Family Dollar 2010 Annual Report Download - page 55

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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 2010 and the end of fiscal 2009, were as follows:
(in thousands) August 28, 2010 August 29, 2009
Deferred income tax liabilities:
Excess of book over tax basis of property and equipment ..... $73,341 $ 81,129
Deferred income tax assets:
Excess of tax over book basis of inventories ................ $10,403 $ 11,307
Nondeductible accruals for:
Insurance ....................................... 20,057 32,264
Compensation ................................... 32,426 36,964
Deferred rent .................................... 13,913 13,691
Litigation charge ................................. 508 16,569
Other .............................................. 12,410 14,120
Gross deferred income tax assets ............................. 89,717 124,915
Less: valuation allowance .................................. (2,433) (5,883)
Net deferred tax assets ..................................... $87,284 $119,032
The Company had net operating loss carryforwards of $95.6 million as of August 28, 2010, and $153.1 million as
of August 29, 2009, in various states. These carryforwards expire at different intervals up to fiscal year 2030.
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
valuation allowance was adjusted to reflect improved profitability resulting in utilization of loss carryforwards
for which a valuation allowance was previously provided.
The Company classifies accrued interest expense and penalties related to uncertain tax positions as a component
of income tax expense. During fiscal 2010, fiscal 2009 and fiscal 2008, interest and penalties reduced income tax
expense by $1.5 million, $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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