Big Lots 2014 Annual Report Download - page 135

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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
share units, stock appreciation rights, cash-based awards, and other share-based awards. We have issued nonqualified stock options,
restricted stock, restricted stock units, and performance share units 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 by our shareholders in May 2005, expired on May 16, 2012. The
2005 LTIP authorized the issuance of nonqualified stock options, restricted stock, and other award types. We issued only
nonqualified stock options and restricted stock under the 2005 LTIP. 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.
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 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 2014, 2013, and 2012, but did, as discussed below, receive restricted stock awards under the 2012 and 2005 LTIPs.
Share-based compensation expense was $10.5 million, $13.2 million and $17.9 million in 2014, 2013, and 2012, respectively. We
historically used 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 on historical and current 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, nor did we have any plans to do
so at the time of those grants. 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.