Big Lots 2013 Annual Report Download - page 180

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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 2013 was 4.6%. A 1.0% decrease in the discount rate would
increase net periodic pension cost by $0.6 million. The long-term rate of return on assets used to determine net periodic
pension cost in 2013 was 5.1%. A 1.0% decrease in the expected long-term rate of return on plan assets would increase the net
periodic pension cost by $0.5 million.
During 2013, we reclassified $1.0 million, net of tax, from other comprehensive income to expense in our consolidated
statement of operations. We also recognized a benefit of $0.1 million, net of tax, to other comprehensive income in 2013,
which was principally driven by the recognition of $0.1 million (pretax) in settlement charges as participants elected more lump
sum payments than originally estimated. At February 1, 2014, the accumulated other comprehensive income amount associated
with the plans, which was principally unrealized actuarial loss, was an $8.5 million loss, net of tax. During 2013, and in future
periods, we expect to reclassify approximately $1.2 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 2013, 2012 and 2011, we would expect that the pretax expense related to future settlements
would be in the range of $0.3 million to $1.8 million in charges based on historical experience.