|6 Months Ended|
Aug. 01, 2015
|Income Tax Disclosure [Abstract]|
Our effective tax rate was a benefit of 31.1% for the 13 weeks ended August 1, 2015 compared with expense of 38.2% for the 13 weeks ended August 2, 2014 and a benefit of 1.6% for the first half of 2015 compared with expense of 38.2% for the first half of 2014. This was as a result of the pre-tax losses in 2015 created by higher interest expense, including debt prepayment penalties and expenses related to the Acquisition. Some of the Acquisition-related costs were nondeductible for tax purposes.
As of August 1, 2015, the Company has an income tax receivable of $67.9 million compared to an income tax payable of $42.7 million as of January 31, 2015. The current year receivable is the result of the pre-tax loss reported in the 13 weeks ended August 1, 2015.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are classified on the accompanying consolidated balance sheets based on the classification of the underlying asset or liability. Significant components of the Company's net deferred tax assets (liabilities) follow:
Deferred tax liabilities have been provided for the tax effect of the difference between the book and tax basis in the assets. The increase in the deferred tax liability was primarily generated from the recording of the Family Dollar tradename, favorable lease rights, inventory and property plant and equipment.
A valuation allowance of $22.1 million, net of federal tax benefits, has been provided principally for certain state credit carryforwards and net operating loss carryforwards. The increase in the valuation allowance is due to the Acquisition. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred taxes will not be realized. Based upon the availability of carrybacks of future deductible amounts to the past two years’ taxable income and the Company's projections for future taxable income over the periods in which the deferred tax assets are deductible, the Company believes it is more likely than not the remaining existing deductible temporary differences will reverse during periods in which carrybacks are available or in which the Company generates net taxable income.
The Company is participating in the Internal Revenue Service (“IRS”) Compliance Assurance Program (“CAP”) for the 2015 fiscal year. This program accelerates the examination of key transactions with the goal of resolving any issues before the tax return is filed. Dollar Tree's federal tax returns have been examined and all issues have been settled through the fiscal 2013 tax year. The statute of limitations is still open for Family Dollar's tax returns for the fiscal year ended August 25, 2012 and forward. In general, fiscal years 2011 and forward are within the statute of limitations for state tax purposes. The statute of limitations is still open prior to 2011 for some states.
The balance for unrecognized tax benefits at August 1, 2015, was $34.4 million. The total amount of unrecognized tax benefits at August 1, 2015, that, if recognized, would affect the effective tax rate was $24.4 million (net of the federal tax benefit). The following is a reconciliation of the Company’s total gross unrecognized tax benefits:
During fiscal 2015, the Company acquired Family Dollar Stores, Inc. The increase in unrecognized tax benefits for fiscal 2015 is primarily related to the Acquisition.
United States income taxes have not been provided on accumulated but undistributed earnings of Dollar Tree’s foreign subsidiaries as the Company intends to permanently reinvest the earnings. To date, the earnings and related taxes of the legacy Dollar Tree foreign subsidiaries are negligible. The Company has provided United States income taxes on accumulated but undistributed earnings for Family Dollar’s foreign subsidiaries as of the July 6, 2015 acquisition date.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef