Big Lots 2013 Annual Report Download - page 179

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If our future operating results decline significantly, we may be exposed to impairment losses that could be material (for
additional discussion of this risk, see “Item 1A. Risk Factors - A significant decline in our operating profit and taxable income
may impair our ability to realize the value of our long lived assets and deferred tax assets.”).
In addition to our annual store impairment reviews, we evaluate our other long-lived assets at each reporting period to
determine whether impairment indicators are present. In 2011, we reviewed our operational needs surrounding travel and
determined that we needed to replace an aircraft due in part to the repair costs and declining reliability of the aging aircraft. As
a result of this decision, we both purchased a new aircraft to meet our needs and placed an older aircraft in the market as
available-for-sale. We recorded a $2.2 million impairment charge on the held-for-sale aircraft, based on market conditions at
the time the decision was executed.
Share-Based Compensation
We grant stock options, non-vested restricted stock awards, and performance share units to our employees under shareholder
approved incentive plans. Share-based compensation expense was $13.2 million, $17.9 million, and $25.0 million in 2013,
2012, and 2011, respectively. 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 for the non-vested restricted stock awards are 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 performance share units is dependent upon the future number of awards, the estimated vesting
period, and many estimates, judgments and assumptions used in arriving at the fair value of performance share units. Future
share-based compensation expense related to stock options, non-vested restricted stock, and performance share units 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 and those of our peers. The dividend yield rate on our common
shares is assumed to be zero since we have not paid dividends and have no current 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 forfeiture rate, which is
based on analysis of historical data.
Compensation expense for non-vested restricted stock awards are 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 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.
Compensation expense for performance share units 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 performing certain Monte Carlo simulation. We monitor the achievement of the performance targets at each reporting
period and make adjustments to the estimated vesting period when our 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.