Income Taxes

12 Months Ended

Apr. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of income (loss) before taxes were as follows:

	Fiscal Year Ended
	April 30, 2022		April 24, 2021		April 25, 2020
Income (loss) before taxes
United States	$	225,195	$	166,251	$	(594,431)
International	41,059		33,680		4,024
Total	$	266,254	$	199,931	$	(590,407)

Significant components of income tax expense (benefit) were as follows:

	Fiscal Year Ended
	April 30, 2022		April 24, 2021		April 25, 2020
Current:
Federal	$	46,964	$	36,836	$	18,300
Foreign	11,968		9,975		7,501
State	10,326		8,771		4,959
Total current expense	69,258		55,582		30,760
Deferred:
Federal	(3,918)		(7,529)		(25,918)
Foreign	(217)		(362)		164
State	(583)		(2,869)		(6,046)
Total deferred benefit	(4,718)		(10,760)		(31,800)
Income tax expense (benefit)	$	64,540	$	44,822	$	(1,040)

On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” was signed into law. The CARES Act, among other things, includes provisions relating to refundable employment tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. These benefits did not materially impact the Company’s effective tax rate for the fiscal years ended April 30, 2022, April 24, 2021 or April 25, 2020.

Deferred tax assets and liabilities are included in other non-current assets and deferred income taxes on the consolidated balance sheets. Significant components of our deferred tax assets (liabilities) were as follows:

	April 30, 2022		April 24, 2021 1
Deferred tax assets:
Employee compensation and benefits	$	9,352	$	12,223
Inventory related items	9,985		12,250
Foreign deferred assets, net	11,812		9,510
Foreign tax credit	7,037		7,112
Lease liability	14,416		16,153
Accrued charitable contributions	6,559		—
Other accrued liabilities	6,642		7,331
Other	5,190		5,372
Gross deferred tax assets	70,993		69,951
Less: Valuation allowance	(18,615)		(15,960)
Total net deferred tax assets	52,378		53,991
Deferred tax liabilities
LIFO reserve	(20,965)		(25,913)
Amortizable intangibles	(52,952)		(61,023)
Goodwill	(15,727)		(13,902)
Property, plant, equipment	(38,175)		(39,454)
Lease right-of-use assets	(14,103)		(15,547)
Investments	(26,449)		(16,353)
Other	(3,401)		(5,590)
Total deferred tax liabilities	(171,772)		(177,782)
Deferred net long-term income tax liability	$	(119,394)	$	(123,791)

1 Certain amounts were reclassified between categories to conform to the current period presentation.

At April 30, 2022, we had a U.S. foreign tax credit asset that will expire in four years. In addition, we have foreign deferred tax assets which would give rise to tax capital losses if triggered in the future. These losses 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 potential capital loss carryforward attributes totaling $18,615 will not be fully utilized prior to expiration. As a result, a full valuation allowance has been established against these assets.

With regard to unremitted earnings of foreign subsidiaries generated after December 31, 2017, we do not currently provide for U.S. taxes since we intend to reinvest such undistributed earnings indefinitely outside of the United States.

Income tax expense (benefit) 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, 2022		April 24, 2021		April 25, 2020
Tax at U.S. statutory rate	$	55,912	$	41,984	$	(123,987)
State tax provision, net of federal benefit	9,176		5,400		(466)
Effect of foreign taxes	3,199		2,594		7,277
Goodwill impairment	—		—		107,999
Legal settlement	—		—		11,088
ESOP	(2,121)		(2,286)		(2,393)
Other permanent differences	944		808		1,533
Other	(2,570)		(3,678)		(2,091)
Income tax expense (benefit)	$	64,540	$	44,822	$	(1,040)

We have accounted for the uncertainty in income taxes recognized in the financial statements in accordance with ASC Topic 740. 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, 2022 and April 24, 2021, Patterson’s gross unrecognized tax benefits were $9,898 and $10,866, respectively. If determined to be unnecessary, these amounts (net of deferred tax assets of $1,786 and $2,055, 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 non-current liabilities on the consolidated balance sheets.

A summary of the changes in the gross amounts of unrecognized tax benefits is shown below.

	April 30, 2022		April 24, 2021
Balance at beginning of period	$	10,866	$	11,740
Additions for tax positions related to the current year	1,001		1,264
Additions for tax positions of prior years	42		20
Reductions for tax positions of prior years	(77)		(220)
Statute expirations	(1,527)		(1,938)
Settlements	(407)		—
Balance at end of period	$	9,898	$	10,866

We also recognize both interest and penalties with respect to unrecognized tax benefits as a component of income tax expense. As of April 30, 2022 and April 24, 2021, we had recorded $1,583 and $2,026, respectively, for interest and penalties. These amounts are also included in other non-current liabilities on the consolidated balance sheets. 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, 2022, we recorded as part of tax expense $229 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 2021, the Internal Revenue Service (“IRS”) concluded an audit of the fiscal year ended

April 28, 2018. The IRS has either examined or waived examination for all periods up to and including our fiscal year ended April 28, 2018. In addition to the IRS, 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 will have a material adverse impact on our financial statements.