Dollar Tree 2008 Annual Report Download - page 40

38 DOLLAR TREE, INC. • 2008 ANNUAL REPORT
Notes to Consolidated Financial Statements continued
The Internal Revenue Service completed its
examination of the 2004 federal income tax return
during 2008 and is currently auditing the 2005-2007
consolidated federal income tax returns. In addition,
several states completed their examination of fiscal
years prior to 2005. In general, fiscal years 2005 and
forward are within the statute of limitations for
Federal and state tax purposes. The statute of limita-
tions is still open prior to 2005 for some states.
In June 2006, the Financial Accounting Standards
Board issued FIN 48. This Interpretation clarifies
accounting for income tax uncertainties recognized in
an enterprise’s financial statements in accordance with
Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. FIN 48 prescribes a recog-
nition threshold and measurement attribute for a tax
position taken or expected to be taken in a tax return.
Under the guidelines of FIN 48, an entity should rec-
ognize a financial statement benefit for a tax position
if it determines that it is more likely than not that the
position will be sustained upon examination. The
Company adopted the provisions of FIN 48 on
February 4, 2007, the first day of fiscal 2007.
The balance for unrecognized tax benefits at
January 31, 2009, was $14.8 million. The total amount
of unrecognized tax benefits at January 31, 2009, that,
if recognized, would affect the effective tax rate was
$9.8 million (net of the federal tax benefit). The fol-
lowing is a reconciliation of the Company’s total gross
unrecognized tax benefits for the year-to-date period
ended January 31, 2009:
(in millions)
Balance at February 2, 2008 $55.0
Additions, based on tax positions
related to current year 0.8
Additions for tax positions of prior years 1.6
Reductions for tax positions of prior years (36.5)
Settlements (3.8)
Lapses in statute of limitations (2.3)
Balance at January 31, 2009 $14.8
During fiscal 2008, the Company accrued poten-
tial interest of $0.7 million, related to these unrecog-
nized tax benefits. No potential penalties were
accrued during 2008 related to the unrecognized tax
benefits. As of January 31, 2009, the Company has
recorded a liability for potential penalties and interest
of $0.1 million and $3.0 million, respectively.
Most of the change in the Company’s reserve for
uncertain tax positions relates to a reduction of tem-
porary differences and related interest expense for
which accounting method changes were filed at the
beginning of fiscal year 2008 with the Internal
Revenue Service. Voluntarily filing accounting
method changes provides audit protection for the
issues involved for the open periods in exchange for
agreeing to pay the tax over a prescribed period of
time.
It is possible that state tax reserves will be
reduced for audit settlements and statute expirations
within the next 12 months. At this point it is not pos-
sible to estimate a range associated with these audits.
NOTE 4 – COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
Future minimum lease payments under noncancelable
stores and distribution center operating leases are as
follows:
(in millions)
2009 $ 348.1
2010 304.6
2011 251.4
2012 194.8
2013 130.1
Thereafter 210.4
Total minimum lease payments $1,439.4
The above future minimum lease payments
include amounts for leases that were signed prior to
January 31, 2009 for stores that were not open as of
January 31, 2009.
Minimum rental payments for operating leases do
not include contingent rentals that may be paid under
certain store leases based on a percentage of sales in
excess of stipulated amounts. Future minimum lease
payments have not been reduced by expected future
minimum sublease rentals of $1.7 million under oper-
ating leases.