Dollar General 2007 Annual Report Download - page 81

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A reconciliation between actual income taxes and amounts computed by applying the
federal statutory rate to income before income taxes is summarized as follows:
Successor Predecessor
(Dollars in
thousands) July 7, 2007 to February 1, 2008
February 3, 2007 to
July 6, 2007 2006 2005
U.S. federal statutory
rate
on earnings before
income taxes $ (2,308) 35.0% $ 1,399 35.0% $ 77,127 35.0% $ 190,625 35.0 %
State income taxes,
net of federal
income tax benefit 904 (13.7) (1,135) (28.4) 5,855 2.7 6,223 1.1
Jobs credits, net of
federal income
taxes (3,022) 45.8
(2,227) (55.7) (5,008) (2.3) (4,503)
(0.8)
Increase (decrease)
in valuation
allowances - -
551 13.8 3,211 1.5 (88)
(0.0)
Income tax related
interest expense,
net of federal
income tax benefit 2,738 (41.5) (172) (4.3) - - - -
Nondeductible
transaction costs - -
13,501 337.9 - - -
-
Other, net (87) 1.3 76 1.9 1,235 0.5 2,230 0.4
$ (1,775) 26.9% $ 11,993 300.2% $ 82,420 37.4% $ 194,487 35.7 %
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 the Company’ s 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.
Deferred taxes reflect the effects of temporary differences between carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax