Nordstrom 2003 Annual Report Download - page 37

NORDSTROM, INC. and SUBSIDIARIES
[35 ]
A reconciliation of the statutory Federal income tax rate to the effective
tax rate on earnings before the cumulative effect of accounting change
is as follows:
Fiscal Year 2003 2002 2001
Statutory rate 35.00% 35.00% 35.00%
State and local
income taxes, net of
Federal income taxes 3.10 3.78 3.93
Change in valuation allowance —8.45 —
Other, net 0.91 (0.18) 0.09
Effective tax rate 39.01% 47.05% 39.02%
Deferred income taxes reflect the net tax effect of temporary differences
between amounts recorded for financial reporting purposes and amounts
used for tax purposes. The major components of deferred tax assets and
liabilities are as follows:
January 31, 2004 2003
Accrued expenses $41,096 $35,480
Compensation and
benefits accruals 61,553 52,969
Merchandise inventories 24,630 25,831
Capital loss carryforwards 6,286 7,406
Loss on minority interest purchase 15,752 15,752
Other 22,414 28,319
Total deferred tax assets 171,731 165,757
Land, buildings and
equipment basis and
depreciation differences (78,558) (50,401)
Employee benefits (6,540) (9,657)
Other (5,532) (3,891)
Total deferred tax liabilities (90,630) (63,949)
Valuation allowance (15,752) (15,752)
Net deferred tax assets $65,349 $86,056
In January 2003 we sold our Denver Credit facility, generating a capital gain
for tax purposes of $15,484 which was used to offset a portion of our
existing capital loss carryforwards. Capital loss carryforwards of $16,117
remain available to offset capital gain income in the next two years. No valuation
allowance has been provided because we believe it is probable that the full
benefit of these carryforwards will be realized.
Our purchase of the outstanding shares of Nordstrom.com, Inc. series C
preferred stock in 2002 resulted in an expense of $40,389, which we believe
will not be deductible for tax purposes. As a result, we have established
a valuation allowance of $15,752 to offset the deferred tax asset related to
this purchase.
Note 7: Earnings per Share
Basic earnings per share is computed using the weighted average number
of common shares outstanding during the year. Diluted earnings per
share uses the weighted average number of common shares outstanding
during the year plus dilutive common stock equivalents, primarily stock options
and performance share units.
Options with an exercise price greater than the average market price were
not included in diluted earnings per share. These options totaled 5,335,209,
7,259,273 and 8,563,996 shares in 2003, 2002 and 2001.
Fiscal Year 2003 2002 2001
Net earnings $242,841 $90,224 $124,688
Basic shares 136,329,144 135,106,772 134,104,582
Basic earnings per share $1.78 $0.67 $0.93
Dilutive effect of
stock options and
performance share units 1,409,997 617,468 234,587
Diluted shares 137,739,141 135,724,240 134,339,169
Diluted earnings per share $1.76 $0.66 $0.93
notes to consolidated financial statements