LensCrafters 2007 Annual Report Download - page 146

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS | 145 <
On December 24, 2007,the Italian Government issued the Italian Finance bill of 2008 (the “2008
Bill”). The 2008 Bill decreases the national tax rate (referred to as “IRES”) from 33% to 27.5%, and
the regional tax rate (referred to as “IRAP”) from 4.25% to 3.9%. The effect of this change created
an additional Euro 8 million of deferred tax expense in 2007.
The Company does not provide for an accrual for income taxes on undistributed earnings of its non
Italian operations to the related Italian parent company that are intended to be permanently
invested. It is not practicable to determine the amount of income tax liability that would result had
such earnings actually been distributed. In connection with the 2007 earnings of certain
subsidiaries, the Company has provided for an accrual for income taxes related to declared
dividends of earnings.
At December 31, 2007, a US subsidiary of the Company had Federal net operating loss carry-
forwards (NOLs) of approximately Euro 93.5 million which may be used against income generated
by restricted subgroups. Substantially all of the NOLs begin expiring in 2019. Approximately Euro
231.1 thousands of these NOLs were used in 2007 and 2006, respectively. The use of the NOL is
limited due to restrictions imposed by U.S. tax rules governing utilization of loss carry-forwards
following changes in ownership. None of the net operating losses expired in 2007 or 2006. As of
December 31, 2007, a US subsidiary of the Company had various state net operating loss carry-
forwards, associated with individual states within the United States of America (SNOLs) totalling
approximately Euro 3.4 million. These SNOLs begin expiring in 2008. Due to the Company’s US
subsidiaries foreign operations, as of December 31, 2007, a US subsidiary of the Company has
approximately Euro 3.9 million and Euro 5.1 million of non US net operating losses and foreign tax
credit carry-forwards, respectively. These foreign NOLs and foreign tax credits will begin to expire in
2012 and 2013, respectively.
As of December 31, 2007 and 2006, the Company has recorded an aggregate valuation allowance
of Euro 27.1 million and Euro 29.8 million, respectively, against deferred tax assets as it is more likely
than not that the above deferred income tax assets will not be fully utilized in future periods.
A reconciliation of the amount of unrecognized tax benefits is as follows:
(Euro/000)
Balance - January 1, 2007 54,089
Gross increase - acquisition of Oakley 14,176
Gross increase - tax positions in prior period 5,018
Gross decrease - tax positions in prior period (7,473)
Gross increase - tax positions in current period 5,796
Settlements (2,799)
Lapse of statute of limitations (8,851)
Change in exchange rates (3,365)
Balance - December 31, 2007 56,591
Included in the balance of unrecognized tax benefits at December 31, 2007, are Euro 39.9 million
of tax benefits that, if recognized, would affect the effective tax rate.
The Group does not anticipate the unrecognized tax benefits to change significantly during 2008.
The Group recognizes interest accrued related to unrecognized tax benefits and penalties as
income tax expense. Related to the uncertain tax benefits noted above, the Company’s accrual for