Dollar General 2010 Annual Report Download - page 150

10-K
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Income taxes (Continued)
The Company has state net operating loss carryforwards as of January 28, 2011 that total
approximately $136.7 million which will expire in 2022 through 2029. The Company also has state tax
credit carryforwards of approximately $19.2 million that will expire beginning in 2011 through 2025.
The valuation allowance has been provided for state tax credit carryforwards and federal capital
losses. The 2010 and 2009 decreases of $1.0 and $1.7 million, respectively, were recorded as a reduction
in income tax expense. The 2008 increase of $8.2 million was recorded as income tax expense of
$3.0 million and an adjustment to goodwill of $5.2 million. Based upon expected future income,
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 Internal Revenue Service (‘‘IRS’’) is examining the Company’s federal income tax returns for
fiscal years 2006, 2007 and 2008. The 2005 and earlier years are not open for examination. The 2009
and 2010 fiscal years, while not currently under examination, are subject to examination at the
discretion of the IRS. 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 2007 and
forward remain open for examination by the various state taxing authorities.
As of January 28, 2011, accruals for uncertain tax benefits, interest expense related to income taxes
and potential income tax penalties were $26.4 million, $1.9 million and $0.5 million, respectively, for a
total of $28.8 million. Of this amount, $0.2 million and $27.3 million are reflected in current liabilities
as Accrued expenses and other and in noncurrent Other liabilities, respectively, in the consolidated
balance sheet with the remaining $1.3 million reducing deferred tax assets related to net operating loss
carry forwards.
As of January 29, 2010, accruals for uncertain tax benefits, interest expense related to income taxes
and potential income tax penalties were $67.6 million, $8.8 million and $1.7 million, respectively, for a
total of $78.1 million. Of this amount, $8.5 million and $68.0 million are reflected in current liabilities
as Accrued expenses and other and in noncurrent Other liabilities, respectively, in the consolidated
balance sheet with the remaining $1.6 million reducing deferred tax assets related to net operating loss
carry forwards.
The Company believes that it is reasonably possible that the reserve for uncertain tax positions
may be reduced by approximately $1.4 million in the coming twelve months principally as a result of
the settlement of currently ongoing income tax examinations. The reasonably possible change of
$1.4 million is included in current liabilities in Accrued expenses and other ($0.2 million) and in
noncurrent Other liabilities ($1.2 million) in the consolidated balance sheet as of January 28, 2011.
Also, as of January 28, 2011, approximately $26.4 million of the uncertain tax positions would impact
the Company’s effective income tax rate if the Company were to recognize the tax benefit for these
positions.
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