INCOME TAXES

Income from before income taxes and the components of the income tax provision consisted of the following for the years ended December 31, 2016, 2015 and 2014 (in thousands):



	Year Ended December 31,
	2016			2015			2014
Income (loss) from operations before income taxes:
United States	$	12,402		$	(23,977	)	$	(6,864	)
Foreign	32,942			24,542			23,780
Total income from operations before income taxes	$	45,344		$	565		$	16,916
(Benefit from) provision for income taxes:
Current tax expense (benefit):
Federal	$	102		$	115		$	14
State	32			3			83
Foreign benefit of net operating losses	(1,247		)	(180		)	(180		)
Other foreign	(48		)	3,734			2,217
Total current tax (benefit) expense	(1,161		)	3,672			2,134
Deferred tax (benefit) expense:
Federal benefit related to Note issuance	—			(6,493		)	—
Federal	96			—			—
Other foreign	(1,810		)	906			54
Total deferred tax (benefit) expense	(1,714		)	(5,587		)	54
Total (benefit from) provision for income taxes	$	(2,875	)	$	(1,915	)	$	2,188

Net deferred tax assets (liabilities) consisted of the following at December 31, 2016 and 2015 (in thousands):



	December 31,
	2016			2015
Deferred tax assets:
Tax credit and net operating loss carryforwards	$	369,847		$	318,471
Allowances for bad debts	431			372
Difference in accounting for:
Revenues	35,856			54,475
Costs and expenses	26,537			34,116
Inventories	9,118			7,576
Acquired intangible assets	6,112			9,799
Gross deferred tax assets	447,901			424,809
Valuation allowance	(432,631		)	(406,123		)
Deferred tax assets after valuation allowance	15,270			18,686
Deferred tax liabilities:
Difference in accounting for:
Costs and expenses	(6,457		)	(5,654		)
Acquired intangible assets	(3,669		)	(8,554		)
Basis difference convertible notes	(4,812		)	(5,910		)
Gross deferred tax liabilities	(14,938		)	(20,118		)
Net deferred tax assets (liabilities)	$	332		$	(1,432	)
Recorded as:
Long-term deferred tax assets, net	1,245			2,011
Long-term deferred tax liabilities, net	(913		)	(3,443		)
Net deferred tax assets (liabilities)	$	332		$	(1,432	)

On January 1, 2015 the Company adopted ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. The standard requires entities to present DTAs and DTLs as non-current in the classified balance sheet. The standard simplifies the current guidance, which requires entities to separately present DTAs and DTLs as current and non-current in a classified balance sheet. The Company early adopted the guidance to simplify its reporting for the current year. The consolidated balance sheet at December 31, 2014 was retrospectively adjusted, resulting in a $0.3 million reclassification of current DTAs to long-term DTAs.

Deferred tax assets and liabilities reflect the net tax effects of the tax credits and net operating loss carryforwards and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The ultimate realization of the net deferred tax assets is dependent upon the generation of sufficient future taxable income in the applicable tax jurisdictions. Based on the magnitude of the deferred tax assets at December 31, 2016 and 2015 and the level of historical U.S. tax losses, management has determined that the uncertainty regarding the realization of these assets warranted a significant valuation allowance at December 31, 2016 and 2015.

For U.S. federal and state income tax purposes at December 31, 2016, the Company had tax credit carryforwards of $51.2 million, which will expire between 2017 and 2036, and net operating loss carryforwards of $783.9 million, which will expire between 2019 and 2036. In 2016, the Company early adopted ASU No. 2019-09, Improvements to Employee Share-base Payment Accounting. The deferred tax assets in the schedule above at December 31, 2016, include $33.7 million related to prior year tax assets resulting from the exercise of employee stock options, which previously were recognized in additional paid- in capital only when utilized as a reduction in taxes payable. Prior to adoption of ASU No. 2016-09, this amount was excluded from the above deferred tax asset schedule at December 31, 2015. The increase in the deferred tax asset of $33.7 million was offset by a corresponding increase in the valuation allowance.

