Big Lots 2012 Annual Report Download - page 117

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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, 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 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 2012 was 5.0%. A 1.0% decrease in the discount rate would increase net periodic pension cost