INCOME TAXES

For the fiscal year ended August 2, 2014, income before income taxes consists of $201.1 million from U.S. operations and $6.3 million from foreign operations. For the fiscal year ended August 3, 2013, income before income taxes consists of $166.7 million from U.S. operations and $7.4 million from foreign operations. For the fiscal year ended July 28, 2012, income before income taxes consists of $142.2 million from U.S. operations and $8.6 million from foreign operations.

Total federal and state income tax (benefit) expense consists of the following:



	Current		Deferred			Total
	(In thousands)
Fiscal year ended August 2, 2014
U.S. Federal	$	66,953	$	(894	)	$	66,059
State & Local	12,660		1,452			$	14,112
Foreign	1,432		323			$	1,755
	$	81,045	$	881		$	81,926
Fiscal year ended August 3, 2013
U.S. Federal	$	44,095	$	7,029		$	51,124
State & Local	13,366		(364		)	13,002
Foreign	2,021		115			2,136
	$	59,482	$	6,780		$	66,262
Fiscal year ended July 28, 2012
U.S. Federal	$	55,083	$	(7,506	)	$	47,577
State & Local	9,002		462			9,464
Foreign	1,471		929			2,400
	$	65,556	$	(6,115	)	$	59,441

Total income tax expense (benefit) was different than the amounts computed using the United States statutory income tax rate of 35% applied to income before income taxes as a result of the following:



	Fiscal year ended
	August 2, 2014			August 3, 2013			July 28, 2012
	(In thousands)
Computed "expected" tax expense	$	72,593		$	60,940		$	52,774
State and local income tax, net of Federal income tax benefit	9,135			7,501			6,152
Non-deductible expenses	1,333			1,516			1,260
Tax effect of share-based compensation	160			134			(140		)
General business credits	(114		)	(1,374		)	(231		)
Other, net	(1,181		)	(2,455		)	(374		)
Total income tax expense	$	81,926		$	66,262		$	59,441

Total income tax expense (benefit) for the years ended August 2, 2014, August 3, 2013 and July 28, 2012 was allocated as follows:



	August 2, 2014			August 3, 2013			July 28, 2012
	(In thousands)
Income tax expense	$	81,926		$	66,262		$	59,441
Stockholders' equity, difference between compensation expense for tax purposes and amounts recognized for financial statement purposes	(2,601		)	(1,952		)	(2,804		)
Other comprehensive income	—			—			495
	$	79,325		$	64,310		$	57,132

The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets and deferred tax liabilities at August 2, 2014 and August 3, 2013 are presented below:



	2014			2013
	(In thousands)
Deferred tax assets:
Inventories, principally due to additional costs inventoried for tax purposes	$	7,532		$	6,906
Compensation and benefits related	24,129			21,224
Accounts receivable, principally due to allowances for uncollectible accounts	3,000			3,861
Accrued expenses	10,438			8,914
Net operating loss carryforwards	1,295			2,374
Other deferred tax assets	21			179
Total gross deferred tax assets	46,415			43,458
Less valuation allowance	—			819
Net deferred tax assets	$	46,415		$	42,639
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation	$	36,494		$	34,222
Intangible assets	28,124			25,766
Other	274			303
Total deferred tax liabilities	64,892			60,291
Net deferred tax liabilities	$	(18,477	)	$	(17,652	)
Current deferred income tax assets	$	32,518		$	23,822
Non-current deferred income tax liabilities	(50,995		)	(41,474		)
	$	(18,477	)	$	(17,652	)

The net decrease in total valuation allowance in fiscal year 2014, 2013, and 2012 was $819, $171 and $4,081, respectively. The net decrease in fiscal 2014 did not have an impact on net income as it relates to expired unutilized tax attributes for which a valuation allowance was previously recorded in prior fiscal years.

At August 2, 2014, the Company had net operating loss carryforwards of approximately $3.7 million for federal income tax purposes. The federal carryforwards are subject to an annual limitation of approximately $0.3 million under Internal Revenue Code Section 382. The carryforwards expire at various times between fiscal years 2017 and 2027. In addition, the Company had net operating loss carryforwards of approximately $0.5 million for state income tax purposes that expire in fiscal year 2024.

In assessing the need to establish a valuation reserve for the recoverability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company considers relevant evidence, both positive and negative, to determine the need for a valuation allowance. Information evaluated includes the Company's financial position and results of operations for the current and preceding years, the availability of deferred tax liabilities and tax carrybacks, as well as an evaluation of currently available information about future years. As of August 2, 2014, the Company has sufficient taxable income in the federal carryback period and anticipates sufficient future taxable income over the periods in which the deferred tax assets are deductible. The Company also has the availability of future reversals of taxable temporary differences that are expected to generate taxable income in the future. Therefore, the ultimate realization of deferred tax assets for federal and state tax purposes appears more likely than not at August 2, 2014 and correspondingly no valuation allowance has been established.

The Company and its subsidiaries file income tax returns in the United States federal jurisdiction and in various state jurisdictions. UNFI Canada files income tax returns in Canada and certain of its provinces. U.S. federal income tax examination years prior to 2012 have either statutorily or administratively been closed with the Internal Revenue Service, and with limited exception, the fiscal tax years that remain subject to examination by state jurisdictions range from the Company's fiscal 2010 to fiscal 2013.

The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense. For the fiscal year ended August 2, 2014, the Company recognized net tax benefits of approximately $0.3 million in its consolidated statement of income. For the fiscal year ended August 3, 2013, the Company recognized net tax benefits of $4.4 million in its consolidated statement of income related to tax examinations closed during the fiscal year. For the fiscal year ended July 28, 2012, the Company did not have any significant unrecognized tax benefits and thus, no significant interest and penalties related to unrecognized tax benefits were recognized.

The undistributed earnings of the Company's non-U.S. subsidiaries approximated $13.7 million at August 2, 2014. We consider the undistributed earnings to be indefinitely reinvested; therefore, we have not provided a deferred tax liability for any residual U.S. tax that may be due upon repatriation of these earnings. Because of the effect of U.S. foreign tax credits, it is not practicable to estimate the amount of tax that might be payable on these earnings in the event they no longer are indefinitely reinvested.