Estee Lauder 2008 Annual Report Download - page 91

The state and local tax benefi t of $5.9 million in fi scal
2008 includes the favorable resolution of several state and
local income tax examinations as well as statute lapses.
On July 13, 2006, the Company announced a settle-
ment with the Internal Revenue Service (“IRS”) regarding
its examination of the Company’s consolidated Federal
income tax returns for the fi scal years ended June 30,
1998 through June 30, 2001. The settlement resolved
previously disclosed issues raised during the IRS’s exami-
nation, including transfer pricing and foreign tax credit
computations. The settlement of these issues resulted in a
tax charge of approximately $46 million in the fourth
quarter of fi scal 2006 and represents the aggregate earn-
ings impact of the settlement through fi scal 2006. In addi-
tion, during the fourth quarter of fi scal 2006, the Company
completed the repatriation of foreign earnings through
intercompany dividends as required under the provisions
of the American Jobs Creation Act of 2004 (the “AJCA”).
In connection with the repatriation, the Company updated
the computation of the related aggregate tax impact,
resulting in a favorable adjustment of approximately
$11 million. The tax settlement, coupled with the AJCA
favorable tax adjustment, resulted in a net increase to the
Company’s fi scal 2006 income tax provision of approxi-
mately $35 million.
Federal income and foreign withholding taxes have not
been provided on approximately $813 million of undistrib-
uted earnings of international subsidiaries at June 30,
2008. The Company intends to reinvest these earnings in
its foreign operations indefi nitely, except where it is able
to repatriate these earnings to the United States without
material incremental tax provision. As of June 30, 2007
and 2006, the Company had not provided federal income
and foreign withholding taxes on approximately $539 mil-
lion and $336 million, respectively, of undistributed earn-
ings of international subsidiaries. The determination and
estimation of the future income tax consequences in all
relevant taxing jurisdictions involves the application of
highly complex tax laws in the countries involved, particu-
larly in the United States, and is based on the tax profi le of
the Company in the year of earnings repatriation. Accord-
ingly, it is not practicable to determine the amount of tax
associated with such undistributed earnings.
THE EST{E LAUDER COMPANIES INC. 89
Signifi cant components of the Company’s deferred income tax assets and liabilities as of June 30, 2008 and 2007 were
as follows:
2008 2007
(In millions)
Deferred tax assets:
Compensation related expenses $ 80.9 $ 75.5
Inventory obsolescence and other inventory related reserves 61.5 55.6
Retirement benefi t obligations 41.9 31.6
Various accruals not currently deductible 113.2 78.1
Net operating loss and credit carryforwards 7.9 3.4
Unrecognized state tax benefi ts and accrued interest 41.0 —
Other differences between tax and fi nancial statement values 53.9 16.1
400.3 260.3
Valuation allowance for deferred tax assets (5.7) (5.5)
Total deferred tax assets 394.6 254.8
Deferred tax liabilities:
Depreciation and amortization (150.4) (142.6)
Other differences between tax and fi nancial statement values (4.3) (4.8)
Total deferred tax liabilities (154.7) (147.4)
Total net deferred tax assets $ 239.9 $ 107.4
As of June 30, 2008 and 2007, the Company had current
net deferred tax assets of $184.6 million and $124.0 mil-
lion, respectively, which are included in Prepaid expenses
and other current assets in the accompanying con-
solidated balance sheets. In addition, the Company had
noncurrent net deferred tax assets of $55.3 million as of
June 30, 2008 which are included in Other assets, net in
the accompanying consolidated balance sheet and
noncurrent net deferred tax liabilities of $16.6 million
as of June 30, 2007 which are included in Other non-
current liabilities in the accompanying consolidated
balance sheet.