INCOME TAXES:

The components of income (loss) before taxes on income are as follows:



	Year ended December 31,
	2016			2015			2014
	(in thousands)
United States	$	(17,969	)	$	(12,539	)	$	(10,260	)
Foreign	42,297			87,121			4,518
Income (loss) before taxes on income	$	24,328		$	74,582		$	(5,742	)

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



	Year ended December 31,
	2016			2015			2014
	(in thousands)
Current:
U.S. federal	$	(1,333	)	$	(1,578	)	$	162
State and local	220			284			163
Foreign	6,161			5,737			4,683
Total current	5,048			4,443			5,008
Deferred:
U.S. federal	—			—			12,140
State and local	—			—			1,539
Foreign	762			(22,755		)	(420		)
Total deferred	762			(22,755		)	13,259
Provision for (benefit from) taxes on income	$	5,810		$	(18,312	)	$	18,267

At December 31, 2016 and 2015, significant deferred tax assets and liabilities are as follows:



	December 31,
	2016			2015
	(in thousands)
Deferred tax assets:
Net operating loss and credit carryforwards	$	75,350		$	39,200
Reserves and accruals	13,841			10,691
Depreciation and amortization	358			441
Other	7,128			10,747
Gross deferred tax assets	96,677			61,079
Valuation allowance	(55,827		)	(28,999		)
Total deferred tax assets	40,850			32,080
Intangible assets	(18,437		)	(8,858		)
Total deferred tax liabilities	(18,437		)	(8,858		)
Net deferred tax assets	$	22,413		$	23,222

The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. As of each reporting date, management considers new evidence, both positive and negative, that could impact management’s view with regards to the future realization of deferred tax assets for each jurisdiction. As of December 31, 2015, management determined that sufficient positive evidence existed to conclude that it was more likely than not that $22.4 million of deferred tax assets of one of the Company’s Israeli subsidiaries were realizable, and therefore, reduced the valuation allowance accordingly. As of December 31, 2016, after weighing all positive and negative evidence, including historical results and projections of future taxable income, the Company determined that it remains more likely than not that $21.4 million of deferred tax assets of the subsidiary will be realized. The Company continued to provide valuation allowances against substantially all of the remaining deferred tax assets on the consolidated balance sheet as of December 31, 2016 due to uncertainty concerning realization of these deferred tax assets.

On January 4, 2016 the Israeli Government legislated a reduction in corporate income tax rates from 26.5% to 25.0%, effective in 2016. Deferred tax assets and liabilities at December 31, 2015 were measured using the 26.5% tax rate. Deferred tax assets and liabilities as of January 1, 2016 were remeasured using the 25.0% tax rate. The change in the corporate income tax rate from 26.5% to 25.0% resulted in a reduction of approximately $1.3 million to the Company's deferred tax assets and a corresponding increase in the Company's income tax expense during the first quarter of 2016. On December 29, 2016, the Israeli Government legislated a reduction in corporate income tax rates from 25.0% to 24.0% in 2017 and to 23.0% in 2018 and thereafter. This change in the corporate income tax rates from 25.0% to 24.0% and 23.0% resulted in a reduction of approximately $1.4 million to the Company's deferred tax assets as of December 31, 2016, and a corresponding increase in the Company's income tax expense during the fourth quarter of 2016.

At December 31, 2016, the Company had net operating loss carryforwards ("NOLs") of approximately $159.8 million in Israel, $91.5 million in the United States ("U.S.") for federal tax purposes, $40.5 million in the U.S. for state tax purposes and $10.1 million in Denmark. The US net operating losses begin to expire in 2017 and the non-U.S. net operating losses have no expiration date.

Included in the U.S. federal and state NOLs are $18.9 million of NOLs which have not been recognized for financial reporting purposes due to unrecognized excess tax benefits related to stock-based compensation. Excess tax benefits related to option exercises cannot be recognized until realized through a reduction of current taxes payable.

The Company has not provided for Israeli income and foreign withholding taxes on $2.9 million of its non-Israeli subsidiaries' undistributed earnings as of December 31, 2016. The Company currently has no plans to repatriate those funds and intends to indefinitely reinvest them in its non-Israeli operations. The amount of the unrecognized deferred tax liability for temporary differences related to investments in non-Israeli subsidiaries that were essentially permanent in duration as of December 31, 2016 was less than $1 million.

