

	Year Ended December 31,
	2019			2018			2017
Current:
Federal	$	16		$	20		$	10
State	(1		)	3			8
Foreign	81			77			62
Total current	$	96		$	100		$	80
Deferred:
Federal	(32		)	(11		)	20
State	(5		)	5			(10		)
Foreign	(5		)	9			(19		)
Total deferred	$	(42	)	$	3		$	(9	)
Total	$	54		$	103		$	71



	Year Ended December 31,
	2019		2018		2017
Provision computed at statutory rate	21.0	%	21.0	%	35.0	%
U.S. Tax Reform - one-time transition tax	—		(0.6	)	41.8
Remeasurement of deferred taxes	0.2		0.7		(56.0	)
Change in valuation allowance	(1.7	)	(4.5	)	96.4
U.S. impact of Enterprise acquisition	1.0		1.1		12.9
Change in contingent income tax reserves	(3.3	)	3.2		14.0
Foreign earnings subject to U.S. taxation	1.8		2.0		2.0
Foreign rate differential	(0.7	)	(2.0	)	(29.1	)
Intra-entity transactions	—		—		(18.8	)
State income tax, net of federal tax benefit	(0.2	)	0.8		(5.3	)
Tax credits	(2.3	)	(1.9	)	(5.7	)
Equity compensation deductions	(4.0	)	(2.0	)	(5.6	)
Return to provision and other true ups	(2.0	)	1.1		(3.2	)
Other	(0.8	)	0.8		2.3
Provision for income taxes	9.0	%	19.7	%	80.7	%

For the year ended December 31, 2019, the Company’s effective tax rate was lower than the federal statutory rate of 21% primarily due to the favorable impacts of share-based compensation benefits, lapses of the statute of limitations on uncertain tax positions, and the generation of tax credits. These benefits were partially offset by the impacts of foreign earnings and deemed royalties taxed in the U.S.

For the year ended December 31, 2018, the Company’s effective tax rate was lower than the federal statutory rate of 21% primarily due to lower tax rates in foreign jurisdictions and the generation of tax credits. These benefits were partially offset by increases related to foreign earnings subject to U.S. taxation, the U.S. impact of the Enterprise acquisition and certain discrete items. The discrete items included the favorable impacts of reductions in valuation allowances and share-based compensation benefits, which were offset by audit settlements with the U.S. Internal Revenue Service for the fiscal years 2013, 2014, and 2015 and an increase in uncertain tax positions resulting from interpretive guidance issued during the year.

For the year ended December 31, 2017, the Company’s effective tax rate was higher than the federal statutory rate of 35%, primarily due to an increase in valuation allowance on foreign deferred tax assets, the one-time transition tax and remeasurement of net U.S. deferred tax assets under the Act, the U.S. impact of the Enterprise acquisition, and an increase in uncertain tax benefits. These expenses were partially offset by remeasurement of foreign net deferred tax assets, the benefit of lower tax rates in foreign jurisdictions, the recognition of deferred tax assets on intercompany asset transfers, the generation of tax credits and share-based compensation benefits.

The Company earns a significant amount of its operating income outside of the U.S., primarily in the United Kingdom, Singapore, and Luxembourg, with statutory rates of 19%, 17%, and 25%, respectively. During 2018, the Company applied for and was granted a second extension of its incentivized tax rate by the Singapore Economic Development Board. The incentive reduces the income tax rate to 10.5% from the statutory rate of 17% and is effective for calendar years 2019 to 2023. The Company has committed to making additional investments in Singapore over the period 2019 to 2022; should the Company not make these investments in accordance with the agreement, any incentive benefit would have to be repaid to the Singapore tax authorities.



	December 31,
	2019			2018
Deferred tax assets:
Capitalized research expenditures	$	37		$	28
Deferred revenue	24			21
Tax credits	29			28
Net operating loss carryforwards	410			394
Other accruals	21			20
Inventory items	18			20
Capitalized software costs	2			8
Sales return/rebate reserve	48			41
Share-based compensation expense	12			15
Accrued bonus	7			3
Unrealized gains and losses on securities and investments	4			—
Valuation allowance	(421		)	(56		)
Total deferred tax assets	$	191		$	522
Deferred tax liabilities:
Depreciation and amortization	62			411
Unrealized gains and losses on securities and investments	—			2
Undistributed earnings	2			3
Total deferred tax liabilities	$	64		$	416
Net deferred tax assets	$	127		$	106

In 2019, the Company reorganized its Luxembourg holding company structure which resulted in a taxable gain in Luxembourg that was offset by operating loss carryforwards. There was no net impact to the Provision for income taxes as these activities also resulted in the realization of deferred tax liabilities related to depreciation and amortization and a corresponding increase in valuation allowances.

