Income Taxes

Domestic and foreign components of income before income taxes were as follows:



	Year Ended
	October 1, 2016		October 3, 2015		September 27, 2014
	(In thousands)
Domestic	$	138,138	$	91,613	$	92,961
Foreign	66,479		84,580		68,778
Total	$	204,617	$	176,193	$	161,739

The provision for (benefit from) income taxes consists of the following:



	Year Ended
	October 1, 2016			October 3, 2015			September 27, 2014
	(In thousands)
Federal:
Current	$	490		$	1,413		$	5,889
Deferred	(4,550		)	(226,225		)	(43,789		)
State:
Current	(265		)	543			(100		)
Deferred	(5,141		)	(513		)	(1,251		)
Foreign:
Current	32,427			42,295			27,937
Deferred	(6,182		)	(18,581		)	(24,112		)
Total provision for (benefit from) income taxes	$	16,779		$	(201,068	)	$	(35,426	)

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows:



	As of
	October 1, 2016			October 3, 2015
	(In thousands)
Deferred tax assets:
U.S. net operating loss carryforwards	$	373,933		$	416,866
Foreign net operating loss carryforwards	199,313			214,949
Acquisition related intangibles	28,928			46,019
Accruals not currently deductible	59,879			60,225
Property, plant and equipment	9,939			21,099
Tax credit carryforwards	14,191			8,898
Reserves not currently deductible	27,626			22,482
Stock compensation expense	20,617			16,388
Unrealized losses	4,475			4,417
Other	2,730			1,633
Valuation allowance	(176,422		)	(282,734		)
Total deferred tax assets	565,209			530,242
Deferred tax liabilities on foreign earnings	(37,122		)	(19,872		)
Other deferred tax liabilities	(19,228		)	(17,792		)
Net deferred tax assets	$	508,859		$	492,578
Recorded as:
Non-current deferred tax assets	$	514,314		$	497,605
Non-current deferred tax liabilities	(5,455		)	(5,027		)
Net deferred tax assets	$	508,859		$	492,578

The Company offsets deferred tax assets and liabilities by tax-paying jurisdiction. The resulting net amounts by tax jurisdiction are then aggregated without further offset.

A valuation allowance is established or maintained when, based on currently available information and other factors, it is more likely than not that all or a portion of the deferred tax assets will not be realized. The Company regularly assesses its valuation allowance against deferred tax assets on a jurisdiction by jurisdiction basis. The Company considers all available positive and negative evidence, including future reversals of temporary differences, projected future taxable income, tax planning strategies and recent financial results. Significant judgment is required in assessing the Company's ability to generate revenue, gross profit, operating income and jurisdictional taxable income in future periods.

Prior to 2012, based on negative evidence (primarily a cumulative history of operating losses), the Company had a full valuation allowance against its net deferred tax assets in the U.S. and certain foreign jurisdictions. Since 2012, the Company has released a portion of its U.S. valuation allowances each year in recognition of its improved historical earnings and increasing future projected earnings.

The Company released $96.2 million, $288.7 million and $87.6 million of the valuation allowance attributable to U.S. and foreign deferred tax assets in 2016, 2015 and 2014, respectively. The Company reduced the valuation allowance based on continued improved operating results over the past few years and expectations about generating U.S. taxable income in the future. As of October 1, 2016, the Company no longer has a valuation allowance against its U.S. Federal deferred tax assets. The remaining valuation allowance relates primarily to foreign net operating losses, with the exception of $17.6 million related to U.S. state net operating losses.

As of October 1, 2016, U.S. income taxes have not been provided for approximately $595.9 million of cumulative undistributed earnings of several non-U.S. subsidiaries. The Company intends to reinvest these earnings indefinitely in operations outside of the U.S. Determination of the amount of unrecognized deferred tax liabilities on these undistributed earnings is not practicable.

As of October 1, 2016, the Company has cumulative net operating loss carryforwards for federal, state and foreign tax purposes of $1,058.0 million, $662.4 million and $785.1 million, respectively. The federal and state net operating loss carryforwards begin expiring in 2023 and 2017, respectively, and expire at various dates through 2033. Certain foreign net operating losses start expiring in 2016. However, the majority of foreign net operating losses carryforward indefinitely. The Tax Reform Act of 1986 and similar state provisions impose restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an “ownership change” as defined in the Internal Revenue Code. The utilization of certain net operating losses may be restricted due to changes in ownership and business operations. The Company is prohibited from recognizing a deferred tax asset for excess tax benefits related to stock and stock option plans that have not been realized through a reduction in income taxes payable.

Following is a reconciliation of the statutory federal tax rate to the Company's effective tax rate:



	Year Ended
	October 1, 2016		October 3, 2015		September 27, 2014
Federal tax at statutory tax rate	35.00	%	35.00	%	35.00	%
Effect of foreign operations	5.35		3.82		(4.34	)
Foreign income inclusion	9.43		0.21		1.17
Permanent items	(0.29	)	2.05		2.69
Change to other comprehensive income	—		—		2.05
Release of valuation allowance	(47.10	)	(163.92	)	(54.18	)
Other	4.61		4.41		(4.23	)
State income taxes, net of federal benefit	1.18		4.31		(0.06	)
Effective tax rate	8.18	%	(114.12	)%	(21.90	)%

A reconciliation of the beginning and ending amount of total unrecognized tax benefits, excluding accrued penalties and interest, is as follows:



	Year Ended
	October 1, 2016			October 3, 2015			September 27, 2014
	(In thousands)
Balance, beginning of year	$	51,158		$	54,237		$	65,148
Decrease related to prior year tax positions	(2,413		)	(5,044		)	(11,274		)
Increase related to current year tax positions	7,028			5,564			4,993
Settlements	—			(3,599		)	(4,630		)
Balance, end of year	$	55,773		$	51,158		$	54,237

As of October 1, 2016, the Company had reserves of $35.9 million for the payment of interest and penalties relating to unrecognized tax benefits. The Company accrued interest and penalties related to unrecognized tax benefits of $3.7 million in 2016, $3.9 million in 2015, and $5.6 million in 2014. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. Should the Company be able to ultimately recognize all of these uncertain tax positions, it would result in a benefit to net income and a reduction of the effective tax rate.

The Company conducts business globally and, as a result, files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The Company is currently being audited by the Internal Revenue Service for tax years 2008 through 2010. To the extent the final tax liabilities are different from the amounts accrued, this would result in an increase or decrease in net operating loss carryforwards which would impact tax expense. Additionally, the Company is being audited by various state tax agencies and certain foreign countries. To the extent the final tax liabilities are different from the amounts accrued, the increases or decreases would be recorded as income tax expense or benefit in the consolidated statements of income. Although the Company believes that the resolution of these audits will not have a material adverse impact on the Company’s results of operations, the outcome is subject to uncertainty.

In general, the Company is no longer subject to United States federal or state income tax examinations for years before 2003, and to foreign examinations for years prior to 2003 in its major foreign jurisdictions. Although the timing of the resolution of audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, given the number of years subject to audit and the number of matters being examined, the Company is unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.