Sally Beauty Supply 2013 Annual Report Download - page 137

Sally Beauty Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Fiscal Years ended September 30, 2013, 2012 and 2011
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,
2013 2012
Deferred tax assets attributable to:
Share-based compensation expense ................... $20,668 $ 18,771
Accrued liabilities ................................ 26,817 33,495
Inventory adjustments ............................. 3,771 5,208
Foreign loss carryforwards .......................... 28,776 23,405
Unrecognized tax benefits .......................... 437 605
Other ........................................ 3,408 2,011
Total deferred tax assets ......................... 83,877 83,495
Valuation allowance ................................ (26,073) (21,681)
Total deferred tax assets, net ...................... 57,804 61,814
Deferred tax liabilities attributable to:
Depreciation and amortization ...................... 99,259 92,292
Total deferred tax liabilities ....................... 99,259 92,292
Net deferred tax liability ......................... $41,455 $ 30,478
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 $386.6 million, $334.5 million and $300.1 million
in the fiscal years 2013, 2012 and 2011, respectively. Foreign operations had earnings before provision for
income taxes of $26.1 million, $26.4 million and $35.8 million in the fiscal years 2013, 2012 and 2011,
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
sheet date. 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.
At September 30, 2013, undistributed earnings of the Company’s foreign operations are intended to
remain permanently invested to finance anticipated future growth and expansion. Accordingly, federal and
state income taxes have not been provided on accumulated but undistributed earnings of $170.9 million
and $140.8 million as of September 30, 2013 and 2012, respectively, as such earnings have been
permanently reinvested in the business. The determination of the amount of the unrecognized deferred tax
liability related to the undistributed earnings is not practicable.
At September 30, 2013 and 2012, the Company had total operating loss carry-forwards of $96.4 million and
$80.1 million, respectively, of which $79.4 million and $65.1 million, respectively, are subject to a valuation
allowance. At September 30, 2013, operating loss carry-forwards of $25.3 million expire between 2014 and
2031 and operating loss carry-forwards of $71.1 million have no expiration date. At September 30, 2013
and 2012, the Company had tax credit carry-forwards of $2.0 million and $1.1 million, respectively, which
expire in 2024 and of which $0.5 million, at September 30, 2012, were subject to a valuation allowance.
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