Income Taxes

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



	Years ended
	September 30, 2017		September 24, 2016		September 26, 2015
Domestic	$	1,105.8	$	310.7	$	158.3
Foreign	124.7		104.6		18.9
	$	1,230.5	$	415.3	$	177.2

The provision for income taxes contained the following components:



	Years ended
	September 30, 2017			September 24, 2016			September 26, 2015
Federal:
Current	$	701.1		$	209.0		$	185.2
Deferred	(276.9		)	(122.7		)	(137.0		)
	424.2			86.3			48.2
State:
Current	53.1			16.6			3.5
Deferred	(15.9		)	(22.7		)	(11.0		)
	37.2			(6.1		)	(7.5		)
Foreign:
Current	13.9			14.7			5.7
Deferred	(0.3		)	(10.4		)	(0.8		)
	13.6			4.3			4.9
	$	475.0		$	84.5		$	45.6

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



	Years ended
	September 30, 2017		September 24, 2016		September 26, 2015
Income tax provision at federal statutory rate	35.0	%	35.0	%	35.0	%
Increase (decrease) in tax resulting from:
Domestic production activities deduction	(1.7	)	(5.0	)	(10.1	)
State income taxes, net of federal benefit	2.3		2.0		1.2
Non-deductible goodwill	9.2		—		—
Tax credits	(0.8	)	(3.2	)	(3.8	)
Unrecognized tax benefits	(1.4	)	2.4		(1.8	)
Cumulative translation adjustment write-off	—		—		1.9
Compensation	(0.5	)	0.1		1.9
Foreign rate differential	(2.6	)	(6.1	)	(1.6	)
Change in deferred tax rate	0.2		(1.8	)	—
Change in valuation allowance	(1.5	)	(3.4	)	1.0
Other	0.4		0.3		2.1
	38.6	%	20.3	%	25.8	%

The Company's effective tax rate in fiscal 2017 was higher than the statutory rate primarily due to non-deductible goodwill related to the sale of the Blood Screening business, partially offset by the release of valuation allowances for capital losses utilized against the capital gain generated on the sale of the Blood Screening business, earnings in jurisdictions subject to lower tax rates, the domestic production activities deduction benefit, the release of uncertain tax positions due to statutes of limitations expirations and audit settlements, stock compensation benefits, and federal and state tax credits.

The Company's effective tax rate in fiscal 2016 was lower than the statutory rate primarily due to earnings in jurisdictions subject to lower tax rates, the domestic production activities deduction benefit, and a change in the valuation allowance related to the sale of a marketable security with a higher tax than book basis.

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 uses the asset and 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 30, 2017			September 24, 2016
Deferred tax assets
Net operating loss carryforwards	$	50.1		$	40.0
Capital losses	7.1			19.1
Non-deductible accruals	50.6			21.1
Non-deductible reserves	30.0			31.1
Stock-based compensation	39.3			34.8
Research and other credits	13.6			10.7
Nonqualified deferred compensation plan	16.4			14.1
Other temporary differences	16.5			9.2
	223.6			180.1
Less: valuation allowance	(28.2		)	(46.2		)
	$	195.4		$	133.9
Deferred tax liabilities
Depreciation and amortization	$	(1,071.5	)	$	(1,030.8	)
Debt discounts and deferrals	(88.4		)	(76.4		)
	$	(1,159.9	)	$	(1,107.2	)
	$	(964.5	)	$	(973.3	)

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 assets will not be realized. In making this determination, the Company considered numerous factors including historical profitability, estimated future taxable income and the character of such income. The valuation allowance decreased $18.0 million in fiscal 2017 from fiscal 2016 primarily due to capital loss utilization against the capital gain generated on the sale of the Blood Screening business.

At September 30, 2017, the Company had $64.3 million, $91.4 million and $36.5 million in gross federal, state, and foreign net operating losses, respectively, and $5.2 million, $10.3 million and $5.8 million in federal, state, and foreign credit carryforwards, respectively. These losses and credits expire between 2018 and 2037, except for $33.7 million in losses and $2.2 million in credits that have unlimited carryforward periods. The federal, state, and foreign net operating losses exclude $4.5 million, $117.9 million and $45.4 million, respectively, in net operating losses, that the Company expects will expire unutilized.

At September 30, 2017, the Company had $90.3 million in gross unrecognized tax benefits excluding interest, of which $70.3 million, if recognized, would reduce the Company's effective tax rate. At September 24, 2016, the Company had $163.6 million in gross unrecognized tax benefits excluding interest, of which $76.9 million, if recognized, would have reduced the Company's effective tax rate. The gross unrecognized tax benefits decreased by $73.3 million from fiscal 2016, of which $64.0 million was a balance sheet reclassification resulting from the effective settlement in fiscal 2017 of uncertain tax positions related to the convertible debt exchange that occurred in fiscal 2013 and $9.3 million was the net benefit recorded to the income tax provision primarily from audit settlements and expiring statutes of limitations partially offset by current year tax positions. In the next twelve months it is reasonably possible that the Company will reduce its gross unrecognized tax benefits by up to $2.0 million due to expiring statutes of limitations.

The Company’s unrecognized income tax benefits activity for fiscal 2017 and 2016 was as follows:



	2017			2016
Balance at beginning of fiscal year	$	163.6		$	154.7
Tax positions related to current year:
Additions	21.8			23.9
Reductions	—			—
Tax positions related to prior years:
Additions related to change in estimate	1.1			1.1
Reductions	(77.3		)	(6.9		)
Payments	(1.6		)	(6.0		)
Lapses in statutes of limitations	(19.9		)	(3.2		)
Acquired tax positions:
Additions related to reserves acquired from acquisitions	2.6			—
Balance as of the end of the fiscal year	$	90.3		$	163.6

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 30, 2017 and September 24, 2016, gross accrued interest was $5.3 million and $13.1 million, respectively. At September 30, 2017, 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 generally no longer subject to examination prior to tax year 2014. During fiscal 2017, the Internal Revenue Service ("IRS") completed its audit for fiscal years 2013 and 2014. The Company made a cash payment of $1.7 million and recorded an income tax benefit of $10.9 million, including interest, related to the reversal of unrecognized tax benefits. State income tax returns are generally no longer subject to examination prior to fiscal year 2013. The Company is undergoing tax examinations in California (fiscal years 2011-2013), Massachusetts (fiscal years 2012-2013), and New York (fiscal years 2013-2015).

The Company intends to reinvest, indefinitely, $309.5 million in unremitted foreign earnings. It is not practicable to estimate the additional taxes that may be payable upon repatriation.