Income Taxes

Components of earnings/(loss) before income taxes (in millions):



Fiscal Year Ended	Sep 27, 2015		Sep 28, 2014		Sep 29, 2013
	Sep 27, 2015		Sep 28, 2014		Total			Litigation charge			All Other
United States	$	2,837.2	$	2,572.4	$	(674.0	)	$	(2,784.1	)	$	2,110.1
Foreign	1,065.8		587.3		444.1			—			444.1
Total earnings/(loss) before income taxes	$	3,903.0	$	3,159.7	$	(229.9	)	$	(2,784.1	)	$	2,554.2

Provision/(benefit) for income taxes (in millions):



Fiscal Year Ended	Sep 27, 2015			Sep 28, 2014			Sep 29, 2013
	Sep 27, 2015			Sep 28, 2014			Total			Litigation charge			All Other
Current taxes:
U.S. federal	$	801.0		$	822.7		$	616.6		$	—		$	616.6
U.S. state and local	150.1			132.9			93.8			—			93.8
Foreign	172.2			128.8			95.9			—			95.9
Total current taxes	1,123.3			1,084.4			806.3			—			806.3
Deferred taxes:
U.S. federal	56.5			12.0			(898.8		)	(922.3		)	23.5
U.S. state and local	4.0			(4.9		)	(144.0		)	(148.7		)	4.7
Foreign	(40.1		)	0.5			(2.2		)	—			(2.2		)
Total deferred taxes	20.4			7.6			(1,045.0		)	(1,071.0		)	26.0
Total income tax expense/(benefit)	$	1,143.7		$	1,092.0		$	(238.7	)	$	(1,071.0	)	$	832.3

Reconciliation of the statutory U.S. federal income tax rate with our effective income tax rate:



Fiscal Year Ended	Sep 27, 2015		Sep 28, 2014		Sep 29, 2013
	Sep 27, 2015		Sep 28, 2014		Total		Litigation charge		All Other
Statutory rate	35.0	%	35.0	%	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	2.8		2.6		15.8		3.5		2.4
Benefits and taxes related to foreign operations	(2.1	)	(1.9	)	37.5		—		(3.4	)
Domestic production activity deduction	(2.2	)	(0.7	)	8.1		—		(0.7	)
Domestic tax credits	(0.2	)	(0.2	)	2.8		—		(0.3	)
Charitable contributions	(0.3	)	(0.4	)	3.9		—		(0.3	)
Gain resulting from acquisition of joint venture	(3.7	)	—		—		—		—
Other, net	—		0.2		0.7		—		(0.1	)
Effective tax rate	29.3	%	34.6	%	103.8	%	38.5	%	32.6	%

Our effective tax rate in fiscal 2013 was significantly affected by the litigation charge we recorded as a result of the conclusion of our arbitration with Kraft. In order to provide a more meaningful analysis of tax expense and the effective tax rate, the tables above present separate reconciliations of the effect of the litigation charge. The deferred tax asset related to the litigation charge is estimated to be recovered over a period of 15 years; the deferred tax asset has been classified between current and non-current consistent with the expected recovery period for income tax reporting purposes.

U.S. income and foreign withholding taxes have not been provided on approximately $2.8 billion of cumulative undistributed earnings of foreign subsidiaries and equity investees. We intend to reinvest these earnings for the foreseeable future. If these amounts were distributed to the U.S., in the form of dividends or otherwise, we would be subject to additional U.S. income taxes, which could be material. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because of the complexities with its hypothetical calculation, and the amount of liability, if any, is dependent on circumstances existing if and when remittance occurs.

Tax effect of temporary differences and carryforwards that comprise significant portions of deferred tax assets and liabilities (in millions):



	Sep 27, 2015			Sep 28, 2014
Deferred tax assets:
Property, plant and equipment	$	121.4		$	78.5
Accrued occupancy costs	98.4			58.8
Accrued compensation and related costs	81.7			75.3
Other accrued liabilities	49.0			27.6
Asset retirement obligation asset	29.0			18.6
Stored value card liability	99.1			63.4
Asset impairments	26.2			49.5
Tax credits	20.8			20.3
Stock-based compensation	135.5			131.5
Net operating losses	93.4			104.4
Litigation charge	931.0			1,002.0
Other	104.5			77.0
Total	$	1,790.0		$	1,706.9
Valuation allowance	(143.7		)	(166.8		)
Total deferred tax asset, net of valuation allowance	$	1,646.3		$	1,540.1
Deferred tax liabilities:
Property, plant and equipment	(217.5		)	(148.2		)
Intangible assets and goodwill	(177.3		)	(92.9		)
Other	(114.1		)	(89.4		)
Total	(508.9		)	(330.5		)
Net deferred tax asset	$	1,137.4		$	1,209.6
Reported as:
Current deferred income tax assets	$	381.7		$	317.4
Long-term deferred income tax assets	828.9			903.3
Current deferred income tax liabilities (included in Accrued liabilities)	(5.4		)	(4.2		)
Long-term deferred income tax liabilities (included in Other long-term liabilities)	(67.8		)	(6.9		)
Net deferred tax asset	$	1,137.4		$	1,209.6

The valuation allowance as of September 27, 2015 and September 28, 2014 is primarily related to net operating losses and other deferred tax assets of consolidated foreign subsidiaries. The net change in the total valuation allowance was a decrease of $23.1 million and an increase of $6.3 million for fiscal 2015 and 2014, respectively.

As of September 27, 2015, we had state tax credit carryforwards of $32.0 million with an expiration date of fiscal 2024 and foreign net operating loss carryforwards of $309.5 million, the majority of which has no expiration date.

Uncertain Tax Positions

As of September 27, 2015, we had $150.4 million of gross unrecognized tax benefits of which $101.7 million, if recognized, would affect our effective tax rate. We recognized expense of $0.7 million, expense of $5.9 million, and a benefit of $0.8 million of interest and penalties in income tax expense, prior to the benefit of the federal tax deduction, for fiscal 2015, 2014 and 2013, respectively. As of September 27, 2015 and September 28, 2014, we had accrued interest and penalties of $11.3 million and $10.6 million, respectively, before the benefit of the federal tax deduction, included within other long-term liabilities on our consolidated balance sheets.

The following table summarizes the activity related to our unrecognized tax benefits (in millions):



	Sep 27, 2015			Sep 28, 2014			Sep 29, 2013
Beginning balance	$	112.7		$	88.8		$	75.3
Increase related to prior year tax positions	7.9			1.4			8.9
Decrease related to prior year tax positions	(0.9		)	(2.2		)	(9.3		)
Increase related to current year tax positions	32.0			26.7			19.3
Decrease related to current year tax positions	(0.6		)	(1.9		)	(0.4		)
Decreases related to settlements with taxing authorities	(0.7		)	(0.1		)	—
Decreases related to lapsing of statute of limitations	—			—			(5.0		)
Ending balance	$	150.4		$	112.7		$	88.8

We are currently under examination, or may be subject to examination, by various jurisdictions inside and outside the U.S. as well as U.S. state and municipal taxing jurisdictions for fiscal years 2006 through 2014. We are no longer subject to U.S. federal or state examination for years prior to fiscal year 2010, with the exception of one state and one city. We are no longer subject to examination in any material international markets prior to 2006.

There is a reasonable possibility that $31.2 million of the currently remaining unrecognized tax benefits may be recognized by the end of fiscal 2016 as a result of a lapse of the statute of limitations and expected consent from taxing authorities.