INCOME TAXES:

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



	Year ended December 31,
	2017			2016			2015
	(in thousands)
United States	$	(21,528	)	$	(17,969	)	$	(12,539	)
Foreign	(375		)	42,297			87,121
Income (loss) before taxes on income	$	(21,903	)	$	24,328		$	74,582

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



	Year ended December 31,
	2017			2016			2015
	(in thousands)
Current:
U.S. federal	$	(617	)	$	(1,333	)	$	(1,578	)
State and local	632			220			284
Foreign	(261		)	6,161			5,737
Total current	(246		)	5,048			4,443
Deferred:
Foreign	(2,232		)	762			(22,755		)
Total deferred	(2,232		)	762			(22,755		)
Provision for (benefit from) taxes on income	$	(2,478	)	$	5,810		$	(18,312	)

At December 31, 2017 and 2016, significant deferred tax assets and liabilities are as follows:



	December 31,
	2017			2016
	(in thousands)
Deferred tax assets:
Net operating loss and credit carryforwards	$	42,820		$	75,350
Reserves and accruals	11,305			13,841
Depreciation and amortization	2,393			358
Other	6,645			7,128
Gross deferred tax assets	63,163			96,677
Valuation allowance	(31,648		)	(55,827		)
Total deferred tax assets	31,515			40,850
Intangible assets	(6,952		)	(18,437		)
Total deferred tax liabilities	(6,952		)	(18,437		)
Net deferred tax assets	$	24,563		$	22,413

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. After weighing all positive and negative evidence, including historical results and projections of future taxable income, the Company determined that it remained more likely than not that $24.6 million and $22.4 million of deferred tax assets would be realized as of December 31, 2017 and 2016, respectively. The Company continued to provide valuation allowances against a significant portion of the remaining deferred tax assets on the consolidated balance sheet as of December 31, 2017 due to uncertainty concerning realization of these deferred tax assets.

On December 22, 2017, the Tax Cuts and Jobs Acts was enacted into law. The new legislation contains several key tax provisions that will impact the Company. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, a one-time repatriation tax on accumulated foreign earnings, a limitation on the tax deductibility of interest expense, an acceleration of business asset expensing, and a reduction in the amount of executive pay that could qualify as a tax deduction. The lower corporate income tax rate will require the Company to remeasure its U.S. deferred tax assets and liabilities as well as reassess the realizability of its deferred tax assets and liabilities. ASC 740 requires the Company to recognize the effect of the tax law changes in the period of enactment. However, the SEC staff has issued SAB 118 which will allow the Company to record provisional amounts during a measurement period.

The Company has concluded that a reasonable estimate could be developed for the effects of the tax reform. However, due to the short time frame between the enactment of the reform and the year end, its fundamental changes, the accounting complexity, and the expected ongoing guidance and accounting interpretations over the next 12 months, the Company considers the accounting of the deferred tax remeasurement and other items to be incomplete. These effects have been included in the consolidated financial statements for the year ended December 31, 2017 as provisional amounts, which had no effect on the benefit from taxes on income due to the valuation allowance.

During the measurement period, the Company might need to reflect adjustments to the provisional amounts upon obtaining, preparing, or analyzing additional information about facts and circumstances that existed as of the enactment date that, if known, would have affected the income tax effects initially reported as provisional amounts.

The measurement period will end when the Company obtains, prepares, and analyzes the information needed in order to complete the accounting requirements under ASC Topic 740 or on December 22, 2018, whichever is earlier. The Company expects to complete its analysis within the measurement period in accordance with SAB 118.

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, 2017, the Company had net operating loss carryforwards ("NOLs") of approximately $168.9 million in Israel, $86.2 million in the United States ("U.S.") for federal tax purposes, $37.2 million in the U.S. for state tax purposes and $7.2 million in Denmark. The U.S. NOLs for federal tax purposes will expire from 2024 to 2027, and the U.S. NOLs for state tax purposes will expire from 2018 to 2037. The non-U.S. NOLs have no expiration date.

The Company has not provided for Israeli income and foreign withholding taxes on $2.6 million of its non-Israeli subsidiaries' undistributed earnings as of December 31, 2017. 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, 2017 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,
	2017		2016		2015
Tax at statutory rate	35.0	%	35.0	%	35.0	%
Tax at rates other than the statutory rate	(4.8	)	(84.5	)	(42.5	)
Valuation allowance	47.3		40.8		(22.0	)
Net change in tax reserves	8.0		17.1		6.0
Adjustment of deferred tax balances following changes in tax rates	(71.8	)	10.9		—
Other, net	(2.4	)	4.6		(1.1	)
Provision for (benefit from) taxes on income	11.3	%	23.9	%	(24.6	)%

The Company's operations in Israel were granted "Approved Enterprise" status by the Investment Center in the Israeli Ministry of Economy and Industry (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 Approved and Beneficiary Enterprise programs, 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 $11.6 million, $37.3 million and $33.0 million in 2017, 2016, and 2015, respectively, increasing diluted earnings per share by approximately $0.23, $0.75 and $0.69 in the years ended December 31, 2017, 2016, and 2015, respectively.

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



	December 31,
	2017			2016			2015
	(in thousands)
Gross unrecognized tax benefits, beginning of the period	$	41,460		$	25,382		$	18,037
Increases in tax positions for prior years	3,655			252			1,153
Decreases in tax positions for prior years	—			—			(131		)
Increases in tax positions for current year	8,090			8,131			7,908
Increases in tax positions acquired or assumed in a business combination	—			8,990			—
Decreases due to lapses of statutes of limitations	(8,051		)	(1,295		)	(1,585		)
Gross unrecognized tax benefits, end of the period	$	45,154		$	41,460		$	25,382

As of December 31, 2017, 2016 and 2015, the total amount of gross unrecognized tax benefits was $45.2 million, $41.5 million, and $25.4 million, respectively. Of these amounts as of December 31, 2017, 2016 and 2015, $24.6 million, $23.4 million, and $18.9 million, respectively, would reduce our income tax expense and effective tax rate, if recognized.

On June 14, 2017, the Israeli government legislated new regulations regarding the "Preferred Technological Enterprise" regime, under which a company that complies with the terms may be entitled to certain tax benefits. The Company expects that its operation in Israel will comply with the terms of the Preferred Technological Enterprise regime. Therefore, the Company may utilize the tax benefits under this regime after the end of the benefit period of its Approved and Beneficiary Enterprise statuses (i.e., from fiscal year 2022 onwards). Under the new legislation, the majority of the Company’s income from its operations in Yokneam, Israel, will be subject to a corporate rate of 7.5%, while the majority of the income from its operations in Tel-Aviv, Israel, will be subject to a corporate rate of 12%. As a result of the lower tax rates mentioned above, the Company recorded a decrease of approximately $0.2 million in deferred tax assets and a corresponding increase in tax expense during the second quarter of 2017.

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, 2017, 2016 and 2015, the amount of accrued interest and penalties related to unrecognized tax benefits totaled $2.9 million, $1.8 million, and $1.2 million, respectively. For unrecognized tax benefits that existed at December 31, 2017, 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, 2017, the 2014 through 2016 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 2003 which may be subject to examination upon utilization in future tax periods. As of December 31, 2017, the 2013 through 2016 tax years are open and may be subject to potential examinations in Denmark and Israel. As of December 31, 2017 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 2013 to 2015.