LensCrafters 2003 Annual Report Download - page 55

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Reconciliation between the Italian statutory tax rate and the effective tax rate is as follows:
December 31, 2001 2002 2003
Italian statutory tax rate 40.3% 40.3% 38.3%
Aggregate effect of different rates in foreign jurisdictions (1.6%) (2.3%) (1.9%)
Permanent differences, principally losses in subsidiary companies
funded through capital contributions, net of non-deductible goodwill (10.7%) (7.8%) (6.3%)
Effective rate 28.0% 30.2% 30.1%
For income tax purposes, the Company and its Italian subsidiaries file tax returns on a separate company basis.
The deferred tax assets and liabilities as of December 31, 2002, and 2003, respectively were comprised of
(thousands of Euro):
December 31, 2002 2003
Deferred Tax Asset/(Liability) Deferred Tax Asset/(Liability)
Current portion:
Inventory 43,459 29,733
Insurance and other reserves 16,993 13,551
Recorded reserves 24,080 17,340
Net operating losses – carryforward 48,120 71,429
Loss on investments 14,128 5,452
Dividends (5,616) (13,112)
Trade name - (5,506)
Other, net 6,924 15,914
Valuation allowance - (10,350)
Net current deferred tax assets 148,088 124,451
Non-current portion:
Difference in basis of fixed assets (53,486) (53,003)
Net operating losses – carryforward 128,016 81,724
Sale of businesses 2,023 1,711
Recorded reserves 5,265 5,142
Occupancy reserves 5,473 4,040
Depreciation (3,042) (3,529)
Employee-related reserves (including minimum pension liability) 21,845 19,042
Trade name (104,643) (121,108)
Other intangibles - (10,734)
Trade mark accelerated amortization (55,777) (68,255)
Other, net 8,806 9,947
Valuation allowance (76,285) (26,079)
Net non-current deferred tax liabilities (121,805) (161,102)
In 2003, the Italian statutory tax rate was reduced to 38.25 percent. As a consequence, deferred tax assets and
liabilities have been recomputed in line with the new tax rate. The immaterial result of the change in the Italian tax rate
has been included in deferred tax expense.
Tax years for Italian companies are open from 1998 and subject to review pursuant to Italian law. Certain Luxottica
Group companies have been subject to tax reviews for previous years. Management believes no significant unaccrued
liabilities are expected to arise from the related tax reviews.
As of December 31, 2003, the taxes that would be due on the distribution of retained earnings to the related
parent company, including net earnings of the year, of subsidiaries for 2003 and prior years would approximate 31.6
million. Luxottica Group has not provided an accrual for taxes on such distributions, nor has it provided an accrual for
taxes on its investments in such subsidiaries as the likelihood of distribution is remote and such earnings and
investments are deemed to be permanently reinvested. In connection with the earnings for 2003 of certain
subsidiaries, the Company has provided for an accrual for Italian income taxes related to declared dividends of
earnings.
As of December 31, 2002, and 2003, the Company has recorded an aggregate valuation allowance of 76.3
million and 36.4 million, respectively, against deferred tax assets recorded in connection with net operating losses.
In connection with various capital contributions, certain Italian subsidiaries, which file tax returns on a separate
company basis, have incurred net operating losses, which expire in five years from the period in which the tax loss
was incurred. Since it is management’s belief that since such net operating losses are not more likely than not to be
realized in future periods, valuation allowances have been recorded in the Company’s consolidated financial
statements. Management will continue to evaluate the likelihood of realizing such deferred tax assets and will reverse
the related valuation allowance when the realization of the deferred tax assets become more likely than not.