Dollar General 2009 Annual Report Download - page 110

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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Share-based payments (Continued)
volatility based upon traded options, weighted equally, to calculate the volatility assumption, as it was
the Company’s belief that this methodology provided the best indicator of future volatility. For
historical volatility, the Company calculated daily market price changes from the date of grant over a
past period representative of the expected life of the options to determine volatility. Subsequent to the
Merger the expected volatilities have been based upon the historical volatilities of a peer group of four
companies, as the Company’s common stock has only been publicly traded for a limited period of time.
An increase in the expected volatility will increase compensation expense.
Weighted average risk-free interest rate—This is the U.S. Treasury rate for the week of the grant
having a term approximating the expected life of the option. An increase in the risk-free interest rate
will increase compensation expense.
Expected term of options—This is the period of time over which the options granted are expected
to remain outstanding. For pre-Merger options, the Company estimated expected term using a
computation based on an assumption that outstanding options would be exercised approximately
halfway through their contractual term, taking into consideration such factors as grant date, expiration
date, weighted-average time-to-vest, actual exercises and post-vesting cancellations. Options granted
have a maximum term of 10 years. Due to the limited historical data for grants issued subsequent to
the Merger, the Company has estimated the expected term as the mid-point between the vesting date
and the contractual term of the option. An increase in the expected term will increase compensation
expense.
At January 29, 2010, 617,817 Rollover Options were outstanding, all of which were exercisable.
The aggregate intrinsic value of these outstanding Rollover Options was $13.2 million with a weighted
average remaining contractual term of 5.4 years, and a weighted average exercise price of $2.1875.
During the Predecessor period from February 3, 2007 to July 6, 2007, the weighted average grant
date fair value of options granted was $5.37, and the total intrinsic value of stock options exercised was
$10.8 million.
All stock options granted prior to the Merger in the Predecessor period ended July 6, 2007 under
the terms of the Company’s pre-Merger stock incentive plan were non-qualified stock options issued at
a price equal to the fair market value of the Company’s common stock on the date of grant, were
originally scheduled to vest ratably over a four-year period, and were to expire 10 years following the
date of grant.
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