INCOME TAXES

The components of total income (loss) before taxes from continuing operations are as follows (in thousands):



	Years ended December 31,
	2017			2016		2015
U.S.	$	8		$	90,154	$	151,862
Foreign	(58,351		)	561		13,772
Total income (loss) before taxes from continuing operations	$	(58,343	)	$	90,715	$	165,634

The provision for (benefit from) income taxes consisted of the following (in thousands):



	Years ended December 31,
	2017			2016			2015
Current:
U.S. federal	$	(79	)	$	9,564		$	2,737
Foreign	16,871			22,552			26,275
State and local	77			8			319
Total current	16,869			32,124			29,331
Deferred:
U.S. federal	(8,390		)	2,365			23,478
Foreign	(10,463		)	392			(4,138		)
State and local	199			(255		)	(154		)
Total deferred	(18,654		)	2,502			19,186
Provision for (benefit from) income taxes	$	(1,785	)	$	34,626		$	48,517

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):



	December 31,
	2017			2016
Deferred tax assets
Net operating loss carryforwards	$	17,301		$	40,969
Research tax credit	15,433			9,642
Foreign tax credit	12,479			7,201
Expenses not currently deductible	13,031			5,193
Basis difference in fixed and intangible assets	3,200			3,529
Gross deferred tax assets	61,444			66,534
Valuation allowance	(32,032		)	(12,846		)
Net deferred tax assets	29,412			53,688
Deferred tax liabilities
Acquired intangible assets, domestic	(34,408		)	(70,338		)
Acquired intangible assets, foreign	(4,903		)	(13,045		)
Unremitted earnings of foreign subsidiaries	(30		)	(129		)
Net deferred tax liabilities	$	(9,929	)	$	(29,824	)

At December 31, 2017 and 2016, the Company had a valuation allowance of $32.0 million and $12.8 million, respectively, related to federal, state, and foreign tax attributes that the Company believes to be not realizable on a more-likely-than-not basis. The $19.2 million increase from the prior year is primarily comprised of $13.5 million attributable to additional valuation allowance recorded against federal tax credits and the remainder is related to remeasurement of deferred taxes that have a corresponding valuation allowance, both as a result of the Tax Act. The need for a valuation allowance requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction-by-jurisdiction basis. In making such assessment, significant weight is given to evidence that can be objectively verified. After considering both negative and positive evidence to assess the recoverability of the Company's net deferred tax assets at the end of 2017, management determined that it was more likely than not that the Company would not realize certain federal, state and foreign deferred tax assets given the substantial amount of tax attributes that will remain unutilized to offset forecasted future tax liabilities. The Company will continue to monitor the likelihood that it will be able to recover the deferred tax assets in the future, including those for which a valuation allowance is still recorded. This determination includes objectively verifiable positive evidence that outweighs potential negative evidence.

As of December 31, 2017, the Company had federal net operating loss carryforwards of approximately $32.7 million and state net operating loss carryforwards of approximately $95.4 million. Substantially all of the federal net operating loss carryforwards are carried over from acquired entities, DTS in 2016 and Ziptronix in 2015. The state net operating loss carryforwards are carried over from acquired entities, DTS in 2016, Ziptronix in 2015, and Siimpel Corporation in 2010. The federal net operating loss carryforwards, if not utilized, will begin to expire on various dates beginning in 2026, and will continue to expire through 2034. The state net operating loss carryforwards, if not utilized, will begin to expire on various dates beginning in 2018, and will continue to expire through 2036.

In addition, the Company has research tax credit carryforwards of approximately $10.0 million for federal purposes which were carried over from DTS and Ziptronix, as well as generated in the current year. The federal research tax credit will start to expire in 2018 and will continue to expire through 2037. The Company also has research tax credit carryforwards of approximately $14.5 million for state purposes and $0.6 million for foreign purposes, which will never expire. The Company has $19.8 million of foreign tax credit carryforwards which will begin to expire in 2018 and will continue to expire through 2027. Under the provisions of the Internal Revenue Code, substantial changes in the Company's or its subsidiaries' ownership may limit the amount of net operating loss and tax credit carryforwards that can be utilized annually in the future to offset taxable income. In addition, the Tax Act modifies the maximum deduction of net operating loss, eliminates carryback, and provides for indefinite carryforward for losses generated after December 31, 2017

A reconciliation of the statutory U.S. federal income tax rate to the Company’s effective tax rate is as follows:



	Years Ended December 31,
	2017		2016		2015
U.S. federal statutory rate	35.0	%	35.0	%	35.0	%
State, net of federal benefit	(0.1	)	(0.5	)	—
Stock-based compensation expense	(2.9	)	2.0		0.5
Tax exempt interest	—		(0.2	)	(0.1	)
Research tax credit	3.2		(1.2	)	(0.3	)
Foreign withholding tax	(25.2	)	24.7		15.7
Transaction costs	—		2.4		—
Foreign tax rate differential	(20.8	)	0.4		(2.8	)
Foreign tax credit	22.9		(23.5	)	(15.3	)
Change in valuation allowance	(23.1	)	—		(3.0	)
Re-measurement of deferred taxes	13.5		—		—
Others	0.6		(0.9	)	(0.4	)
Total	3.1	%	38.2	%	29.3	%

