Estee Lauder 2012 Annual Report Download - page 141

THE EST{E LAUDER COMPANIES INC. 139
Income tax reserve adjustments represent changes in the
Company’s net liability for unrecognized tax benefits
related to prior-year tax positions including tax settle-
ments and lapses of the applicable statutes of limitations.
Federal income and foreign withholding taxes have not
been provided on approximately $1,618 million of undis-
tributed earnings of foreign subsidiaries at June 30, 2012.
The Company intends to reinvest these earnings in its
foreign operations indefinitely, except where it is able to
repatriate these earnings to the United States without
material incremental tax provision. As of June 30, 2011
and 2010, the Company had not provided federal income
and foreign withholding taxes on approximately $1,208
million and $1,068 million, respectively, of undistributed
earnings of foreign subsidiaries. The determination and
estimation of the future income tax consequences in all
relevant taxing jurisdictions involves the application of
highly complex tax laws in the countries involved, particu-
larly in the United States, and is based on the tax profile of
the Company in the year of earnings repatriation. Accord-
ingly, it is not practicable to determine the amount of tax
associated with such undistributed earnings.
Significant components of the Company’s deferred income tax assets and liabilities were as follows:
JUNE 30 2012 2011
(In millions)
Deferred tax assets:
Compensation related expenses $ 161.8 $ 146.5
Inventory obsolescence and other inventory related reserves 65.1 73.1
Retirement benefit obligations 112.8 78.9
Various accruals not currently deductible 176.3 163.0
Net operating loss, credit and other carryforwards 66.7 58.6
Unrecognized state tax benefits and accrued interest 22.8 29.3
Other differences between tax and financial statement values 89.4 81.2
694.9 630.6
Valuation allowance for deferred tax assets (73.2) (69.5)
Total deferred tax assets 621.7 561.1
Deferred tax liabilities:
Depreciation and amortization (252.7) (235.1)
Other differences between tax and financial statement values (18.1) (4.2)
Total deferred tax liabilities (270.8) (239.3)
Total net deferred tax assets $ 350.9 $ 321.8
As of June 30, 2012 and 2011, the Company had current
net deferred tax assets of $247.8 million and $260.7
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
$103.1 million and $61.1 million as of June 30, 2012 and
2011, respectively, substantially all of which are included
in Other assets in the accompanying consolidated
balance sheets.
As of June 30, 2012 and 2011, certain subsidiaries had
net operating loss and other carryforwards for tax pur-
poses of approximately $262 million and $216 million,
respectively. With the exception of approximately $245
million of net operating loss and other carryforwards with
an indefinite carryforward period as of June 30, 2012,
these carryforwards expire at various dates through fiscal
2032. Deferred tax assets, net of valuation allowances,
in the amount of $3.3 million and $0.4 million as of
June 30, 2012 and 2011, 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 foreign operations of approxi-
mately $1,172 million, $1,039 million and $819 million for
fiscal 2012, 2011 and 2010, respectively. A portion of
these earnings are taxed in the United States.
As of June 30, 2012 and 2011, the Company had gross
unrecognized tax benefits of $78.5 million and $104.8
million, respectively. The total amount of unrecognized
tax benefits that, if recognized, would affect the effective
tax rate was $52.5 million.