Estee Lauder 2010 Annual Report Download - page 127

126 THE EST{E LAUDER COMPANIES INC.
As of June 30, 2010 and 2009, the Company had current
net deferred tax assets of $269.0 million and $202.7 mil-
lion, respectively, substantially all of which are included in
Prepaid expenses and other current assets in the accom-
panying consolidated balance sheets. In addition, the
Company had noncurrent net deferred tax assets of
$104.8 million and $156.0 million as of June 30, 2010 and
2009, respectively, substantially all of which are included
in Other assets in the accompanying consolidated bal-
ance sheets.
As of June 30, 2010 and 2009, certain subsidiaries had
net operating loss and other carryforwards for tax purposes
of approximately $154 million and $96 million, respectively.
With the exception of $135.3 million of net operating loss
and other carryforwards with an indefinite carryforward
period as of June 30, 2010, these carryforwards expire at
various dates through fiscal 2030. Deferred tax assets, net
of valuation allowances, in the amount of $3.9 million and
$4.2 million as of June 30, 2010 and 2009, respectively,
have been recorded to reflect the tax benefits of the
carryforwards not utilized to date.
A full valuation allowance has been provided for those
deferred tax assets for which, in the opinion of manage-
ment, it is more-likely-than-not that the deferred tax assets
will not be realized.
Earnings before income taxes include amounts contrib-
uted by the Company’s international operations of approx-
imately $966 million, $674 million and $905 million for
fiscal 2010, 2009 and 2008, respectively. A portion of
these earnings are taxed in the United States.
As of June 30, 2010 and 2009, the Company had
gross unrecognized tax benefits of $157.3 million and
$259.1 million, respectively. The total amount of unrecog-
nized tax benefits that, if recognized, would affect the
effective tax rate was $80.6 million.
The Company classifies applicable interest and penal-
ties related to unrecognized tax benefits as a component
of the provision for income taxes. During fiscal 2010, the
Company recognized a gross interest and penalty benefit
of $11.9 million in the accompanying consolidated state-
ment of earnings. The total gross interest and penalty
expense during fiscal 2009 in the accompanying consoli-
dated statement of earnings was $17.2 million. The total
gross accrued interest and penalties in the accompanying
consolidated balance sheets at June 30, 2010 and
2009 were $36.7 million and $67.9 million, respectively.
A reconciliation of the beginning and ending amount of
gross unrecognized tax benefits is as follows:
JUNE 30, 2010
(In millions)
Balance of gross unrecognized tax benefits
as of July 1, 2009 $259.1
Gross amounts of increases as a result of tax
positions taken during a prior period 22.3
Gross amounts of decreases as a result of tax
positions taken during a prior period (76.8)
Gross amounts of increases as a result of tax
positions taken during the current period 9.4
Amounts of decreases in the unrecognized tax
benefits relating to settlements with
taxing authorities (51.8)
Reductions to unrecognized tax benefits as a result
of a lapse of the applicable statutes of limitations (4.9)
Balance of gross unrecognized tax benefits as of
June 30, 2010 $157.3
Significant components of the Company’s deferred income tax assets and liabilities as of June 30, 2010 and 2009
were as follows:
2010 2009
(In millions)
Deferred tax assets:
Compensation related expenses $ 122.0 $ 84.0
Inventory obsolescence and other inventory related reserves 62.0 59.5
Retirement benefit obligations 99.7 88.1
Various accruals not currently deductible 146.9 131.3
Net operating loss, credit and other carryforwards 42.3 27.1
Unrecognized state tax benefits and accrued interest 34.7 45.8
Other differences between tax and financial statement values 89.9 74.7
597.5 510.5
Valuation allowance for deferred tax assets (38.5) (23.5)
Total deferred tax assets 559.0 487.0
Deferred tax liabilities:
Depreciation and amortization (182.8) (127.8)
Other differences between tax and financial statement values (2.4) (0.5)
Total deferred tax liabilities (185.2) (128.3)
Total net deferred tax assets $ 373.8 $ 358.7
2010
$ 122.0
62.0
99.7
146.9
42.3
34.7
89.9
597.5
(38.5)
559.0
(182.8)
(2.4)
(185.2)
$ 373.8