Big Lots 2009 Annual Report Download - page 165

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BIG LOTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1 — Summary of Significant Accounting Policies (Continued)
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 law and 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, changes in a deferred tax valuation allowance, and adjustments of a
deferred tax asset or liability for enacted changes in tax laws or rates.
In July 2006, the Financial Accounting Standards Board (“FASB”) issued guidance under ASC 740, Income
Taxes (FIN No. 48, Accounting for Uncertainty in Income Taxes an interpretation of SFAS No. 109) which
was effective at the beginning of 2007, and clarifies the accounting for uncertainty in income tax positions.
This guidance requires us to recognize in our financial statements the impact of a tax position, if that position
is more likely than not of being sustained, based on the technical merits of the position. The recognition and
measurement guidelines were applied to all of our material income tax positions as of the beginning of 2007,
resulting in an increase in our tax liabilities of $2.2 million with a corresponding decrease to beginning retained
earnings for the cumulative effect of a change in accounting principle.
In May 2007, the FASB issued guidance under ASC 740, Income Taxes (FASB Staff Position (“FSP”) FIN
48-1, Definition of Settlement in FASB Interpretation No. 48) which was effective retroactively to February 4,
2007. This guidance provides direction on how to determine whether a tax position is effectively settled for the
purpose of recognizing previously unrecognized tax benefits. The implementation of this standard did not have
a material impact on our financial condition, results of operations, or liquidity.
Pension
Effective in 2008, we adopted guidance under ASC 715, Compensation – Retirement Benefits (SFAS No. 158
Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans). This guidance requires us
to measure defined benefit plan assets and obligations as of the date of our year-end consolidated balance sheet.
Previously, our Pension Plan and Supplemental Pension Plan each had a measurement date of December 31.
Switching to the new measurement date required one-time adjustments of $0.1 million to retained earnings and
less than $0.1 million to accumulated other comprehensive income in 2008 per the transition guidance.
Pension assumptions are evaluated each year. Actuarial valuations are used to provide assistance in calculating the
estimated obligations related to our pension plans. 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