Big Lots 2011 Annual Report Download - page 152

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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 and provincial tax purposes,
and rates could also affect recorded deferred tax assets.
We evaluate the uncertainty of income tax positions taken or to be taken on income tax returns. When a tax
position meets the 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
does not 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 return, we recognize tax liabilities (or de-recognize
tax assets, as the case may be). A number of years may elapse before a particular matter, for which we have
derecognized a tax benefit, is audited and fully resolved or clarified. We adjust unrecognized tax benefits and
the income tax provision in the period in which an uncertain tax position is effectively or ultimately settled, the
statute of limitations expires for the relevant taxing authority to examine the tax position, or as a result of the
evaluation of new information that becomes available.
Pension
Actuarial valuations are used to calculate the estimated expenses and obligations for our Pension Plan and
Supplemental Pension Plan. Inherent in the actuarial valuations are several assumptions including discount
rate and expected return on plan assets. We review external data and historical trends to help determine the
discount rate and expected long-term rate of return. Our objective in selecting a discount rate is to identify the
best estimate of the rate at which the benefit obligations would be settled on the measurement date. In making
this estimate, we review rates of return on high-quality, fixed-income investments available at the measurement
date and expected to be available during the period to maturity of the benefits. This process includes a review
of the bonds available on the measurement date with a quality rating of Aa or better. The expected long-term
rate of return on assets is derived from detailed periodic studies, which include a review of asset allocation
strategies, anticipated future long-term performance of individual asset classes, risks (standard deviations)
and correlations of returns among the asset classes that comprise the plan’s asset mix. While the studies give
appropriate consideration to recent plan performance and historical returns, the assumption is primarily a
long-term, prospective rate of return. The weighted average discount rate used to determine the net periodic
pension cost for 2011 was 5.7%. A 1.0% decrease in the discount rate would increase net periodic pension cost
by $0.8 million. The long-term rate of return on assets used to determine net periodic pension cost in 2011 was
8.0%. A 1.0% decrease in the expected long-term rate of return on plan assets would increase the net periodic
pension cost by $0.6 million.
During 2011, we reclassified $1.1 million, net of tax, from other comprehensive income to expense in
our consolidated statement of operations. We recognized a benefit of $0.2 million, net of tax, to other
comprehensive income in 2011, which was principally driven by the recognition of $0.3 million (pretax)
in settlement charges as participants elected more lump sum payments than originally estimated. At
January 28, 2012, the accumulated other comprehensive income amount associated with the plans, which was
principally unrealized actuarial loss, was $14.5 million loss, net of tax. During 2012, and in future periods, we
expect to reclassify approximately $2.7 million from other comprehensive income to expense, assuming we
achieve our estimated rate of return on pension plan investments in future periods. Additionally, in the event
that we have future settlements, as occurred in 2011 and 2010, we would expect that the pretax expense related
to future settlements would be between the $0.3 million and $1.8 million charges in 2011 and 2010, respectively.
Insurance and Insurance-Related Reserves
We are self-insured for certain losses relating to property, general liability, workers’ compensation, and
employee medical and dental benefit claims, a portion of which is funded by employees. We purchase stop-
loss coverage from third party insurance carriers to limit individual or aggregate loss exposure in these areas.
Accrued insurance liabilities and related expenses are based on actual claims reported and estimates of claims
incurred but not reported. The estimated loss accruals for claims incurred but not paid are determined by
applying actuarially-based calculations taking into account historical claims payment results and known trends