Income Taxes

The geographical sources of (loss) income before income taxes were as follows (in millions):



				Year Ended December 31,
	2016			2015			2014
United States	$	(120	)	$	(288	)	$	(122	)
Outside United States	(9		)	108			139
Total	$	(129	)	$	(180	)	$	17

Income tax expense (benefit) consists of the following (in millions):



				Year Ended December 31,
	2016			2015			2014
Current:
Federal	$	14		$	84		$	6
State	6			4			4
Foreign	31			32			19
Total current	51			120			29
Deferred:
Federal	(31		)	(117		)	(38		)
State	(6		)	(24		)	(5		)
Foreign	(6		)	(1		)	(1		)
Total deferred	(43		)	(142		)	(44		)
Total expense (benefit)	$	8		$	(22	)	$	(15	)

The Company recognized a tax expense of $8 million for the year ended December 31, 2016 compared to a tax benefit of $22 million for the year ended December 31, 2015. The Company’s effective tax rates were (6.2)% and 12.2% as of December 31, 2016 and December 31, 2015, respectively. The Company’s effective tax rate was lower than the federal statutory rate of 35% primarily due to the following items:



	Year Ended December 31,
	2016		2015		2014
Provision computed at statutory rate	35.0	%	35.0	%	35.0	%
State income tax, net of federal tax benefit	(1.0	)	1.1		(5.9	)
Foreign rate differential	(16.0	)	13.9		(176.5	)
Change in valuation allowance	(1.0	)	(8.3	)	17.6
US impact of Enterprise acquisition	(14.1	)	(26.7	)	41.2
Return to provision and other true ups	(3.7	)	0.0		(17.6	)
Tax credits	9.5		6.1		(17.6	)
Foreign earnings subject to US taxation	(6.6	)	(3.9	)	17.6
Change in contingent income tax reserves	(1.6	)	(3.3	)	17.6
Other	(6.7	)	(1.7	)	0.0
Provision for income taxes	(6.2	)%	12.2	%	(88.6	)%

Tax effects of temporary differences that resulted in deferred tax assets and liabilities are as follows (in millions):



	December 31,
	2016			2015
Deferred tax assets:
Capitalized research expenditures	$	58		$	46
Deferred revenue	57			59
Tax credits	33			32
Net operating loss carryforwards	35			65
Other accruals	35			47
Inventory items	27			27
Capitalized software costs	25			43
Sales return/rebate reserve	23			22
Share-based compensation expense	15			15
Accrued bonus	11			16
Unrealized gains and losses on securities and investments	4			10
Valuation allowance	(47		)	(48		)
Total deferred tax assets	276			334
Deferred tax liabilities:
Unrealized loss on other investments	—			—
Depreciation and amortization	165			265
Undistributed earnings	1			—
Total deferred tax liabilities	$	166		$	265

At December 31, 2016, the Company has approximately $35 million (tax effected) of net operating losses (“NOLs”) and approximately $33 million (tax effected) of credit carryforwards. Approximately $29 million of NOLs will expire beginning in 2033 thru 2037, and $25 million of credits will expire beginning in 2023 thru 2032. The remaining $6 million of NOLs and $8 million of credits will begin to expire in 2021.

The Company earns a significant amount of our operating income outside of the U.S. As of year ended December 31, 2016, the Company has recorded a deferred tax liability of $0.5 million for foreign withholding taxes related to unremitted earnings not expected to be indefinitely reinvested in its foreign subsidiaries. However, it remains the Company’s policy to consider foreign earnings and profits to be indefinitely reinvested with respect to the U.S. For the years ended December 31, 2016 and 2015, the Company has not recognized deferred tax liabilities in the U.S. for unremitted earnings of approximately $797 million and $720 million, respectively. It is not practicable to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):



	Year ended December 31,
	2016			2015
Balance at beginning of year	$	40		$	19
Additions for tax positions related to the current year	2			6
Additions for tax positions related to prior years	2			18
Reductions for tax positions related to prior years	(2		)	(2		)
Settlements for tax positions	-			(1		)
Balance at end of year	$	42		$	40

At December 31, 2016 and December 31, 2015, there are $40 million and $36 million of unrecognized tax benefits that if recognized would affect the annual effective tax rate. The Company anticipates that it is reasonably possible that $18 million of unrecognized tax benefits may reverse in 2017, due to settlements with the tax authorities. The Company is currently undergoing audits of the 2013 through 2015 U.S. federal income tax returns. The Company is engaged in an inquiry from the UK HM Revenue and Customs for the years 2012 and 2014. The tax years 2004 through 2016 remain open to examination by multiple foreign and US state taxing jurisdictions. Due to uncertainties in any tax audit outcome, the Company’s estimates of the ultimate settlement of uncertain tax positions may change and the actual tax benefits may differ significantly from the estimates.

The Company recognized $1 million of interest and/or penalties related to income tax matters as part of income tax expense for the year ended December 31, 2016. The Company accrued $4 million and $3 million of interest and penalties accrued in the Consolidated Balance Sheets as of December 31, 2016 and 2015.