12. Income Taxes

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


	Fiscal Year
	2014			2013			2012
Current:
Federal	$	84,353		$	80,290		$	89,612
Foreign		9,667			13,471			16,726
State		10,515			10,035			10,570

Total current		104,535			103,796			116,908
Deferred:
Federal		7,501			6,667			872
Foreign		(240	)		(963	)		(895	)
State		504			1,345			112

Total deferred		7,765			7,049			89

Provision for income taxes	$	112,300		$	110,845		$	116,997

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 26, 2014 and April 27, 2013 are as follows:


	2014			2013
Deferred current income tax asset (liability):
Capital accumulation plan	$	5,893		$	5,540
Inventory related items		5,512			8,170
Bad debt allowance		1,518			2,092
LIFO reserve		(16,279	)		(15,901	)
Other		13,447			17,075

Deferred net current income tax asset		10,091			16,976

Deferred long-term income tax (liability) asset:
Amortizable intangibles		(26,590	)		(27,934	)
Goodwill		(69,613	)		(62,911	)
Property, plant, equipment		(4,744	)		(5,390	)
Stock based compensation expense		8,130			9,603
Net operating loss carryforwards		6,848			8,070
Other		(4,276	)		(10,290	)

		(90,245	)		(88,852	)
Valuation allowance		(3,759	)		(4,477	)

Deferred net long-term income tax liability		(94,004	)		(93,329	)

Net deferred income tax liability	$	(83,913	)	$	(76,353	)

At April 26, 2014, we had foreign net operating loss carryforwards (“NOLs”) of $29,776, the majority of which are attributable to companies outside the U.S. that were acquired in prior years. A valuation allowance has been recorded for a portion of the $6,848 of deferred tax asset resulting from these NOLs because we believe that it is more likely than not that the losses will not be fully utilized due to uncertainties relating to future taxable income from the acquired companies.

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 $254,540 as of April 26, 2014. 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 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
	2014			2013			2012
Tax at U.S. statutory rate	$	109,519		$	112,391		$	115,434
State tax provision, net of federal benefit		7,768			8,322			7,277
Effect of foreign taxes		461			(4,603	)		(3,944	)
Permanent differences		(4,843	)		(3,439	)		(702	)
Other		(605	)		(1,826	)		(1,068	)

	$	112,300		$	110,845		$	116,997

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 26, 2014 and April 27, 2013, Patterson’s gross unrecognized tax benefits were $19,687 and $19,155, respectively. If determined to be unnecessary, these amounts (net of deferred tax assets of $5,003 and $4,735, 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 26, 2014 and April 27, 2013 are shown below:


	2014			2013
Balances beginning of period	$	19,155		$	18,099
Additions for tax positions related to the current year		2,801			2,568
Additions for tax positions of prior years		1,372			1,638
Reductions for tax positions of prior years		(893	)		(1,135	)
Statute expirations		(2,655	)		(1,907	)
Settlements		(93	)		(108	)

Balance, end of period	$	19,687		$	19,155

We also recognize both interest and penalties with respect to unrecognized tax benefits as a component of income tax expense. As of April 26, 2014 and April 27, 2013, we had recorded $2,124 and $2,358, 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 26, 2014, we recorded as part of tax expense $542 related to our estimated liability for interest and penalties.

Patterson files income tax returns, including returns for our subsidiaries, with federal, state, local and foreign jurisdictions. The Internal Revenue Service (“IRS”) has either examined or waived examination for all periods up to and including our fiscal year ended April 24, 2010. 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.