Income Taxes

Loss before income taxes is derived from (in thousands):



	Year Ended
	November 3, 2019			October 28, 2018
U.S. Domestic	$	(17,529	)	$	(36,077	)
International	3,321			4,350
Loss before income tax	$	(14,208	)	$	(31,727	)

Income tax provision (benefit) by taxing jurisdiction consists of (in thousands):



	Year Ended
	November 3, 2019			October 28, 2018
Current:
U.S. Federal	$	—		$	(1,423	)
U.S. State and local	6			188
International	1,060			2,169
Total current	$	1,066		$	934
Deferred:
U.S. State and local	$	4		$	(2	)
International	(92		)	26
Total deferred	(88		)	24
Income tax provision	$	978		$	958

The difference between the income tax provision on income (loss) and the amount computed at the U.S. federal statutory rate is due to (in thousands):



	Year Ended
	November 3, 2019			October 28, 2018
U.S. Federal statutory rate	$	(2,984	)	$	(7,424	)
U.S. State income tax, net of U.S. Federal tax benefits	142			212
International permanent differences	95			(161		)
International tax rate differentials	145			1,282
U.S. tax on international income	471			(1,136		)
General business credits	(1,718		)	(2,400		)
Non-deductible expenses	358			64
Other, net	—			(1,108		)
Change in valuation allowance for rate change	—			26,798
Change in valuation allowance for deferred tax assets	4,469			(15,169		)
Income tax provision	$	978		$	958

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, and also include operating loss carryforwards. The significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):



	November 3, 2019			October 28, 2018
Deferred tax assets:
Net operating loss carryforwards	$	60,706		$	55,522
Capital loss carryforwards	3,357			3,403
U.S. federal tax credit carryforwards	53,462			51,288
Deferred income	6,045			6,366
Compensation accruals	3,199			4,305
Other, net	5,744			5,365
Total deferred tax assets	132,513			126,249
Less valuation allowance	(123,266		)	(118,559		)
Deferred tax assets, net	9,247			7,690

Deferred tax liabilities:
Unremitted earnings from foreign subsidiaries	2,017			2,010
Software development costs	6,767			4,884
Other, net	466			959
Total deferred tax liabilities	9,250			7,853
Net deferred tax liability	$	(3	)	$	(163	)

Balance sheet classification
Non-current assets	$	14		$	347
Non-current liabilities	(17		)	(510		)
Net deferred tax asset (liability)	$	(3	)	$	(163	)

At November 3, 2019, the Company has available unused U.S. federal net operating loss (“NOL”) carryforwards of $207.2 million, U.S. state NOL carryforwards of $239.3 million, international NOL carryforwards of $9.3 million, capital loss carryforwards of $12.9 million and federal tax credits of $53.5 million. As of November 3, 2019, the U.S. federal NOL carryforwards expire at various dates between 2031 and 2038 (with some indefinite), the U.S. state NOL carryforwards expire at various dates between 2020 and 2038, the international NOL carryforwards expire at various dates beginning in 2020 (with some indefinite), capital loss carryforwards expire between 2020 and 2022 and federal tax credits expire between 2020 and 2037. At November 3, 2019, the undistributed earnings of the Company’s non-U.S. subsidiaries are not intended to be permanently invested outside of the U.S. and therefore U.S. deferred taxes have been provided.

A valuation allowance has been recognized due to the uncertainty of realization of the loss carryforwards and other deferred tax assets. Beginning in fiscal 2010, the Company’s cumulative U.S. domestic and certain non-U.S. results for each three-year period were a loss. Accordingly, the Company recorded a full valuation allowance against its net U.S. domestic and certain net non-U.S. deferred tax assets as a non-cash charge to income tax expense. The three-year cumulative loss continued in fiscal 2019 so the Company maintained a full valuation allowance against its net U.S. domestic and certain net non-U.S. deferred tax assets resulting in a total valuation allowance of $123.3 million and $118.6 million for fiscal 2019 and 2018, respectively. In reaching this conclusion, the Company considered the U.S. domestic demand and recent operating losses causing the Company to be in a three-year cumulative loss position. Management believes that the remaining deferred tax assets are more likely than not to be realized based upon consideration of all positive and negative evidence, including scheduled reversal of deferred tax liabilities and tax planning strategies determined on a jurisdiction-by-jurisdiction basis.

The Company recognizes income tax benefits for tax positions determined more likely than not to be sustained upon examination based on the technical merits of the positions. The following table sets forth the change in the accrual for uncertain tax positions, excluding interest and penalties (in thousands):



	November 3, 2019			October 28, 2018
Balance, beginning of year	$	491		$	1,495
Decreases relating to tax positions taken in a prior period	(21		)	(10		)
Settlements	(146		)	—
Lapse of statute of limitations	(41		)	(994		)
Total	$	283		$	491

Of the total unrecognized tax benefits at November 3, 2019 and October 28, 2018, approximately $0.3 million and $0.5 million, respectively, would affect the Company’s effective income tax rate, if and when recognized in future years. The amount accrued for related potential interest and penalties at October 28, 2018 was $0.1 million. The income tax provision for the fiscal years ended November 3, 2019 and October 28, 2018 included a reversal of reserves on uncertain tax provisions of $0.2 million and $1.1 million, respectively.

The Company is subject to taxation at the federal, state and local levels in the U.S. and in various international jurisdictions. With few exceptions, the Company is generally no longer subject to examination by the U.S. federal, state, local or non-U.S. income tax authorities for years before fiscal 2008.

On December 22, 2017, the U.S. President signed the Tax Cuts and Jobs Act (“Tax Act”) into law. The Tax Act includes a number of provisions, including the lowering of the U.S. corporate tax rate from 35.0% to 21.0%, and the establishment of a territorial-style system for taxing foreign-source income of domestic multinational corporations.

Other provisions under the Tax Act which are effective for the Company in fiscal 2019, includes limitations on deductibility of executive compensation and interest, as well as a new minimum tax on Global Intangible Low-Taxed Income (“GILTI”), both of which did not have a material impact on the Company's financial statements.

The SEC staff issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The measurement period ended on December 22, 2018. There was no significant impact.