Entity information:
Income Taxes

Income (loss) before income taxes consisted of the following (in thousands):
 
Years Ended October 31,
 
2017
 
2016
 
2015
United States
$
(173,550
)
 
$
(2,894
)
 
$
69,458

Foreign
30,731

 
4,721

 
3,490

Income (loss) before income taxes
(142,819
)
 
1,827

 
72,948



The provision for (benefit from) income taxes consisted of the following (in thousands):
 
Years Ended October 31,
 
2017
 
2016
 
2015
Current:
 
 
 
 
 
Federal
$
915

 
$
(917
)
 
$
1,965

State
(130
)
 
961

 
206

Foreign
35,490

 
26,093

 
21,664

Total current provision for income taxes
36,275

 
26,137

 
23,835

Deferred:
 
 
 
 
 
Federal
(1,100
)
 
3,377

 
(306
)
State
(70
)
 
336

 
(44
)
Foreign
(2,605
)
 
(18,323
)
 
(30,894
)
Total deferred benefit from income taxes
(3,775
)
 
(14,610
)
 
(31,244
)
Income tax provision (benefit)
$
32,500

 
$
11,527

 
$
(7,409
)


A reconciliation of taxes computed at the federal statutory income tax rate to the provision for (benefit from) income taxes is as follows (in thousands):
 
Years Ended October 31,
 
2017
 
2016
 
2015
Provision for (benefit from) income taxes computed at the federal statutory rate
$
(49,986
)
 
$
638

 
$
25,532

State income tax, net of federal tax benefit
(154
)
 
961

 
469

Foreign income taxes at other than U.S. rates
17,508

 
17,155

 
(2,544
)
Valuation allowance, net
58,988

 
(1,919
)
 
(31,065
)
Impact of tax rate changes
(474
)
 
(1,523
)
 
485

Unrealized inter-company profits
114

 
(130
)
 
409

Foreign exchange
3,156

 
1,067

 
(2,692
)
Stock compensation
288

 
918

 
1,516

Research Credit
(2,002
)
 
(2,926
)
 
(1,662
)
Other
5,062

 
(2,714
)
 
2,143

Income tax provision (benefit)
$
32,500

 
$
11,527

 
$
(7,409
)


Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of our deferred tax assets and liabilities were as follows (in thousands):
 
October 31,
 
2017
 
2016
Deferred tax assets:
 
 
 
Loss carry forwards
$
154,890

 
$
111,955

Basis differences in deductible goodwill and purchased intangibles
54,722

 
49,807

Foreign tax credit carry forwards
19,048

 
14,544

Foreign taxes on basis differences
58,924

 
54,170

Accrued expenses and reserves
20,515

 
29,609

Deferred revenue
40,073

 
55,657

Stock based compensation
20,927

 
19,965

Unrealized foreign currency losses
15,344

 
17,144

R&D credit carry forwards
13,108

 
10,712

Interest carry forward
12,423

 
11,221

Inventories
10,692

 
7,637

Other deferred tax assets
9,452

 
6,895

Total deferred tax assets
430,118

 
389,316

Valuation allowance
(372,616
)
 
(326,935
)
Deferred tax liabilities:
 
 
 
Basis differences on purchased intangibles
(39,031
)
 
(52,827
)
Basis differences in investments in foreign subsidiaries
(70,393
)
 
(57,657
)
Other deferred tax liabilities
(12,513
)
 
(14,278
)
Total deferred tax liabilities
(121,937
)
 
(124,762
)
Net deferred tax liabilities
$
(64,435
)
 
$
(62,381
)


Other deferred tax assets and liabilities are comprised primarily of the tax effects of depreciation and amortized debt issuance costs.

The realization of deferred tax assets is dependent primarily on generating sufficient U.S. and foreign taxable income in future fiscal years. We regularly assess the need for a valuation allowance against deferred tax assets. In making that assessment, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more-likely-than-not that some or all of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, we consider the cumulative loss in the U.S. as a significant piece of negative evidence. Therefore, in fiscal 2013, we established a $245.0 million valuation allowance against a significant portion of our deferred tax assets, including U.S. federal and state deferred tax assets, as well as certain other foreign deferred tax assets. We will continue to assess the realizability of the deferred tax assets in each of the applicable jurisdictions going forward and adjust the valuation allowance accordingly. We intend to maintain the valuation allowances until sufficient positive evidence exists to support the reversal of the valuation allowance.



The tax loss carry forwards as of October 31, 2017 were related primarily to tax losses of $466.2 million in the U.S., $113.1 million in Ireland, $31.1 million in Brazil, $25.3 million in France, $16.3 million in Spain, $12.5 million in the United Kingdom, and $48.7 million in various other non-U.S. countries. Approximately $232.8 million of foreign tax losses may be carried forward indefinitely. The remaining approximately $480.3 million of tax losses is subject to limited carry forward terms of 3 to 20 years, and will expire at various dates beginning in 2018, if not utilized.

The excess tax benefits associated with stock option exercises are recorded directly to stockholders' equity only when realized. The excess tax benefits that have not yet been realized at October 31, 2017, but which are included in net operating loss carryforwards on a tax return basis at October 31, 2017, total $133.1 million.

The U.S. net operating loss carryforward includes acquired net operating losses of $125.8 million. Utilization of some of our acquired NOL and tax credit carryforwards in the United States may be subject to annual limitation due to the ownership change limitations provided by Sections 382 and 383 of the Internal Revenue Code and similar state provisions. Such an annual limitation may result in the expiration of certain NOLs and tax credits before future utilization.

