Big Lots 2009 Annual Report Download - page 152

36
In addition to our annual store impairment reviews, we evaluate our long-lived assets at each reporting period
to determine whether impairment indicators are present. In 2008, we recorded impairment to the assets of one
store as a result of a casualty loss due to hurricane damage. The amount of this impairment is included in the
$0.1 million 2008 impairment charge discussed above.
Share-Based Compensation
We grant stock options and performance-based non-vested restricted stock to our employees under shareholder
approved incentive plans. Share-based compensation expense was $20.3 million, $15.5 million, and $9.9
million in 2009, 2008, and 2007, respectively. The increase in share-based compensation is primarily due to
our acceleration of vesting of restricted stock grants based on our profit performance in 2009, 2008 and 2007.
Future share-based compensation expense for performance-based non-vested restricted stock is dependent
upon the future number of awards, fair value of our common shares on the grant date, and the estimated vesting
period. Future share-based compensation expense for stock options is dependent upon the number and terms of
future stock option awards and many estimates, judgments and assumptions used in arriving at the fair value
of stock options. Future share-based compensation expense related to performance-based non-vested restricted
stock and stock options may vary materially from the currently amortizing awards.
We estimate the fair value of our stock options using a binomial model. The binomial model takes into account
estimates, assumptions, and judgments about our stock price volatility, our dividend yield rate, the risk-free rate
of return, the contractual term of the option, the probability that the option will be exercised prior to the end of
its contractual life, and the probability of retirement of the option holder in computing the value of the option.
Expected volatility is based on historical and current implied volatilities from traded options on our common
shares. The dividend yield rate on our common shares is assumed to be zero since we have not paid dividends
and have no immediate plans to do so. The risk-free rate is based on U.S. Treasury security yields at the time of
the grant. The expected life is determined from the application of the binomial model and includes assumptions
such as the expected employee exercise behavior and our expected turnover rate, which is based on analysis of
historical data.
Compensation expense for performance-based non-vested restricted stock awards is recorded over the estimated
vesting period based on the estimated achievement date of the performance criteria. An estimated target
achievement date is determined at the time of the award based on historical and forecasted performance of
similar measures. We monitor the achievement of the performance targets at each reporting period and make
adjustments to the estimated vesting period when our internal models indicate that the estimated achievement
date differs from the date being used to amortize expense. Any change in the estimated vesting date results in a
prospective change to the related expense by charging the remaining unamortized expense over the remaining
expected vesting period at the date the estimate was changed.
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