Sally Beauty Supply 2013 Annual Report Download - page 138

Sally Beauty Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Fiscal Years ended September 30, 2013, 2012 and 2011
The changes in the amount of unrecognized tax benefits for the fiscal years ended September 30, 2013 and
2012 are as follows (in thousands):
2013 2012
Balance at beginning of the fiscal year .................... $7,941 $10,836
Increases related to prior year tax positions ................ 26 90
Decreases related to prior year tax positions ................ (1) (119)
Increases related to current year tax positions .............. 218 171
Settlements ....................................... — (127)
Lapse of statute .................................... (3,361) (2,910)
Balance at end of fiscal year ........................... $4,823 $ 7,941
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, 2013 and
2012 was $1.4 million and $3.6 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 from time to time 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.
In January 2012, the IRS concluded the field work associated with their examination of the Company’s
consolidated federal income tax returns for the fiscal years ended September 30, 2007 and 2008 and issued
their examination report. The Company is appealing certain disputed items and it does not anticipate the
ultimate resolution of these items to have a material impact on the Company’s financial statements.
The IRS is currently conducting an examination of the Company’s consolidated federal income tax returns
for the fiscal years ended September 30, 2009, 2010 and 2011. 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 2008 forward. Generally, states’
statutes in the United States are open for tax reviews from 2007 forward.
17. Acquisitions
In May 2013, the Company acquired certain assets and business operations of Essential Salon, a
professional-only distributor of beauty products operating in the northeastern region of the United States,
for approximately $15.7 million, subject to certain adjustments. The assets acquired and liabilities assumed,
including intangible assets subject to amortization of $9.1 million, were recorded based on their
preliminary estimated fair values at the acquisition date. In addition, goodwill of $3.5 million (which is
expected to be deductible for tax purposes) was recorded as a result of this acquisition. The final valuation
of the assets acquired and liabilities assumed will be completed within twelve months from the acquisition
date. In addition, during the fiscal year 2013, the Company completed several other individually immaterial
acquisitions at an aggregate cost of approximately $6.8 million and recorded additional intangible assets
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