Big Lots 2007 Annual Report Download - page 156

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BIG LOTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 9 — Income Taxes (Continued)
We have the following income tax loss and credit carryforwards at February 2, 2008 (amounts are shown net of
tax excluding the federal income tax effect of the state and local items):
(In thousands)
Federal:
Foreign tax credits ............................... 233 Expires fiscal year 2010
State and local:
State net operating loss carryforwards ................ 6,370 Expires fiscal years 2008 through 2025
California enterprise zone credits.................... 741 No expiration date
California alternative minimum tax credits ............ 200 No expiration date
New Jersey alternative minimum tax credits ........... 148 No expiration date
Total income tax loss and credit carryforwards ..... $7,692
Our income taxes payable have been reduced by the tax benefits primarily associated with exercises of
employee stock options. We receive an income tax deduction calculated as the difference between the fair
market value of the stock issued at the time of exercise and the option price. These benefits of $19.8 million in
2007, $11.9 million in 2006, and $0.3 million in 2005 were credited directly to shareholders’ equity.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for 2007:
(In thousands)
Unrecognized tax benefits — opening balance ........................ $ 38,326
Gross increases — tax positions in current year........................ 9,346
Gross increases — tax positions in prior period ........................ 2,762
Gross decreases — tax positions in prior period ....................... (3,301)
Settlements..................................................... (9,284)
Lapse of statute of limitations ...................................... (691)
Unrecognized tax benefits - end of year............................. $ 37,158
Included in the balance of unrecognized tax benefits at the end of 2007 were $22.6 million of tax benefits that, if
recognized, would affect the effective tax rate, $8.0 million of tax positions for which the ultimate deductibility
is highly certain but for which there is uncertainty about the timing of such deductibility, and $6.6 million for
the federal deferred tax benefits related to state unrecognized tax benefits. The uncertain timing items could
result in the acceleration of the payment of cash to the taxing authority to an earlier period. Included in the
$37.2 million is $9.7 million of unrecognized tax benefits primarily related to current and potential refund
claims for welfare to work and work opportunity tax credits. If we prevail with respect to these claims, we
would owe approximately $1.9 million of fees, which have not been accrued, to an outside service provider who
assists us with the administration of these refund claims.
We recognized interest and penalties on unrecognized tax benefits as a component of income tax expense.
The amount of accrued interest and penalties recorded in the financial statements at the end of 2007 was
$8.2 million. During 2007 we recognized approximately $0.9 million of net interest and penalty expense.
We are subject to U.S. federal income tax as well as income tax of multiple state and local jurisdictions. We
are no longer subject to IRS assessment on our federal income tax returns for 2003 and for periods prior to
2002. The examination of our 2002 U.S. federal income tax return concluded in the second quarter of 2007;
however, it is still subject to final resolution. In addition, the state income tax returns filed by us are subject
to examination generally for periods beginning with 2003, although state income tax carryforward attributes
generated prior to 2003 may still be adjusted upon examination. We have various returns in the process of
examination or administrative appeal.