Income Taxes

Components of earnings before income taxes (in millions):



Fiscal Year Ended	Oct 2, 2016		Sep 27, 2015		Sep 28, 2014
United States	$	3,415.7	$	2,837.2	$	2,572.4
Foreign	782.9		1,065.8		587.3
Total earnings before income taxes	$	4,198.6	$	3,903.0	$	3,159.7

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



Fiscal Year Ended	Oct 2, 2016			Sep 27, 2015			Sep 28, 2014
Current taxes:
U.S. federal	$	704.1		$	801.0		$	822.7
U.S. state and local	166.5			150.1			132.9
Foreign	218.5			172.2			128.8
Total current taxes	1,089.1			1,123.3			1,084.4
Deferred taxes:
U.S. federal	351.3			56.5			12.0
U.S. state and local	25.8			4.0			(4.9		)
Foreign	(86.5		)	(40.1		)	0.5
Total deferred taxes	290.6			20.4			7.6
Total income tax expense	$	1,379.7		$	1,143.7		$	1,092.0

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



Fiscal Year Ended	Oct 2, 2016		Sep 27, 2015		Sep 28, 2014
Statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	3.0		2.8		2.6
Benefits and taxes related to foreign operations	(2.2	)	(2.1	)	(1.9	)
Domestic production activity deduction	(1.9	)	(2.2	)	(0.7	)
Gain resulting from acquisition of joint venture	—		(3.7	)	—
Other, net	(1.0	)	(0.5	)	(0.4	)
Effective tax rate	32.9	%	29.3	%	34.6	%

U.S. income and foreign withholding taxes have not been provided on approximately $3.3 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):



	Oct 2, 2016			Sep 27, 2015
Deferred tax assets:
Property, plant and equipment	$	56.8		$	54.4
Accrued occupancy costs	104.5			95.6
Accrued compensation and related costs	88.6			81.6
Stored value card liability	124.2			97.2
Stock-based compensation	138.3			135.5
Net operating losses	79.0			93.4
Litigation charge	862.3			931.0
Other	197.4			171.3
Total	$	1,651.1		$	1,660.0
Valuation allowance	(70.3		)	(143.7		)
Total deferred tax asset, net of valuation allowance	$	1,580.8		$	1,516.3
Deferred tax liabilities:
Property, plant and equipment	(445.7		)	(150.5		)
Intangible assets and goodwill	(175.9		)	(176.7		)
Other	(88.5		)	(51.7		)
Total	(710.1		)	(378.9		)
Net deferred tax asset	$	870.7		$	1,137.4
Reported as:
Deferred income tax assets	885.4			1,180.8
Deferred income tax liabilities (included in Other long-term liabilities)	(14.7		)	(43.4		)
Net deferred tax asset	$	870.7		$	1,137.4

⁽¹⁾We have adjusted the presentation of certain gross deferred tax assets and liabilities as of September 27, 2015 in the above table to conform to our presentation as of October 2, 2016.

The valuation allowance as of October 2, 2016 and September 27, 2015 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 $73.4 million and $23.1 million for fiscal 2016 and 2015, respectively.

As of October 2, 2016, we had state tax credit carryforwards of $24.9 million with an expiration date of fiscal 2024 and foreign net operating loss carryforwards of $264.2 million, the majority of which has no expiration date.

Uncertain Tax Positions

As of October 2, 2016, we had $146.5 million of gross unrecognized tax benefits of which $102.0 million, if recognized, would affect our effective tax rate. We recognized a benefit of $3.6 million, an expense of $0.7 million and an expense of $5.9 million of interest and penalties in income tax expense, prior to the benefit of the federal tax deduction, for fiscal 2016, 2015 and 2014, respectively. As of October 2, 2016 and September 27, 2015, we had accrued interest and penalties of $7.7 million and $11.3 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):



	Oct 2, 2016			Sep 27, 2015			Sep 28, 2014
Beginning balance	$	150.4		$	112.7		$	88.8
Increase related to prior year tax positions	—			7.9			1.4
Decrease related to prior year tax positions	(23.6		)	(0.9		)	(2.2		)
Increase related to current year tax positions	33.7			32.0			26.7
Decrease related to current year tax positions	—			(0.6		)	(1.9		)
Decreases related to settlements with taxing authorities	(3.1		)	(0.7		)	(0.1		)
Decrease related to lapsing of statute of limitations	(10.9		)	—			—
Ending balance	$	146.5		$	150.4		$	112.7

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 2015. We are no longer subject to U.S. federal or state examination for years prior to fiscal year 2011, with the exception of one city. We are no longer subject to examination in any material international markets prior to 2006.

There is a reasonable possibility that $18.6 million of the currently remaining unrecognized tax benefits may be recognized by the end of fiscal 2017 as a result of a lapse of the statute of limitations.