Income Taxes

12 Months Ended

Apr. 29, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of income before taxes were as follows:

	Fiscal Year Ended
	April 29, 2023		April 30, 2022		April 24, 2021
Income before taxes
United States	$	233,416	$	225,195	$	166,251
International	36,745		41,059		33,680
Total	$	270,161	$	266,254	$	199,931

Significant components of income tax expense were as follows:

	Fiscal Year Ended
	April 29, 2023		April 30, 2022		April 24, 2021
Current:
Federal	$	46,982	$	46,964	$	36,836
Foreign	8,280		11,968		9,975
State	10,294		10,326		8,771
Total current expense	65,556		69,258		55,582
Deferred:
Federal	(4,217)		(3,918)		(7,529)
Foreign	2,601		(217)		(362)
State	(377)		(583)		(2,869)
Total deferred benefit	(1,993)		(4,718)		(10,760)
Income tax expense	$	63,563	$	64,540	$	44,822

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 29, 2023		April 30, 2022
Deferred tax assets:
Employee compensation and benefits	$	7,519	$	9,352
Inventory related items	8,228		9,985
Foreign deferred assets, net	9,551		11,812
Foreign tax credit	7,003		7,037
Lease liability	16,243		14,416
Accrued charitable contributions	902		6,559
Capitalized research and experimentation costs	5,172		—
Other accrued liabilities	7,744		6,642
Other	5,475		5,190
Gross deferred tax assets	67,837		70,993
Less: Valuation allowance	(18,276)		(18,615)
Total net deferred tax assets	49,561		52,378
Deferred tax liabilities
LIFO reserve	(26,010)		(20,965)
Amortizable intangibles	(45,042)		(52,952)
Goodwill	(17,094)		(15,727)
Property, plant, equipment	(33,161)		(38,175)
Lease right-of-use assets	(15,793)		(14,103)
Investments	(26,959)		(26,449)
Other	(3,223)		(3,401)
Total deferred tax liabilities	(167,282)		(171,772)
Deferred net long-term income tax liability	$	(117,721)	$	(119,394)

At April 29, 2023, we had a U.S. foreign tax credit asset that will expire in three 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 $18,276 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 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 29, 2023		April 30, 2022		April 24, 2021
Tax at U.S. statutory rate	$	56,732	$	55,912	$	41,984
State tax provision, net of federal benefit	8,416		9,176		5,400
Effect of foreign taxes	2,853		3,199		2,594
ESOP	(2,049)		(2,121)		(2,286)
Other permanent differences	2,481		944		808
Other	(4,870)		(2,570)		(3,678)
Income tax expense	$	63,563	$	64,540	$	44,822

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 29, 2023 and April 30, 2022, Patterson’s gross unrecognized tax benefits were $8,291 and $9,898, respectively. If determined to be unnecessary, these amounts (net of deferred tax assets of $1,741 and $1,786, 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 29, 2023		April 30, 2022
Balance at beginning of period	$	9,898	$	10,866
Additions for tax positions related to the current year	1,158		1,001
Additions for tax positions of prior years	142		42
Reductions for tax positions of prior years	(1,400)		(77)
Statute expirations	(1,507)		(1,527)
Settlements	—		(407)
Balance at end of period	$	8,291	$	9,898

We also recognize both interest and penalties with respect to unrecognized tax benefits as a component of income tax expense. As of April 29, 2023 and April 30, 2022, we had recorded $1,617 and $1,583, 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 29, 2023, we recorded as part of tax expense $311 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 27, 2019. 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.