As of October 31, 2017, we have recorded U.S. foreign tax credit carry forwards of $77.0 million which will expire at various dates beginning in 2020, if not utilized. In addition we have recorded U.S. research and development tax credit carry forwards of $21.4 million which will expire at various dates beginning in 2019, if not utilized.

We recognize deferred tax liabilities associated with outside basis differences on investments in foreign subsidiaries unless the difference is considered essentially permanent in duration. As of October 31, 2017, we have recorded a deferred tax liability of $64.7 million associated with $169.4 million of taxable outside basis differences which are not considered permanently reinvested. We have not recorded deferred taxes on approximately $872.9 million of undistributed earnings as they are considered permanently reinvested. As of October 31, 2017, the determination of the unrecorded deferred tax liability related to these earnings is not practicable. If circumstances change and it becomes apparent that some or all of the undistributed earnings will not be invested indefinitely, or will be remitted in the foreseeable future, an additional deferred tax liability will be recorded for some or all of the outside basis difference.





Israel Tax Audit Assessment

We are currently under audit by the Israeli Tax Authorities for fiscal years 2011 through 2015. The Israeli Tax Authorities issued a tax assessment in October 2014 for fiscal year 2009 or alternatively for fiscal year 2008 claiming there was a business restructuring that resulted in a transfer of some functions, assets and risks from VeriFone Israel Ltd. to the U.S. parent company that the Israeli Tax Authorities claim was a sale valued at 1.36 billion New Israeli Shekels (approximately $386.1 million at the foreign exchange rate as of October 31, 2017). We filed our objection to the tax assessment in January 2015 and received the Israeli Tax Authorities decision through an Order (a second stage assessment) in January 2016. The Order increased the value of the sale to 2.20 billion New Israeli Shekels in fiscal year 2009 (approximately $624.1 million at the foreign exchange rate as of October 31, 2017) or alternatively 2.23 billion New Israeli Shekels in fiscal year 2008 (approximately $631.4 million at the foreign exchange rate as of October 31, 2017) and contended secondary adjustments relating to a deemed dividend and/or interest.

Based on the Order, these and other claims result in a tax liability and deficiency penalty assessment in the amount of 1.34 billion New Israeli Shekels (approximately $378.2 million at the foreign exchange rate as of October 31, 2017), if the claim was assessed for fiscal year 2009, to 1.58 billion New Israeli Shekels (approximately $446.4 million at the foreign exchange rate as of October 31, 2017) if the claim was assessed for fiscal year 2008, including interest, the required Israeli price index adjustments (referred to as the linkage differentials) and deficiency fines (as applicable) through October 31, 2017. The Israeli Tax Authorities' contention regarding secondary adjustments relating to deemed dividend was not quantified by them.

We continue to believe the Israeli Tax Authorities' assessment position is without merit and appealed the assessment to the district court. We have agreed with the Israeli Tax Authorities to repay our $69.0 million intercompany loan from VeriFone Israel Ltd. to the extent of the amount of a final agreed tax assessment concerning fiscal year 2008 and fiscal year 2009 or a judgment of a district court in an appeal on the decision of the Israeli Tax Authorities in the objection, if any.

The Israeli Tax Authorities issued a tax assessment in October 2017 for fiscal years 2011 and 2012 that includes secondary adjustments relating to a deemed dividend and/or interest with respect to the contention concerning business restructuring in 2008 or 2009. The Israeli Tax Authorities' contention regarding secondary adjustments relating to deemed dividend was not quantified by them. We intend to file our objection to the assessment.

Other Audits

We have certain other foreign subsidiaries under audit by foreign tax authorities, including Brazil for 2002, Germany for 2013 to 2015, India for fiscal years 2008 to 2015 and New Zealand for fiscal years 2014 and 2015. Although we believe we have appropriately provided for income taxes for the years subject to audit, the Brazil, Germany, India, Israel and New Zealand taxing authorities may adopt different interpretations. We have not yet received any final determinations with respect to these audits. We have accrued tax liabilities associated with these audits. With few exceptions, we are no longer subject to tax examination for periods prior to 2008.

The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in thousands):
 
Years Ended October 31,
 
2017
 
2016
 
2015
Balance at beginning of period
$
106,103

 
$
110,564

 
$
111,002

Lapse of statute of limitations
(6,179
)
 
(1,185
)
 
(501
)
Increases in balances related to tax positions taken during prior periods
1,946

 
488

 
2,988

Decreases in balances related to tax positions taken during prior periods
(1,392
)
 
(3,834
)
 
(3,615
)
Increases in balances related to tax positions taken during current period
7,490

 
5,100

 
1,246

Settlements
—

 
(5,030
)
 
(556
)
Balance at end of period
$
107,968

 
$
106,103

 
$
110,564



The total gross unrecognized tax benefits, if recognized, will affect our effective tax rate. The amount of unrecognized tax benefits could be reduced upon closure of tax examinations or if the statute of limitations on certain tax filings expires without assessment from the tax authorities. We believe that it is reasonably possible that there could be an immaterial reduction in unrecognized tax benefits due to statute of limitation expirations in multiple tax jurisdictions during the next 12 months. Interest and penalties accrued on these uncertain tax positions will also be released upon the expiration of statutes of limitations. Interest and penalties recognized in each statement of operations were not material. As of October 31, 2017 we have accrued $6.3 million for the payment of interest and penalties related to unrecognized tax benefits.