Red Lobster 2010 Annual Report Download - page 60

During fiscal 2010, 2009 and 2008, we paid income taxes of
$94.8 million, $64.4 million and $119.7 million, respectively.
The following table is a reconciliation of the U.S. statutory income tax
rate to the effective income tax rate from continuing operations included in
the accompanying consolidated statements of earnings:
Fiscal Year
2010 2009 2008
U.S. statutory rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal tax benefits 2.5 2.3 2.7
Benefit of federal income tax credits (8.7) (8.9) (7.9)
Other, net (3.7) (0.9) (1.6)
Effective income tax rate 25.1% 27.5% 28.2%
As of May 30, 2010, we had estimated current prepaid federal income
taxes of $1.5 million, which is included in our accompanying consolidated
balance sheets as prepaid income taxes, and estimated current state income
taxes payable of $1.0 million, which is included in our accompanying
consolidated balance sheets as accrued income taxes.
As of May 30, 2010, we had gross unrecognized tax benefits of
$30.4 million, which represents the aggregate tax effect of the differences
between tax return positions and benefits recognized in our consolidated
financial statements. Of this total, approximately $24.7 million, after consid-
ering the federal impact on state issues, would favorably affect the effective
tax rate if resolved in our favor. A reconciliation of the beginning and ending
amount of unrecognized tax benefits follows:
(in millions)
Balance at May 31, 2009 $ 58.1
Additions to tax positions recorded during the current year 2.8
Additions to tax positions recorded during prior years 1.2
Reductions to tax positions recorded during prior years (1.3)
Reductions to tax positions due to settlements with taxing authorities (25.2)
Reductions to tax positions due to statute expiration (5.2)
Balance at May 30, 2010 $30.4
We recognize accrued interest related to unrecognized tax benefits in
interest expense. Penalties, when incurred, are recognized in selling, general
and administrative expense. During fiscal 2010, 2009 and 2008, we recognized
$2.5 million, $4.2 million and $2.0 million of interest expense associated
with unrecognized tax benefits, respectively, excluding the release of accrued
interest related to prior year matters due to settlement or the lapse of the
statute of limitations. At May 30, 2010, we had $6.1 million accrued for the
payment of interest associated with unrecognized tax benefits.
The major jurisdictions in which the Company files income tax returns
include the U.S. federal jurisdiction, Canada, and most states in the U.S. that
have an income tax. With a few exceptions, the Company is no longer subject
to U.S. federal, state and local, or non-U.S. income tax examinations by tax
authorities for years before 2001.
Included in the balance of unrecognized tax benefits at May 30, 2010
is $0.3 million related to tax positions for which it is reasonably possible
that the total amounts could change during the next twelve months based on
the outcome of examinations or as a result of the expiration of the statute
of limitations for specific jurisdictions. The $0.3 million relates to items that
would impact our effective income tax rate.
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
May 30, May 31,
(in millions) 2010 2009
Accrued liabilities $ 34.3 $ 56.4
Compensation and employee benefits 171.6 152.6
Deferred rent and interest income 49.4 42.1
Asset disposition 1.5 5.4
Other 11.3 12.2
Gross deferred tax assets $ 268.1 $ 268.7
Trademarks and other acquisition related intangibles (178.7) (179.7)
Buildings and equipment (238.7) (259.5)
Prepaid interest (1.0) (1.0)
Capitalized software and other assets (11.8) (11.3)
Other (4.7) (3.8)
Gross deferred tax liabilities $(434.9) $(455.3)
Net deferred tax liabilities $(166.8) $(186.6)
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 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.
NOTE 17
RETIREMENT PLANS
DEFINED BENEFIT PLANS AND POSTRETIREMENT BENEFIT PLAN
Substantially all of our employees are eligible to participate in a retirement
plan. We sponsor non-contributory defined benefit pension plans, which have
been frozen, for a group of salaried employees in the United States, in which
benefits are based on various formulas that include years of service and
compensation฀factors;฀and฀for฀a฀group฀of฀hourly฀employees฀in฀the฀United฀States,฀
in which a fixed level of benefits is provided. Pension plan assets are primarily
invested in U.S., international and private equities, long duration fixed-income
securities and real assets. Our policy is to fund, at a minimum, the amount
necessary on an actuarial basis to provide for benefits in accordance with the
requirements of the Employee Retirement Income Security Act of 1974, as
amended and the Internal Revenue Code (IRC), as amended by the Pension
Protection Act of 2006. We also sponsor a contributory postretirement benefit
plan that provides health care benefits to our salaried retirees. During fiscal
years 2010, 2009 and 2008, we funded the defined benefit pension plans in
the amount of $0.4 million, $0.5 million and $0.5 million, respectively. We
expect to contribute approximately $10.4 mil lion to $12.4 million to our
defined benefit pension plans during fiscal 2011. We fund the postretirement
benefit plan on a pay-as-you-go basis. During fiscal 2010, 2009 and 2008,
we funded the postretirement benefit plan in the amounts of $0.6 million,
$1.2 million and $1.2 million, respectively. We expect to contribute approxi-
mately $1.0 million to our postretirement benefit plan during fiscal 2011.
58 DARDEN RESTAURANTS, INC. | 2010 ANNUAL REPORT
Notes to Consolidated Financial Statements
Darden