Estee Lauder 2008 Annual Report Download - page 93

THE EST{E LAUDER COMPANIES INC. 91
2008, the Company fi led an appeal for judicial review
with the National Appellate Court. While no assurance
can be given as to the outcome in respect of this
assessment and pending appeal in the Spanish courts,
management believes it is more-likely-than-not that the
subsidiary will be successful in its defense against
the assessment and continues to measure the full amount
of the tax benefi t. Accordingly, no tax reserve has been
established for this potential exposure.
During fi scal 2008, the Company concluded various
state, local and foreign income tax audits and examina-
tions while several other matters, including those noted
above, remained pending. On the basis of the information
available in this regard as of June 30, 2008, it is reason-
ably possible that a reduction in a range of $30 million to
$60 million of unrecognized tax benefi ts may occur within
12 months as a result of projected resolutions of global
tax examinations and controversies.
The tax years subject to examination vary depending
on the tax jurisdiction. As of June 30, 2008, the following
tax years remain subject to examination by the major tax
jurisdictions indicated:
Major Jurisdiction Open Fiscal Years
Belgium 2004-2008
Canada 2001-2008
France 2005-2008
Germany 1999-2008
Japan 2006-2008
Korea 2002-2008
Spain 1999-2002, 2004-2008
Switzerland 2004-2008
United Kingdom 2007-2008
United States 2002-2008
State of California 2002-2008
State of Minnesota 2001-2008
State of New York 2007-2008
The Company is also subject to income tax examinations
in numerous other state, local and foreign jurisdictions.
The Company believes that its tax reserves are adequate
for all years subject to examination.
NOTE 10 — OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
JUNE 30 2008 2007
(In millions)
Advertising, merchandising and sampling $ 356.9 $324.7
Employee compensation 303.7 281.0
Special charges related to cost
savings initiative 4.4 15.4
Other 402.6 342.8
$1,067.6 $963.9
certain circumstances, the ultimate outcome of exposures
and risks involve signifi cant uncertainties which render
them inestimable. If actual outcomes differ materially from
these estimates, including those that cannot be quanti-
fi ed, they could have a material impact on the Company’s
results of operations.
The Company is currently subject to a U.S. federal tax
audit as well as examinations and controversies in several
state, local, and international jurisdictions. These matters
are in various stages of completion and involve complex
multi-jurisdictional issues common among multinational
enterprises, including transfer pricing, that may require an
extended period of time for resolution. During the fourth
quarter of fi scal 2008, the IRS completed the examination
phase of fi scal years 2002 through 2005. The Company
has brought disputed adjustments concerning U.S. for-
eign tax credit determinations to the Appeals Division of
the IRS for review as well as entered a claim pursuant to
an administrative process of the tax treaty between the
U.S. and Belgium (commonly referred to as the “Compe-
tent Authority” process). Notwithstanding the matters
pending before the Appeals Division and Competent
Authority, the Company has reached a tentative
agreement with the IRS concerning the examination
adjustments proposed. In the fourth quarter, the Company
made a cash payment of $35.0 million to the U.S. Treasury
as an advance deposit in anticipation of a formal resolu-
tion to the tentatively agreed-to adjustments. Although
the advance deposit limits the accrual of additional inter-
est that would be due to the U.S. Treasury, there is no
impact on the amount of unrecognized tax benefi ts until
a formal settlement is reached. Separately, the IRS has
informally advised the Company that it intends to
commence an examination of the fi scal years 2006 and
2007 during the second quarter of fi scal 2009.
The Company had been notifi ed of a disallowance of
tax deductions claimed by its subsidiary in Spain for the
fi scal years 1999 through 2002. As a result, the subsidiary
was reassessed corporate income tax of $3.3 million for
this period, at current exchange rates. An appeal against
this reassessment was fi led with the Chief Tax Inspector.
On July 18, 2005, the fi nal assessment made by the Chief
Tax Inspector was received, confi rming the reassessment
made by the tax auditors. During fi scal 2006, an appeal
against this fi nal assessment was fi led with the Madrid
Regional Economic Administrative Tribunal (“TEAR”). In
view of the TEAR’s silence, during fi scal 2007 the claim
was presumed to be dismissed and an appeal was fi led
against it with the Central Economic-Administrative
Tribunal (“TEAC”). During the fourth quarter of fi scal
2008, the TEAC dismissed the claim and, on June 10,