INCOME TAXES

Pretax income from continuing operations is as follows:



	For the Year Ended
	June 27, 2015		June 28, 2014		June 29, 2013
	(in thousands)
Domestic pre-tax income	$	68,289	$	87,630	$	69,680
Foreign pre-tax income	177,881		321,596		500,599
Total	$	246,170	$	409,226	$	570,279

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



	For the Year Ended
	June 27, 2015			June 28, 2014			June 29, 2013
	(in thousands)
Federal
Current	$	108,736		$	93,012		$	84,996
Deferred	(74,190		)	(42,875		)	13,207
State
Current	3,791			2,676			322
Deferred	(3,269		)	(1,465		)	3,574
Foreign
Current	8,294			6,692			17,228
Deferred	(3,230		)	(3,624		)	(1,357		)
Total provision for income taxes	$	40,132		$	54,416		$	117,970

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

As of June 27, 2015, the Company's foreign subsidiaries have accumulated undistributed earnings of approximately $688.0 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 27, 2015 the amount of the unrecognized deferred tax liability on the indefinitely reinvested earnings was $218.4 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 27, 2015		June 28, 2014		June 29, 2013

Federal statutory rate	35.0	%	35.0	%	35.0	%
State tax, net of federal benefit	(0.4	)	0.1		0.6
General business credits	(2.8	)	(0.9	)	(2.0	)
Effect of foreign operations	(24.6	)	(19.1	)	(16.5	)
Stock-based compensation	5.9		3.9		2.7
Fixed assets federal tax basis adjustments	—		(8.4	)	—
Interest accrual for unrecognized tax benefits	2.6		1.1		0.8
Other	0.6		1.6		0.1

Income tax rate	16.3	%	13.3	%	20.7	%

The income tax rate benefit of 8.4% in the fiscal year ended June 28, 2014 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 27, 2015			June 28, 2014
	(in thousands)
Deferred tax assets:
Distributor related accruals and sales return and allowance accruals	$	15,966		$	14,246
Accrued compensation	44,961			42,300
Stock-based compensation	22,639			31,609
Net operating loss carryovers	47,305			48,318
Tax credit carryovers	54,501			51,458
Other reserves and accruals not currently deductible for tax purposes	29,420			22,019
Other	10,968			16,879

Total deferred tax assets	$	225,760		$	226,829

Deferred tax liabilities:
Fixed assets and intangible assets cost recovery, net	(141,070		)	(214,393		)
Other	(5,349		)	(11,424		)

Net deferred tax assets /(liabilities) before valuation allowance	79,341			1,012
Valuation allowance	(91,175		)	(84,673		)

Liabilities	$	(11,834	)	$	(83,661	)

The valuation allowance as of June 27, 2015 and June 28, 2014 primarily relates to certain state and foreign net operating loss carryforwards and certain state tax credit carryforwards. The valuation allowance increased by $6.5 million in fiscal year 2015. The increase was primarily due to valuation allowances that were established for net operating loss and credit carryforwards generated during the fiscal year 2015. Approximately $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 27, 2015, the Company has $27.0 million of federal net operating loss carryforwards expiring at various dates between fiscal years 2021 and 2033, $81.2 million of state net operating loss carryforwards expiring at various dates through the fiscal year 2033, $128.5 million of foreign net operating losses with no expiration date, $7.7 million of state tax credit carryforwards expiring at various dates between fiscal years 2016 and 2030 and $89.7 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 or to the extent that operating loss or tax credit carryforwards would be able to offset the additional tax liability generated by unrecognized tax benefits.

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 27, 2015			June 28, 2014
	(in thousands)
Balance as of beginning of year	$	396,765		$	302,904
Tax positions related to current year:
Addition	55,343			58,035
Tax positions related to prior year:
Addition	214			300
Current year acquisitions	—			39,566
Reduction	(2,433		)	(586		)
Settlements	(21,458		)	(496		)
Lapses in statutes of limitations	(802		)	(2,958		)

Balance as of end of year	$	427,629		$	396,765

The total amount of gross unrecognized tax benefits as of June 27, 2015 that, if recognized, would affect the effective tax rate and additional paid in capital is $415.4 million and $12.2 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 the fiscal years ended June 27, 2015, June 28, 2014, and June 29, 2013 was $6.5 million, $6.6 million and $7.4 million, respectively, and the total amount of interest and penalties accrued as of June 27, 2015, June 28, 2014, and June 29, 2013 was $34.4 million, $27.9 million, and $17.9 million, respectively.

The Company does not expect its unrecognized tax benefits to change significantly within the next 12 months.

During the fiscal year ended June 27, 2015, $21.2 million of unrecognized tax benefits were recognized due the favorable settlement of a Singapore tax issue and $3.6 million of related interest and penalty accruals were reversed.

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 27, 2015, for the Company's major tax jurisdictions are as follows:



United States - Federal	2009	-	Forward
United States - Various States	2009	-	Forward
Ireland	2011	-	Forward
Japan	2009	-	Forward
Philippines	2012	-	Forward
Singapore	2011	-	Forward
United Kingdom	2012	-	Forward