Big Lots 2012 Annual Report Download - page 139

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BIG LOTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 7 — Share-Based Plans
Our shareholders approved the Big Lots 2012 Long-Term Incentive Plan (“2012 LTIP”) in May 2012. The 2012
LTIP authorizes the issuance of incentive and nonqualified stock options, restricted stock, restricted stock units,
deferred stock awards, performance units, stock appreciation rights, cash-based awards, and other share-based
awards. We have issued only nonqualified stock options and restricted stock under the 2012 LTIP. The number of
common shares available for issuance under the 2012 LTIP consists of an initial allocation of 7,750,000 common
shares plus any common shares subject to the 4,702,362 outstanding awards as of March 15, 2012 under the Big
Lots 2005 Long-Term Incentive Plan (“2005 LTIP”) that, on or after March 15, 2012, cease for any reason to be
subject to such awards (other than by reason of exercise or settlement). The Compensation Committee of our Board
of Directors (“Committee”), which is charged with administering the 2012 LTIP, has the authority to determine
the terms of each award. Nonqualified stock options granted to employees under the 2012 LTIP, the exercise price
of which may not be less than the fair market value of the underlying common shares on the grant date, generally
expire on the earlier of: (1) the seven year term set by the Committee; or (2) one year following termination of
employment, death, or disability. The nonqualified stock options generally vest ratably over a four-year period;
however, upon a change in control, all awards outstanding automatically vest.
Our former equity compensation plan, the 2005 LTIP, approved in May 2005, expired on May 16, 2012. The
2005 LTIP authorized the issuance of incentive and nonqualified stock options, restricted stock, restricted stock
units, performance units, and stock appreciation rights. We issued only nonqualified stock options and restricted
stock under the 2005 LTIP. The number of common shares available for issuance under the 2005 LTIP consisted
of: (1) an initial allocation of 1,250,000 common shares; (2) 2,001,142 common shares, the number of common
shares that were available under the predecessor Big Lots, Inc. 1996 Performance Incentive Plan (“1996 LTIP”)
upon its expiration; (3) 2,100,000 common shares approved by our shareholders in May 2008; and (4) an annual
increase equal to 0.75% of the total number of issued common shares (including treasury shares) as of the start
of each of our fiscal years during which the 2005 LTIP was in effect. The Committee, which was charged
with administering the 2005 LTIP, had the authority to determine the terms of each award. Nonqualified stock
options granted to employees under the 2005 LTIP, the exercise price of which was not less than the fair market
value of the underlying common shares on the grant date, generally expire on the earlier of: (1) the seven year
term set by the Committee; or (2) one year following termination of employment, death, or disability. The
nonqualified stock options generally vest ratably over a four-year period; however, upon a change in control, all
awards outstanding automatically vest.
In addition to the 2012 LTIP, we previously maintained the Big Lots Director Stock Option Plan (“Director Stock
Option Plan”) for non-employee directors. The Director Stock Option Plan was terminated on May 30, 2008. The
Director Stock Option Plan was administered by the Committee pursuant to an established formula. Neither the
Board of Directors nor the Committee exercised any discretion in administration of the Director Stock Option
Plan. Grants were made annually at an exercise price equal to the fair market value of the underlying common
shares on the date of grant. The annual grants to each non-employee director of an option to acquire 10,000 of our
common shares became fully exercisable over a three-year period: 20% of the shares on the first anniversary, 60%
on the second anniversary, and 100% on the third anniversary. Stock options granted to non-employee directors
expire on the earlier of: (1) 10 years plus one month; (2) one year following death or disability; or (3) at the end of
our next trading window one year following termination. In connection with the amendment to the 2005 LTIP in
May 2008, our Board of Directors amended the Director Stock Option Plan so that no additional awards may be
made under that plan. Our non-employee directors did not receive any stock options in 2012, 2011, and 2010, but
did, as discussed below, receive restricted stock awards under the 2005 LTIP.
Share-based compensation expense was $17.9 million, $25.0 million and $24.6 million in 2012, 2011, and
2010, respectively. We use a binomial model to estimate the fair value of stock options on the grant date. 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