Sally Beauty Supply 2011 Annual Report Download - page 82

are required to settle matters in excess of established provisions, our effective tax rate for a particular
period could be significantly affected.
For the fiscal years ended September 30, 2011, 2010 and 2009, the effective income tax rates were 36.4%,
36.9% and 39.9%, respectively. The decrease in the fiscal year 2011 annual effective tax rate was primarily
due to tax benefits resulting from certain intercompany transactions that resulted in the release of
valuation allowances during the fiscal year 2011, compared to the fiscal year 2010. The decrease in the
fiscal year 2010 annual effective tax rate primarily relates to an increase in earnings in certain low tax
jurisdictions, the release of certain valuation allowances and a reduction in unfavorable permanent items.
The annual effective tax rate in future years is expected to return to a normalized rate in the range of 37%
to 38%.
Deferred income taxes are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which temporary differences are estimated to be recovered or settled. We believe that it is more
likely than not that our results of operations in the future will generate sufficient taxable income to realize
our deferred tax assets, net of the valuation allowance currently recorded. We have recorded a valuation
allowance to account for uncertainties regarding the recoverability of certain deferred tax assets, primarily
foreign loss carryforwards. In the future, if we determine that certain deferred tax assets will not be
realizable, the related adjustments could significantly affect our effective tax rate at that time. The
estimated tax benefit of an uncertain tax position is recorded in our financial statements only after
determining a more-likely-than-not probability that the uncertain tax position will withstand challenge, if
any, from applicable taxing authorities.
Assessment of Long-Lived Assets and Intangible Assets for Impairment
Long-lived assets, such as property and equipment, including store equipment, and purchased intangibles
subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. The recoverability of long-lived assets
and intangible assets subject to amortization is assessed by comparing the net carrying amount of each
asset to its total estimated undiscounted future cash flows (‘‘estimated fair value’’) expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated fair value, an impairment
charge is recognized by the amount by which the carrying amount of the asset exceeds the estimated fair
value of the asset.
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a
business combination. Goodwill and intangible assets with indefinite lives are not amortized; rather, they
are reviewed for impairment at least annually, and whenever events or changes in circumstances indicate it
is more likely than not that the value of the asset may be impaired. When assessing goodwill and intangible
assets with indefinite lives for potential impairment, management compares the carrying amount of the
asset to its fair value. In addition, management considers whether there has been a permanent impairment
to the value of the asset by evaluating if various factors (including current operating results, anticipated
future results and cash flows, and relevant market and economic conditions) indicate a possible
impairment. Based on the reviews performed, after taking into account the economic downturn
experienced during the past few years in certain geographic areas in which we operate, there were no
material asset impairments recognized in the current or prior fiscal years presented.
Share-Based Payments
We recognize compensation expense on a straight-line basis over the vesting period or to the date a
participant becomes eligible for retirement, if earlier. For fiscal years 2011, 2010 and 2009, total
compensation cost charged against income and included in selling, general and administrative expenses for
share-based compensation arrangements was $15.6 million, $12.8 million and $8.6 million, respectively.
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