Income Taxes

Geographic sources of income (loss) before income taxes are as follows:



	For the Year Ended December 31,
	2016			2015			2014
	(In thousands)
United States	$	(12,385	)	$	(39,684	)	$	16,571
Foreign	227,542			107,596			119,507
Total income before income taxes	$	215,157		$	67,912		$	136,078

The provision for income taxes includes current federal, state and foreign taxes payable and those deferred because of temporary differences between the financial statement and the tax bases of assets and liabilities.

The components of the provision (benefit) for income taxes are as follows:



	For the Year Ended December 31,
	2016			2015			2014
	(In thousands)
Current
Federal	$	—		$	—		$	—
State	22			11			(46		)
Foreign	49,577			28,721			51,081
	49,599			28,732			51,035
Deferred
Federal	—			—			—
State	—			—			—
Foreign	(1,746		)	(697		)	(17,190		)
	(1,746		)	(697		)	(17,190		)
Total provision	$	47,853		$	28,035		$	33,845

The reconciliation between the U.S. federal statutory income tax rate of 35% and our income tax provision is as follows:



	For the Year Ended December 31,
	2016			2015			2014
	(In thousands)
U.S. federal tax at 35%	$	75,305		$	23,769		$	47,627
State taxes, net of federal benefit	836			2,622			1,940
Foreign income taxed at different rates	(17,907		)	(11,756		)	6,579
Foreign exchange (loss) gain	(1,127		)	(5,680		)	(17,321		)
Change in valuation allowance	(7,362		)	18,259			(13,527		)
Adjustments related to prior years	(2,648		)	(912		)	3,643
Income tax credits generated	(40,301		)	(1,919		)	(2,557		)
Repatriation of foreign earnings and profits	25,604			91			3,958
Expiration of net operating losses and credits	15,092			74			2,534
Non-deductible loss on acquisition of J-Devices (Note 3)	—			4,725			—
Other	361			(1,238		)	969
Total	$	47,853		$	28,035		$	33,845

The change in valuation allowance for 2016, 2015 and 2014 is primarily the result of changes in net operating loss and tax credit carryforwards for which no tax expense or benefit has been recognized. In 2016, we recognized taxable income and associated foreign income tax credits from the repatriation of current year foreign earnings and profits in connection with the merger of our Japanese subsidiaries. In 2015, we recognized a loss in connection with our increased ownership interest in J-Devices which is not deductible for income tax purposes. The 2014 change in foreign income taxed at different rates was due to a change in the geographic income mix which resulted in a lower tax benefit.

The following is a summary of the components of our deferred tax assets and liabilities:



	December 31,
	2016			2015
	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	111,899		$	147,056
Income tax credits	41,900			27,212
Property, plant and equipment	21,860			21,921
Accrued liabilities	68,563			62,016
Unrealized foreign exchange loss	531			869
Other	14,583			16,659
Total deferred tax assets	259,336			275,733
Valuation allowance	(165,367		)	(168,105		)
Total deferred tax assets net of valuation allowance	93,969			107,628
Deferred tax liabilities:
Property, plant and equipment	20,407			31,345
Deferred gain	2,655			3,716
Other	5,826			6,713
Total deferred tax liabilities	28,888			41,774
Net deferred tax assets	$	65,081		$	65,854
Recognized as:
Other assets	66,831			70,784
Other non-current liabilities	(1,750		)	(4,930		)
Total	$	65,081		$	65,854

As a result of certain income tax accounting realization requirements with respect to accounting for share-based compensation, the table of deferred tax assets and liabilities does not include $4.6 million of deferred tax assets as of December 31, 2015 that arose directly from tax deductions related to equity compensation greater than compensation recognized for financial reporting. As a result of the adoption of ASU 2016-09 on July 1, 2016, deferred tax assets now include the impact of tax deductions related to equity compensation greater than compensation recognized for financial reporting.

