Big Lots 2010 Annual Report Download - page 124

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BIG LOTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1 — Summary of Significant Accounting Policies (Continued)
Share-Based Compensation
Share-based compensation expense is recognized in selling and administrative expense in our consolidated
statements of operations for all options that we expect to vest. We estimate forfeitures based on historical
information. We value and expense stock options with graded vesting as a single award with an average estimated
life over the entire term of the award. The expense for options with graded vesting is recorded straight-line over the
vesting period. We estimate the fair value of stock options using a binomial model. The binomial model takes into
account variables such as volatility, dividend yield rate, risk-free rate, 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 on our common shares is assumed to be
zero since we have not paid dividends and have no current plans to do so in the future. 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 binomial model,
which incorporates exercise and post-vesting forfeiture assumptions based on analysis of historical data.
Compensation expense for performance-based non-vested restricted stock awards is recorded based on fair
value of the award on the grant date and 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 projected achievement of the performance targets at each
reporting period and make prospective 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.
Earnings per Share
Basic earnings per share is based on the weighted-average number of shares outstanding during each period.
Diluted earnings per share is based on the weighted-average number of shares outstanding during each period
and the additional dilutive effect of stock options and non-vested restricted stock awards, calculated using the
treasury stock method.
Guarantees
We have lease guarantees which were issued prior to January 1, 2003. We record a liability for these lease
guarantees in the period when it becomes probable that the obligor will fail to perform its obligation and if the
amount of our guarantee obligation is estimable.
Other Comprehensive Income
Our other comprehensive income includes principally the impact of the amortization of our pension actuarial
loss, net of tax, and the revaluation of our pension actuarial loss, net of tax.
Recently Adopted Accounting Standards
Fair Value
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements,
which amended ASC 820, Fair Value Measurements and Disclosures, to add new requirements for disclosures
about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and
settlements relating to Level 3 measurements. The ASU also clarifies existing fair value disclosures about the
level of disaggregation and about inputs and valuation techniques used to measure the fair value. Further, the
ASU amends guidance on employers’ disclosures about postretirement benefit plan assets under ASC 715,
Compensation-Retirement Benefits, to require that disclosures be provided by classes of assets instead of by
major categories of assets. The ASU was effective for us in the first fiscal quarter of 2010 and did not have a
material effect on our financial condition, results of operations, or liquidity.