Dollar Tree 2011 Annual Report Download - page 26

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more likely than not that a tax position will be sustained
on examination and, if so, judgment is also required as to
the measurement of the amount of tax benefit that will
be realized upon settlement with the taxing authority.
Income tax expense is adjusted in the period in which
new information about a tax position becomes available
or the final outcome differs from the amounts recorded.
We believe that our liability for uncertain tax positions
is adequate. For further discussion of our changes in
reserves during 2011, see Note 3 of the Consolidated
Financial Statements.
Seasonality and Quarterly Fluctuations
We experience seasonal fluctuations in our net sales,
comparable store net sales, operating income and net
income and expect this trend to continue. Our results of
operations may also fluctuate significantly as a result of a
variety of factors, including:
• shifts in the timing of certain holidays, especially
Easter;
• the timing of new store openings;
• the net sales contributed by new stores;
• changes in our merchandise mix; and
• competition.
Our highest sales periods are the Christmas and
Easter seasons. Easter was observed on April 4, 2010,
April 24, 2011, and will be observed on April 8, 2012.
We believe that the earlier Easter in 2012 could result
in an $8.0 million decrease in sales in the first quarter
of 2012 as compared to the first quarter of 2011. We
generally realize a disproportionate amount of our net
sales and of our operating and net income during the
fourth quarter. In anticipation of increased sales activity
during these months, we purchase substantial amounts
of inventory and hire a significant number of temporary
employees to supplement our continuing store staff. Our
operating results, particularly operating and net income,
could suffer if our net sales were below seasonal norms
during the fourth quarter or during the Easter season for
any reason, including merchandise delivery delays due to
receiving or distribution problems, changes in consumer
sentiment or inclement weather.
Our unaudited results of operations for the eight
most recent quarters are shown in a table in Note 11 of
the Consolidated Financial Statements.
Accrued Expenses
On a monthly basis, we estimate certain expenses in an
effort to record those expenses in the period incurred.
Our most material estimates include domestic freight
expenses, self-insurance costs, store-level operating
expenses, such as property taxes and utilities, and certain
other expenses, such as legal reserves. Our freight and
store-level operating expenses are estimated based on
current activity and historical trends and results. Our
workers’ compensation and general liability insurance
accruals are recorded based on actuarial valuations
which are adjusted at least annually based on a review
performed by a third-party actuary. ese actuarial valu-
ations are estimates based on our historical loss develop-
ment factors. Certain other expenses are estimated and
recorded in the periods that management becomes aware
of them. e related accruals are adjusted as manage-
ment’s estimates change. Differences in management’s
estimates and assumptions could result in an accrual
materially different from the calculated accrual. Our
experience has been that some of our estimates are too
high and others are too low. Historically, the net total
of these differences has not had a material effect on our
financial condition or results of operations. Our legal
proceedings are described in Note 4 of the Consolidated
Financial Statements. e outcome of litigation,
particularly class or collective action lawsuits, is difficult
to assess, quantify or predict.
Income Taxes
On a quarterly basis, we estimate our required income tax
liability and assess the recoverability of our deferred tax
assets. Our income taxes payable are estimated based on
enacted tax rates, including estimated tax rates in states
where our store base is growing, applied to the income
expected to be taxed currently. Management assesses the
recoverability of deferred tax assets based on the avail-
ability of carrybacks of future deductible amounts and
management’s projections for future taxable income. We
cannot guarantee that we will generate taxable income
in future years. Historically, we have not experienced
significant differences in our estimates of our tax accrual.
In addition, we have a recorded liability for our
estimate of uncertain tax positions taken or expected
to be taken in our tax returns. Judgment is required in
evaluating the application of federal and state tax laws,
including relevant case law, and assessing whether it is
24 Dollar Tree, Inc.