Dollar General 2008 Annual Report Download - page 108

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the employee, and as such, $3.6 million (representing the fixed repurchase price) related to such
Rollover Options were classified in Other (noncurrent) liabilities in the accompanying
consolidated balance sheet at February 1, 2008 pursuant to SFAS 123(R).
Subsequent to the Merger, the Company’ s Board of Directors adopted an Equity
Appreciation Rights Plan (the “Rights Plan”). The Rights Plan provides for the granting of
equity appreciation rights to nonexecutive managerial employees. Through January 30, 2009,
1,050,674 equity appreciation rights had been granted, 50,237 of such rights had been cancelled
and 1,000,437 of such rights remain outstanding. The vesting of such rights is based upon
continued employment and either a change in control of the Company or a qualified public
offering as defined in the Rights Plan. Through January 30, 2009, no compensation expense
related to the Rights Plan had been recognized based primarily on the uncertainty of the vesting
events.
For the year ended January 30, 2009, the fair value method of SFAS 123(R) resulted in
share-based compensation expense and a corresponding reduction in net income before income
taxes in the amount of $10.0 million ($6.1 million net of tax) of which $8.9 million ($5.4 million
net of tax) was related to stock options and $1.1 million ($0.7 million net of tax) was related to
restricted stock as discussed below.
The 2007 Successor statement of operations reflects share-based compensation expense
(a component of SG&A expenses) under the fair value method of SFAS 123(R) for outstanding
share-based awards and a corresponding reduction of pre-tax income in the amount of $3.8
million ($2.4 million net of tax).
The Company recognized $45.4 million of share-based compensation expense in the
2007 Predecessor statement of operations ($28.5 million net of tax), including $6.0 million of
compensation expense prior to the Merger included in SG&A expenses comprised of $2.3
million for stock options and $3.7 million for restricted stock and restricted stock units. The
remaining $39.4 million of such expense related directly to the Merger is reflected in Transaction
and related costs in the consolidated statement of operations for the Predecessor period ended
July 6, 2007, for the accelerated vesting of stock options ($18.7 million) and restricted stock and
restricted stock units ($20.7 million).
For the year ended February 2, 2007, the fair value method of SFAS 123(R) resulted in
additional share-based compensation expense and a corresponding reduction in net income
before income taxes in the amount of $3.6 million ($2.2 million net of tax).
The fair value of each option grant is separately estimated by applying the Black-
Scholes-Merton option pricing valuation model. The weighted average for key assumptions used
in determining the fair value of options granted in the year ended January 30, 2009, the
Successor period ended February 1, 2008, the Predecessor period ended July 6, 2007 and the
year ended February 2, 2007, and a summary of the methodology applied to develop each
assumption, are as follows: