Sally Beauty Supply 2011 Annual Report Download - page 139

Sally Beauty Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Fiscal Years ended September 30, 2011, 2010 and 2009
The difference between the U.S. statutory federal income tax rate and the effective income tax rate is
summarized below:
Year Ended
September 30,
2011 2010 2009
Statutory tax rate .................................. 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit .............. 2.8 2.9 2.8
Effect of foreign operations .......................... (1.3) (1.2) 0.8
Other, net ....................................... (0.1) 0.2 1.3
Effective tax rate ................................ 36.4% 36.9% 39.9%
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,
2011 2010
Deferred tax assets attributable to:
Share-based compensation expense ................... $19,683 $ 16,471
Accrued liabilities ................................ 28,711 22,829
Inventory adjustments ............................. 3,432 3,303
Foreign loss carryforwards .......................... 18,315 16,675
Unrecognized tax benefits .......................... 651 577
Interest rate swaps ............................... 2,503 6,026
Other ........................................ 2,673 2,579
Total deferred tax assets ......................... 75,968 68,460
Valuation allowance ................................ (17,100) (16,552)
Total deferred tax assets, net ...................... 58,868 51,908
Deferred tax liabilities attributable to:
Depreciation and amortization ...................... 81,644 70,772
Total deferred tax liabilities ....................... 81,644 70,772
Net deferred tax liability ......................... $22,776 $ 18,864
Management believes that it is more likely than not that the 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 certain deferred
tax assets, primarily foreign loss carryforwards.
Domestic earnings before provision for income taxes were $300.1 million, $215.9 million and $165.1 million
in the fiscal years 2011, 2010 and 2009, respectively. Foreign operations had earnings (losses) before
provision for income taxes of $35.8 million, $12.0 million and $(0.3) million in the fiscal years 2011, 2010
and 2009, respectively.
Tax reserves are evaluated and adjusted as appropriate, while taking into account the progress of audits by
various taxing jurisdictions and other changes in relevant facts and circumstances evident at each balance
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