Neiman Marcus 2003 Annual Report Download - page 59

The Company is required to indemnify Harcourt General, and each entity of the consolidated group of which Harcourt General is a
member, against all federal, state and local taxes incurred by Harcourt General or any member of such group as a result of the failure
of the Spin-off to qualify as a tax-free transaction under Section 355(a) of the Internal Revenue Service Code (Code) or the application
of Section 355(e). The obligation to indemnify occurs only if the Company takes action which is inconsistent with any representation
or statement made to the Internal Revenue Service in connection with the request by Harcourt General for a ruling letter in respect to
the Spin-off and as to certain tax aspects of the Spin-off, or if within two years after the date of the Spin-off the Company 1) fails to
maintain its status as a company engaged in the active conduct of a trade or business, as defined in Section 355(b) of the Code, 2)
merges or consolidates with or into any other corporation, 3) liquidates or partially liquidates, 4) sells or transfers all or substantially
all of its assets in a single transaction or a series of related transactions, 5) redeems or otherwise repurchases any Company stock
subject to certain exceptions, or 6) takes any other action or actions which in the aggregate would have the effect of causing or
permitting one or more persons to acquire, directly or indirectly, stock representing a 50 percent or greater interest in the Company.
The Company's obligation to indemnify Harcourt General and its consolidated group shall not apply if, prior to taking any such action
the Company has obtained and provided to Harcourt General a written opinion from a law firm acceptable to Harcourt General, or
Harcourt General has obtained a supplemental ruling from the Internal Revenue Service, that such action or actions will not result in
either (i) the Spin-off failing to qualify under Section 355(a) of the Code, or (ii) the Company's shares failing to qualify as qualified
property for purposes of Section 355(c)(2) of the Code by reason of Section 355(e) of the Code.
NOTE 7. Income Taxes
The significant components of income tax expense are as follows:
Years Ended
(in thousands)
July 31,
2004
August 2,
2003
August 3,
2002
Current:
Federal $ 93,963 $ 64,758 $ 67,015
State 3,328 6,854 4,837
Foreign 367 192 136
97,658 71,804 71,988
Deferred:
Federal 21,177 6,944 (9,620)
State 2,097 500 (715)
23,274 7,444 (10,335)
Income tax expense $ 120,932 $ 79,248 $ 61,653
A reconciliation of income tax expense to the amount calculated based on the federal and state statutory rates are as follows:
Years Ended
(in thousands)
July 31,
2004
August 2,
2003
August 3,
2002
Income tax expense at statutory rate $ 115,260 $ 72,044 $ 56,785
State income taxes, net of federal income tax benefit 12,925 7,354 4,122
Tax benefit related to favorable state tax settlements (7,500) — —
Other 247 (150)746
Total $ 120,932 $ 79,248 $ 61,653
F-20