The federal net operating loss and tax credit amounts are subject to annual limitations under Section 382 change of ownership rules of the Internal Revenue Code. The Company completed an assessment at March 31, 2015 regarding whether there may have been a Section 382 ownership change and concluded that it is more likely than not that none of the Company’s net operating loss and tax credit amounts are subject to any Section 382 limitation.

Additionally, the Company has foreign net operating loss carryforwards of $77.2 million with an indefinite carryforward period and tax credit carryforwards of $4.3 million that begin to expire in 2029. The Company has determined there is uncertainty regarding the realization of a portion of these assets and has recorded a valuation allowance against $66.0 million of net operating losses and $4.3 million of tax credits at December 31, 2016.

The Company’s assessment of the valuation allowance on the U.S. and foreign deferred tax assets could change in the future based on its levels of pre-tax income and other tax related adjustments. Removal of the valuation allowance in whole or in part would result in a non-cash reduction in income tax expense during the period of removal.

The following table sets forth a reconciliation of the Company’s income tax provision (benefit) to the statutory U.S. federal tax amount for the years ended December 31, 2016, 2015 and 2014:



	Year Ended December 31,
	2016			2015			2014
Statutory tax	$	15,870		$	198		$	5,921
Tax credits	(2,468		)	(2,972		)	(1,589		)
Foreign operations	(12,662		)	(4,055		)	(6,047		)
Change in uncertain tax positions	(6,710		)	—			—
Non-deductible expenses and other	670			2,303			771
Federal benefit related to Note issuance	—			(6,493		)	—
Tax deficiency on stock-based compensation	2,509			—			—
Change in valuation allowance	(84		)	9,104			3,132
(Benefit from) provision for income taxes	$	(2,875	)	$	(1,915	)	$	2,188

The cumulative amount of undistributed earnings of foreign subsidiaries, which is intended to be indefinitely reinvested and for which U.S. income taxes have not been provided, totaled $40.5 million at December 31, 2016. The Company does not have any plans to repatriate these earnings because the underlying cash will be used to fund the ongoing operations of the foreign subsidiaries. The additional taxes that might be payable upon repatriation of foreign earnings are not significant.

A tax position must be more likely than not to be sustained before being recognized in the financial statements. It also requires the accrual of interest and penalties as applicable on unrecognized tax positions. The Company disclosed unrecognized tax benefits primarily related to the foreign tax implications arising from the changes in revenue recognition that arose in periods prior to 2012. The unrecognized tax benefits did not have an impact on the effective tax rate because the Company maintains a full valuation allowance on the related loss carryforwards. At December 31, 2014, the Company’s unrecognized tax benefits and related accrued interest and penalties totaled $25.8 million, of which $0.8 million would affect the Company’s income tax provision and effective tax rate if recognized. At December 31, 2015, the Company’s unrecognized tax benefits and related accrued interest and penalties totaled $26.0 million, of which $3.2 million would affect the Company’s effective tax rate if recognized. During 2016, the Company had a change in its uncertain tax position related to the revenue recognition issue and reversed the associated accrual in its entirety. At December 31, 2016, the Company’s accrual for unrecognized tax benefits and related accrued interest and penalties related to an Israel audit issue totaled $1.0 million, of which $1.0 million would affect the Company’s income tax provision and effective tax rate if recognized.

The following table sets forth a reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding the impact of interest and penalties, for the years ended December 31, 2016, 2015 and 2014 (in thousands):



Unrecognized tax benefits at January 1, 2014	$	24,729
Increases for tax positions taken during a prior period	1,118
Unrecognized tax benefits at December 31, 2014	25,847
Increases for tax positions taken during a prior period	148
Unrecognized tax benefits at December 31, 2015	25,995
Increases for tax positions taken during a prior period	1,041
Decreases for tax positions taken during a prior period	(25,995		)
Unrecognized tax benefits at December 31, 2016	$	1,041

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Accrued interest and penalties related to uncertain tax positions at December 31, 2016 and 2015 were not material.

The tax years 2008 and forward remain open to examination by taxing authorities in the jurisdictions in which the Company operates. The most significant operating jurisdictions include: the United States, Ireland, the Netherlands, Germany, Israel, Japan, and the United Kingdom.