Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

Income (Loss) Before Income Taxes

Income (loss) before income taxes (in thousands):

	Years Ended December 31,
	2017			2016			2015
U.K.	$	(64,177	)	$	(36,300	)	$	(5,321	)
U.S.		(159,951	)		(149,605	)		47,063
Other Foreign		245,331			209,997			65,311
	$	21,203		$	24,092		$	107,053

Components of Income Tax Expense (Benefit)

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

	Years Ended December 31,
	2017			2016			2015
Current — U.K.	$	667		$	81,822		$	559
U.S.		3,530			47,025			2,141
Other Foreign		25,347			31,552			14,476
		29,544			160,399			17,176
Deferred — U.K.		(22,254	)		(23,177	)		(30	)
U.S.		(49,671	)		(105,735	)		5,119
Other Foreign		(2,540	)		(16,356	)		329
		(74,465	)		(145,268	)		5,418
Income tax expense (benefit)	$	(44,921	)	$	15,131		$	22,594

Reconciliation of U.S. Statutory Federal Income Tax Rate and Effective Income Tax Rate

A reconciliation of the U.K. statutory income tax rate of 19.25% for 2017 and 20.00% for 2016 and the U.S. federal statutory income tax rate of 35.00% for 2015 and the effective income tax rates is as follows:

	Years Ended December 31,
	2017			2016			2015
Statutory income tax rate		19.25	%		20.00	%		35.00	%
Effects of:
State income taxes, net of federal benefit		11.0			(16.6	)		5.2
Acquired deferred tax assets		—			—			5.8
U.S. domestic manufacturing deduction		(0.9	)		(12.0	)		—
Facilitative transaction costs		54.2			22.0			—
Research and development tax credits		(119.7	)		(90.6	)		(25.1	)
Withholding taxes (U.K. entities)		12.4			245.5			—
U.K. stamp duty		—			9.4			—
Subpart F income		—			4.0			4.8
Changes in valuation allowance		35.1			6.0			(26.6	)
Foreign tax credits		29.5			(14.0	)		(20.7	)
Non-deductible officer compensation		4.9			—			5.3
Non-U.S. tax rate differential		—			—			(5.0	)
Non-U.K. tax rate differential		26.1			(50.9	)		—
Benefit of other foreign tax regimes		(170.6	)		(135.4	)		—
Recapture of dual consolidated losses		—			—			1.1
Taiwan gain		—			—			34.3
Change in tax rate		(105.0	)		—			—
Uncertain tax positions		(13.1	)		88.9			(1.7	)
Other, net		5.0			(13.5	)		8.7
		(211.85	)%		62.8	%		21.1	%

Significant Components of ARRIS' Net Deferred Income Tax Assets (Liabilities)

Significant components of ARRIS’ net deferred income tax assets (liabilities) were as follows (in thousands):

	December 31,
	2017			2016
Deferred income tax assets
Inventory costs	$	29,453		$	63,756
Property, plant and equipment		—			2,789
Accrued employee benefits		34,472			41,246
Accrued operating expenses		24,904			42,544
Reserves		16,434			26,731
Investments		8,796			667
Loss carryforwards		91,832			67,645
Research and development and other credits		164,841			118,113
Capitalized research and development		83,224			177,594
Other		17,379			50,171
Total deferred income tax assets		471,335			591,256
Deferred income tax liabilities:
Property, plant and equipment		(571	)		—
Other liabilities		(7,190	)		(6,656	)
Goodwill and intangible assets		(325,283	)		(451,600	)
Total deferred income tax liabilities		(333,044	)		(458,256	)
Net deferred income tax assets		138,291			133,000
Valuation allowance		(91,743	)		(57,772	)
Net deferred income tax assets	$	46,548		$	75,228

Significant Attributes of ARRIS's Deferred Tax Assets Related to Loss Carryforwards and Tax credits

Significant attributes of ARRIS’s deferred tax assets related to loss carryforwards and tax credits were as follows: (in thousands):

	2017		2016		Expiration
Net operating loss carryforwards (“NOL”):
U.S. federal (1)	$	27,405	$	30,009		2018 - 2037
Georgia		15,948		4,737		2018 - 2037
Pennsylvania		17,687		13,899		2018 - 2037
Other U.S. states		12,236		4,495		2018 - 2037
Non-U.S.		18,556		14,505		Varies (2)
Total tax effected loss carryforward	$	91,832	$	67,645
Tax credit carryforwards:
U.S. federal R&D	$	103,581	$	84,711		2018 - 2037
Other U.S. federal		5,742		3,075		2027
California R&D		34,208		13,782		Indefinite
Other U.S. states R&D		21,310		16,545		2018 - 2037
Total credit carryforward	$	164,841	$	118,113

(1) Gross of tax effect U.S. Federal operating loss carryforwards are $130.5 million for the year ended December 31, 2017 and $85.7 million for the year ended December 31, 2016.

(2) Canadian NOLs expire within 16 years and all other material foreign NOLs have an indefinite carryforward life.

Summary Deferred Tax Asset Valuation Allowance

Significant components of ARRIS’s valuation allowance were as follows (in thousands):

	2017			2016
U.S. federal R&D	$	(8,578	)	$	(8,064	)
Other U.S. federal		(4,241	)		(16,792	)
Georgia NOL		(15,008	)		(3,464	)
Pennsylvania NOL		(10,068	)		(6,596	)
Other state NOL		(8,988	)		(3,265	)
California R&D		(18,773	)		—
Other state R&D		(15,606	)		(10,438	)
Non-U.S. NOL		(10,481	)		(9,153	)
Ending balance	$	(91,743	)	$	57,772

A roll-forward analysis of our deferred tax asset valuation allowances is as follows (in thousands):

	For the Period ended December 31,
	2017			2016			2015
Beginning balance	$	57,772		$	87,788		$	118,629
Additions		52,680			17,973			3,312
Reductions		(18,709	)		(47,989	)		(34,153	)
Ending balance	$	91,743		$	57,772		$	87,788

Tabular Reconciliation of Unrecognized Tax Benefits

Tabular Reconciliation of Unrecognized Tax Benefits (in thousands):

	For the Period ended December 31,
	2017			2016			2015
Beginning balance	$	128,053		$	49,919		$	48,019
Gross increases — tax positions in prior period		6,783			8,068			1,599
Gross decreases — tax positions in prior period		(21,409	)		(5,700	)		(2,185	)
Gross increases — current-period tax positions		24,551			27,774			9,578
Increases from acquired businesses		39,420			60,796			—
Changes related to foreign currency translation adjustment and remeasurement		1,545			(1,087	)		—
Decreases relating to settlements with taxing authorities and other		(686	)		(3,933	)		(6,689	)
Decreases due to lapse of statute of limitations		(4,032	)		(7,784	)		(403	)
Ending balance	$	174,225		$	128,053		$	49,919