Dollar General 2006 Annual Report Download - page 70

The valuation allowance, as of 2006, has been provided for certain state tax credit
carryforwards that are principally associated with the Company’ s distribution centers. The
increase in the valuation allowance for 2006 of $3.2 million is the result of an increase in
available state tax credits during 2006 in excess of the amount that the Company believes will be
utilized prior to their expiration.
The valuation allowance, as of 2005, had been provided 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 internal restructuring.
The change in the valuation allowance was an increase of $3.2 million in 2006 and a
decrease of $0.1 million in both 2005 and 2004. 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 2, 2007 and February 3, 2006, the
Company’ s accrual for these contingent liabilities, included in Income taxes payable in the
consolidated balance sheets, was approximately $15.2 million and $13.4 million, respectively,
and the related accrued interest included in Accrued expenses and other in the consolidated
balance sheets was approximately $10.2 million and $6.2 million respectively.
As of February 2, 2007 and February 3, 2006, the Company had additional exposure in
the amount of $4.2 million and $3.8 million, respectively, related to contingent income tax
liabilities that had a reasonable possibility of being recognized as a loss in a future period. These
additional 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.
6. Current and long-term obligations
Current and long-term obligations consist of the following:
(In thousands) February 2, 2007 February 3, 2006
8 5/8% Notes due June 15, 2010, net of discount of $146 and $189
at February 2, 2007 and February 3, 2006, respectively $199,832 $199,789
Tax increment financing due February 1, 2035 14,495 14,495
Capital lease obligations (see Note 8) 18,407 22,028
Financing obligations (see Note 8) 37,304 42,435
270,038 278,747
Less: current portion (8,080) (8,785)
Long-term portion $261,958 $269,962
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