Family Dollar 2009 Annual Report Download - page 56

The following table summarizes the components of income tax expense in fiscal 2009, fiscal 2008 and fiscal
2007:
2009 2008 2007
(in thousands)
Income tax
expense
% of pre-tax
income
Income tax
expense
% of pre-tax
income
Income tax
expense
% of pre-tax
income
Computed federal income tax ...... $157,823 35.0% $126,610 35.0% $133,664 35.0%
State income taxes, net of federal
income tax benefit ............. 11,599 2.6 7,863 2.2 14,092 3.7
Valuation allowance ............. (653) (0.2) 6,350 1.8 — —
Other ......................... (9,110) (2.0) (12,134) (3.4) (8,714) (2.3)
Actual income tax expense ........ $159,659 35.4% $128,689 35.6% $139,042 36.4%
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities as of the end of fiscal 2009 and the end of fiscal 2008, were as follows:
(in thousands) August 29, 2009 August 30, 2008
Deferred income tax liabilities:
Excess of book over tax basis of property and equipment ..... $ 81,129 $ 73,621
Deferred income tax assets:
Excess of tax over book basis of inventories ................ $ 11,307 $ 14,511
Nondeductible accruals for:
Insurance ....................................... 32,264 30,871
Compensation ................................... 36,964 28,950
Deferred rent .................................... 13,691 14,492
Litigation charge ................................. 16,569 16,569
Other .............................................. 14,120 11,294
Gross deferred income tax assets ............................. 124,915 116,687
Less: valuation allowance .................................. (5,883) (6,350)
Net deferred tax assets ..................................... $119,032 $110,337
The Company had net operating loss carryforwards of $153.1 million as of August 29, 2009, and $172.2 million
as of August 30, 2008, in various states. These carryforwards expire at different intervals up to fiscal year 2029.
Management considers all available evidence in determining the likelihood that a deferred tax asset will not be
realized. As a result, the Company established valuation allowances related to these loss carryforwards.
The Company adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (“FIN 48”) effective September 2, 2007. FIN 48 clarifies the accounting for
uncertain income tax positions in an enterprise’s financial statements in accordance with SFAS No. 109,
“Accounting for Income Taxes.” FIN 48 prescribes a minimum recognition threshold a tax position is required to
meet before being recognized in the financial statements. This pronouncement also provides guidance on
derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and
transition. Effective with the adoption of FIN 48, the Company classifies accrued interest expense and penalties
related to uncertain tax positions as a component of income tax expense. During fiscal 2009 and fiscal 2008,
interest and penalties reduced income tax expense by $0.2 million and $1.4 million, respectively. The reductions
were due to settlements of uncertain tax positions and the expiration of the statute of limitations with respect to
uncertain tax positions.
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