Estee Lauder 2011 Annual Report Download - page 135

THE EST{E LAUDER COMPANIES INC. 133
As of June 30, 2011 and 2010, the Company had current
net deferred tax assets of $260.7 million and $269.0
million, respectively, substantially all of which are included
in Prepaid expenses and other current assets in the
accompanying consolidated balance sheets. In addition,
the Company had noncurrent net deferred tax assets of
$61.1 million and $104.8 million as of June 30, 2011 and
2010, respectively, substantially all of which are included
in Other assets in the accompanying consolidated
balance sheets.
As of June 30, 2011 and 2010, certain subsidiaries had
net operating loss and other carryforwards for tax
purposes of approximately $216 million and $154 million,
respectively. With the exception of approximately $205
million of net operating loss and other carryforwards with
an indefinite carryforward period as of June 30, 2011,
these carryforwards expire at various dates through fiscal
2031. Deferred tax assets, net of valuation allowances, in
the amount of $0.4 million and $3.9 million as of June 30,
2011 and 2010, 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
management, 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 foreign operations of approxi-
mately $1,189 million, $966 million and $674 million for
fiscal 2011, 2010 and 2009, respectively. A portion of
these earnings are taxed in the United States.
As of June 30, 2011 and 2010, the Company had
gross unrecognized tax benefits of $104.8 million and
$157.3 million, respectively. The total amount of unrecog-
nized tax benefits that, if recognized, would affect the
effective tax rate was $60.8 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 2011 and
2010, the Company recognized gross interest and penalty
benefits of $1.0 million and $11.9 million, respectively, in
the accompanying consolidated statements of earnings.
The total gross accrued interest and penalties in the
accompanying consolidated balance sheets at June 30,
2011 and 2010 were $37.7 million and $43.6 million,
respectively. A reconciliation of the beginning and ending
amount of gross unrecognized tax benefits is as follows:
Significant components of the Company’s deferred income tax assets and liabilities were as follows:
JUNE 30 2011 2010
(In millions)
Deferred tax assets:
Compensation related expenses $ 146.5 $ 122.0
Inventory obsolescence and other inventory related reserves 73.1 62.0
Retirement benefit obligations 78.9 99.7
Various accruals not currently deductible 163.0 146.9
Net operating loss, credit and other carryforwards 58.6 42.3
Unrecognized state tax benefits and accrued interest 29.3 34.7
Other differences between tax and financial statement values 81.2 89.9
630.6 597.5
Valuation allowance for deferred tax assets (69.5) (38.5)
Total deferred tax assets 561.1 559.0
Deferred tax liabilities:
Depreciation and amortization (235.1) (182.8)
Other differences between tax and financial statement values (4.2) (2.4)
Total deferred tax liabilities (239.3) (185.2)
Total net deferred tax assets $ 321.8 $ 373.8
JUNE 30 2011 2010
(In millions)
Beginning of the year balance of gross unrecognized tax benefits $157.3 $259.1
Gross amounts of increases as a result of tax positions taken during a prior period 21.9 22.3
Gross amounts of decreases as a result of tax positions taken during a prior period (22.0) (76.8)
Gross amounts of increases as a result of tax positions taken during the current period 7.0 9.4
Amounts of decreases in unrecognized tax benefits relating to settlements with
taxing authorities (42.0) (51.8)
Reductions to unrecognized tax benefits as a result of a lapse of the applicable
statutes of limitations (17.4) (4.9)
End of year balance of gross unrecognized tax benefits $104.8 $157.3