Family Dollar 2010 Annual Report Download - page 56

As of August 28, 2010, the Company had a liability related to uncertain tax positions of $23.4 million, including
a gross unrecognized tax benefit of $18.3 million and accrued interest and penalties of $5.1 million. The
non-current deferred tax asset balance was $10.0 million as of August 28, 2010. If the Company was to prevail
on all unrecognized tax benefits recorded, approximately $13.4 million of the gross unrecognized tax benefits,
including penalties and tax effected interest of $5.1 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
Increases related to prior year tax positions ....... 849 2,004 2,853
Decreases related to prior year tax positions ....... (327) (21) (348)
Increases related to current year tax positions ..... 2,260 411 2,671
Settlements during the period .................. (16,907) (3,066) (19,973)
Lapse of statute of limitations .................. (785) (354) (1,139)
Balance at August 28, 2010 ........................ $18,335 $ 5,096 $ 23,431
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. In the fourth quarter of fiscal 2010, the Company concluded an income tax
examination related to U.S. federal income taxes for fiscal years 2008 and prior. As of August 28, 2010, 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 2006.
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 $5.3 million due to settlements of audits by taxing
authorities. Such unrecognized tax benefits relate primarily to state tax issues.
9. 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 $28.8 million in fiscal 2010, $34.3
million in fiscal 2009 and $8.7 million in fiscal 2008.
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