On December 22, 2017, the Tax Cut and Jobs Act (“Tax Act”) was signed into law. The Tax Act introduced a broad range of tax reform measures that significantly change the federal income tax laws. The provisions of the Tax Act that may have significant impact on the Company include the permanent reduction of the corporate income tax rate from 35% to 21% effective for tax years including or commencing on January 1, 2018, one-time transition tax on post-1986 foreign unremitted earnings, provision for GILTI, deduction for FDII, repeal of corporate alternative minimum tax, limitation of various business deductions, modification of the maximum deduction of net operating loss with no carryback but indefinite carryforward provision, and limitation on the deductibility of executive compensation. Many provisions in the Tax Act are generally effective in tax years beginning after December 31, 2017.

At December 31, 2017, the Company reflected the provisional income tax effects of the Tax Act under Accounting Standards Codification Topic 740, Income Taxes. The Company has recorded a provisional tax expense in the Statement of Operations of approximately $5.6 million, comprised of approximately $13.5 million tax expense from recording additional valuation allowance against federal tax credits due to certain provisions of the Tax Act, offset by approximately $7.9 million of tax benefit from the remeasurement of U.S. deferred taxes using the relevant tax rate at which the Company expects them to reverse in the future. The estimated one-time transition tax on post-1986 foreign unremitted earnings should not have a material impact to the Company's effective tax rate.

The Company continues to examine the impact of certain provisions of the Tax Act that will become applicable in calendar year 2018 related to BEAT, GILTI, deduction for FDII, and other provisions that could affect its effective tax rate in the future. The Company will record the income tax effects of GILTI and other provisions of the Tax Act as incurred beginning in calendar year 2018. Also, because there may be additional state income tax implications, the Company will continue to monitor changes in state and local tax laws to determine if state and local taxing authorities intend to conform or deviate from changes to U.S. federal tax legislation as a result of the Tax Act. The prospects of supplemental legislation or regulatory processes to address questions that arise because of the Tax Act, or evolving technical interpretations of the tax law, may cause the final impact from the Tax Act to differ from the provisionally recorded amounts. The Company expects to complete its analysis within the measurement period allowed by Staff Accounting Bulletin (“SAB”) No.118, no later than the fourth quarter of calendar year 2018.

At December 31, 2017, the Company has changed its permanent reinvestment assertion and will not permanently reinvest its foreign earnings outside the U.S. The Company anticipates that the cash from its foreign earnings may be used domestically to fund operations, settle a portion of the outstanding debt obligation, or used for other business needs. The accumulated undistributed earnings generated by its foreign subsidiaries was approximately $70.7 million, of which all was subject to the one-time transition tax on foreign unremitted earnings required by the Tax Act or has otherwise been previously subject to U.S. tax. The Company will accrue approximately $0.3 million of withholding taxes from its foreign subsidiaries on estimated cash that may be remitted back to the U.S. without restrictions.

As of December 31, 2017, unrecognized tax benefits approximated $33.5 million, of which $22.2 million would affect the effective tax rate if recognized. As of December 31, 2016, unrecognized tax benefits approximated $30.1 million, of which $23.8 million would affect the effective tax rate if recognized. The Company does not believe that its unrecognized tax benefits as of December 31, 2017 will significantly increase or decrease within the next twelve months.

The reconciliation of the Company's unrecognized tax benefits for the years ended December 31, 2016, 2015 and 2014 is as follows (in thousands):



	Years Ended December 31,
	2017		2016			2015
Total unrecognized tax benefits at January 1	$	30,088	$	3,071		$	2,734
Gross increases and decreases due to acquisition of DTS	—		27,584			—
Gross increases and decreases due to tax positions taken in prior periods	2,457		139			699
Gross increases and decreases due to tax positions taken in the current period	961		264			103
Gross increases and decreases due to settlements with taxing authorities	—		—			—
Gross increases and decreases due to lapses in applicable statutes of limitations	—		(970		)	(465		)
Total unrecognized tax benefits at December 31	$	33,506	$	30,088		$	3,071

It is the Company's policy to classify accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. For the years ended December 31, 2017, 2016, and 2015, the Company recognized an insignificant amount of interest and penalties related to unrecognized tax benefits. Accrued interest and penalties were $0.6 million and $0.5 million, for the years ended December 31, 2017 and 2016, respectively.

At December 31, 2017, the Company’s 2013 through 2016 tax years were open and subject to potential examination in one or more jurisdictions. In addition, in the U.S., any net operating losses or credits that were generated in prior years but utilized in an open year may also be subject to examination. The Company is currently under examination by the Internal Revenue Service for tax year 2014. The Company is not currently under foreign income tax examination.