Red Lobster 2005 Annual Report Download - page 44

Notes to Consolidated Financial Statements
Financial Review 2005
52 Darden Restaurants
NOTE 13
Interest, Net
The components of interest, net, are as follows:
Fiscal Year
2005 2004 2003
Interest expense $47,656 $47,710 $47,566
Capitalized interest (3,182) (3,500) (3,470)
Interest income (1,355) (551) (1,499)
Interest, net $43,119 $43,659 $42,597
Capitalized interest was computed using our average
borrowing rate. We paid $39,083, $39,661 and $38,682, for
interest (excluding amounts capitalized) in fiscal 2005, 2004
and 2003, respectively.
NOTE 14
Income Taxes
The components of earnings before income taxes and
the provision for income taxes thereon are as follows:
Fiscal Year
2005 2004 2003
Earnings before income taxes:
U.S. $416,905 $328,577 $335,611
Canada 7,012 4,199 1,992
Earnings before income taxes $423,917 $332,776 $337,603
Income taxes:
Current:
Federal $137,549 $ 75,121 $ 68,178
State and local 20,438 13,663 11,396
Canada 46 131 24
Total current $158,033 $ 88,915 $ 79,598
Deferred (principally U.S.) (24,722) 16,688 32,026
Total income taxes $133,311 $105,603 $111,624
During fiscal 2005, 2004 and 2003, we paid income taxes
of $111,386, $92,265 and $65,398, 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
2005 2004 2003
U.S. statutory rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal tax benefits 2.9 3.2 3.0
Benefit of federal income tax credits (5.0) (5.2) (4.5)
Other, net (1.5) (1.3) (0.4)
Effective income tax rate 31.4% 31.7% 33.1%
The tax effects of temporary differences that give rise to
deferred tax assets and liabilities are as follows:
May 29, May 30,
2005 2004
Accrued liabilities $ 18,016 $ 13,286
Compensation and employee benefits 76,680 63,234
Deferred rent and interest income 33,149 28,094
Asset disposition and restructuring liabilities 2,239 2,651
Other 4,537 2,918
Gross deferred tax assets $ 134,621 $ 110,183
Buildings and equipment (145,421) (143,910)
Prepaid pension costs (24,115) (25,452)
Prepaid interest (1,205) (1,333)
Capitalized software and other assets (11,334) (15,976)
Other (3,808) (944)
Gross deferred tax liabilities $(185,883) $(187,615)
Net deferred tax liabilities $ (51,262) $ (77,432)
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 depen-
dent upon the generation 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 29, 2005 and May 30, 2004, 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.