Big Lots 2014 Annual Report Download - page 129

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51
Share-Based Compensation
Share-based compensation expense is recognized in selling and administrative expense in our consolidated statements of
operations for all awards that we expect to vest. We estimate forfeitures based on historical information.
Stock Options
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 on a straight-line basis over the vesting period.
Historically, we estimated 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 was based on historical implied volatilities from traded options on our common shares. The
dividend yield on our common shares was assumed to be zero, since we had not paid dividends at the time of our most recent
stock option grants in 2013, nor did we have intentions of doing so at that time. The risk-free rate was based on U.S. Treasury
security yields at the time of the grant. The expected life was determined from the binomial model, which incorporates
exercise and post-vesting forfeiture assumptions based on analysis of historical data.
Non-vested Restricted Stock Awards
Compensation expense for our 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 grant 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.
Non-vested Restricted Stock Units
We expense our non-vested restricted stock units with graded vesting as a single award with an average estimated life over the
entire term of the award. The expense for the non-vested restricted stock units is recorded on a straight-line basis over the
vesting period.
CEO Performance Share Units
For the performance share units granted to our CEO during 2013, compensation expense 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
for each tranche of the award was determined at the time of the award grant based on a Monte Carlo simulation. We monitor
the estimated achievement of the performance targets at each reporting period and if the achievement of the targets occurs prior
to the estimated achievement based on the Monte Carlo simulation, we will accelerate the expensing of the award.
Performance Share Units
Compensation expense for performance share units will be recorded based on fair value of the award on the grant date and the
estimated achievement of financial performance objectives. From an accounting perspective, the grant date is established once
all financial performance targets have been set. We monitor the estimated achievement of the financial performance objectives
at each reporting period and will potentially adjust the estimated expense on a cumulative basis. The expense for the
performance share units is recorded on a straight-line basis from the grant date through the vesting date.
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, restricted stock awards, and restricted stock units, 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.