Neiman Marcus 2007 Annual Report Download - page 117

Table of Contents
Significant components of our net deferred income tax asset (liability) are as follows:
(in thousands)
August 2,
2008
July 28,
2007
Deferred income tax assets:
Accruals and reserves $ 28,445 $ 29,202
Employee benefits 89,113 86,842
Other 28,021 11,174
Total deferred tax assets $ 145,579 $ 127,218
Deferred income tax liabilities:
Inventory $ (4,685) $ (10,215)
Depreciation and amortization (71,890) (83,820)
Intangible assets (950,141) (990,745)
Other (16,174)(5,692)
Total deferred tax liabilities (1,042,890)(1,090,472)
Net deferred income tax asset (liability) $ (897,311) $ (963,254)
Net deferred income tax asset (liability):
Current $ 32,659 $ 39,728
Non-current (929,970)(1,002,982)
Total $ (897,311)$ (963,254)
The net deferred tax liability of $897.3 million at August 2, 2008 decreased from a $963.3 million net deferred liability at
July 28, 2007. This decrease was comprised primarily of 1) a $44.6 million deferred tax benefit for fiscal year 2008 (including $40.6
million related to the amortization of intangible assets recorded in connection with the Acquisition), and 2) a decrease in deferred tax
liabilities of $16.7 million related primarily to losses on interest rate swap agreements recorded, net of tax, as decreases in other
comprehensive income in the accompanying statements of shareholders' equity. We believe it is more likely than not that we will
realize the benefits of our recorded deferred tax assets.
We adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) in the
first quarter of fiscal year 2008. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return.
The cumulative effect of adopting FIN 48 resulted in a net increase to our accruals for uncertain tax positions of $9.1 million
for the derecognition of certain tax benefits previously recorded. This increase to our accruals was offset by a corresponding increase
to goodwill as these uncertainties existed at the time of the Acquisition. At adoption, the gross amount of unrecognized tax benefits
was $26.7 million, of which $3.5 million of unrecognized tax benefits would impact our effective tax rate, if recognized. At August 2,
2008, the gross amount of unrecognized tax benefits is $21.3 million, of which $1.7 million would impact our effective tax rate, if
recognized. We classify interest and penalties as a component of income tax expense and our liability for accrued interest and
penalties is $9.5 million as of August 2, 2008. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is
as follows (in millions):
Balance at July 28, 2007 $ 26.7
Gross amount of increases for current year tax positions 1.8
Gross amount of decreases for settlements with tax authorities (7.2)
Balance at August 2, 2008 $ 21.3
We file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. We closed the Internal
Revenue Service (IRS) examinations of federal tax returns for fiscal years 2004 and 2003 during the first quarter of fiscal year 2007
and paid the related tax liability during the second quarter of fiscal year 2007. The IRS is now examining our federal tax returns for
fiscal years 2005 and 2006. We believe our recorded tax liabilities as of August 2, 2008 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. 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 2003. During
the fourth quarter, we entered into a negotiated settlement with a state tax authority regarding a state non-filing position which resulted
in a reduction to our gross unrecognized tax benefits of $7.2 million and a corresponding decrease to goodwill of $3.0 million related
to the resolution of uncertainties that existed at the time of the Acquisition. We believe it is reasonably possible that additional
adjustments in the amounts of our unrecognized
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