Dollar General 2005 Annual Report Download - page 50

46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) 2005 2004
Deferred tax assets:
Deferred compensation expense $15,166 $17,310
Accrued expenses and other 3,916 4,006
Accrued rent 7,137 4,883
Accrued insurance 9,240 25,950
Deferred gain on sale/leasebacks 2,465 2,624
Other 3,712 3,755
State tax net operating loss
carryforwards, net of federal tax 7,416 9,180
State tax credit carryforwards,
net of federal tax 4,711 1,982
53,763 69,690
Less valuation allowances (2,038) (2,126)
Total deferred tax assets 51,725 67,564
Deferred tax liabilities:
Property and equipment (74,609) (82,807)
Inventories (32,301) (31,635)
Other (536) (599)
Total deferred tax liabilities (107,446) (115,041)
Net deferred tax liabilities $(55,721) $(47,477)
Net deferred tax liabilities are reflected separately on
the consolidated balance sheets as current and noncur-
rent deferred income taxes.The following table summa-
rizes net deferred income tax liabilities from the consoli-
dated balance sheets:
(In thousands) 2005 2004
Current deferred income tax
assets, net $ 11,912 $ 24,908
Noncurrent deferred income tax
liabilities, net (67,633) (72,385)
Net deferred tax liabilities $ (55,721) $ (47,477)
State net operating loss carryforwards as of February
3, 2006, totaled approximately $186 million and will expire
beginning in 2006 through 2023. The Company also has
state credit carryforwards of approximately $7.3 million
that will expire beginning in 2006 through 2016.
The valuation allowance, as of 2005, has been provid-
ed principally for certain state tax credit carryforwards. In
2005, after an internal restructuring, all valuation
allowances related to state net operating loss carryforwards
were removed resulting in a reduction in the valuation
allowance of approximately $1.1 million. This decrease
was offset by additions to the valuation allowance applied
to certain state tax credit carryforwards of approximately
$0.9 million due to the same internal restructuring. The
remaining change in the valuation allowance, an increase
of approximately $0.1 million, related primarily to changes
in state tax credits that were unrelated to the 2005 inter-
nal restructuring.
Approximately $1.0 million of the 2003 valuation
allowance reduction was due to certain state tax law
changes during the year which caused the future recogni-
tion of certain state tax credit carryforwards to be consid-
ered more likely than not to occur, thereby resulting in the
reduction of a valuation allowance created in an earlier
year. The change in the valuation allowance, including the
changes noted above, was a decrease of $0.1 million, $0.1
million and $0.6 million in 2005, 2004, and 2003, respec-
tively. Based upon expected future income and available
tax planning strategies, management believes that it is
more likely than not that the results of operations will
generate sufficient taxable income to realize the deferred
tax assets after giving consideration to the valuation
allowance.
The Company estimates its contingent income tax
liabilities based on its assessment of probable income
tax-related exposures and the anticipated settlement of
those exposures translating into actual future liabilities. As
of February 3, 2006 and January 28, 2005, the Company’s
accrual for these contingent liabilities, included in Income
taxes payable in the consolidated balance sheets, was
approximately $13.4 million and $13.5 million, respectively,
and the related accrued interest included in Accrued
expenses and other in the consolidated balance sheets was
approximately $6.2 million and $6.9 million respectively.
As of February 3, 2006 and January 28, 2005, the
Company had additional exposure in the amount of $3.8
million and $3.0 million, respectively, related to contingent
income tax liabilities that had a reasonable possibility of
being recognized as a loss in a future period. These addi-
tional amounts relate principally to income tax audits. As
the Company does not consider it probable that a loss has
yet been incurred related to these items, no portion of
these liabilities has been recorded.