(9) Income Taxes

Income tax (benefit) expense consisted of the following components (dollars in thousands):


	2016		2015		2014
Current:
Federal	$	(9,918)	$	5,731	$	4,802
State		(624)		(1,645)		4,823
Foreign		8,975		12,647		9,449
		(1,567)		16,733		19,074
Deferred:
Federal		(12,687)		13,665		(4,701)
State		(2,217)		2,570		1,026
Foreign		(851)		(3,312)		(1,304)
		(15,755)		12,923		(4,979)
Total	$	(17,322)	$	29,656	$	14,095

(Loss) income before income taxes consisted of the following (dollars in thousands):


	2016		2015		2014
U.S.	$	(81,579)	$	51,797	$	15,779
Foreign		38,339		69,429		49,208
Total	$	(43,240)	$	121,226	$	64,987

The components of the Company’s net deferred tax asset are as follows (dollars in thousands):


	2016		2015
Deferred tax assets:
Compensation and benefits	$	9,715	$	13,742
Net operating loss and capital loss carryover		19,755		16,094
Share-based compensation		6,824		6,488
Research and development credits		7,550		3,069
Foreign tax credits		12,660		—
Tax benefits on uncertain tax positions		1,351		2,862
Goodwill and other intangibles		8,015		9,483
Depreciation		1,167		—
Other		5,259		5,063
Total deferred tax assets		72,296		56,801
Less: valuation allowance		(20,979)		(19,444)
Total deferred tax assets, net of valuation allowance		51,317		37,357
Deferred tax liabilities:
Depreciation		—		(1,281)
Capitalized software		(12,174)		(12,072)
Other		(455)		(414)
Total deferred tax liabilities		(12,629)		(13,767)
Net deferred tax assets	$	38,688	$	23,590

At December 31, 2016, the Company believes that it is more-likely-than-not that future reversals of its existing taxable temporary differences and the future generation of sufficient taxable income in the appropriate jurisdictions will enable the Company to realize the carrying value of its net deferred tax assets. The Company’s valuation allowance increased $1.5 million to $21.0 million at December 31, 2016 and is primarily the result of historical net operating losses in the Asia Pacific entities, where a full valuation allowance is maintained for all deferred tax assets and net operating losses, as well as certain state tax credits and net operating losses. The Company has foreign tax credit carryforwards of $12.7 million that begin to expire in 2024 and research and development tax credits that begin to expire in 2034.

Net operating loss carryforwards expire as follows (dollars in thousands):


	Amount		Years remaining
Hong Kong and Australia	$	78,343	Indefinite
State and local (United States)		59,520	14 years
Ireland		296	Indefinite
	$	138,159

The effective tax rate varied from the U.S. federal statutory income tax rate due to the following:


	2016		2015		2014
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of U.S. federal income tax effect	5.2		0.4		5.5
Foreign tax impact, net	6.2		(7.2)		(12.8)
Deemed dividend on capital structure amendment (1)	—		5.4		—
Impact of deductible basis on the sale of energy research business	—		(14.8)		—
Reserves released upon tax settlement	18.6		—		—
Non-deductible costs (2)	(22.8)		6.1		0.9
Other, net	(2.1)		(0.4)		(6.9)
Effective income tax rate	40.1	%	24.5	%	21.7	%

(1)

Reflects the impact of the tax on a deemed dividend from amending the capital structure of the Company's operations outside of North America.

(2)

Includes the impact of the non-deductible payments in 2015 and charges accrued in 2016 payable to the Securities and Exchange Commission (the “SEC”) (see Note 21, Commitments and Contingencies). Additionally, 2016 includes non-deductible officers’ compensation.

As of December 31, 2016, the Company had $17.9 million of earnings attributable to foreign subsidiaries for which no incremental U.S. tax has been recorded as these amounts are not expected to be repatriated through dividends due to the capital structure of the Company’s non-North American holding company. If these earnings were to be repatriated, the estimated U.S. tax liability as of December 31, 2016 would be up to $3.0 million.

Tax Uncertainties

Under ASC 740, Income Taxes, a tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (dollars in thousands):


Uncertain Tax Benefits	2016		2015		2014
Balance, January 1	$	15,553	$	14,395	$	13,074
Additions based on tax positions related to the current year		66		2,807		309
Additions based on tax positions of prior years		406		349		3,681
Reductions for tax positions of prior years		—		(36)		(84)
Reductions due to settlements with taxing authorities		(2,153)		(1,773)		(1,108)
Reductions due to expiration of statute of limitations		(6,516)		(189)		(1,477)
Balance, December 31	$	7,356	$	15,553	$	14,395

The unrecognized tax benefits were $7.4 million and $15.6 million, respectively, at December 31, 2016 and 2015. After giving effect to offsetting federal benefits included in net deferred tax assets, the amounts were $6.9 million and $14.6 million which, if recognized, would affect the Company’s effective tax rate.

With limited exception, the Company is no longer subject to U.S. federal, state, local or foreign income tax audits by taxing authorities for years preceding 2010. The Internal Revenue Service is currently examining the Company’s U.S. federal income tax returns for 2011 through 2012. Certain foreign state and local returns are also currently under various stages of audit for the tax years 2012 through 2014. The Company does not anticipate a significant change to the total of unrecognized tax benefits within the next twelve months.

At December 31, 2016, interest expense of $2.2 million, gross of related tax effects of $0.9 million, was accrued related to unrecognized tax benefits. As a continuing policy, interest accrued related to unrecognized tax benefits is recorded as income tax expense. During 2016, 2015 and 2014, the Company recognized net reductions of $2.5 million and net additions of $0.1 million and $0.8 million, respectively, of tax-related interest expense. No tax penalties were recorded during 2016, 2015 or 2014.