Sally Beauty Supply 2007 Annual Report Download - page 113

The tax effects of temporary differences that give rise to the Company's deferred tax assets and liabilities are as follows (in thousands):
September 30,
2007 2006
Deferred tax assets attributable to:
Share-based compensation expense $ 7,810 $ 4,918
Accrued expenses 15,520 7,770
Inventory adjustments 2,437 2,557
Foreign loss carryforwards 8,718 7,303
Long-term liabilities 1,319 1,621
Other 1,439 —
Total deferred tax assets 37,243 24,169
Valuation allowance (9,823) (6,977)
Total deferred tax assets, net 27,420 17,192
Deferred tax liabilities attributable to:
Depreciation and amortization 42,391 28,194
Other income taxes — 261
Total deferred tax liabilities 42,391 28,455
Net deferred tax liability $ 14,971 $ 11,263
Management believes that it is more likely than not that results of future operations will generate sufficient taxable income to realize the deferred tax assets, net
of the valuation allowance. The Company has recorded a valuation allowance to account for uncertainties regarding recoverability of most foreign loss
carryforwards.
In fiscal year 2007, the Company made adjustments in connection with the reconciliation of tax balances transferred to the Company in connection with the
Separations Transactions. This amount was included in the settlement of intercompany agreements with Alberto-Culver, as an adjustment to the Company's
retained deficit.
Domestic earnings before provision for income taxes were $70.6 million, $174.6 million and $192.0 million in fiscal years 2007, 2006 and 2005, respectively.
Foreign operations had earnings before provision for income taxes of $12.0 million in fiscal year 2007, earnings before provision for income taxes of
$5.5 million in fiscal year 2006 and a loss before provision for income taxes of $2.4 million in fiscal year 2005.
Tax reserves are evaluated and adjusted as appropriate, while taking into account the progress of audits of various taxing jurisdictions. Management does not
expect the outcome of tax audits to have a material adverse effect on the Company's financial condition, results of operations or cash flow.
Undistributed earnings of the Company's foreign operations are intended to remain permanently invested to finance anticipated future growth and expansion.
Accordingly, no U.S. income taxes have been provided on those earnings at September 30, 2007.
The transactions separating us from Alberto-Culver were intended to qualify as a reorganization under Section 368(a)(1)(D) of the Code and a distribution
eligible for non-recognition under Sections 355(a) and 361(c) of the Internal Revenue Code of 1986, as amended (the "Code"). In connection with the share
distribution of Alberto-Culver common stock in the Separation Transactions, we received: (i) a private
F-31
Source: Sally Beauty Holding, 10-K, November 29, 2007