Family Dollar 2009 Annual Report Download - page 39

estimable. We review outstanding claims and proceedings with external counsel to assess probability and
estimates of loss. We re-evaluate the claims and proceedings each quarter or as new and significant information
becomes available, and we adjust or establish accruals, if necessary. If circumstances change, we may be
required to record adjustments that could be material to our reported financial condition and results of operations.
Our total legal liabilities were $53.3 million as of the end of fiscal 2009 and $51.9 million as of the end of fiscal
2008. There were no material changes in the estimates or assumptions used to determine contingent legal
liabilities during fiscal 2009. See Note 9 to the Consolidated Financial Statements included in this Report for
more information on our contingent legal liabilities.
Stock-based Compensation Expense:
We adopted SFAS 123R during the first quarter of fiscal 2006. SFAS 123R requires the measurement and
recognition of compensation expense for all stock-based awards made to employees based on estimated fair
values. The determination of the fair value of employee stock options on the date of grant using an option-pricing
model is affected by our stock price as well as by assumptions regarding a number of complex and subjective
variables. These variables include, but are not limited to, the expected stock price volatility over the term of the
awards, and actual and projected employee stock option exercise behaviors. We also grant performance share
rights and adjust compensation expense each quarter based on the ultimate number of shares expected to be
issued. If factors change and we employ different assumptions in the application of SFAS 123R in future periods,
the compensation expense recorded under SFAS 123R may differ significantly from the amount recorded in the
current period. Our results for fiscal 2009, fiscal 2008 and fiscal 2007 include stock-based compensation expense
of $13.3 million, $11.3 million and $11.7 million, respectively. There were no material changes in the estimates
or assumptions used to determine stock-based compensation during fiscal 2009. See Note 10 to the Consolidated
Financial Statements included in this Report for more information on SFAS 123R.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to market risk from exposure to changes in interest rates based on our financing, investing
and cash management activities. We maintain unsecured revolving credit facilities at variable rates of interest to
meet the short-term needs of our expansion program and seasonal inventory increases. During fiscal 2009, we did
not incur any interest expense related to our credit facilities. During fiscal 2008 we incurred $1.7 million in
interest expense related to our credit facilities. Interest incurred during fiscal 2007 related to our credit facilities
was not material. Our $250.0 million of long-term debt bears interest at fixed rates ranging from 5.24% to 5.41%.
Our investment securities currently include auction rate securities that are subject to failed auctions and are
not currently liquid. As of August 29, 2009, we had a $15.3 million unrealized loss ($9.5 million net of taxes)
related to these investments. We believe that we will be able to liquidate our auction rate securities at par at some
point in the future as a result of issuer calls or refinancings, settlements with broker dealers, or upon maturity.
However, volatility in the credit markets could continue to negatively impact the timing of future liquidity related
to these investments and lead to additional adjustments to their carrying value. See Note 2 to the Consolidated
Financial Statements included in this Report and “Risk Factors” set forth in Part I, Item IA of this Report for
more information.
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