INCOME TAXES

Pretax income from continuing operations is as follows:



	For the Year Ended
	June 28, 2014		June 29, 2013		June 30, 2012
	(in thousands)
Domestic pre-tax income	$	87,630	$	69,680	$	184,414
Foreign pre-tax income	321,596		500,599		348,319
Total	$	409,226	$	570,279	$	532,733

The provision for income taxes from continuing operations consisted of the following:



	For the Year Ended
	June 28, 2014			June 29, 2013			June 30, 2012
	(in thousands)
Federal
Current	$	93,012		$	84,996		$	143,903
Deferred	(42,875		)	13,207			16,767
State
Current	2,676			322			2,877
Deferred	(1,465		)	3,574			3,523
Foreign
Current	6,692			17,228			14,757
Deferred	(3,624		)	(1,357		)	(4,012		)
Total provision for income taxes	$	54,416		$	117,970		$	177,815

In addition, the Company recorded income tax of $0.7 million and $13.6 million in the fiscal years ended June 29, 2013 and June 30, 2012, respectively, related to discontinued operations that was netted against income from discontinued operations.

As of June 28, 2014, the Company's foreign subsidiaries have accumulated undistributed earnings of approximately $478.6 million that are intended to be indefinitely reinvested outside the U.S. and, accordingly, no provision for U.S. federal and state tax has been made for the distribution of these earnings. At June 28, 2014 the amount of the unrecognized deferred tax liability on the indefinitely reinvested earnings was $147.0 million.

The provision for income taxes for continuing operations differs from the amount computed by applying the statutory rate as follows:



	For the Year Ended
	June 28, 2014		June 29, 2013		June 30, 2012

Federal statutory rate	35.0	%	35.0	%	35.0	%
State tax, net of federal benefit	0.1		0.6		1.1
General business credits	(0.9	)	(2.0	)	(0.5	)
Effect of foreign operations	(19.1	)	(16.5	)	(3.9	)
Stock-based compensation	3.9		2.7		2.3
Fixed assets federal tax basis adjustments	(8.4	)	—		—
Interest accrual for unrecognized tax benefits	1.1		0.8		0.6
Other	1.6		0.1		(1.2	)

Income tax rate	13.3	%	20.7	%	33.4	%

The income tax rate benefit of 8.4% for fixed assets federal tax basis adjustments is a one-time benefit for fixed assets tax basis adjustments generated by prior year depreciation expense that did not provide a tax benefit in prior years.

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 components of the Company's deferred tax assets and liabilities are as follows:



	For the Year Ended
	June 28, 2014			June 29, 2013
	(in thousands)
Deferred tax assets:
Distributor related accruals and sales return and allowance accruals	$	14,246		$	12,847
Accrued compensation	42,300			44,540
Stock-based compensation	31,609			47,357
Net operating loss carryovers	48,318			41,183
Tax credit carryovers	51,458			45,854
Other reserves and accruals not currently deductible for tax purposes	22,019			16,390
Other	16,879			14,243

Total deferred tax assets	$	226,829		$	222,414

Deferred tax liabilities:
Fixed assets and intangible assets cost recovery, net	(214,393		)	(258,717		)
Other	(11,424		)	(12,753		)

Net deferred tax assets /(liabilities) before valuation allowance	1,012			(49,056		)
Valuation allowance	(84,673		)	(72,898		)

Net deferred tax assets/(liabilities)	$	(83,661	)	$	(121,954	)

The valuation allowance as of June 28, 2014 and June 29, 2013 primarily relates to certain state and foreign net operating loss carryforwards and certain state tax credit carryforwards. The valuation allowance increased by $11.8 million in fiscal year 2014. The increase was primarily due to valuation allowances that were established for net operating loss and credit carryforwards generated during the fiscal year 2014 and for prior year net operating loss and credit carryforwards of companies acquired during the fiscal year 2014. $37.3 million of the valuation allowance is attributable to the tax benefits of income tax deductions generated by the exercise of stock options that, when realized, will be recorded as a credit to additional paid-in-capital.

As of June 28, 2014, the Company has $29.0 million of federal net operating loss carryforwards expiring at various dates between fiscal years 2021 and 2033, $87.6 million of state net operating loss carryforwards expiring at various dates through the fiscal year 2033, $125.9 million of foreign net operating losses with no expiration date, $12.7 million of state tax credit carryforwards expiring at various dates between fiscal years 2015 and 2029 and $80.0 million of state tax credit carryforwards with no expiration date.

The Company classifies unrecognized tax benefits as (i) a current liability to the extent that payment is anticipated within one year; (ii) a non-current liability to the extent that payment is not anticipated within one year; or (iii) as a reduction to deferred tax assets to the extent that the unrecognized tax benefit relates to deferred tax assets such as operating loss or tax credit carryforwards.

A reconciliation of the change in gross unrecognized tax benefits, excluding interest, penalties and the federal benefit for state unrecognized tax benefits, is as follows:



	For the Year Ended
	June 28, 2014			June 29, 2013
	(in thousands)
Balance as of beginning of year	$	302,904		$	228,907
Tax positions related to current year:
Addition	58,035			61,359
Tax positions related to prior year:
Addition	300			12,638
Current year acquisitions	39,566			—
Reduction	(586		)	—
Settlements	(496		)	—
Lapses in statutes of limitations	(2,958		)	—

Balance as of end of year	$	396,765		$	302,904

The total amount of gross unrecognized tax benefits as of June 28, 2014 that, if recognized, would affect the effective tax rate and additional paid in capital is $386.1 million and $10.7 million, respectively.

Consistent with prior years, the Company reports interest and penalties related to unrecognized tax benefits as a component of income tax expense. The gross amount of interest and penalties recognized in income tax expense during fiscal years ended June 28, 2014, June 29, 2013, and June 30, 2012 was $6.6 million, $7.4 million and $7.3 million, respectively, and the total amount of interest and penalties accrued as of June 28, 2014, June 29, 2013, and June 30, 2012 was $27.9 million, $17.9 million, and $10.6 million, respectively.

The Company estimates it is reasonably possible that the liability for unrecognized tax benefits (income taxes payable), including accrued interest and penalties, could decrease within the next 12 months by $27 million due to expected settlements with various tax authorities, of which $25 million is due to the actual favorable settlement of a Singapore tax issue in the first quarter of fiscal year 2015.

The Company’s federal corporate income tax returns are audited on a recurring basis by the Internal Revenue Service (“IRS”). In fiscal year 2012 the IRS commenced an audit of the Company's federal corporate income tax returns for fiscal years 2009 through 2011, which is still ongoing.

A summary of the fiscal tax years that remain subject to examination, as of June 28, 2014, for the Company's major tax jurisdictions are as follows:



United States - Federal	2009	-	Forward
United States - Various States	2009	-	Forward
Ireland	2010	-	Forward
Japan	2008	-	Forward
Philippines	2011	-	Forward
Singapore	2010	-	Forward
Thailand	2005	-	Forward
United Kingdom	2012	-	Forward