Dollar General 2013 Annual Report Download - page 112

settlement costs in 2012 due to two legal matters settled in 2011 for a combined expense of
$13.1 million and the impact of decreased expenses ($2.9 million in 2012 compared to $11.1 million in
2011) relating to secondary offerings of our common stock. Costs that increased at a rate higher than
our sales increase include rent expense, fees associated with the increased use of debit cards and
depreciation expense, primarily related to additions of certain store equipment and fixtures.
Interest Expense. The decrease in interest expense in 2013 compared to 2012 is due to lower all-in
interest rates primarily resulting from the completion of our refinancing in April 2013. See the detailed
discussion under ‘‘Liquidity and Capital Resources’’ regarding refinancing of various long-term
obligations and the related effect on interest expense in the periods presented.
The decrease in interest expense in 2012 compared to 2011 is due to lower average outstanding
long-term obligations, resulting from the redemption, repurchase and refinancing of indebtedness in
2012 and 2011 and lower all-in interest rates on our long-term obligations.
We had outstanding variable-rate debt of $0.14 billion and $1.39 billion as of January 31, 2014 and
February 1, 2013, respectively, after taking into consideration the impact of interest rate swaps. The
remainder of our outstanding indebtedness at January 31, 2014 and February 1, 2013 was fixed rate
debt.
See the detailed discussion under ‘‘Liquidity and Capital Resources’’ regarding refinancing of
various long-term obligations and the related effect on interest expense in the periods presented.
Other (Income) Expense. In 2013, we recorded pretax losses of $18.9 million resulting from the
termination of our senior secured credit facilities. In 2012, we recorded pretax losses of $29.0 million
resulting from the redemption of $450.7 million aggregate principal amount of our senior subordinated
notes due 2017 plus accrued and unpaid interest. In 2011, we recorded pretax losses of $60.3 million
resulting from repurchases and the redemption of $864.3 million aggregate principal amount of our
senior notes due 2015 plus accrued and unpaid interest.
Income Taxes. The effective income tax rates for 2013, 2012, and 2011 were expenses of 37.0%,
36.4%, and 37.4%, respectively.
The effective income tax rate for 2013 was 37.0% compared to a rate of 36.4% for 2012 which
represents a net increase of 0.6 percentage points. The 2012 amounts were favorably impacted by the
resolution of income tax examinations that did not reoccur, to the same extent, in 2013. This effective
tax rate increase was partially offset by the recording of an income tax benefit in 2013 associated with
the expiration of the assessment period during which the taxing authorities could have assessed
additional income tax associated with our 2009 tax year. In addition, 2013 reflects larger income tax
benefits associated with federal jobs credits. We receive a significant income tax benefit related to
wages paid to certain newly hired employees that qualify for federal jobs credits (principally the Work
Opportunity Tax Credit or ‘‘WOTC’’). The federal law authorizing the WOTC credit has expired for
employees hired after December 31, 2013. In the past, when these credit provisions have expired,
Congress has reenacted the law on a retroactive basis. It is uncertain as to whether (or when) WOTC
credits will be retroactively renewed in this instance. The Company will receive credits in future periods
for employees hired on or before December 31, 2013; however, in future periods the credit received
will be significantly lower than what has been recognized in 2013 and prior years without WOTC
reenactment.
The 2012 effective tax rate of 36.4% was greater than the statutory tax rate of 35% due primarily
to the inclusion of state income taxes in the total effective tax rate. The 2012 effective tax rate of
36.4% was lower than the 2011 rate of 37.4% due primarily to the favorable resolution of a federal
income tax examination during 2012.
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10-K