As a result of certain capital investments, export commitments and employment levels, income from operations in Korea, Malaysia, the Philippines and Taiwan was subject to reduced income tax rates and, in some cases, was exempt from income taxes. The reduced tax rates or tax exemptions expire at various dates through 2025. We recognized $5.6 million, $3.3 million and $0.9 million in tax benefits as a result of the tax holidays in 2016, 2015 and 2014, respectively. The benefit of the tax holidays on diluted earnings per share was approximately $0.02, $0.01 and $0.00 for 2016, 2015 and 2014, respectively.

Our net operating loss carryforwards (“NOL’s”) are as follows:



	December 31,
	2016		2015		Expiration
	(In thousands)
U.S. Federal NOL’s	$	292,715	$	363,648	2021-2036
U.S. State NOL’s	138,218		182,420		2017-2036
Foreign NOL’s	3,378		64,999		2017-2025

We monitor on an ongoing basis our ability to utilize our deferred tax assets and whether there is a need for a related valuation allowance. In evaluating our ability to recover our deferred tax assets in the jurisdictions from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results of recent operations. For most of our foreign deferred tax assets, we consider it more likely than not that we will have sufficient taxable income to allow us to realize these deferred tax assets.

The deferred tax assets associated with our U.S. federal and state net operating losses available for carryforward have been fully reserved with valuation allowances at December 31, 2016 and 2015. Also, our ability to utilize our U.S. net operating loss carryforwards may be limited in the future if we experience an ownership change as defined by the Internal Revenue Code.

At December 31, 2016, we have various tax credits available to be carried forward including U.S. foreign income tax credits totaling $31.5 million which expire in 2026. The deferred tax assets associated with the U.S. foreign income tax credits have been fully reserved with a valuation allowance. Income tax credits generated by certain of our foreign subsidiaries in 2016, 2015 and 2014 have been recognized in our income tax provision.

Income taxes have not been provided on approximately $917.0 million of the undistributed earnings of our foreign subsidiaries at December 31, 2016, over which we have sufficient influence to control the distribution of such earnings and have determined that substantially all such earnings have been reinvested indefinitely. These earnings could become subject to either or both U.S. federal income tax and foreign withholding tax if they are remitted as dividends, if foreign earnings are loaned to any of our domestic companies, or if we sell our investment in certain subsidiaries. We estimate that repatriation of these foreign earnings would generate withholding taxes and income taxes of approximately $42.1 million.

We operate in and file income tax returns in various U.S. and foreign jurisdictions which are subject to examination by tax authorities. We have tax returns that are open to examination in various jurisdictions for tax years 2010-2016. The open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations related to the amount and/or timing of income, deductions and tax credits. There can be no assurance that the outcome of examinations will be favorable. Our unrecognized tax benefits are subject to change as examinations of specific tax years are completed in the respective jurisdictions. Current examinations include our 2012 and 2013 Philippine income tax returns and 2010-2014 Malaysian income tax returns.

A reconciliation of the beginning and ending gross amount of unrecognized tax benefits is as follows:



	For the Year Ended December 31,
	2016			2015			2014
	(In thousands)
Balance at January 1	$	23,332		$	12,670		$	27,128
Additions based on tax positions related to the current year	1,822			12,727			6,032
Additions for tax positions of prior years	689			3,341			1,240
Reductions for tax positions of prior years	(2,589		)	(4,815		)	(15,433		)
Reductions related to settlements with tax authorities	—			—			(6,297		)
Reductions from lapse of statutes of limitations	(105		)	(591		)	—
Balance at December 31	$	23,149		$	23,332		$	12,670

The net decrease in our unrecognized tax benefits was $0.2 million from December 31, 2015 to December 31, 2016. Our unrecognized tax benefits decreased by $2.0 million as a result of the positive ruling on the tax treatment of an expense. The decrease was offset by increases primarily related to income attribution and income characterization. At December 31, 2016, all of our gross unrecognized tax benefits would reduce our effective tax rate, if recognized.

The liability related to our unrecognized tax benefits is $21.3 million as of December 31, 2016, and is reported as a component of other non-current liabilities. The unrecognized tax benefits presented in the table above include positions that have reduced deferred tax assets, which are not included in the liability reported as a component of other non-current liabilities. The balance of accrued and unpaid interest and penalties is $2.5 million as of December 31, 2016 and is included as a component in other non-current liabilities in connection with our unrecognized tax benefits.