Dollar General 2006 Annual Report Download - page 68
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5. Income taxes
The provision (benefit) for income taxes consists of the following:
(In thousands) 2006 2005 2004
Current:
Federal $101,919 $ 175,344 $ 155,497
Foreign 1,200 1,205 1,169
State 17,519 9,694 8,150
120,638 186,243 164,816
Deferred:
Federal (34,807) 8,479 21,515
Foreign 13 17 21
State (3,424) (252) 4,215
(38,218) 8,244 25,751
$ 82,420 $ 194,487 $ 190,567
A reconciliation between actual income taxes and amounts computed by applying the
federal statutory rate to income before income taxes is summarized as follows:
(Dollars in thousands) 2006 2005 2004
U.S. federal statutory rate
on earnings before
income taxes $ 77,127 35.0 % $ 190,625 35.0 % $ 187,165
35.0 %
State income taxes, net of
federal income tax benefit 5,855 2.7 6,223 1.1 8,168
1.5
Jobs credits, net of federal
income taxes (5,008) (2.3) (4,503) (0.8) (5,544)
(1.0)
Increase (decrease) in
valuation allowances 3,211 1.5 (88) (0.0) (106)
(0.0)
Other 1,235 0.5 2,230 0.4 884 0.1
$ 82,420 37.4 % $ 194,487 35.7 % $ 190,567 35.6 %
The 2006 income tax rate was higher than the 2005 rate by 1.7%. Factors contributing to
this increase include additional expense of approximately $0.9 million related to the adoption of
a new tax system in the State of Texas which resulted in the elimination of certain deferred tax
assets that had been recorded in prior years; an increase of approximately $0.9 million related to
the Company’ s current year tax liability under the revised State of Texas tax system; a reduction
in the contingent income tax reserve due to the resolution of contingent liabilities that is $2.0
million less than the decrease that occurred in 2005; an increase in the deferred tax valuation
allowance, as discussed below, of approximately $3.2 million; and an increase of $2.6 million
related to a benefit recognized in 2005 related to an internal restructuring. Offsetting these rate
increases was a reduction in the income tax rate related to federal income tax credits. Due to the
reduction in the Company’ s 2006 income before tax, a small increase in the amount of federal
income tax credits earned yielded a much larger percentage reduction in the income tax rate for
2006 versus 2005.
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