change which eliminates the holiday. The Company qualified for another tax holiday in Switzerland which expired on December 31, 2016, but may be renewed if certain criteria are satisfied. An additional tax holiday in Switzerland expired in 2014 and was not extended. The tax holidays provide reduced rates of taxation on certain types of income and also require certain thresholds of foreign source income. These tax holidays increased the Company’s earnings per share by $0.16, $0.14, and $0.50 in 2016, 2015, and 2014, respectively. In the fourth quarter of 2014, the Company incurred a charge of $14.5 million in non-US income taxes as a result of a reorganization of certain international operations.

The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities are as follows:



	As of December 31,
	2016			2015
	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	46,879		$	56,108
Deductible goodwill and intangible assets	10,473			21,044
Tax credit carryforwards	59,337			86,951
Deferred revenue, accruals and reserves	114,548			106,572
Capital loss carryforwards and book impairment of investments	1,161,772			1,162,320
Other	4,791			5,039
Total deferred tax assets	1,397,800			1,438,034
Valuation allowance	(1,162,101		)	(1,162,604		)
Net deferred tax assets	235,699			275,430
Deferred tax liabilities:
Property and equipment	(4,212		)	(10,787		)
Subordinated Convertible debentures	(590,921		)	(538,098		)
Other	(2,614		)	(3,378		)
Total deferred tax liabilities	(597,747		)	(552,263		)
Total net deferred tax liabilities	$	(362,048	)	$	(276,833	)

With the exception of deferred tax assets related to capital loss carryforwards, management believes it is more likely than not that the tax effects of the deferred tax liabilities together with future taxable income, will be sufficient to fully recover the remaining deferred tax assets.

As of December 31, 2016, the Company had federal, state and foreign net operating loss carryforwards of approximately $6.8 million, $1.4 billion and $ 16.5 million, respectively, before applying tax rates for the respective jurisdictions. As of December 31, 2016, the Company had federal and state research tax credits of $13.5 million and $2.9 million, respectively, and alternative minimum tax credits of $17.6 million available for future years. Certain net operating loss carryforwards and credits are subject to an annual limitation under Internal Revenue Code Section 382, but are expected to be fully realized. The amount of excess tax benefits from stock-based compensation that have not been recognized as of December 31, 2016, because they did not reduce income taxes payable, was $52.1 million. The federal and state net operating loss and federal tax credit carryforwards expire in various years from 2017 through 2034. The foreign net operating loss can be carried forward indefinitely. As of December 31, 2016, the Company had federal and state capital loss carryforwards of $3.0 billion and $3.1 billion, respectively, before applying tax rates for the respective jurisdictions. The capital loss carryforwards expire in 2018 and are also subject to annual limitations under Internal Revenue Code Section 382. The Company does not expect to realize any tax benefits from the capital loss carryforwards and accordingly has reserved the entire amount through valuation allowance and accrual for uncertain tax positions. As of December 31, 2016, the Company has foreign tax credit carryforwards of $143.9 million. The majority of these foreign tax credits will expire in 2024.

The deferred tax liability related to the Subordinated Convertible Debentures is driven by the excess of the tax deduction taken for interest expense over the amount of interest expense recognized in the consolidated financial statements. The interest expense deducted for tax purposes is based on the adjusted issue price of the Subordinated Convertible Debentures, while the interest expense recognized in accordance with GAAP is based only on the liability portion of the Subordinated Convertible Debentures. The adjusted issue price of the Subordinated Convertible Debentures grows over the term due to the difference between the interest deduction taken for income tax, using a comparable yield of 8.5%, and the coupon rate of 3.25%, compounded annually, adjusted for actual versus projected contingent interest payments

The Company maintains liabilities for uncertain tax positions. These liabilities involve considerable judgment and estimation and are continuously monitored by management based on the best information available including changes in tax regulations and other information. A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:



	As of December 31,
	2016			2015
	(In thousands)
Gross unrecognized tax benefits at January 1	$	220,280		$	219,908
Increases in tax positions for prior years	119			—
Decreases in tax positions for prior years	(71		)	—
Increases in tax positions for current year	354			372
Gross unrecognized tax benefits at December 31	$	220,682		$	220,280

As of December 31, 2016, approximately $212.0 million of unrecognized tax benefits, including penalties and interest, could affect the Company’s tax provision and effective tax rate. It is reasonably possible that during the next twelve months, the Company’s unrecognized tax benefits may change by a significant amount as a result of IRS audits. However the timing of completion and ultimate outcome of the audits remains uncertain. Therefore, the Company cannot currently estimate the impact on the balance of unrecognized tax benefits.

In accordance with its accounting policy, the Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. These accruals were not material in any period presented.

The Company’s major taxing jurisdictions are the U.S., the state of Virginia, and Switzerland. The Company’s U.S. federal income tax returns are currently under examination by the IRS for 2010 through 2014. The Company’s other tax returns are not currently under examination by their respective taxing jurisdictions. Because the Company uses historic net operating loss carryforwards and other tax attributes to offset its taxable income in current and future years’ income tax returns for the U.S. and Virginia, such attributes can be adjusted by these taxing authorities until the statute closes on the year in which such attributes were utilized. The open years in Switzerland are the 2012 tax year and forward.