INCOME TAXES

Pretax income (loss) is as follows:



	For the Year Ended
	June 24, 2017		June 25, 2016			June 27, 2015
	(in thousands)
Domestic pre-tax income (loss)	$	154,628	$	(48,985	)	$	68,289
Foreign pre-tax income (loss)	524,961		334,039			177,881
Total	$	679,589	$	285,054		$	246,170

The provision for income taxes consisted of the following:



	For the Year Ended
	June 24, 2017			June 25, 2016			June 27, 2015
	(in thousands)
Federal
Current	$	107,303		$	98,810		$	108,736
Deferred	(8,171		)	(52,240		)	(74,190		)
State
Current	(361		)	1,808			3,791
Deferred	(436		)	(2,406		)	(3,269		)
Foreign
Current	8,930			10,278			8,294
Deferred	711			1,329			(3,230		)
Total provision for income taxes	$	107,976		$	57,579		$	40,132

As of June 24, 2017, the Company's foreign subsidiaries have accumulated undistributed earnings of approximately $1.3 billion 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 24, 2017 the amount of the unrecognized deferred tax liability on the indefinitely reinvested earnings was $412.2 million.

A reconciliation of the Company's Federal statutory tax rate to the Company's effective tax rate is as follows:



	For the Year Ended
	June 24, 2017		June 25, 2016		June 27, 2015

Federal statutory rate	35.0	%	35.0	%	35.0	%
State tax, net of federal benefit	(0.2	)	(0.6	)	(0.4	)
General business credits	(1.3	)	(2.8	)	(2.8	)
Effect of foreign operations	(20.2	)	(21.7	)	(24.6	)
Stock-based compensation	0.1		4.7		5.9
Interest accrual for unrecognized tax benefits	2.1		3.2		2.6
Non-deductible goodwill	—		2.5		—
Other	0.4		(0.1	)	0.6
Effective tax rate	15.9	%	20.2	%	16.3	%

In the first quarter of fiscal year 2017 the Company adopted ASU 2016-09, which requires excess tax benefits and tax deficiencies generated by the settlement of share-based awards to be recognized as part of the income tax provision. The tax rate impact for general business credits and stock-based compensation for the fiscal year ended June 24, 2017 includes the impact of excess tax benefits of $2.8 million and $11.6 million, respectively, generated by the settlement of share-based awards in fiscal year 2017.

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 24, 2017			June 25, 2016
	(in thousands)
Deferred tax assets:
Distributor related accruals and sales return and allowance accruals	$	10,746		$	23,482
Accrued compensation	36,630			39,979
Stock-based compensation	14,919			15,562
Net operating loss carryovers	45,743			44,962
Tax credit carryovers	71,231			57,101
Other reserves and accruals not currently deductible for tax purposes	50,126			36,516
Other	5,179			11,552
Total deferred tax assets	234,574			229,154

Deferred tax liabilities:
Fixed assets and intangible assets cost recovery, net	(66,355		)	(82,504		)
Unremitted earnings of foreign subsidiaries	(13,703		)	(11,842		)
Other	(3,296		)	(3,695		)
Total deferred tax liabilities	(83,354		)	(98,041		)

Net deferred tax assets /(liabilities) before valuation allowance	151,220			131,113
Valuation allowance	(110,411		)	(95,060		)
Net deferred tax assets/(liabilities)	$	40,809		$	36,053

The valuation allowance as of June 24, 2017 and June 25, 2016 primarily relates to certain state and foreign net operating loss carryforwards and certain state tax credit carryforwards. The valuation allowance increased by $15.4 million in fiscal year 2017, which was primarily due to valuation allowances that were established for net operating loss and credit carryforwards generated during the fiscal year 2017 and the adoption of ASU 2016-09 in the first quarter of fiscal year 2017.

As of June 24, 2017, the Company has $21.5 million of federal net operating loss carryforwards expiring at various dates between fiscal years 2021 and 2033, $40.1 million of state net operating loss carryforwards expiring at various dates through fiscal year 2033, $139.0 million of foreign net operating loss carryforwards with no expiration date, $8.2 million of state tax credit carryforwards expiring at various dates through fiscal year 2032, and $101.3 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 24, 2017			June 25, 2016			June 27, 2015
	(in thousands)
Balance as of beginning of year	$	482,745		$	427,629		$	396,765
Tax positions related to current year:
Addition	57,791			53,899			55,343
Tax positions related to prior year:
Addition	1,059			3,035			214
Reduction	(1,410		)	(205		)	(2,433		)
Settlements	—			(943		)	(21,458		)
Lapses in statutes of limitations	(616		)	(670		)	(802		)
Balance as of end of year	$	539,569		$	482,745		$	427,629

The total amount of gross unrecognized tax benefits as of June 24, 2017 that, if recognized, would affect the effective tax rate is $539.6 million. Due to the Company’s adoption of ASU 2016-09 in the first quarter of fiscal year 2017, none of the gross unrecognized tax benefits as of June 24, 2017, if recognized, would affect additional paid-in capital.

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 24, 2017, June 25, 2016, and June 27, 2015 was $22.4 million, $14.7 million and $6.5 million, respectively, and the total amount of interest and penalties accrued as of June 24, 2017, June 25, 2016, and June 27, 2015 was $71.4 million, $49.0 million, and $34.4 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 to 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”). The IRS has concluded its field examination of the Company’s federal corporate income tax returns for fiscal years 2009 through 2011 and issued an IRS Revenue Agent's Report in July 2016 that includes proposed adjustments for transfer pricing issues related to cost sharing and buy-in license payments for the use of intangible property by one of the Company’s international subsidiaries. The Company disagrees with the proposed transfer pricing adjustments and related penalties, and in September 2016, the Company filed a protest to challenge the proposed adjustments and request a conference with the Appeals Office of the IRS. The Company believes that its reserves for unrecognized tax benefits are sufficient to cover any potential assessments that may result from the final resolution of these transfer pricing issues. In fiscal year 2017, the IRS commenced an audit of the Company’s federal corporate income tax returns for fiscal years 2012 through 2014, which is ongoing.

A summary of the fiscal tax years that remain subject to examination, as of June 24, 2017, for the Company's major tax jurisdictions are as follows:



United States - Federal	2009	-	Forward
United States - Various States	2009	-	Forward
Ireland	2012	-	Forward
Japan	2011	-	Forward
Philippines	2014	-	Forward
Singapore	2013	-	Forward
United Kingdom	2012	-	Forward