Note 12. Income Taxes

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

	Years Ended
	June 27, 2015			June 28, 2014			June 29, 2013
Domestic	$	(184.9	)	$	(87.9	)	$	(98.8	)
Foreign	102.0			57.1			51.9

(Loss) income before income taxes	$	(82.9	)	$	(30.8	)	$	(46.9	)

The Company’s income tax expense (benefit) consisted of the following (in millions):

	Years Ended
	June 27, 2015			June 28, 2014			June 29, 2013
Federal:
Current	$	—		$	(0.5	)	$	—
Deferred	2.3			(4.5		)	(0.7		)

	2.3			(5.0		)	(0.7		)

State:
Current	—			—			—
Deferred	0.1			(0.2		)	—

	0.1			(0.2		)	—

Foreign:
Current	(2.7		)	18.2			18.4
Deferred	5.5			(26.1		)	(121.6		)

	2.8			(7.9		)	(103.2		)

Total income tax (benefit) expense	$	5.2		$	(13.1	)	$	(103.9	)

The federal deferred tax expense primarily relates to the amortization of tax deductible goodwill. The foreign current benefit relates to the Company’s profitable operations in certain foreign jurisdictions and offset by a $21.8 million tax benefit recognized upon the settlement of an audit in a non-U.S. jurisdiction. The foreign deferred tax expense primarily relates to the use of net operating losses in profitable foreign jurisdictions.

There was no material tax benefit associated with exercise of stock options for the fiscal years ended June 27, 2015, June 28, 2014 and June 29, 2013.

A reconciliation of the Company’s income tax expense (benefit) at the federal statutory rate to the income tax expense (benefit) at the effective tax rate is as follows (in millions):

	Years Ended
	June 27, 2015			June 28, 2014			June 29, 2013
Income tax (benefit) expense computed at federal statutory rate	$	(29.0	)	$	(10.8	)	$	(16.4	)
Foreign rate differential	(2.3		)	(1.8		)	(2.4		)
Valuation allowance	37.3			24.2			(84.5		)
Statute expiration				(21.7		)	—
Reversal of previously accrued taxes	(22.6		)	(1.0		)	(0.7		)
Research and experimentation benefits and other tax credits	(4.7		)	(5.0		)	(3.2		)
Permanent items	22.8			7.6			4.4
Other	3.7			(4.6		)	(1.1		)

Income tax (benefit) expense	$	5.2		$	(13.1	)	$	(103.9	)

The components of the Company’s net deferred taxes consisted of the following (in millions):

	Years Ended
	June 27, 2015			June 28, 2014			June 29, 2013
Gross deferred tax assets:
Tax credit carryforwards	$	172.9		$	158.6		$	150.1
Net operating loss carryforwards	2,281.5			2,346.1			2,303.0
Inventories	14.4			13.0			16.3
Accruals and reserves	34.2			48.2			41.8
Other	115.8			121.1			127.7
Acquisition-related items	89.3			86.8			95.9

Gross deferred tax assets	2,708.1			2,773.8			2,734.8
Valuation allowance	(2,488.1		)	(2,499.8		)	(2,549.1		)

Deferred tax assets	220.0			274.0			185.7

Gross deferred tax liabilities:
Acquisition-related items	(27.6		)	(40.4		)	(26.5		)
Undistributed foreign earnings	(7.2		)	(6.6		)	(8.3		)
Other	(45.6		)	(50.2		)	(3.5		)

Deferred tax liabilities	(80.4		)	(97.2		)	(38.3		)

Total net deferred tax assets (liabilities)	$	139.6		$	176.8		$	147.4

As of June 27, 2015, the Company had federal, state and foreign tax net operating loss carryforwards of $6,141.6 million, $1,098.4 million and $730.4 million, respectively, and federal, state and foreign research and other tax credit carryforwards of $92.2 million, $39.0 million and $41.2 million, respectively. Of this amount, approximately $106.4 million when realized will be credited to additional paid-in capital. The Company’s policy is to account for the utilization of tax attributes under a with-and-without approach. The tax net operating loss and tax credit carryforwards will start to expire in 2016 and at various other dates through 2035 if not utilized. Utilization of the tax net operating losses may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state and foreign provisions. Loss carryforward limitations may result in the expiration or reduced utilization of a portion of the Company’s net operating losses.

U.S. income and foreign withholding taxes associated with the repatriation of earnings of foreign subsidiaries have not been provided on $273.1 million of undistributed earnings for certain foreign subsidiaries. The Company intends to reinvest these earnings indefinitely outside of the United States. The Company estimates that an additional $14.2 million of U.S. income or foreign withholding taxes would have to be provided if these earnings were repatriated back to the U.S.

