Income Taxes

Components of earnings before income taxes (in millions):



Fiscal Year Ended	Oct 1, 2017		Oct 2, 2016		Sep 27, 2015
United States	$	3,393.0	$	3,415.7	$	2,837.2
Foreign	924.5		782.9		1,065.8
Total earnings before income taxes	$	4,317.5	$	4,198.6	$	3,903.0

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



Fiscal Year Ended	Oct 1, 2017			Oct 2, 2016			Sep 27, 2015
Current taxes:
U.S. federal	$	931.0		$	704.1		$	801.0
U.S. state and local	170.8			166.5			150.1
Foreign	216.6			218.5			172.2
Total current taxes	1,318.4			1,089.1			1,123.3
Deferred taxes:
U.S. federal	121.2			351.3			56.5
U.S. state and local	14.2			25.8			4.0
Foreign	(21.2		)	(86.5		)	(40.1		)
Total deferred taxes	114.2			290.6			20.4
Total income tax expense	$	1,432.6		$	1,379.7		$	1,143.7

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



Fiscal Year Ended	Oct 1, 2017		Oct 2, 2016		Sep 27, 2015
Statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	2.8		3.0		2.8
Benefits and taxes related to foreign operations	(2.8	)	(2.2	)	(2.1	)
Domestic production activity deduction	(1.8	)	(1.9	)	(2.2	)
Gain resulting from acquisition of joint venture	—		—		(3.7	)
Other, net	—		(1.0	)	(0.5	)
Effective tax rate	33.2	%	32.9	%	29.3	%

U.S. income and foreign withholding taxes have not been provided on approximately $3.7 billion of cumulative undistributed earnings of foreign subsidiaries and equity investees, including cumulative unrealized currency translation adjustments. 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 1, 2017			Oct 2, 2016
Deferred tax assets:
Property, plant and equipment	$	71.3		$	56.8
Accrued occupancy costs	118.0			104.5
Accrued compensation and related costs	95.0			88.6
Stored value card liability	130.7			124.2
Stock-based compensation	125.9			138.3
Net operating losses	80.8			79.0
Litigation charge	792.0			862.3
Other	180.8			197.4
Total	$	1,594.5		$	1,651.1
Valuation allowance	(80.1		)	(70.3		)
Total deferred tax asset, net of valuation allowance	$	1,514.4		$	1,580.8
Deferred tax liabilities:
Property, plant and equipment	(477.2		)	(445.7		)
Intangible assets and goodwill	(159.0		)	(175.9		)
Other	(89.1		)	(88.5		)
Total	(725.3		)	(710.1		)
Net deferred tax asset	$	789.1		$	870.7
Reported as:
Deferred income tax assets	795.4			885.4
Deferred income tax liabilities (included in Other long-term liabilities)	(6.3		)	(14.7		)
Net deferred tax asset	$	789.1		$	870.7

The valuation allowance as of October 1, 2017 and October 2, 2016 is primarily related to net operating losses and other deferred tax assets of consolidated foreign subsidiaries.

As of October 1, 2017, we had state net operating loss carryforwards of $31.2 million which will begin to expire in fiscal 2024, state tax credit carryforwards of $18.0 million, of which $15.9 million will begin to expire in fiscal 2024 and the remainder will begin to expire in fiscal 2018, and foreign net operating loss carryforwards of $262.2 million, of which $207.3 million have an indefinite carryforward period and the remainder expire at various dates starting from fiscal 2018.

Uncertain Tax Positions

As of October 1, 2017, we had $196.9 million of gross unrecognized tax benefits of which $139.5 million, if recognized, would affect our effective tax rate. We recognized an expense of $5.2 million, a benefit of $3.6 million and an expense of $0.7 million of interest and penalties in income tax expense, prior to the benefit of the federal tax deduction, for fiscal 2017, 2016 and 2015, respectively. As of October 1, 2017 and October 2, 2016, we had accrued interest and penalties of $11.2 million and $7.7 million, respectively, within our consolidated balance sheets.

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



	Oct 1, 2017			Oct 2, 2016			Sep 27, 2015
Beginning balance	$	146.5		$	150.4		$	112.7
Increase related to prior year tax positions	10.4			—			7.9
Decrease related to prior year tax positions	—			(23.6		)	(0.9		)
Increase related to current year tax positions	41.3			33.7			32.0
Decrease related to current year tax positions	—			—			(0.6		)
Decreases related to settlements with taxing authorities	—			(3.1		)	(0.7		)
Decrease related to lapsing of statute of limitations	(1.3		)	(10.9		)	—
Ending balance	$	196.9		$	146.5		$	150.4

We are currently under examination, or may be subject to examination, by various U.S. federal, state, local and foreign tax jurisdictions for fiscal years 2006 through 2016. We are no longer subject to U.S. federal or state examination for years prior to fiscal year 2011, with the exception of one state. We are no longer subject to examination in any material international markets prior to 2006.

It is reasonably possible that a portion of the Company's gross unrecognized tax benefits may be recognized by the end of fiscal 2018 as a result of a lapse of the statute of limitations or resolution of examinations with tax authorities. We estimate this range to be approximately $42 million to $75 million.