11. Income Taxes

Significant components of the provision for income taxes are as follows:


	Fiscal Year
	2012			2011		2010
Current:
Federal	$	89,612		$	87,315	$	98,481
Foreign		16,726			14,548		16,308
State		10,570			11,469		11,747

Total current		116,908			113,332		126,536
Deferred:
Federal		872			14,938		544
Foreign		(895	)		310		(360	)
State		112			1,922		67

Total deferred		89			17,170		251

Provision for income taxes	$	116,997		$	130,502	$	126,787

Deferred tax assets and liabilities are included in prepaid expenses and other current assets and in non-current liabilities on the balance sheet. Significant components of Patterson’s deferred tax assets (liabilities) as of April 28, 2012 and April 30, 2011 are as follows:


	2012			2011
Deferred current income tax asset (liability):
Capital Accumulation Plan	$	4,045		$	4,048
Inventory obsolescence		2,124			3,455
Bad debt allowance		2,022			2,424
LIFO reserve		(12,773	)		(14,755	)
Other		17,544			14,229

Deferred net current income tax asset		12,962			9,401
Deferred long-term income tax (liability) asset:
Amortizable intangibles		(29,142	)		(30,033	)
Goodwill		(56,026	)		(49,089	)
Property, plant, equipment		(3,901	)		(3,737	)
Stock based compensation expense		7,897			6,146
Net operating loss carryforwards		7,656			9,431
Other		(3,568	)		(4,612	)

		(77,084	)		(71,894	)
Valuation allowance		(4,772	)		(6,345	)

Deferred net long-term income tax liability		(81,856	)		(78,239	)

Net deferred income tax liability	$	(68,894	)	$	(68,838	)

At April 28, 2012, we had foreign net operating loss carryforwards (“NOLs”) of $31.5 million attributable to the fiscal 2009 acquisition of Mobilis Healthcare Group. A valuation allowance of $4.8 million has been recorded since we believe it is more likely than not that the deferred tax asset of $7.7 million arising from the NOL’s will not be fully utilized due to uncertainties relating to future taxable income from the acquired operations.

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 of undistributed earnings that would be subject to federal income tax if remitted under existing law is approximately $228.0 million as of April 28, 2012. Determination of the unrecognized deferred tax liability related to these earnings is not practicable because of the complexities with its hypothetical calculation. Upon distribution of these earnings, we will be subject to U.S. taxes and withholding taxes payable to various foreign governments. A credit for foreign taxes already paid would be available to reduce the U.S. tax liability.

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
	2012			2011			2010
Tax at U.S. statutory rate	$	115,434		$	124,561		$	118,664
State tax provision, net of federal benefit		7,277			8,950			8,103
Effect of foreign taxes		530			2,398			1,411
Other		(6,244	)		(5,407	)		(1,391	)

	$	116,997		$	130,502		$	126,787

We have adopted ASC Topic 740, “Income Taxes” related to accounting for the uncertainty in income taxes recognized in the financial statements. These standards clarify 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 28, 2012 and April 30 2011, Patterson’s gross unrecognized tax benefits were $18.1 million and $19.0 million, respectively. If determined to be unnecessary, these amounts (net of deferred tax assets of $5.0 million and $4.9 million, 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 28, 2012 and April 30, 2011 are shown below:


	2012			2011
Balances beginning of period	$	18,963		$	18,685
Additions for tax positions related to the current year		2,288			2,737
Additions for tax positions of prior years		474			468
Reductions for tax positions of prior years		(1,778	)		(1,309	)
Statute expirations		(1,618	)		(1,504	)
Settlements		(230	)		(114	)

Balance, end of period	$	18,099		$	18,963

We also recognize both interest and penalties with respect to unrecognized tax benefits as a component of income tax expense. As of April 28, 2012 and April 30, 2011, we had recorded $2.6 million and $2.9 million, 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 28, 2012, we recorded as part of tax expense $.7 million 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 the year, our federal tax return for the year ended April 24, 2010 was audited by the Internal Revenue Service (“IRS”). The outcome of this audit did not have a material adverse impact on our financial statements. Besides this audit, the IRS has either examined or waived examination of all periods up to and including our fiscal year ended April 28, 2008. Periodically, state, local and foreign income tax returns are examined by various taxing authorities. We do not believe the outcome of these various examinations would have a material adverse impact on our financial statements.