Family Dollar 2009 Annual Report Download - page 57

As of August 29, 2009, the Company had a FIN 48 liability of $39.4 million, including a gross unrecognized tax
benefit of $33.2 million and accrued interest and penalties of $6.2 million. The non-current deferred tax asset
balance was $25.9 million as of August 29, 2009. If the Company were to prevail on all unrecognized tax
benefits recorded, approximately $13.5 million of the gross unrecognized tax benefits, including penalties and
tax effected interest of $6.1 million, would benefit the effective income tax rate in a future period. A
reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows:
(in thousands)
Unrecognized Tax
Benefit
Interest and
Penalties Total
Balance at September 1, 2007 ...................... $38,351 $ 9,134 $ 47,485
Increases related to prior year tax positions ....... 4,901 1,257 6,158
Decreases related to prior year tax positions ....... (1,897) (384) (2,281)
Increases related to current year tax positions ..... 2,829 356 3,185
Settlements during the period .................. (2,099) (1,175) (3,274)
Lapse of statute of limitations .................. (10,570) (1,521) (12,091)
Balance at August 30, 2008 ........................ $31,515 $ 7,667 $ 39,182
Increases related to prior year tax positions ....... 3,033 2,076 5,109
Decreases related to prior year tax positions ....... (4,867) (202) (5,069)
Increases related to current year tax positions ..... 12,037 285 12,322
Settlements during the period .................. (3,097) (863) (3,960)
Lapse of statute of limitations .................. (5,376) (2,841) (8,217)
Balance at August 29, 2009 ........................ $33,245 $ 6,122 $ 39,367
On a quarterly and annual basis, the Company accrues for the effects of open uncertain tax positions and the
related interest and penalties. The Company is subject to U.S. federal income tax as well as income tax in
multiple state and local jurisdictions. As of August 29, 2009, the Company was subject to income tax
examinations for its U.S. federal income taxes for fiscal years ending subsequent to 2006. With few exceptions,
the Company is subject to state and local income tax examinations for fiscal years ending subsequent to 2005.
The amount of future unrecognized tax positions may be reduced because the statute of limitations has expired or
the tax position is resolved with the taxing authority. It is reasonably possible that during the next 12 months the
unrecognized tax benefit may be reduced by a range of zero to $1.7 million due to settlements of audits by taxing
authorities. Such unrecognized tax benefits relate primarily to state tax issues.
8. Employee Benefit Plans:
Incentive compensation plan
The Company has an incentive profit-sharing plan which allows for payments to certain employees and officers
at an aggregate annual amount not to exceed 7% of the Company’s consolidated income before income taxes and
certain incentive compensation. Expenses under the profit-sharing plan were $34.3 million in fiscal 2009, $8.7
million in fiscal 2008 and $11.4 million in fiscal 2007.
Compensation deferral plans
The Company has a voluntary compensation deferral plan, under Section 401(k) of the Internal Revenue Code,
available to eligible employees. At the discretion of the Board of Directors, the Company makes contributions to
the plan which are allocated to participants, and in which they become vested, in accordance with formulas and
schedules defined by the plan. Company expenses for contributions to the plan were $3.2 million in fiscal 2009,
$2.8 million in fiscal 2008 and $2.8 million in fiscal 2007, and are included in SG&A on the Consolidated
Statements of Income.
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