Big Lots 2007 Annual Report Download - page 137

49
BIG LOTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1 — Summary of Significant Accounting Policies (Continued)
Prior to the adoption of SFAS No. 123(R), we accounted for share-based compensation using the intrinsic value-
based method of accounting in accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees. The following table presents net loss and earnings per share if the fair value method
had been applied to all outstanding and unvested stock options for 2005:
2005
(In thousands, except per share amounts)
Net loss:
As reported .................................................. $(10,088)
Total share-based employee compensation expense determined under
fair value method for all awards, net of related tax effect ............ (10,277)
Pro forma ..................................................... $(20,365)
Earnings per common share — basic:
As reported .................................................. $ (0.09)
Pro forma .................................................... $ (0.18)
Earnings per common share — diluted:
As reported .................................................. $ (0.09)
Pro forma .................................................... $ (0.18)
Included in 2005 total share-based employee compensation expense determined under fair value method for
all awards is pretax expense of $11.7 million directly resulting from the acceleration of vesting of certain stock
options (See note 7 to the accompanying consolidated financial statements).
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that have been included in the financial
statements. Under this method, deferred tax assets and liabilities are determined based on the differences
between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the enactment date.
We assess the adequacy and need for a valuation allowance for deferred tax assets. In making such
determination, we consider all available positive and negative evidence, including scheduled reversals of
deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations.
We have established a valuation allowance to reduce our deferred tax assets to the balance that is more likely
than not to be realized.
We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in
the accompanying consolidated statement of operations. Accrued interest and penalties are included within the
related tax liability line in the accompanying consolidated balance sheet.
The effective income tax rate in any period may be materially impacted by the overall level of income (loss)
before income taxes, the jurisdictional mix and magnitude of income (loss), changes in the income tax laws
(which may be retroactive to the beginning of the fiscal year), subsequent recognition, de-recognition and/or
measurement of an uncertain tax benefit in accordance with FIN No. 48, changes in a deferred tax valuation
allowance, and adjustments of a deferred tax asset or liability for enacted changes in tax laws or rates.