Estee Lauder 2004 Annual Report Download - page 69

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THE EST{E LAUDER COMPANIES INC.
NOTE 6 – INCOME TAXES
The provision for income taxes is comprised of the following:
YEAR ENDED JUNE 30 2004 2003 2002
(In millions)
Current:
Federal $ 67.1 $ 37.6 $ 38.6
Foreign 135.5 84.0 92.2
State and local 11.7 5.2 6.5
214.3 126.8 137.3
Deferred:
Federal 20.1 33.5 (13.2)
Foreign (1.8) 1.9 (8.9)
State and local —1.1 (0.5)
18.3 36.5 (22.6)
$232.6 $163.3 $114.7
A reconciliation between the provision for income taxes
computed by applying the statutory Federal income tax
rate to earnings before income taxes and minority interest
and the actual provision for income taxes is as follows:
YEAR ENDED JUNE 30 2004 2003 2002
(In millions)
Provision for income taxes
at statutory rate $215.9 $173.4 $116.3
Increase (decrease) due to:
State and local income taxes,
net of Federal tax benefit 7.6 3.9 4.0
Effect of foreign operations (2.8) (1.0) (0.9)
Preferred stock dividends
not deductible for
U.S. tax purposes 6.1 ——
Other nondeductible expenses
2.7 1.7 3.2
Tax credits (1.3) (12.5) (2.1)
Other, net 4.4 (2.2) (5.8)
Provision for income taxes $232.6 $163.3 $114.7
Effective tax rate 37.7% 32.9% 34.5%
67
Significant components of the Company’s deferred income tax assets and liabilities as of June 30, 2004 and 2003 were
as follows:
2004 2003
(In millions)
Deferred tax assets:
Deferred compensation and other payroll related expenses $ 69.5 $ 55.4
Inventory obsolescence and other inventory related reserves 56.7 55.9
Pension plan reserves —7.1
Postretirement benefit obligations 21.0 22.9
Various accruals not currently deductible 83.1 76.4
Net operating loss and credit carryforwards 5.7 16.3
Other differences between tax and financial statement values 7.3 8.0
243.3 242.0
Valuation allowance for deferred tax assets (4.2) (2.9)
Total deferred tax assets 239.1 239.1
Deferred tax liabilities:
Depreciation and amortization (102.2) (84.0)
Prepaid pension costs (10.1) —
Other differences between tax and financial statement values (7.7) (0.4)
Total deferred tax liabilities (120.0) (84.4)
Total net deferred tax assets $ 119.1 $154.7
As of June 30, 2004 and 2003, the Company had current
net deferred tax assets of $145.9 million and $116.0 mil-
lion, respectively, which are included in prepaid expenses
and other current assets in the accompanying consoli-
dated balance sheets. In addition, the Company had non-
current net deferred tax liabilities of $26.8 million as of
June 30, 2004 and noncurrent net deferred tax assets of
$38.7 million as of June 30, 2003, which are included in
other noncurrent liabilities and other assets, net, respec-
tively, in the accompanying consolidated balance sheets.
Federal income and foreign withholding taxes have not
been provided on $560.5 million, $476.6 million and
$473.5 million of undistributed earnings of international
subsidiaries at June 30, 2004, 2003 and 2002, respec-
tively. The Company intends to reinvest these earnings in
its foreign operations indefinitely, except where it is able
to repatriate these earnings to the United States without
material incremental tax provision.