Income Taxes

The components of income from continuing operations before taxes are as follows:



	Fiscal Year Ended
	April 30, 2016		April 25, 2015		April 26, 2014
Income from continuing operations before taxes
United States	$	270,501	$	235,421	$	230,486
International	31,192		38,897		30,777
Total	$	301,693	$	274,318	$	261,263

Significant components of income tax expense are as follows:



	Fiscal Year Ended
	April 30, 2016			April 25, 2015			April 26, 2014
Current:
Federal	$	105,104		$	73,004		$	66,747
Foreign	11,690			11,764			8,954
State	15,249			9,007			8,697
Total current	132,043			93,775			84,398
Deferred:
Federal	(14,308		)	497			5,225
Foreign	323			44			(260		)
State	(2,049		)	(81		)	568
Total deferred	(16,034		)	460			5,533
Income tax expense	$	116,009		$	94,235		$	89,931

As of April 30, 2016, we adopted ASU 2015-17, which simplifies the balance sheet presentation of deferred taxes that requires that deferred tax assets and liabilities be classified as non-current. The pronouncement is being applied prospectively. See Note 1 to the Consolidated Financial Statements. Deferred tax assets and liabilities are included in prepaid expenses and other current assets (as of April 25, 2015 only) and other non-current assets and deferred income taxes on the consolidated balance sheets. Significant components of Patterson’s deferred tax assets (liabilities) as of April 30, 2016 and April 25, 2015 are as follows:



	April 30, 2016			April 25, 2015
Deferred tax assets:
Capital accumulation plan	$	5,898		$	5,723
Inventory related items	6,776			4,484
Bad debt allowance	2,649			1,380
Stock based compensation expense	9,985			7,995
Interest rate swap	9,749			10,872
Foreign tax credit	9,300			—
Net operating loss carryforwards	363			—
Other	11,979			8,390
Gross deferred tax assets	56,699			38,844
Less: Valuation allowance	(14,007		)	—
Total net deferred tax assets	42,692			38,844
Deferred tax liabilities
LIFO reserve	(21,294		)	(19,173		)
Amortizable intangibles	(156,782		)	(2,310		)
Goodwill	(57,405		)	(52,140		)
Property, plant, equipment	(11,748		)	(4,695		)
Total deferred tax liabilities	(247,229		)	(78,318		)
Deferred net long-term income tax liability	$	(204,537	)	$	(39,474	)

At April 30, 2016, we had certain U.S. foreign tax credits and state net operating loss assets. The foreign tax credit will expire in 10 years and net operating losses have varying expiration dates. In addition to these carryforwards, we have additional attribute deferred tax assets which would give rise to tax capital losses if triggered in the future. These losses have a 5 year carryforward period and can only be used against capital gain income. At this time, we believe that it is more likely than not that the foreign tax credit and capital loss carryforward attributes totaling $14,007 will not be fully utilized prior to expiration. As a result, a full valuation allowance has been established against these assets.

No provision has been made for U.S. federal income taxes on certain undistributed earnings of foreign subsidiaries that we intend to permanently invest or that may be remitted substantially tax-free. The total undistributed earnings that would be subject to federal income tax if remitted under existing law are approximately $102,411 as of April 30, 2016. Determination of the unrecognized deferred tax liability related to these earnings is not practicable because of the complexities with its hypothetical calculation. If a future distribution of these earnings is made, we will be subject to U.S. taxes and withholding taxes payable to various foreign governments. A credit for foreign taxes already paid may be available to reduce the U.S. tax liability.

In fiscal 2016, we approved a one-time repatriation of approximately $200,000 of foreign earnings. This one-time repatriation reduced the overall cost of funding the acquisition of Animal Health International, Inc. In addition, certain foreign cash at Patterson Medical was required to be repatriated as part of the sale transaction. The continuing operations tax impact of $12,300 from the repatriation was recorded in fiscal 2016. We have previously asserted that our foreign earnings are permanently reinvested. Except for the repatriations described above, there is no change in our on-going assertion.

Income tax expense varies from the amount computed using the U.S. statutory rate. The reasons for this difference and the related tax effects are shown below:



	Fiscal Year Ended
	April 30, 2016			April 25, 2015			April 26, 2014
Tax at U.S. statutory rate	$	105,593		$	96,012		$	91,442
State tax provision, net of federal benefit	7,364			6,479			6,554
Effect of foreign taxes	(1,195		)	(1,806		)	(2,078		)
Permanent differences	(3,693		)	(5,363		)	(4,835		)
Tax on dividends, net of foreign tax credit	12,300			—			—
Other	(4,360		)	(1,087		)	(1,152		)
Income tax expense	$	116,009		$	94,235		$	89,931

We have accounted for the uncertainty in income taxes recognized in the financial statements in accordance with ASC Topic 740, “Income Taxes”. This standard clarifies the separate identification and reporting of estimated amounts that could be assessed upon audit. The potential assessments are considered unrecognized tax benefits, because, if it is ultimately determined they are unnecessary, the reversal of these previously recorded amounts will result in a beneficial impact to our financial statements.

As of April 30, 2016 and April 25, 2015, Patterson’s gross unrecognized tax benefits were $13,560 and $16,661, respectively. If determined to be unnecessary, these amounts (net of deferred tax assets of $3,800 and $4,118, respectively, related to the tax deductibility of the gross liabilities) would decrease our effective tax rate. The gross unrecognized tax benefits are included in other long-term liabilities on the consolidated balance sheet.

A summary of the changes in the gross amounts of unrecognized tax benefits for the years ended April 30, 2016 and April 25, 2015 is shown below:



	April 30, 2016			April 25, 2015
Balance at beginning of period	$	16,661		$	17,256
Additions for tax positions related to the current year	1,794			2,516
Additions for tax positions of prior years	560			44
Reductions for tax positions of prior years	(1,599		)	(502		)
Statute expirations	(3,486		)	(2,653		)
Settlements	(370		)	—
Balance at end of period	$	13,560		$	16,661

We also recognize both interest and penalties with respect to unrecognized tax benefits as a component of income tax expense. As of April 30, 2016 and April 25, 2015, we had recorded $1,438 and $1,760, respectively, for interest and penalties. These amounts are also included in other long-term liabilities on the consolidated balance sheet. These amounts, net of related deferred tax assets, if determined to be unnecessary, would decrease our effective tax rate. During the year ended April 30, 2016, we recorded as part of tax expense $258 related to an increase in our estimated liability for interest and penalties.

Patterson files income tax returns, including returns for our subsidiaries, with federal, state, local and foreign jurisdictions. During fiscal 2016, the Internal Revenue Service (“IRS”) completed an audit of our fiscal years ended April 27, 2013 and April 26, 2014. The outcome of this audit did not have a material adverse impact on our financial statements. The IRS has either examined or waived examination for all periods up to and including our fiscal year ended April 28, 2012, resulting in these periods being closed. Periodically, state, local and foreign income tax returns are examined by various taxing authorities. We do not believe that the outcome of these various examinations would have a material adverse impact on our financial statements.