12.	Income Taxes

Income before provision for income taxes for fiscal 2016, 2015, and 2014 consisted of the following (in millions):

	2016		2015		2014
United States	$	12.3	$	13.4	$	76.7
Foreign		63.3		146.8		(2.2	)
Income before provision for income taxes	$	75.6	$	160.2	$	74.5

The provision for income taxes for fiscal 2016, 2015, and 2014 consisted of the following (in millions):

	2016			2015			2014
Current tax expense/(benefit)
Federal	$	12.1		$	12.0		$	(3.3	)
Foreign		12.4			63.0			12.3
		24.5			75.0			9.0
Deferred tax expense/(benefit)
Federal		(7.5	)		(3.7	)		18.7
Foreign		(13.6	)		(21.5	)		0.1
		(21.1	)		(25.2	)		18.8
Provision for income taxes	$	3.4		$	49.8		$	27.8

The provision for income taxes differs from the federal statutory rate for fiscal 2016, 2015, and 2014 as follows (in millions):

	2016			2015			2014
Provision at U.S. federal statutory rate	$	26.6		$	56.1		$	26.1
Qualified stock options		5.1			2.7			0.9
Business credits		(10.3	)		(4.7	)		(2.8	)
Foreign tax differential		(22.4	)		(4.3	)		(19.6	)
Non-deductible portion of contingent consideration		0.9			(4.7	)		21.2
Change in valuation allowance		(1.4	)		(0.5	)		(0.3	)
Nondeductible amortization		4.4			2.7			0.9
Other differences		0.5			2.5			1.4
Provision for income taxes	$	3.4		$	49.8		$	27.8

Net deferred tax assets as of the end of fiscal 2016 and 2015 consisted of the following (in millions):

	2016			2015
Current deferred tax assets	$	—		$	17.6
Non-current deferred tax assets		14.7			0.9
Non-current deferred tax liabilities		(9.0	)		(33.9	)
Net deferred tax assets/(liabilities)	$	5.7		$	(15.4	)

Current deferred tax assets, non-current deferred tax assets, and non-current deferred tax liabilities are included in prepaid expenses and other current assets, other assets, and other liabilities, respectively, in the accompanying consolidated balance sheets.

Significant components of our deferred tax assets (liabilities) as of the end of fiscal 2016 and 2015 consisted of the following (in millions):

	2016			2015
Deferred tax assets:
Investment writedowns	$	2.5		$	5.8
Inventory writedowns		6.5			6.8
Property and equipment		0.8			1.3
Accrued compensation		2.5			3.3
Deferred compensation		1.7			2.8
Share-based compensation		12.6			8.8
Business credit carryforward		16.2			10.7
Net operating loss carryforward		2.5			5.7
Other accruals		2.4			4.3
		47.7			49.5
Valuation allowance		(14.1	)		(14.5	)
		33.6			35.0
Deferred tax liabilities:
Acquisition intangibles		(22.9	)		(43.7	)
Interest		(5.0	)		(6.7	)
		(27.9	)		(50.4	)
Net deferred tax assets/(liabilities)	$	5.7		$	(15.4	)

Realization of deferred tax assets depends on our generating sufficient U.S. and certain foreign taxable income in future years to obtain a benefit from the utilization of those deferred tax assets on our tax returns. Accordingly, the amount of deferred tax assets considered realizable may increase or decrease when we reevaluate the underlying basis for our estimates of future U.S. and foreign taxable income. As of the end of fiscal 2016, a valuation allowance of $14.1 million is maintained to reduce deferred tax assets to levels that we believe are more likely than not to be realized through future taxable income. The net change in the valuation allowance during fiscal 2016 was a decrease of $0.4 million.

Undistributed earnings of our foreign subsidiaries were approximately $680.9 million as of the end of fiscal 2016 and are considered to be indefinitely reinvested overseas; accordingly, no U.S. income taxes have been provided for these earnings. The potential deferred tax liability associated with undistributed earnings of our foreign subsidiaries was approximately $182.1 million as of the end of fiscal 2016.

