Sally Beauty Supply 2011 Annual Report Download - page 141

Sally Beauty Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Fiscal Years ended September 30, 2011, 2010 and 2009
The changes in the amount of unrecognized tax benefits for the fiscal year ended September 30, 2011 and
2010 are as follows (in thousands):
2011 2010
Balance at beginning of the fiscal year .................... $13,647 $14,378
Increases related to prior year tax positions ................ 166 1,895
Decreases related to prior year tax positions ............... (15) —
Increases related to current year tax positions .............. 208 620
Settlements ....................................... (71) (1,131)
Lapse of statute .................................... (3,099) (2,115)
Balance at end of fiscal year ........................... $10,836 $13,647
If recognized, these positions would affect the Company’s effective tax rate.
The Company classifies and recognizes interest and penalties accrued related to unrecognized tax benefits
in income tax expense. The total amount of accrued interest and penalties as of September 30, 2011 and
2010 was $4.2 million and $4.6 million, respectively.
Because existing tax positions will continue to generate increased liabilities for unrecognized tax benefits
over the next 12 months, and the fact that we are routinely under audit by various taxing authorities, it is
reasonably possible that the amount of unrecognized tax benefits will change during the next 12 months.
An estimate of the amount or range of such change cannot be made at this time. However, we do not
expect the change, if any, to have a material effect on our consolidated financial condition or results of
operations within the next 12 months.
The IRS is currently conducting an examination of the Company’s consolidated federal income tax returns
for the fiscal years ended September 30, 2008 and 2007 in the ordinary course. The IRS had previously
audited the Company’s consolidated federal income tax returns through the tax year ended September 30,
2006, thus our statute remains open from the year ended September 30, 2007 forward. Our foreign
subsidiaries are impacted by various statutes of limitations, which are generally open from 2004 forward.
Generally, states’ statutes in the United States are open for tax reviews from 2005 forward.
19. Acquisitions
On October 1, 2010, the Company acquired Aerial, an 82-store professional-only distributor of beauty
products operating in 11 states in the midwestern United States, for approximately $81.8 million. The
assets acquired and liabilities assumed, including intangible assets subject to amortization of $34.7 million,
were recorded at their respective fair values at the acquisition date. In addition, goodwill of $25.3 million
(which is expected to be deductible for tax purposes) was recorded as a result of this acquisition. The
acquisition of Aerial was funded with borrowings in the amount of $78.0 million under the prior ABL
credit facility (which have since been paid in full) and with cash from operations. In addition, during the
fiscal year 2011, the Company completed several other individually immaterial acquisitions at an aggregate
cost of approximately $5.0 million and recorded additional goodwill in the amount of $4.3 million (the
majority of which is expected to be deductible for tax purposes) in connection with such acquisitions.
Generally, we funded these acquisitions with cash from operations. The valuation of the assets acquired
and liabilities assumed in connection with these acquisitions was based on their fair values at the
acquisition date.
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