Big Lots 2013 Annual Report Download - page 192

50
Closed Store Accounting
We recognize an obligation for the fair value of lease termination costs when we cease using the leased property in our
operations. In measuring fair value of these lease termination obligations, we consider the remaining minimum lease
payments, estimated sublease rentals that could be reasonably obtained, and other potentially mitigating factors. We discount
the estimated obligation using the applicable credit adjusted interest rate, resulting in accretion expense in periods subsequent
to the period of initial measurement. We monitor the estimated obligation for lease termination liabilities in subsequent periods
and revise any estimated liabilities, if necessary. Severance and benefits associated with terminating employees from
employment are recognized ratably from the communication date through the estimated future service period, unless the
estimated future service period is less than 60 days, in which case we recognize the impact at the communication date.
Generally all other store closing costs are recognized when incurred.
When material, we classify the results of operations of closed stores to discontinued operations when the operations and cash
flows of the stores have been (or will be) eliminated from ongoing operations and we no longer have any significant continuing
involvement in the operations associated with the stores after closure. We generally meet the second criteria on all closed
stores as, upon closure, operations cease and we have no continuing involvement. To determine if cash flows have been (or
will be) eliminated from ongoing operations, we evaluate a number of qualitative and quantitative factors, including, but not
limited to, proximity of a closing store to any remaining open stores and the estimated sales migration from the closed store to
any stores remaining open. The estimated sales migration is based on historical estimates of our sales migration upon opening
or closing a store in a similar market. For purposes of reporting closed stores as discontinued operations, we report net sales,
gross margin, and related operating costs that are directly related to and specifically identifiable with respect to the stores'
operations identified as discontinued operations. Certain corporate-level charges, such as general office cost, field operations,
national advertising, fixed distribution costs, and interest cost are not allocated to closed stores' discontinued operations
because we believe that these costs are not specific to the stores' operations.
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 statements of operations. Accrued interest and penalties are included within the related tax liability
line in the accompanying consolidated balance sheets.
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.