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Notes฀to฀
Consolidated Financial Statements
INTEREST,฀NET
12The components of interest, net, are as follows:
฀ Fiscal฀Year
฀฀฀฀ 2004฀ 2003฀ 2002
Interest฀expense฀ $฀47,710฀ $฀47,566฀ $41,493
Capitalized฀interest฀ (3,500)฀ (3,470)฀ (3,653)
Interest฀income฀ (551)฀ (1,499)฀ (1,255)
Interest,฀net฀ $43,659฀ $42,597฀ $36,585
Capitalized interest was computed using our average borrowing
rate. We paid $39,661, $38,682, and $31,027, for interest (excluding
amounts capitalized) in fiscal 2004, 2003, and 2002, respectively.
INCOME฀TAXES
13The components of earnings before income
taxes and the provision for income taxes
thereon are as follows:
฀ Fiscal฀Year
฀฀฀฀ 2004฀ 2003฀ 2002
Earnings฀before฀income฀taxes:
฀ ฀ ฀ U.S.฀ $335,606฀ $345,496฀ $359,947
฀ ฀ ฀ Canada฀ 4,392฀ 2,252฀ 3,362
Earnings฀before฀income฀taxes฀ $339,998฀ $฀347,748฀ $363,309
Income฀taxes:฀
฀ Current:
฀ ฀ ฀ Federal฀ $฀฀฀75,121฀ $฀฀฀68,178฀ $฀฀฀88,063
฀ ฀ ฀ State฀and฀local฀ 13,663฀ 11,396฀ 14,582
฀ ฀ ฀ Canada฀ 131฀ 24฀ 133
฀ ฀ Total฀current฀ $฀฀฀88,915฀ $฀฀฀79,598฀ $฀102,778
฀ Deferred฀(principally฀U.S.)฀ 19,621฀ 35,890฀ 22,743
Total฀income฀taxes฀ $฀108,536฀ $฀115,488฀ $฀125,521
During fiscal 2004, 2003, and 2002, we paid income taxes of
$92,265, $65,398, and $56,839, respectively.
The following table is a reconciliation of the U.S. statutory
income tax rate to the effective income tax rate included in the
accompanying consolidated statements of earnings:
฀ Fiscal฀Year
฀฀฀฀ 2004฀ 2003฀ 2002
U.S.฀statutory฀rate฀ 35.0%฀ 35.0%฀ 35.0%
State฀and฀local฀income฀taxes,฀฀
฀ net฀of฀federal฀tax฀benefits฀ 3.2฀ 3.0฀ 3.1
Benefit฀of฀federal฀income฀tax฀credits฀ (5.2)฀ (4.5)฀ (3.9)
Other,฀net฀ (1.1)฀ (0.3)฀ 0.4
Effective฀income฀tax฀rate฀ 31.9%฀ 33.2%฀ 34.6%
The tax effects of temporary differences that give rise to
deferred tax assets and liabilities are as follows:
฀฀฀฀ ฀ May฀30,฀฀ May฀25,
฀฀฀฀ ฀ 2004฀ 2003
Accrued฀liabilities฀ ฀ $฀฀฀฀13,286฀ $฀฀฀฀12,616
Compensation฀and฀employee฀benefits฀ ฀ 63,234฀ 55,935
Asset฀disposition฀and฀restructuring฀liabilities฀ 2,651฀ 2,004
Other฀ ฀ 2,918฀ 2,638
฀ Gross฀deferred฀tax฀assets฀ ฀ $฀฀฀฀82,089฀ $฀฀฀฀73,193
Buildings฀and฀equipment฀ ฀ (143,910)฀ (116,148)
Prepaid฀pension฀costs฀ ฀ (25,452)฀ (25,987)
Prepaid฀interest฀ ฀ (1,333)฀ (1,454)
Deferred฀rent฀and฀interest฀income฀ ฀ (15,432)฀ (13,117)
Capitalized฀software฀and฀other฀assets฀ ฀ (15,976)฀ (16,115)
Other฀ ฀ (944)฀ (1,703)
฀ Gross฀deferred฀tax฀liabilities฀ ฀ $(203,047)฀ $(174,524)
฀ ฀ Net฀deferred฀tax฀liabilities฀ ฀ $(120,958)฀ $(101,331)
A valuation allowance for deferred tax assets is provided when
it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Realization is dependent upon the genera-
tion of future taxable income or the reversal of deferred tax liabilities
during the periods in which those temporary differences become
deductible. We consider the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies
in making this assessment. At May 30, 2004, and May 25, 2003,
no valuation allowance has been recognized for deferred tax assets
because we believe that sufficient projected future taxable income will
be generated to fully utilize the benefits of these deductible amounts.
47
Financial Review 2004