The reconciliation of the statutory federal income tax rate to the Company's effective tax rate is as follows:



	December 31,
	2016		2015		2014
Tax at statutory rate	35.0	%	35.0	%	35.0	%
State, net of federal benefit	0.8		0.2		(28.6	)
Meals and entertainment	1.6		0.2		(1.3	)
Tax at rates other than the statutory rate	(84.5	)	(42.5	)	56.1
Valuation allowance	40.8		(22.0	)	(280.6	)
Share-based compensation	1.3		—		(4.0	)
Net change in tax reserves	17.1		6.0		(87.4	)
Adjustment of deferred tax balances following changes in tax rates	10.9		—		—
Other, net	0.9		(1.5	)	(7.3	)
Provision for (benefit from) taxes on income	23.9	%	(24.6	)%	(318.1	)%

The Company calculates the pool of excess tax benefits resulting from share based compensation available to absorb tax deficiencies recognized using the method under which each award grant is tracked on an employee-by-employee basis and a grant-by-grant basis to determine if there is a tax benefit situation or tax deficiency situation for such award. The Company then compares the fair value expense to the tax deduction received for each grant and aggregates the benefits and deficiencies to determine whether there is a hypothetical additional paid in capital ("APIC") pool.

The Company's operations in Israel were granted "Approved Enterprise" status by the Investment Center in the Israeli Ministry of Economy (formerly, the Ministry of Industry Trade and Labor) and "Beneficiary Enterprise" status from the Israeli Income Tax Authority, which makes the Company eligible for tax benefits under the Israeli Law for Encouragement of Capital Investments, 1959. Under the terms of the Beneficiary Enterprise program, income that is attributable to the Company's operations in Yokneam, Israel, is exempt from income tax commencing fiscal year 2011 through 2021. Income that is attributable to the Company's operations in Tel Aviv, Israel is subject to a reduced income tax rate (generally between 10% and the current corporate tax rate, depending on the percentage of foreign investment in the Company) commencing fiscal year 2013 through 2021. The tax holiday has resulted in a cash tax savings of approximately $37.3 million, $33.0 million and $6.9 million in 2016, 2015, and 2014 respectively, increasing diluted earnings per share by approximately $0.75, $0.69 and $0.15 in the years ended December 31, 2016, 2015, and 2014, respectively.

The following summarizes the activity related to the Company's unrecognized tax benefits:



	December 31,
	2016			2015			2014
	(in thousands)
Gross unrecognized tax benefits, beginning of the period	$	25,382		$	18,037		$	23,585
Increases in tax positions for prior years	252			1,153			299
Decreases in tax positions for prior years	—			(131		)	(10,339		)
Increases in tax positions for current year	8,131			7,908			5,170
Increases in tax positions acquired or assumed in a business combination	8,990			—			—
Decreases due to lapses of statutes of limitations	(1,295		)	(1,585		)	(678		)
Gross unrecognized tax benefits, end of the period	$	41,460		$	25,382		$	18,037

As of December 31, 2016, 2015 and 2014, the total amount of gross unrecognized tax benefits was $41.5 million, $25.4 million, and $18.0 million, respectively. Of these amounts as of December 31, 2016, 2015 and 2014, $23.4 million, $18.9 million, and $15.3 million, respectively would impact the effective tax rate if recognized.

It is the Company's policy to classify accrued interest and penalties as part of the accrued unrecognized tax benefits liability and record the expense in the provision for income taxes. As of December 31, 2016, 2015 and 2014, the amount of accrued interest and penalties related to unrecognized tax benefits totaled $1.8 million, $1.2 million, and $1.0 million, respectively. For unrecognized tax benefits that existed at December 31, 2016, the Company does not anticipate any significant changes within the next twelve months.

As a multinational corporation, the Company conducts business in many countries and is subject to taxation in many jurisdictions. The taxation of the Company's business is subject to the application of multiple and sometimes conflicting tax laws and regulations as well as multinational tax conventions. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation and the evolution of regulations and court rulings. Consequently, taxing authorities may impose tax assessments or judgments against the Company that could materially impact its tax liability and/or its effective income tax rate. As of December 31, 2016, the 2013 through 2015 tax years are open and may be subject to potential examinations in the United States. The Company has net operating losses in the United States from prior tax periods beginning in 2002 which may be subject to examination upon utilization in future tax periods. As of December 31, 2016, the 2011 through 2015 tax years are open and may be subject to potential examinations in Denmark and Israel. As of December 31, 2016 the income tax returns of the Company and one of its subsidiaries in Israel are under examination by the Israeli Tax Authority for certain years from 2011 to 2014.