Supercuts 2009 Annual Report Download - page 53

Table of Contents
Income Taxes
Our reported effective tax rate was as follows:
The basis point increase in our overall effective income tax rate for the fiscal year ended June 30, 2009 was primarily the result of the pre-
tax non-
cash goodwill impairment charge of $41.7 million recorded during the three months ended December 31, 2008 which caused an increase
in the tax rate of 14.5 percent. The majority of the impairment charge was not deductible for tax purposes. In addition, a 4.8 percent increase in
the tax rate was due to an adjustment of prior year deferred income taxes. Offsetting the unfavorable shifts in the income tax rate was a
7.3 percent decrease in the tax rate due to the release of reserves for unrecognized tax benefits upon the expiration of the statute of limitation in
federal, state and international jurisdictions.
The basis point increase in our overall effective income tax rate for the fiscal year ended June 30, 2008 was primarily the result of the shift
in income from low to high tax jurisdictions as a result of the merger of European franchise salon operations with the Franck Provost Salon
Group. As a result of the merger with the Franck Provost Salon Group, the Company repatriated approximately $30 million cash previously
considered to be indefinitely reinvested outside of the United States. In addition, certain costs related to the transaction were not deductible for
tax purposes. The combined effect of these items caused an increase in the tax rate of 2.1 percent. In addition, Texas and other states introduced
new taxes or restrictive rules. The combined effect of these new taxes, together with other adjustments, caused an increase in the tax rate of
1.9 percent.
The basis point improvement in our overall effective income tax rate for the fiscal year ended June 30, 2007 was primarily due to the tax
benefit received during the three months ended December 31, 2006 related to the retroactive reinstatement to January 1, 2006 of the Work
Opportunity and Welfare-to-Work Tax Credits. The basis point improvement was also due to increases in international income subject to tax in
lower tax foreign jurisdictions, partially offset by the pre-tax, non-cash goodwill impairment charge of $23.0 million recorded during the three
months ended March 31, 2007. The majority of the impairment charge was not deductible for tax purposes.
In December 2006, President Bush signed the Tax Relief and Health Care Act of 2006 into law. This Act retroactively reinstated the Work
Opportunity and Welfare-to-Work Tax Credits for a two year period beginning January 1, 2006. In accordance with generally accepted
accounting principles, the financial impact of the tax credits earned during the entire calendar year was required to be reflected in the Company's
tax rate for the quarter in which the Act was signed into law, which was the Company's quarter ended December 31, 2006. The fiscal year 2007
tax rate reflects $4.1 million related to Work Opportunity and Welfare-to-Work Tax Credits, a portion of which was earned during fiscal year
2006, but not reflected in the related financial statements due to the expiration of the prior statute. Under the prior law which was retroactive to
January 1, 2004 and expired on December 31, 2005, the Company earned employment credits of $0.8 and $1.8 million during fiscal years 2006
and 2005, respectively. On May 26, 2007, President Bush signed into law the Small Business and Work Opportunity Tax Act of 2007. Whereas
under the Tax Relief and Health Care Act of 2006 the Work Opportunity and Welfare-to-Work Tax Credits were to expire on December 31,
2007, this Act enhances and extends the credits to September 1, 2011.
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Years Ended June 30,
Effective
Rate
Basis Point
Increase
(Decrease)
2009
53.3
%
1,380
2008
39.5
410
2007
35.4
(50
)