Dollar Tree 2008 Annual Report Download - page 47

DOLLAR TREE, INC. • 2008 ANNUAL REPORT 45
shares or units ceases to be employed by the
Company, any shares or units in which the restrictions
have not lapsed will be forfeited.
The 2003 Non-Employee Director Stock Option
Plan (NEDP) provides non-qualified stock options to
non-employee members of the Company's Board of
Directors. The stock options are functionally equiva-
lent to such options issued under the EIP discussed
above. The exercise price of each stock option granted
equals the market price of the Company’s stock at the
date of grant. The options generally vest immediately.
The 2003 Director Deferred Compensation Plan
permits any of the Company's directors who receive a
retainer or other fees for Board or Board committee
service to defer all or a portion of such fees until a
future date, at which time they may be paid in cash or
shares of the Company's common stock, or receive all
or a portion of such fees in non-statutory stock
options. Deferred fees that are paid out in cash will
earn interest at the 30-year Treasury Bond Rate. If a
director elects to be paid in common stock, the num-
ber of shares will be determined by dividing the
deferred fee amount by the current market price of a
share of the Company's common stock on the date of
deferral. The number of options issued to a director
will equal the deferred fee amount divided by 33% of
the price of a share of the Company's common stock.
The exercise price will equal the fair market value of
the Company's common stock at the date the option
is issued. The options are fully vested when issued and
have a term of 10 years.
All of the shareholder approved plans noted
above were adopted by Dollar Tree, Inc. on March 2,
2008 as a part of the holding company reorganization.
Refer to Note 1 for a discussion of the holding compa-
ny reorganization.
Stock Options
In 2008, 2007 and 2006, the Company granted a total
of 0.5 million, 0.4 million and 0.3 million stock
options from the EIP, EOEP and the NEDP, respec-
tively. The fair value of all of these options is being
expensed ratably over the three-year vesting periods,
or a shorter period based on the retirement eligibility
of the grantee. All options granted to directors vest
immediately and are expensed on the grant date.
During 2008, 2007 and 2006, the Company recog-
nized $4.7 million, $2.7 million and $1.3 million,
respectively of expense related to these stock option
grants. As of January 31, 2009, there was approximate-
ly $6.0 million of total unrecognized compensation
expense related to these stock options which is
expected to be recognized over a weighted average
period of 23 months.
In 2008, the Company granted 0.1 million stock
options from the EIP and the EOEP to certain officers
of the Company, contingent on the Company meeting
certain performance targets in 2008 and future service
of these officers through fiscal 2009. The Company
met these performance targets in fiscal 2008; therefore,
the fair value of these stock options of $1.0 million is
being expensed over the service period. The Company
recognized $0.5 million of expense on these stock
options in 2008. The fair value of these stock options
was determined using the Company’s closing stock
price on the grant date in accordance with FAS 123R.
The fair value of each option grant was estimated
on the date of grant using the Black-Scholes option-
pricing model. The expected term of the awards grant-
ed was calculated using the “simplified method” in
accordance with Staff Accounting Bulletin No. 107.
Expected volatility is derived from an analysis of the
historical and implied volatility of the Company’s
publicly traded stock. The risk free rate is based on the
U.S. Treasury rates on the grant date with maturity
dates approximating the expected life of the option on
the grant date. The weighted average assumptions used
in the Black-Scholes option pricing model for grants in
2008, 2007 and 2006 are as follows:
Fiscal Fiscal Fiscal
2008 2007 2006
Expected term in years 6.0 6.0 6.0
Expected volatility 45.7% 28.4% 30.2%
Annual dividend yield ———
Risk free interest rate 2.8% 4.5% 4.8%
Weighted average fair
value of options
granted during
the period $13.45 $14.33 $10.93
Options granted 558,293 386,490 342,216