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HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
85
Note 12 – Income Taxes – (Continued)
As of December 28, 2013, we have state net operating loss carryforwards of $6.9 million relating to our
domestic subsidiaries, which can be utilized against future state income through December 31, 2029. As of
December 28, 2013, we have foreign net operating loss carryforwards of $11.7 million, which can be utilized
against future foreign income through December 31, 2019. Additionally, as of December 28, 2013, there were
foreign net operating loss carryforwards of $153.1 million that have an indefinite life.
The tax provisions differ from the amount computed using the federal statutory income tax rate as follows:
Years ended
December 28, December 29, December 31,
2013 2012 2011
Income tax provision at federal statutory rate ...............................
.
$ 232,644 $ 211,466 $ 199,256
State income tax provision, net of federal income tax effect ........
.
20,134 21,665 18,035
Foreign income tax benefit ............................................................
.
(19,635) (17,979) (20,169)
Valuation allowance ......................................................................
.
(14,026) 1,502 442
Interest expense related to loans ....................................................
.
(23,723) (21,018) (14,394)
Other .............................................................................................
.
(4,503) (7,778) (2,958)
Total income tax provision ...................................................
.
$ 190,891 $ 187,858 $ 180,212
For the year ended December 28, 2013, our effective tax rate was 28.7% compared to 31.1% for the prior year
period. During the third quarter of 2013, we concluded that it is more likely than not that certain deferred tax assets
related to tax loss carryforwards originating outside the United States, which had been previously reserved, will be
realized. As a result, our provision for income taxes includes a $13.4 million reduction of the valuation allowance
which is based on an estimate of future taxable income available to be offset by the tax loss carryforwards.
Absent the effects of the reduction of this valuation allowance in the third quarter of 2013, our effective tax rate
for the year ended December 28, 2013 would have been 30.7% as compared to our actual effective tax rate of
28.7%. The remaining difference between our effective tax rates and the federal statutory tax rates for both periods
primarily relates to state and foreign income taxes and interest expense.
Provision has not been made for U.S. or additional foreign taxes on undistributed earnings of foreign
subsidiaries, which have been, and will continue to be reinvested. These earnings could become subject to
additional tax if they were remitted as dividends, if foreign earnings were loaned to us or a U.S. affiliate, or if we
should sell, transfer or dispose of our stock in the foreign subsidiaries. It is not practicable to determine the amount
of additional tax, if any, that might be payable on the foreign earnings because if we were to repatriate these
earnings, we believe there would be various methods available to us, each with different U.S. tax consequences. As
of December 28, 2013, the cumulative amount of reinvested earnings was approximately $694.2 million.
ASC Topic 740 clarifies the accounting for uncertainty in income taxes recognized in the financial statements
in accordance with other provisions contained within this guidance. This topic prescribes a recognition threshold
and a measurement attribute for the financial statement recognition and measurement of tax positions taken or
expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not
to be sustained upon examination by the taxing authorities. The amount recognized is measured as the largest
amount of benefit that is greater than 50% likely of being realized upon ultimate audit settlement. In the normal
course of business, our tax returns are subject to examination by various taxing authorities. Such examinations may
result in future tax and interest assessments by these taxing authorities for uncertain tax positions taken in respect to
certain tax matters.