As of the end of fiscal 2016, we had federal and California net operating loss carryforwards of approximately $7.1 million and $33.2 million, respectively. The federal net operating loss carryforwards, which begin to expire in fiscal 2022 if not utilized, were acquired and are subject to limitations on their utilization. The California net operating loss will begin to expire in fiscal 2020, if not utilized. All of the California net operating loss carryforwards were attributable to share-based award deductions and any benefit of these net operating losses will be recorded directly to additional paid-in capital when realized. Under current tax law, net operating loss and tax credit carryforwards available to offset future income or income taxes may be limited by statute or upon the occurrence of certain events, including significant changes in ownership.

We had $31.4 million and $26.0 million of federal and state research tax credit carryforwards, respectively, as of the end of fiscal 2016. The benefit of $31.0 million of these credits will be recorded directly to additional paid-in capital when realized. The federal research tax credit carryforward will begin to expire in 2032 and the state research tax credit can be carried forward indefinitely. We also had $1.6 million of federal alternative minimum tax credit carryforward available to offset future federal tax liabilities with no expiration, which will be recorded directly to additional paid-in capital when realized.

The total liability for gross unrecognized tax benefits related to uncertain tax positions, included in other liabilities in our consolidated balance sheets, increased by $1.8 million from $11.6 million in fiscal 2015 to $13.4 million in fiscal 2016. Of this amount, $9.2 million will reduce the effective tax rate on income from continuing operations, if recognized. A reconciliation of the beginning and ending balance of gross unrecognized tax benefits for fiscal 2016, 2015, and 2014 consisted of the following (in millions):

	2016			2015			2014
Beginning balance	$	11.6		$	10.2		$	8.2
Increase in unrecognized tax benefits related to current year tax positions		1.6			2.3			1.1
Increase in unrecognized tax benefits related to prior year tax positions		1.1			0.3			1.7
Decrease due to statute expiration		(0.9	)		(1.2	)		(0.8	)
Ending Balance	$	13.4		$	11.6		$	10.2

Accrued interest and penalties increased by $0.3 million, increased by $0.2 million, and decreased by less than $0.1 million representing income tax expense or benefit, in fiscal 2016, 2015, and 2014, respectively. Accrued interest and penalties was $1.4 million and $1.1 million as of June 30, 2016 and 2015, respectively. Our policy is to classify interest and penalties, if any, as components of income tax expense.

On March 31, 2016, Japan’s parliament approved legislation to reduce corporate combined income tax rates by 2.58 percentage points to 33.06%, which will be further reduced to 30.86% over the next two years. We have accounted for the impact of the tax rate change of $0.7 million in the fourth quarter of our fiscal 2016.

The Protecting Americans from Tax Hikes Act of 2015, or the PATH Act, which made the federal research tax credit permanent, was enacted on December 17, 2015. The PATH Act retroactively extended federal research credit from January 1, 2015. During fiscal 2016, we recognized tax benefit totaling $4.5 million from the federal research tax credit related to fiscal 2015.

It is reasonably possible that the amount of liability for unrecognized tax benefits may change within the next 12 months; an estimate of the range of possible changes could result from a decrease of $0.8 million to an increase of $1.9 million.

In July 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner related to a treasury regulation addressing the treatment of stock-based compensation in a cost-sharing arrangement with a related party. The U.S. Department of the Treasury has not withdrawn the requirement in its regulations related to the treatment of stock-based compensation. The Commissioner filed an appeal to the Ninth Circuit Court of Appeals in February 2016. While we determined no adjustment to our financial statements is required due to the uncertainties with respect to the ultimate resolution, we will continue to monitor developments in this case.

In September 2015, we were notified by the National Tax Agency of Japan that our open tax years would be subject to audit. In April 2016, this audit was concluded with adjustments that are not material to our consolidated financial statements. We have recorded the impact of this audit in the fourth quarter of fiscal 2016.

Our major tax jurisdictions are the United States, Hong Kong SAR, and Japan. From fiscal 2009 onward, we remain subject to examination by one or more of these jurisdictions.

In November 2015, the Financial Accounting Standards Board, or FASB, issued an accounting standards update, or ASU, which eliminates the current requirement to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. We early adopted the ASU, effective June 30, 2016, on a prospective basis. Adoption of this ASU resulted in a reclassification of our net current deferred tax assets and liabilities to net non-current deferred tax assets and liabilities in our consolidated balance sheet as of June 30, 2016. No prior periods were retrospectively adjusted.