Big Lots 2010 Annual Report Download - page 139

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BIG LOTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 9 — Income Taxes (Continued)
Income taxes payable on our consolidated balance sheets have been reduced by the tax benefits primarily
associated with share-based compensation. We receive an income tax deduction upon the exercise of non-
qualified stock options and the vesting of restricted stock. Tax benefits of $13.8 million, $0.6 million, and $4.6
million in 2010, 2009, and 2008, respectively, were credited directly to shareholders’ equity related to share-
based compensation deductions in excess of expense recognized for these awards.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for 2010, 2009,
and 2008:
2010 2009 2008
(In thousands)
Unrecognized tax benefits — opening balance .................... $35,824 $ 34,729 $37,158
Gross increases — tax positions in current year.................... 1,127 11,757 9,094
Gross increases — tax positions in prior period .................... 1,237 5,556 1,611
Gross decreases — tax positions in prior period ................... (1,190) (4,101) (4,617)
Settlements................................................. (9,121) (11,944) (7,147)
Lapse of statute of limitations .................................. (627) (173) (1,370)
Unrecognized tax benefits — end of year ...................... $27,250 $ 35,824 $34,729
At the end of 2010 and 2009, the total amount of unrecognized tax benefits that, if recognized, would affect
the effective income tax rate is $20.1 million and $19.8 million, respectively, after considering the federal tax
benefit of state and local income taxes of $5.3 million and $5.2 million respectively. Unrecognized tax benefits
of $1.9 million and $10.8 million, respectively, relate to tax positions for which the ultimate deductibility is
highly certain but for which there is uncertainty about the timing of such deductibility. 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 $27.3 million in 2010 is $9.1 million of unrecognized tax benefits primarily related to our claims for
welfare to work and work opportunity tax credits. Due to a recent unfavorable U.S. Court of Appeals for the
Federal Circuit decision against a similarly situated taxpayer, we expect the rights with respect to our claims
with the Internal Revenue Service to lapse; however, because these tax benefits were unrecognized, the lapse
will have no effect on income tax expense.
We recognized an expense (benefit) associated with interest and penalties on unrecognized tax benefits of
approximately $(1.9) million, $(0.5) million, and $0.8 million during 2010, 2009, and 2008, respectively, as a
component of income tax expense. The amount of accrued interest and penalties recorded in the accompanying
consolidated balance sheets at the end of 2010 and 2009 was $6.4 million and $8.3 million, respectively.
We are subject to U.S. federal income tax as well as income tax of multiple state and local jurisdictions. The
statute of limitations for assessments on our federal income tax returns for periods prior to 2007 has lapsed.
In addition, the state income tax returns filed by us are subject to examination generally for periods beginning
with 2007, although state income tax carryforward attributes generated prior to 2007 may still be adjusted upon
examination. We have various state returns in the process of examination or administrative appeal.
We have estimated the reasonably possible expected net change in unrecognized tax benefits through
January 29, 2011 based on 1) anticipated positions to be taken in the next 12 months, 2) expected cash and
non-cash settlements, and 3) lapses of the applicable statutes of limitations of unrecognized tax benefits. The
estimated reasonably possible net decrease in unrecognized tax benefits for the next 12 months is approximately
$16 million. Actual results may differ materially from this estimate.