Dollar General 2005 Annual Report Download - page 49

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation between actual income taxes and amounts computed by applying the federal statutory rate to
income before income taxes is summarized as follows:
(Dollars in thousands) 2005 2004 2003
U.S. federal statutory rate on earnings before
income taxes $190,625 35.0% $187,165 35.0% $166,783 35.0%
State income taxes, net of federal income tax benefit 6,223 1.1 8,168 1.5 10,773 2.3
Jobs credits, net of federal income taxes (4,503) (0.8) (5,544) (1.0) (3,817) (0.8)
Decrease in valuation allowances (88) (0.0) (106) (0.0) (582) (0.1)
Non-deductible penalty –– – – 3,500 0.7
Other 2,230 0.4 884 0.1 864 0.2
$194,487 35.7% $ 190,567 35.6% $177,521 37.3%
While the 2005 and 2004 rates were similar overall, the rates contained offsetting differences. Non-recurring factors
causing the 2005 tax rate to increase when compared to the 2004 tax rate include a reduction in federal jobs credits of
approximately $1.0 million, additional net foreign income tax expense of approximately $0.8 million and a decrease in the
contingent income tax reserve due to resolution of contingent liabilities that is $3.6 million less than the decrease that
occurred in 2004. Non-recurring factors causing the 2005 tax rate to decrease when compared to the 2004 tax rate include
the recognition of state tax credits of approximately $2.3 million related to the Company’s construction of a distribution
center in Indiana and a non-recurring benefit of approximately $2.6 million related to an internal restructuring that was
completed during 2005.
The 2004 rate was lower than the 2003 rate primarily due to the reversal of certain contingent income tax liabilities of
approximately $6.2 million in 2004, when the Company adjusted its tax contingency reserve based upon the results of two
state income tax examinations. The tax rate in 2003 was negatively impacted by the $10.0 million penalty expense in 2003,
related to the restatement of the Company’s 2001 and earlier financial statements, which was not deductible for income
tax purposes.
Deferred taxes reflect the effects of temporary differences between carrying amounts of assets and liabilities for finan-
cial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s
deferred tax assets and liabilities are as follows:
Depreciation expense related to property and
equipment was approximately $186.1 million, $163.1
million and $150.9 million in 2005, 2004 and 2003, respec-
tively. Amortization of capital lease assets is included in
depreciation expense.
3. Accrued expenses and other
Accrued expenses and other consist of the following:
(In thousands) 2005 2004
Compensation and benefits $ 53,784 $ 60,635
Insurance 154,693 130,506
Taxes (other than taxes on income) 58,967 45,005
Other 105,476 97,743
$ 372,920 $ 333,889
Other accrued expenses primarily include liabilities
for deferred rent, freight expense, contingent rent expense,
interest, electricity, and common area maintenance charges.
4. Income taxes
The provision (benefit) for income taxes consists of
the following:
(In thousands) 2005 2004 2003
Current:
Federal $ 175,344 $ 155,497 $ 145,072
Foreign 1,205 1,169 –
State 9,694 8,150 13,838
186,243 164,816 158,910
Deferred:
Federal 8,479 21,515 17,224
Foreign 17 21 –
State (252) 4,215 1,387
8,244 25,751 18,611
$194,487 $190,567 $177,521