As of December 31, 2019, the Company had approximately $410 million (tax effected) of net operating losses (“NOLs”) and approximately $29 million of credit carryforwards. Approximately $161 million of NOLs will expire beginning in 2020 through 2033, and $15 million of credits will expire beginning in 2023 through 2032, with the remaining amounts of NOLs and credit carryforwards having no expiration dates.

Enacted on December 22, 2017, the Act reduced the U.S. federal corporate tax rate from 35% to 21%, requiring companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. Based on current operations, the Company is subject to the GILTI, BEAT and FDII provisions of the Act, for which we recorded income tax expense of $12 million and $10 million for the years ended December 31, 2019 and 2018, respectively. We are not currently subject to the new limitation which defers U.S. interest deductions in excess of 30% of adjusted taxable income. However, the application of the interest limitations may apply in the future, depending on changes in the Company’s business model. Additionally, the Company is no longer able to deduct performance-based compensation for its covered employees which exceeds the limitation under amended Internal Revenue Code Section 162(m). These impacts are included in the calculation of the Company’s effective tax rate.

As part of the Act, the Company recognized a one-time transition tax based on its total post-1986 earnings and profits that were previously deferred from U.S. income taxes and recorded a provision related to deemed foreign inclusions through December 31, 2017 as a result of the transition tax.

As of December 31, 2019, the Company is no longer permanently reinvested with respect to its U.S. directly-owned foreign subsidiary earnings. For periods after 2017, the Company is subject to U.S. income tax on substantially all foreign earnings under the GILTI provisions of the Act, while any remaining foreign earnings are eligible for the new dividends received

deduction. As a result, future repatriation of earnings will no longer be subject to U.S. income tax but may be subject to currency translation gains or losses. Where required, the Company has recorded a deferred tax liability for foreign withholding taxes on current earnings. Additionally, gains and losses on any future taxable dispositions of U.S.-owned foreign affiliates continue to be subject to U.S. income tax. Thus, as a result of these changes, the assertion of permanent reinvestment is no longer applicable under current U.S. tax laws.

The Company has not recognized deferred tax liabilities in the U.S. with respect to its outside basis differences in its directly-owned foreign affiliates. It is not practicable to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings.

The Act amended the rules related to the exclusion of performance-based compensation under Internal Revenue Code 162(m). The Company is no longer be able to claim a deduction for compensation accrued after January 1, 2018 for any covered employee exceeding $1 million, unless the compensation is earned in relation to a binding contract in existence on November 2, 2017 (“Grandfathered Contracts”). The Company has remeasured the Section 162(m)-grandfathered deferred tax assets at 21% for its covered employees for equity award agreements issued and executed prior to November 2, 2017. Additionally, the Company has determined that its short-term bonus plan does not qualify for the grandfathered contract provisions, and thus any associated deferred tax assets have been derecognized.

During 2017, the Company provisionally recognized an income tax expense of $72 million associated with the Act, including a one-time transition tax of $37 million and $35 million remeasurement of its net U.S. deferred tax assets based on the federal statutory rate of 21%.

During 2018, the Company finalized its analysis of the Act, including the one-time transition tax and measurement of net deferred tax assets, and recorded a $3 million income tax benefit as a result of differences between its final analysis and provisional analysis from the prior year. The final analysis included both federal and state tax effects based on legislative pronouncements through December 31, 2018. The Company also utilized a total of $28 million of available net operating losses, research and development credits, alternative minimum tax credits, and foreign tax credits in order to reduce its future cash payments for the one-time transition tax.



	Year ended December 31,
	2019			2018
Balance at beginning of year	$	50		$	51
Additions for tax positions related to the current year	1			1
Additions for tax positions related to prior years	—			22
Reductions for tax positions related to prior years	(5		)	(11		)
Settlements for tax positions	(16		)	(13		)
Lapse of statutes	(20		)	—
Balance at end of year	$	10		$	50

As of December 31, 2019 and December 31, 2018, there were $9 million and $48 million, respectively, of unrecognized tax benefits that, if recognized, would affect the annual effective tax rate. The Company is currently undergoing U.S. federal income tax audits for the tax years 2016 and 2017. Fiscal 2004 through 2018 remain open to examination by multiple foreign and U.S. state taxing jurisdictions.

In the fourth quarter of fiscal 2019, the Company settled and made payment for a tax dispute for $19 million. Additionally, the statute of limitations on the U.S. federal income tax audit years 2013, 2014 and 2015 lapsed, resulting in a total benefit of $20 million during fiscal 2019. As of December 31, 2019, no other significant uncertain tax positions are expected to be settled within the next twelve months. Due to uncertainties in any tax audit or litigation outcome, the Company’s estimates of the ultimate settlement or other uncertain tax positions may change and the actual tax benefits may differ significantly from estimates.