Dollar General 2015 Annual Report Download - page 144

10-K
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Share-based payments
The Company accounts for share-based payments in accordance with applicable accounting
standards, under which the fair value of each award is separately estimated and amortized into
compensation expense over the service period. The fair value of the Company’s stock option grants are
estimated on the grant date using the Black-Scholes-Merton valuation model. Forfeitures are estimated
at the time of valuation and reduce expense ratably over the vesting period. The application of this
valuation model involves assumptions that are judgmental and highly sensitive in the determination of
compensation expense.
On July 6, 2007, the Company’s Board of Directors adopted the 2007 Stock Incentive Plan for Key
Employees, which plan was subsequently amended (as so amended, the ‘‘Plan’’). The Plan allows the
granting of stock options, stock appreciation rights, and other stock-based awards or dividend
equivalent rights to key employees, directors, consultants or other persons having a service relationship
with the Company, its subsidiaries and certain of its affiliates. The number of shares of Company
common stock authorized for grant under the Plan is 31,142,858. As of January 29, 2016, 18,556,241 of
such shares are available for future grants.
Since May 2011, most of the share-based awards issued by the Company have been in the form of
stock options, restricted stock, restricted stock units and performance share units. With limited
exceptions, stock options and restricted stock units granted to employees generally vest ratably on an
annual basis over four-year and three-year periods, respectively. Awards granted to board members
generally vest ratably over a one or three-year period. Performance share units generally vest ratably
over a three-year period, provided that certain minimum performance criteria are met in the year of
grant. With limited exceptions, the performance share unit and restricted stock unit awards are payable
in shares of common stock on the vesting date.
From July 2007 through May 2011, a significant majority of the Company’s share-based awards
were a combination of stock options that vest solely upon the continued employment of the recipient
(‘‘MSA Time Options’’) and options that vest upon the achievement of predetermined annual or
cumulative financial-based targets (‘‘MSA Performance Options’’) (collectively, the ‘‘MSA Options’’).
MSA Options generally vest ratably on an annual basis over a period of approximately five years, with
limited exceptions. The MSA Options are subject to various provisions set forth in a management
stockholder’s agreement (‘‘MSA’’) entered into with each option holder. The MSA Options have a
contractual term of 10 years and an exercise price equal to the fair value of the underlying common
stock on the date of grant.
The weighted average for key assumptions used in determining the fair value of all stock options
granted in the years ended January 29, 2016, January 30, 2015, and January 31, 2014, and a summary of
the methodology applied to develop each assumption, are as follows:
January 29, January 30, January 31,
2016 2015 2014
Expected dividend yield ................... 1.2% 0% 0%
Expected stock price volatility .............. 25.3% 25.6% 26.2%
Weighted average risk-free interest rate ....... 1.8% 1.9% 1.2%
Expected term of options (years) ............ 6.4 6.3 6.3
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