Neiman Marcus 2005 Annual Report Download - page 110

NOTE 11. INCOME TAXES
The significant components of income tax expense are as follows:
(Successor) (Predecessor)
(in thousands)
Forty-three
weeks ended
July 29,
2006
Nine weeks
ended
October 1,
2005
Fiscal year
ended
July 30,
2005
Fiscal year
ended
July 31,
2004
Current:
Federal $ 72,010 $ 30,200 $ 147,407 $ 93,536
State 8,447 2,437 13,229 3,319
Foreign 118 20 307 367
80,575 32,657 160,943 97,222
Deferred:
Federal (58,575 ) (6,148 ) (13,510 ) 20,903
State (7,364 ) (773 )(1,826 )2,066
(65,939 ) (6,921 )(15,336 )22,969
Income tax expense $ 14,636 $ 25,736 $ 145,607 $ 120,191
A reconciliation of income tax expense to the amount calculated based on the federal and state statutory rates is as follows:
(Successor) (Predecessor)
(in thousands)
Forty-three
weeks ended
July 29,
2006
Nine weeks
ended
October 1,
2005
Fiscal year
ended
July 30,
2005
Fiscal year
ended
July 31,
2004
Income tax expense at statutory rate $ 14,403 $ 24,461 $ 138,850 $ 114,566
State income taxes, net of federal income tax benefit 1,414 2,136 14,005 12,885
Tax benefit related to favorable tax settlements and other
reductions in tax liabilities (113 ) (222 ) (7,585 ) (7,500 )
Non-taxable income (1,378 ) (1,058 ) (2,121 ) (265 )
Non-deductible expenses 256 607 2,633 599
Other 54 (188 )(175 )(94 )
Total $ 14,636 $ 25,736 $ 145,607 $ 120,191
Our effective income tax rate was 35.6% for the forty-three weeks ended July 29, 2006 and 36.8% for the nine weeks ended
October 1, 2005. Our effective tax rate in the current year was favorably impacted by a higher level of tax-exempt interest income
earned. Our effective income tax rate was 36.7% for the fiscal year ended July 30, 2005 and was favorably impacted by tax-exempt
interest income, offset by non-deductible transaction costs. In the fourth fiscal quarter of fiscal year 2005, we recognized tax benefits
aggregating $7.6 million related to a favorable settlement associated with previous state tax filings and reductions in previously recorded
deferred tax liabilities. Excluding these benefits, our effective tax rate was 38.6% for fiscal year 2005. In the second quarter of fiscal year
2004, we also recognized a tax benefit of $7.5 million related to favorable settlements associated with previous state tax filings. Excluding
this benefit, our effective tax rate was 39.0% for 2004.
The Company's federal tax returns for fiscal years 2004 and 2003 are currently under examination by the Internal Revenue
Service (IRS). We believe our recorded tax liabilities as of July 29, 2006 are sufficient to cover any potential assessments to be made by
the IRS upon the completion of their examinations. We will continue to monitor the progress of the IRS examinations and review our
recorded tax liabilities for potential audit assessments. Adjustments to increase or decrease the recorded tax liabilities may be required in
the future as additional facts become known.
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