Vistaprint 2010 Annual Report Download - page 88

released or exercised with an intrinsic value less than the fair value of the awards on the date of
grant, some or all of the benefit may not be realizable. The Company has recorded a valuation
allowance of $944 during the year associated with certain foreign net operating losses for which
management has determined it is more likely than not that the carryforward will not be utilized in the
foreseeable future. Based on the weight of available evidence at June 30, 2010, management
believes that it is more likely than not that all other net deferred tax assets will be realized. The
Company will continue to assess the realization of the deferred tax assets based on operating results.
As of June 30, 2010, the Company had U.S. federal and state net operating loss carryforwards
of approximately $1,946 that expire on dates up to and through the year 2029. The utilization of
federal net operating losses is partially subject to annual limitation under the change in share
ownership rules of Internal Revenue Code Section 382. The Company had foreign net operating loss
carryforwards of approximately $8,127 that expire on dates up to and through 2028 and $2,457 that
will never expire. The benefits of these carryforwards are dependent upon the generation of taxable
income in the jurisdictions where they arose. In addition, the Company has approximately $747 of
federal net operating loss, $8,634 of state net operating loss and $1,594 of federal R&D tax credit
carryforwards as a result of excess tax deductions related to stock-based compensation. The
Company will realize the benefit of these excess tax deductions through increases to shareholders’
equity in the periods in which these carryforward losses are utilized to reduce tax payments.
The Company has corporate minimum tax credit carryforwards and research and development
tax credits in Canada of approximately $167 and $330, respectively that expire at various dates
through 2030.
Undistributed earnings of the Company’s subsidiaries are considered to be indefinitely
reinvested. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company
would be subject to withholding taxes payable. Determination of the amount of unrecognized tax
liability associated with withholding taxes is not practicable due to the complexities associated with
this hypothetical calculation.
As of the years ended June 30, 2010 and 2009, the amount of unrecognized tax benefits that,
if recognized, would affect the effective tax rate is $2,085 and $1,372, respectively. The Company
recognizes interest and, if applicable, penalties related to unrecognized tax benefits in income tax
expense. The accrued interest and penalties for the years ended June 30, 2010 and 2009 were $242
and $75, respectively.
A reconciliation of the gross beginning and ending amount of unrecognized tax benefits is as
follows:
Balance at June 30, 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 850
Additions based on tax positions related to the current tax year . . . . . . . . . . . . . . . . . . . 363
Additions based on tax positions related to prior tax years . . . . . . . . . . . . . . . . . . . . . . . 264
Balance at June 30, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,477
Additions based on tax positions related to the current tax year . . . . . . . . . . . . . . . . . . . 290
Additions based on tax positions related to prior tax years . . . . . . . . . . . . . . . . . . . . . . . 585
Statute of limitation expirations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21)
Balance at June 30, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,331
The Company’s U.S. subsidiary is under audit by the Internal Revenue Service and the
Commonwealth of Massachusetts. Also, the Canada Revenue Agency is auditing one of the
Company’s Canadian subsidiaries. In addition, certain statutes of limitations are scheduled to expire
in the near future. It is reasonably possible that a further change in the unrecognized tax benefits may
occur within the next twelve months as a result of the settlement of one or more of these audits or the
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