Dollar General 2010 Annual Report Download - page 148

10-K
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Income taxes (Continued)
A reconciliation between actual income taxes and amounts computed by applying the federal
statutory rate to income before income taxes is summarized as follows:
(Dollars in thousands) 2010 2009 2008
U.S. federal statutory rate on earnings before
income taxes ......................... $344,740 35.0% $193,241 35.0% $68,041 35.0%
State income taxes, net of federal income tax
benefit .............................. 26,877 2.7 18,375 3.3 5,361 2.8
Jobs credits, net of federal income taxes ....... (8,845) (0.9) (8,590) (1.6) (9,149) (4.7)
Increase (decrease) in valuation allowances ..... (1,003) (0.1) (1,722) (0.3) 3,038 1.6
Income tax related interest expense (benefit), net
of federal income taxes .................. (5,004) (0.5) 1,289 0.2 (2,015) (1.0)
Nondeductible Merger-related lawsuit settlement . — — (366) (0.1) 18,130 9.3
Other, net ............................. 350 0.1 10,447 2.0 2,815 1.4
$357,115 36.3% $212,674 38.5% $86,221 44.4%
The 2010 effective tax rate is an expense of 36.3%. This expense is greater than the expected tax
rate of 35% due primarily to the inclusion of state income taxes in the total effective tax rate. The 2010
effective rate is less than the 2009 rate of 38.5% due principally to reductions in state income tax
expense, income tax related interest expense and other expense items. The 2010 effective resolution of
various examinations by the taxing authorities, when combined with unfavorable examination results in
2009, resulted in a decrease in the year-to-year state income tax expense rate (net of federal income tax
expense) of approximately 1.8%. This decrease in state income tax expense was partially offset by an
increase in state income tax expense due to a shift in income to companies within the group that have
a higher effective state income tax rate. In addition, income tax related interest accruals and income tax
related penalty accruals (with the penalty accruals being included in Other, net) were also reduced due
to favorable income tax examination results, thereby resulting in a decrease in income tax related
interest expense and a decrease in Other income tax expense. Additional decreases in Other, net items
occurred due to favorable outcomes in 2010 associated with the completion of a federal income tax
examination and reductions in expense associated with uncertain tax benefit accruals.
The 2009 effective tax rate is an expense of 38.5%. This expense is greater than the expected tax
rate of 35% due primarily to the inclusion of state income taxes in the total effective tax rate. The 2009
effective tax rate is less than the 2008 rate of 44.4% due principally to the unfavorable impact that the
non-deductible, Merger-related lawsuit settlement had on the 2008 rate. This reduction in the effective
tax rate was partially offset by a decrease in the tax rate benefit related to federal jobs credits. While
the total amount of jobs credits earned in 2009 was similar to the amount earned in 2008, the impact
of this benefit on the effective tax rate was reduced due to the 2009 increase in income before tax. The
2009 rate was also increased by accruals associated with uncertain tax benefits, which are included in
Other, net.
The 2008 effective income tax rate is an expense of 44.4%. This expense is greater than the
expected U.S. statutory tax rate of 35% principally due to the non-deductibility of the settlement and
related expenses associated with the Merger-related shareholder lawsuit.
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