The valuation allowance decreased by $11.7 million in fiscal 2015, decreased by $49.3 million in fiscal 2014, and decreased by $87.9 million in fiscal 2013. The decrease during fiscal 2015 was primarily related to the decrease in the deferred tax assets as a result of the use and expiration of foreign net operating losses. The decrease during fiscal 2014 was primarily related to an increase in acquisition and debt issuance related deferred tax liabilities. The decrease during fiscal 2013 was primarily due to the release of deferred tax valuation allowance for non-US. jurisdictions.

Approximately $514.7 million of the valuation allowance as of June 27, 2015 was attributable to pre-fiscal 2006 windfall stock option deductions, the benefit of which will be credited to paid-in-capital if and when realized through a reduction in income tax payable. Beginning with fiscal 2006, the Company began to track the windfall stock option deductions off-balance sheet. If and when realized, the tax benefit associated with those deductions will be credited to additional paid-in-capital.

During fiscal 2014, the Company recognized $21.7 million of uncertain tax benefits related to deferred tax assets due to the expiration of the statute of limitations in a non-US jurisdiction. In addition, the Company recorded a tax benefit of $6.4 million related to the income tax intraperiod tax allocation rules in relation to other comprehensive income.

During fiscal 2013, the Company determined that it was more likely than not that the deferred tax assets of a subsidiary in a non-U.S. jurisdiction (the “foreign subsidiary”) would be realized after considering all positive and negative evidence. Prior to fiscal 2013, because of significant negative evidence including principally continued economic uncertainty in the industry in the foreign jurisdiction specifically and reorganization activity that would adversely affect the foreign subsidiary’s future operations and profitability on a continuing basis in future years, the Company determined that it was more likely than not that the deferred tax assets would not be realized. However, during fiscal 2013, the foreign subsidiary had realized cumulative pre-tax income for the preceding three years and had forecasted future pre-tax income sufficient to realize its deferred tax assets. Upon considering the relative impact of all evidence, both negative and positive, and the weight accorded to each, the Company concluded that it was more likely than not that the deferred tax assets of the foreign subsidiary would be realized and that the applicable valuation allowance should be released.

Accordingly, a net deferred tax valuation allowance release of $107.9 million was recorded as an income tax benefit during the year. The Company’s conclusion that it is more likely than not that the deferred tax assets will be realized is strongly influenced by its forecast of the foreign subsidiary’s future taxable income. The Company believes its forecast of the foreign subsidiary’s future taxable income is reasonable; however, it is inherently uncertain. Therefore, if the foreign subsidiary realizes material unforeseen losses, then its ability to realize the deferred tax assets may become uncertain and an additional charge to increase the valuation allowance may be recorded.

A reconciliation of unrecognized tax benefits between June 30, 2012 and June 27, 2015 is as follows (in millions):

Balance at June 30, 2012	$	61.3
Additions based on tax positions related to current year	23.7
Reductions for lapse of statute of limitations or for audit settlements	(1.2		)
Reductions due to foreign currency rate fluctuations	(0.7		)
Reductions based on ITC expiration	(2.4		)

Balance at June 29, 2013	80.7
Additions based on tax positions related to current year	3.2
Additions due to foreign currency rate fluctuation	0.6
Reductions for lapse of statute of limitations	(21.7		)
Reductions based on state credit expiration	(1.7		)
Reductions based on the tax positions related to the prior year	(0.8		)

Balance at June 28, 2014	60.3
Additions based on tax positions related to current year	2.3
Reductions for lapse of statute of limitations	(3.3		)
Reductions due to foreign currency rate fluctuations	(3.2		)
Reductions based on the tax positions related to the prior year	(18.7		)

Balance at June 27, 2015	$	37.4

The unrecognized tax benefits relate primarily to the allocations of revenue and costs among the Company’s global operations and the validity of some U.S. tax credits. In addition, utilization of the Company’s tax net operating losses may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state and foreign provisions. As a result, loss carryforward limitations may result in the expiration or reduced utilization of a portion of the Company’s net operating losses.

Included in the balance of unrecognized tax benefits at June 27, 2015 are $3.5 million of tax benefits that, if recognized, would impact the effective tax rate. Also included in the balance of unrecognized tax benefits at June 27, 2015 are $33.9 million of tax benefits that, if recognized, would result in adjustments to the valuation allowance.

The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits within the income tax provision. The amount of interest and penalties accrued as of June 27, 2015 and June 28, 2014 was approximately $1.6 million and $24.8 million, respectively. During fiscal 2015, the Company’s accrued interest and penalties decreased by $23.2 million primarily relating to the settlement of an audit in a non-US jurisdiction.

The Company is routinely subject to various federal, state and foreign audits by taxing authorities. The Company believes that adequate amounts have been provided for any adjustments that may result from these examinations.

The following table summarizes the Company’s major tax jurisdictions and the tax years that remain subject to examination by such jurisdictions as of June 27, 2015:

Tax Jurisdictions		Tax Years
United States		2011 and onward
Canada		2008 and onward
China		2010 and onward
France		2010 and onward
Germany		2010 and onward
Korea		2010 and onward
United Kingdom		2009 and onward