Supercuts 2008 Annual Report Download - page 104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INCOME TAXES (Continued)
As of June 30, 2008, undistributed earnings of international subsidiaries of approximately $49.1 million were considered to have been
reinvested indefinitely and, accordingly, the Company has not provided United States income taxes on such earnings.
The Company files tax returns and pays tax primarily in the United States, Canada, the United Kingdom, and the Netherlands as well as
states, cities, and provinces within these jurisdictions. In the United States, fiscal years 2005 and after remain open for federal tax audit. For state
tax audits, the statute of limitations generally spans three to four years, resulting in a number of states remaining open for tax audits dating back
to fiscal year 2004. However, the company is under audit in a number of states in which the statute of limitations has been extended to fiscal
years 2000 and forward. Internationally (including Canada), the statute of limitations for tax audits varies by jurisdiction, but generally ranges
from three to five years.
The Company adopted the provisions of FIN No. 48, Accounting for Uncertainity in Income Taxes, effective July 1, 2007. Immediately
prior to the adoption of FIN No. 48, the Company's tax reserves were $9.0 million. As a result of the adoption of FIN No. 48, the Company
recognized a $20.7 million increase in the liability for unrecognized income tax benefits, including interest and penalties, which was accounted
for through the following accounts:
A rollforward of the unrecognized tax benefits is as follows:
If the Company were to prevail on all unrecognized tax benefits recorded, approximately $7.2 million of the $20.4 million reserve would
benefit the effective tax rate. Interest and penalties associated with unrecognized tax benefits are recorded within income tax expense. During the
year ended June 30, 2008, we recorded income expense of approximately $3.0 million for the accrual of interest and penalties. As of June 30,
2008, the Company had accrued interest and penalties related to unrecognized tax benefits of $7.2 million. This amount is not included in the
gross unrecognized tax benefits noted above.
102
(Dollars in
thousands)
Deferred income taxes
$
10,128
Goodwill
6,094
Additional paid
-
in capital
237
Retained earnings
4,237
Total increase
$
20,696
(Dollars in
thousands)
Balance at July 1, 2007
$
22,500
Additions based on tax positions related to the current year
2,466
Additions based on tax positions of prior years
1,498
Reductions on tax positions related to the expiration of the statue of limitations
(5,446
)
Settlements
(618
)
Balance at June 30, 2008
$
20,400