Dollar General 2008 Annual Report Download - page 91

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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.
During 2008, goodwill recorded in connection with the Merger was reduced by $6.3
million principally as a result of the favorable settlement of uncertain income tax positions that
existed at the time of the Merger.
The Predecessor adopted the provisions of FIN 48 effective February 3, 2007. The
adoption resulted in an $8.9 million decrease in retained earnings and a reclassification of certain
amounts between deferred income taxes and other noncurrent liabilities to conform to the
balance sheet presentation requirements of FIN 48. As of the date of adoption, the total
uncertain tax benefits were $77.9 million. This amount excludes the federal income tax benefit
for the uncertain tax positions related to state income taxes, which is included in deferred tax
assets. As a result of the adoption of FIN 48, the reserve for interest expense related to income
taxes was increased to $15.3 million and a reserve for potential penalties of $1.9 million related
to uncertain income tax positions was recorded.
Subsequent to the adoption of FIN 48, the Company has elected to record income tax
related interest and penalties as a component of the provision for income tax expense.
In the Predecessor period ended July 6, 2007, the Internal Revenue Service completed an
examination of the Company’ s federal income tax returns through fiscal year 2003 resulting in a
net income tax refund. There are no unresolved issues related to this examination. None of the
Company’ s federal income tax returns are currently under examination by the Internal Revenue
Service; however, fiscal years 2005 and later are still subject to possible examination by the
Internal Revenue Service. The Company has various state income tax examinations that are
currently in progress. The estimated liability related to these state income tax examinations is
included in the Company’ s reserve for uncertain tax positions. Generally, the Company’ s tax
years ended in 2005 and forward remain open for examination by the various state taxing
authorities.
As of January 30, 2009, the total uncertain tax benefits, interest expense related to
income taxes and potential income tax penalties were $59.1 million, $11.3 million and $1.5
million, respectively, for a total of $71.9 million. Of this amount, $20.8 million and $47.3
million are reflected in current liabilities as accrued expenses and other and in other noncurrent
liabilities, respectively, in the consolidated balance sheet with the remaining $3.8 million
reducing deferred tax assets related to net operating loss carry forwards.
As of February 1, 2008, the total uncertain tax benefits, interest expense related to
income taxes and potential income tax penalties were $96.6 million, $19.7 million and $1.5
million, respectively, for a total of $117.8 million. Of this amount, $23.2 million and $78.3 are
reflected in current liabilities as accrued expenses and other and in other noncurrent liabilities,
respectively, in the consolidated balance sheet with the remaining $16.3 million reducing
deferred tax assets related to net operating loss carry forwards.