Dollar General 2015 Annual Report Download - page 127

10-K
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of presentation and accounting policies (Continued)
Share-based payments
The Company recognizes compensation expense for share-based compensation based on the fair
value of the awards on the grant date. Forfeitures are estimated at the time of valuation and reduce
expense ratably over the vesting period. This estimate may be adjusted periodically based on the extent
to which actual forfeitures differ, or are expected to differ, from the prior estimate. The forfeiture rate
is the estimated percentage of share-based awards granted that are expected to be forfeited or canceled
before becoming fully vested. The Company bases this estimate on historical experience or estimates of
future trends, as applicable. An increase in the forfeiture rate will decrease compensation expense.
The fair value of each option grant is separately estimated and amortized into compensation
expense on a straight-line basis between the applicable grant date and each vesting date. The Company
has estimated the fair value of all stock option awards as of the grant date by applying the Black-
Scholes-Merton option pricing valuation model. The application of this valuation model involves
assumptions that are judgmental and highly sensitive in the determination of compensation expense.
The Company calculates compensation expense for restricted stock, share units and similar awards
as the difference between the market price of the underlying stock or similar award on the grant date
and the purchase price, if any. Such expense is recognized on a straight-line basis for graded awards or
an accelerated basis for performance awards over the period in which the recipient earns the awards.
Store pre-opening costs
Pre-opening costs related to new store openings and the related construction periods are expensed
as incurred.
Income taxes
Under the accounting standards for income taxes, the asset and liability method is used for
computing the future income tax consequences of events that have been recognized in the Company’s
consolidated financial statements or income tax returns. Deferred income tax expense or benefit is the
net change during the year in the Company’s deferred income tax assets and liabilities.
The Company includes income tax related interest and penalties as a component of the provision
for income tax expense.
Income tax reserves are determined using a methodology which requires companies to assess each
income tax position taken using a two-step process. A determination is first made as to whether it is
more likely than not that the position will be sustained, based upon the technical merits, upon
examination by the taxing authorities. If the tax position is expected to meet the more likely than not
criteria, the benefit recorded for the tax position equals the largest amount that is greater than 50%
likely to be realized upon ultimate settlement of the respective tax position. Uncertain tax positions
require determinations and estimated liabilities to be made based on provisions of the tax law which
may be subject to change or varying interpretation. If the Company’s determinations and estimates
prove to be inaccurate, the resulting adjustments could be material to the Company’s future financial
results.
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