Big Lots 2011 Annual Report Download - page 35

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disposition of the common shares is treated as a long-term capital gain and any loss sustained will be a long-term
capital loss and (2) we are not entitled to a deduction. If the common shares acquired by an exercise of an ISO are
disposed of within either of these periods (i.e., a “disqualifying disposition”), then the participant must include in
his or her income, as taxable compensation for the year of the disposition, an amount equal to the excess, if any, of
the fair market value of the common shares upon exercise of the stock option over the stock option exercise price
(or, if less, the excess of the amount realized upon disposition over the stock option exercise price). In such case,
we will generally be entitled to a deduction, generally in the year of such a disposition, for the amount includible
in the participant’s income as taxable compensation. The participant’s basis in the common shares acquired upon
exercise of an ISO is equal to the stock option exercise price paid, plus any amount includible in his or her income
as a result of a disqualifying disposition.
Non-Qualified Stock Options
A NQSO results in no taxable income to the participant or deduction to us at the time it is granted. A participant
exercising a NQSO will, at that time, realize taxable compensation in the amount of the difference between the
stock option exercise price and the then-current fair market value of the common shares. Subject to the applicable
provisions of the IRC, a deduction for federal income tax purposes will be allowable to us in the year of exercise in
an amount equal to the taxable compensation recognized by the participant.
The participant’s basis in such common shares is equal to the sum of the stock option exercise price plus the
amount includible in his or her income as compensation upon exercise. Any gain (or loss) upon subsequent
disposition of the common shares will be a long-term or short-term gain (or loss), depending upon the holding
period of the common shares.
If a participant tenders previously owned common shares in payment of the NQSO exercise price, then, instead
of the treatment described above, the following generally will apply: (1) a number of new common shares equal
to the number of previously owned common shares tendered will be considered to have been received in a tax-
free exchange; (2) the participant’s basis and holding period for such number of new common shares will be equal
to the basis and holding period of the previously owned common shares exchanged; (3) the participant will have
compensation income equal to the fair market value on the exercise date of the number of new common shares
received in excess of such number of exchanged common shares; (4) the participant’s basis in such excess shares
will be equal to the amount of such compensation income; and (5) the holding period in such common shares will
begin on the exercise date.
Stock Appreciation Rights
Generally, a participant that receives a SAR will not recognize taxable income at the time the SAR is granted. If
a participant receives the appreciation inherent in a SAR in cash, the cash will be taxed as ordinary compensation
income to the participant at the time it is received. If a participant receives the appreciation inherent in a SAR in
common shares, the spread between the then-current fair market value of the common shares and the grant price
will be taxed as ordinary compensation income to the participant at the time it is received. In general, there will
be no federal income tax deduction allowed to us upon the grant or termination of a SAR. However, upon the
settlement of either form of SAR, we will generally be entitled to a deduction equal to the amount of ordinary
income the participant is required to recognize as a result of the settlement.
Restricted Stock
Generally, a participant will not recognize income and we will not be entitled to a deduction at the time an award
of restricted stock is made under the 2012 LTIP, unless the participant makes a Section 83(b) election described
below. A participant who has not made such an election will recognize ordinary compensation income at the time
the restrictions on the common shares lapse in an amount equal to the fair market value of the common shares at
such time. We will generally be entitled to a corresponding deduction in the same amount and at the same time
as the participant recognizes income. Any otherwise taxable disposition of the restricted stock after the time the
restrictions lapse will result in a capital gain or loss to the extent the amount realized from the sale differs from the
tax basis (i.e., the fair market value of the common shares on the date the restrictions lapse).