Big Lots 2008 Annual Report Download - page 103

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Compensation expense for performance-based nonvested restricted stock awards is recorded over the estimated
vesting period based on the estimated achievement date of the performance criteria. An estimated target
achievement date is determined at the time of the award based on historical and forecasted performance of
similar measures. We monitor the achievement of the performance targets at each reporting period and make
adjustments to the estimated vesting period when our internal models indicate that the estimated achievement
date differs from the date being used to amortize expense. Any change in the estimated vesting date results in a
prospective change to the related expense by charging the remaining unamortized expense over the remaining
expected vesting period at the date the estimate was changed.
On the grant date of the 2007 restricted stock awards, we estimated a three-year period for vesting based on the
assumed achievement of the higher financial performance objective. In the second quarter of 2007, we changed
the estimated achievement date from three years to two years as a result of our performance being better than
expected, resulting in $1.6 million and $1.1 million of incremental expense in 2008 and 2007, respectively.
We achieved the higher financial performance objective for the 2007 awards based on the 2008 results, and
accordingly, these awards will vest on the first trading date following the filing of this report.
On the grant date of the 2008 restricted stock awards, we estimated a three-year period for vesting based on the
assumed achievement of the higher financial performance objective. In the second quarter of 2008, we changed
the estimated achievement date for the higher financial performance objective from three years to two years due
to better operating results than initially anticipated, resulting in $0.8 million of incremental expense in 2008.
In the fourth quarter of 2008, we changed the estimated achievement date for the higher financial performance
objective from two years to three years due to our declining net sales results which were in part due to the
general economic conditions in the United States.
Income Taxes
The determination of our income tax expense, refunds receivable, income taxes payable, deferred tax assets and
liabilities and financial statement recognition, de-recognition and/or measurement of uncertain tax benefits (for
positions taken or to be taken on income tax returns) requires significant judgment, the use of estimates, and the
interpretation and application of complex accounting and multi-jurisdictional income tax laws.
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 deferred tax asset valuation
allowances and adjustments of a deferred tax asset or liability for enacted changes in tax laws or rates. Although
we believe that our estimates are reasonable, actual results could differ from these estimates resulting in a
final tax outcome that may be materially different from that which is reflected in our consolidated financial
statements.
We evaluate our ability to recover our deferred tax assets within the jurisdiction from which they arise.
We consider all available positive and negative evidence including recent financial results, projected future
pretax accounting income from continuing operations and tax planning strategies (when necessary). This
evaluation requires us to make assumptions that require significant judgment about the forecasts of future
pretax accounting income. The assumptions that we use in this evaluation are consistent with the assumptions
and estimates used to develop our consolidated operating financial plans. If we determine that a portion of
our deferred tax assets, which principally represent expected future deductions or benefits, are not likely to be
realized, we recognize a valuation allowance for our estimate of these benefits which we believe are not likely
recoverable. Additionally, changes in tax laws, apportionment of income for state tax purposes, and rates could
also affect recorded deferred tax assets.
In accordance with FIN No. 48, we evaluate the uncertainty of income tax positions taken or to be taken on
income tax returns. When a tax position meets the FIN No. 48 more-likely-than-not threshold, we recognize
economic benefits associated with the position on our consolidated financial statements. The more-likely-than-
not recognition threshold is a positive assertion that an enterprise believes it is entitled to economic benefits
associated with a tax position. When a tax position doesn’t meet the more-likely-than-not threshold, or in the
case of those positions that do meet the threshold but are measured at less than the full benefit taken on the