Dollar General 2007 Annual Report Download - page 35

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The income tax rate for the Successor period ended February 1, 2008 is a benefit of
26.9%. This benefit is less than the expected U.S. statutory rate of 35% due to the incurrence of
state income taxes in several of the group’ s subsidiaries that file their state income tax returns on
a separate entity basis and the election to include, effective February 3, 2007, income tax related
interest and penalties in the amount reported as income tax expense.
The income tax rate for the Predecessor period ended July 6, 2007 is an expense of
300.2%. This expense is higher than the expected U.S. statutory rate of 35% due principally to
the non-deductibility of certain acquisition related expenses.
The 2006 income tax rate was higher than the 2005 rate by 1.7%. Factors contributing to
this increase include additional expense related to the adoption of a new tax system in the State
of Texas; a reduction in the contingent income tax reserve due to the resolution of contingent
liabilities that is less than the decrease that occurred in 2005; an increase in the deferred tax
valuation allowance; and an increase related to a non-recurring benefit recognized in 2005
related to an internal restructuring. Offsetting these rate increases was a reduction in the income
tax rate related to federal income tax credits. Due to the reduction in our 2006 income before
tax, a small increase in the amount of federal income tax credits earned yielded a much larger
percentage reduction in the income tax rate for 2006 versus 2005.
Effects of Inflation
We believe that inflation and/or deflation had a minimal impact on our overall operations
during 2007, 2006 and 2005.
Liquidity and Capital Resources
Current Financial Condition / Recent Developments. During the past three years, we
have generated an aggregate of approximately $1.4 billion in cash flows from operating
activities. During that period, we expanded the number of stores we operate by approximately
12% (874 stores) and incurred approximately $685 million in capital expenditures. As noted
above, we made certain strategic decisions which slowed our growth in 2007.
At February 1, 2008, we had total outstanding debt (including the current portion of long-
term obligations) of $4.282 billion. We also had an additional $769.2 million available for
borrowing under our new senior secured asset-based revolving credit facility at that date. Our
liquidity needs are significant, primarily due to our debt service and other obligations.
Management believes our cash flow from operations and existing cash balances,
combined with availability under the New Credit Facilities (described below), will provide
sufficient liquidity to fund our current obligations, projected working capital requirements and
capital spending for a period that includes the next twelve months.