Entity information:
Income Taxes
The United States and international components of income before income taxes are as follows (in thousands):
 
 
 
Years Ended September 30,
 
 
2017
 
2016
 
2015
United States
 
$
452,869

 
$
465,738

 
$
530,684

International
 
122,648

 
84,153

 
30,660

 
 
$
575,517

 
$
549,891

 
$
561,344


The provision for income taxes (benefit) consists of the following (in thousands):
 
 
 
Years Ended September 30,
 
 
2017
 
2016
 
2015
Current
 
 
 
 
 
 
U.S. federal
 
$
113,105

 
$
129,728

 
$
176,074

State
 
10,381

 
16,821

 
16,817

Foreign
 
34,679

 
31,015

 
15,446

Total
 
158,165

 
177,564

 
208,337

Deferred
 
 
 
 
 
 
U.S. federal
 
964

 
9,770

 
(9,778
)
State
 
99

 
(1,029
)
 
(326
)
Foreign
 
(4,472
)
 
(2,269
)
 
(1,903
)
Total
 
(3,409
)
 
6,472

 
(12,007
)
 
 
$
154,756

 
$
184,036

 
$
196,330


The effective tax rate differs from the U.S. federal statutory rate as follows (in thousands):
 
 
 
Years Ended September 30,
 
 
2017
 
2016
 
2015
Income tax provision at statutory rate
 
$
201,431

 
$
192,462

 
$
196,470

State taxes, net of federal benefit
 
9,235

 
13,434

 
13,030

Foreign operations
 
(40,606
)
 
(9,199
)
 
(1,386
)
Research and development and other credits
 
(12,795
)
 
(18,368
)
 
(10,286
)
Domestic manufacturing deduction
 
(15,802
)
 
(14,624
)
 
(18,236
)
Stock-based and other compensation
 
12,688

 
17,137

 
15,462

Other
 
605

 
3,194

 
1,276

 
 
$
154,756

 
$
184,036

 
$
196,330



The tax effects of the temporary differences that give rise to the deferred tax assets and liabilities are as follows (in thousands):
 
 
 
Years Ended September 30,
 
 
2017
 
2016
Deferred tax assets
 
 
 
 
Net operating loss carry-forwards
 
$
11,235

 
$
9,162

Allowance for doubtful accounts
 
1,236

 
624

Accrued compensation and benefits
 
11,617

 
10,385

Inventories and related reserves
 
715

 
1,062

Stock-based compensation
 
11,857

 
11,387

Deferred revenue
 
43,371

 
40,763

Other accruals and reserves
 
17,924

 
18,492

Tax credit carryforwards
 
7,873

 
5,829

Depreciation
 
628

 
376

 
 
106,456

 
98,080

Valuation allowance
 
(18,189
)
 
(14,249
)
 
 
88,267

 
83,831

Deferred tax liabilities
 
 
 
 
Purchased intangibles and other
 
(17,459
)
 
(19,308
)
Depreciation
 
(16,893
)
 
(14,440
)
Other accruals and reserves
 
(676
)
 
(652
)
 
 
(35,028
)
 
(34,400
)
 
 
 
 
 
Net deferred tax assets
 
$
53,239

 
$
49,431


At September 30, 2017, the Company had foreign net operating loss carry-forwards of approximately $54.9 million that can be carried forward indefinitely and $4.2 million that will expire in fiscal year 2026. In addition, there are $4.2 million of state tax credit carryforwards that can be carried forward indefinitely and $3.0 million that will expire in fiscal years 2028 to 2032. Management believes that it is more-likely-than-not that the benefit from certain foreign net operating loss carryforwards and state tax carryforwards will not be realized. In recognition of this risk, the Company has provided a valuation allowance on the deferred tax assets relating to these carryforwards. The net change in the total valuation allowance was an increase of $3.9 million and $4.2 million for the years ended September 30, 2017 and 2016, respectively.
During the year ended September 30, 2017, the Company distributed $86.0 million of cash to the U.S. from a foreign subsidiary. The utilization of previously unrecognized U.S. foreign tax credits resulted in a $21.0 million reduction to tax expense. This non-recurring reduction to tax expense is presented as part of foreign operations in the Company's effective tax rate reconciliation.

As of September 30, 2017, undistributed earnings of the Company's foreign subsidiaries totaled $221.4 million.  The Company has not provided U.S. income taxes on certain foreign subsidiaries in which we intend to indefinitely reinvest such earnings outside the U.S. Determination of the unrecognized deferred tax liability that would be incurred if such amounts were repatriated is not practicable.
The Company benefits from a tax incentive arrangement in a foreign jurisdiction, which is effective through March 31, 2021. The tax incentive agreement is conditional upon meeting certain employment and investment thresholds. This arrangement decreased foreign taxes by $6.9 million and increased diluted earnings per common share by $0.11 for the year ended September 30, 2017.
The Company recognizes the financial statement impact of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest impact that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
The following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits in fiscal years 2017, 2016 and 2015 (in thousands):
 
 
2017
 
2016
 
2015
Balance, beginning of period
 
$
13,687

 
$
9,562

 
$
6,394

Gross increases related to prior period tax positions
 
2,769

 
1,622

 
2,704

Gross decreases related to prior period tax positions
 
—

 
(7
)
 
(642
)
Gross increases related to current period tax positions
 
8,507

 
4,441

 
1,290

Decreases relating to settlements with tax authorities
 
(240
)
 
(521
)
 
(116
)
Reductions due to lapses of statute of limitations
 
(1,588
)
 
(1,410
)
 
(68
)
Balance, end of period
 
$
23,135

 
$
13,687

 
$
9,562



The total amount of gross unrecognized tax benefits was $23.1 million, $13.7 million, and $9.6 million as of September 30, 2017, 2016, and 2015, respectively, of which, $18.3 million, $11.1 million, and $8.0 million, if recognized, would affect the effective tax rate. There is a reasonable possibility that the Company’s unrecognized tax benefits will change within twelve months due to audit settlements or the expiration of statute of limitations, but the Company does not expect the change to be material to the consolidated financial statements. 
The Company recognizes interest and, if applicable, penalties (not included in the “unrecognized tax benefits” table above) for any uncertain tax positions. Interest and penalties are recorded as a component of income tax expense. In the years ended September 30, 2017, 2016 and 2015, the Company recorded approximately $258,000, $18,000 and $466,000, respectively, of interest and penalty expense related to uncertain tax positions. As of September 30, 2017 and 2016, the Company had a cumulative balance of accrued interest and penalties on unrecognized tax positions of $1,178,000 and $920,000, respectively.
The Company and its subsidiaries are subject to U.S. federal income tax as well as the income tax of multiple state and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters for fiscal years through September 30, 2013. The Company is currently under audit by various states for fiscal years 2013 through 2015. Major jurisdictions where there are wholly owned subsidiaries of F5 Networks, Inc. which require income tax filings include the United Kingdom, Japan, Singapore, and Australia. The earliest periods open for review by local taxing authorities are fiscal years 2016 for the United Kingdom, 2011 for Japan, 2012 for Singapore, and 2013 for Australia. Within the next four fiscal quarters, the statute of limitations will begin to close on the fiscal years 2013 and 2014 state income tax returns.