Neiman Marcus 2009 Annual Report Download - page 121

Table of Contents
Significant components of our net deferred income tax asset (liability) are as follows:
(in thousands)
July 31,
2010
August 1,
2009
Deferred income tax assets:
Accruals and reserves $ 48,106 $ 39,997
Employee benefits 141,902 124,987
Other 30,401 43,348
Total deferred tax assets $ 220,409 $ 208,332
Deferred income tax liabilities:
Inventory $ (12,094) $ (12,208)
Depreciation and amortization (76,933) (76,818)
Intangible assets (759,124) (787,987)
Other (10,150)(9,993)
Total deferred tax liabilities (858,301)(887,006)
Net deferred income tax liability $ (637,892) $ (678,674)
Net deferred income tax asset (liability):
Current $ 30,755 $ 19,136
Non-current (668,647)(697,810)
Total $ (637,892)$ (678,674)
The net deferred tax liability of $637.9 million at July 31, 2010 decreased from a $678.7 million net deferred liability at
August 1, 2009. This decrease was comprised primarily of 1) a $28.9 million decrease in deferred tax liabilities related to the
amortization of certain intangible assets and 2) a $12.0 million increase in deferred tax assets related to an increase in our pension
liability. We believe it is more likely than not that we will realize the benefits of our recorded deferred tax assets.
At July 31, 2010, the gross amount of unrecognized tax benefits was $6.4 million, all of which would impact our effective tax
rate, if recognized. We classify interest and penalties as a component of income tax (benefit) expense and our liability for accrued
interest and penalties was $6.3 million as of July 31, 2010. A reconciliation of the beginning and ending amounts of unrecognized tax
benefits is as follows:
(in thousands)
July 31,
2010
August 1,
2009
Balance at beginning of fiscal year $ 6,605 $ 21,244
Gross amount of increases for current year tax positions 654 591
Gross amount of decreases for settlements with tax authorities (406) (14,263)
Gross amount of decreases for expiration of statutes of limitation (452)(967)
Balance at ending of fiscal year $ 6,401 $ 6,605
We file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. During the fourth quarter
of fiscal year 2010, the IRS closed their examination of fiscal year 2007 federal income tax return with no changes or assessments.
We anticipate the IRS will begin an examination of fiscal years 2008 and 2009 sometime in our fiscal year 2011. With respect to state
and local jurisdictions, with limited exceptions, the Company and its subsidiaries are no longer subject to income tax audits for fiscal
years before 2006.
During the third quarter of fiscal year 2009, we closed the IRS examination of fiscal years 2005 and 2006 and received net
refunds of approximately $2.8 million. In addition, as a result of the completion of the audit and IRS determination regarding certain
deductions taken in connection with the Acquisition, we recorded a decrease in the gross amount of unrecognized tax benefits of $13.7
million and a decrease in accrued interest and penalties of $2.2 million in the third quarter of fiscal year 2009. This $15.9 million
reduction in our liability for unrecognized tax benefits resulted in a decrease to goodwill of $17.3 million and a tax benefit of $1.3
million, offset by a decrease to deferred tax liabilities of $2.7 million.
We believe our recorded tax liabilities as of July 31, 2010 are sufficient to cover any potential assessments to be made by the
IRS or other taxing authorities upon the completion of their examinations and we will continue to review our recorded tax liabilities
for potential audit assessments based upon subsequent events, new information and future circumstances. We believe it is reasonably
possible that additional adjustments in the amounts of our unrecognized tax benefits could occur within the
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