Income Taxes

The Company’s income (loss) before income taxes consisted of the following:



	Years ended
	September 26, 2015		September 27, 2014			September 28, 2013
Domestic	$	158.3	$	95.1		$	(1,184.6	)
Foreign	18.9		(47.0		)	(8.3		)
	$	177.2	$	48.1		$	(1,192.9	)

The provision (benefit) for income taxes contained the following components:



	Years ended
	September 26, 2015			September 27, 2014			September 28, 2013
Federal:
Current	$	185.2		$	242.2		$	154.9
Deferred	(137.0		)	(212.5		)	(182.7		)
	48.2			29.7			(27.8		)
State:
Current	3.5			22.1			15.3
Deferred	(11.0		)	(24.7		)	(16.7		)
	(7.5		)	(2.6		)	(1.4		)
Foreign:
Current	5.7			9.6			7.7
Deferred	(0.8		)	(5.9		)	1.4
	4.9			3.7			9.1
	$	45.6		$	30.8		$	(20.1	)

The income tax provision (benefit) differed from the tax provision computed at the U.S. federal statutory rate due to the following:



	Years ended
	September 26, 2015		September 27, 2014		September 28, 2013
Income tax provision (benefit) at federal statutory rate	35.0	%	35.0	%	(35.0	)%
Increase (decrease) in tax resulting from:
Goodwill impairment	—		—		32.8
Domestic production activities deduction	(10.1	)	(30.6	)	(1.2	)
State income taxes, net of federal benefit	1.2		4.3		(0.2	)
Tax credits	(3.8	)	(5.2	)	(1.2	)
Unrecognized tax benefits	(1.8	)	2.5		0.3
Contingent consideration	—		—		2.6
Cumulative translation adjustment write-off	1.9		—		—
Non-deductible compensation	1.9		5.5		0.2
Foreign rate differential	(1.6	)	10.7		0.1
Change in valuation allowance	1.0		35.4		(0.8	)
Other	2.1		6.3		0.7
	25.8	%	63.9	%	(1.7	)%

The Company's effective tax rate in fiscal 2015 was lower than the statutory rate primarily due to the domestic production activities deduction benefit. The Company’s effective tax rate in fiscal 2014 was higher than the statutory rate primarily due to unbenefited foreign losses partially offset by the domestic production activities deduction benefit.

The Company’s effective tax rate in fiscal 2013 was lower than the statutory rate primarily due to the non-deductible goodwill impairment charge, non-deductible contingent consideration expense related to the TCT International Co., Ltd. ("TCT") and Interlace acquisitions, and unbenefited foreign losses, partially offset by the domestic production activities deduction benefit and the release of a $19.9 million valuation allowance related to capital losses which were utilized to offset capital gains generated during the year.

The Company uses the liability method to account for income taxes in accordance with ASC 740, Income Taxes. Under this method, deferred income taxes are recognized for the future tax consequences of differences between the tax and financial accounting bases of assets and liabilities at each reporting period. Deferred income taxes are based on enacted tax laws and statutory tax rates applicable to the period in which these differences are expected to affect taxable income. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized.

The Company’s significant deferred tax assets and liabilities were as follows:



	September 26, 2015			September 27, 2014
Deferred tax assets
Net operating loss carryforwards	$	45.4		$	54.2
Capital losses	25.7			22.3
Non-deductible accruals	16.3			16.8
Non-deductible reserves	26.8			27.1
Stock-based compensation	24.3			25.0
Research and other credits	14.5			12.3
Nonqualified deferred compensation plan	11.3			13.7
Other temporary differences	10.2			11.6
	174.5			183.0
Less: valuation allowance	(60.9		)	(62.8		)
	$	113.6		$	120.2
Deferred tax liabilities
Depreciation and amortization	$	(1,171.5	)	$	(1,314.6	)
Debt discounts and deferrals	(100.1		)	(120.9		)
Debt issuance costs	(1.4		)	(6.8		)
Investment in subsidiary	—			(13.9		)
	$	(1,273.0	)	$	(1,456.2	)
	$	(1,159.4	)	$	(1,336.0	)

Under ASC 740, the Company can only recognize a deferred tax asset for the future benefit to the extent that it is “more likely than not” that these assets will be realized. After considering all available positive and negative evidence, the Company established a valuation allowance against specifically identified deferred tax assets because it is more-likely-than-not that these will not be realized. In determining these assets realizability, the Company considered numerous factors including historical profitability, the character and estimated future taxable income, prudent and feasible tax planning strategies, and the industry in which it operates. The valuation allowance decreased $1.9 million in fiscal 2015 from fiscal 2014 primarily due to foreign exchange rate fluctuations offset by unrealized capital losses from investment write-downs.

At September 26, 2015, the Company had $17.3 million, $91.5 million and $56.6 million in gross federal, state, and foreign net operating losses, respectively, and $4.7 million, $13.0 million and $1.5 million in federal, state, and foreign credit carryforwards, respectively. These losses and credits expire between 2016 and 2035, except for $54.9 million in losses and $9.0 million in credits that have unlimited carryforward periods. The federal, state, and foreign net operating losses exclude $4.5 million, $180.5 million and $49.0 million, respectively, in net operating losses, that the Company expects will expire unutilized.

The Company had $154.7 million in gross unrecognized tax benefits, excluding interest, at September 26, 2015 and $137.0 million at September 27, 2014. At September 26, 2015, $74.9 million represents the unrecognized tax benefits that, if recognized, would reduce the Company’s effective tax rate. In the next twelve months it is reasonably possible that the Company will reduce its gross unrecognized tax benefits by $2.0 to $4.0 million due to statutes of limitations expiring and potential favorable settlements with taxing authorities.

The Company’s unrecognized income tax benefits activity for fiscal 2015 and 2014 was as follows:



	2015			2014
Balance at beginning of fiscal year	$	137.0		$	121.8
Tax positions related to current year:
Additions	11.0			10.8
Reductions	—			—
Tax positions related to prior years:
Additions related to change in estimate	21.1			10.9
Reductions	(10.3		)	(2.7		)
Payments	(0.8		)	—
Lapses in statutes of limitations and settlements	(3.7		)	(3.8		)
Acquired tax positions:
Additions related to reserves acquired from acquisitions	0.4			—
Balance as of the end of the fiscal year	$	154.7		$	137.0

The Company’s policy is to include accrued interest and penalties related to unrecognized tax benefits and income tax liabilities, when applicable, in income tax expense. As of September 26, 2015 and September 27, 2014, gross accrued interest was $9.9 million and $8.3 million, respectively. At September 26, 2015, no significant penalties have been accrued.

The Company and its subsidiaries are subject to various federal, state, and foreign income taxes. The Company’s U.S. Federal income tax returns are no longer subject to examination prior to fiscal 2011. State income tax returns are generally no longer subject to examination prior to fiscal year 2011. The Internal Revenue Service commenced its fiscal 2011 federal income tax return examination in July 2013. The Company is also undergoing tax examinations in China and Germany for calendar 2004 through 2013, and fiscal 2008 through 2010, respectively. Massachusetts is scheduled to begin a state tax examination for fiscal 2012 through 2013 in fiscal 2016.

The Company intends to reinvest, indefinitely, approximately $60.9 million in unremitted foreign earnings. It is not practicable to estimate the additional taxes that may be payable upon repatriation.