Family Dollar 2009 Annual Report Download - page 62

Stock Options
The Company grants stock options to key employees at prices not less than the fair market value of the
Company’s common stock on the grant date. The Company’s practice for a number of years has been to make a
single annual grant to all employees participating in the stock option program and generally to make other grants
only in connection with employment or promotions. Options expire five years from the grant date and are
exercisable to the extent of 40% after the second anniversary of the grant and an additional 30% at each of the
following two anniversary dates on a cumulative basis. Compensation cost is recognized on a straight-line basis,
net of estimated forfeitures, over the requisite service period. The Company uses the Black-Scholes option-
pricing model to estimate the grant-date fair value of each option. The fair values of options granted were
estimated using the following weighted-average assumptions:
Years Ended
August 29, 2009 August 30, 2008 September 1, 2007
Expected dividend yield .................... 2.51% 2.08% 1.78%
Expected stock price volatility ............... 34.00% 29.00% 29.00%
Weighted average risk-free interest rate ........ 2.23% 4.28% 4.57%
Expected life of options (years) .............. 4.43 4.45 4.49
The expected dividend yield is based on the projected annual dividend payment per share divided by the stock
price on the grant date. Expected stock price volatility is derived from an analysis of the historical and implied
volatility of the Company’s publicly traded stock. The risk-free interest 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
expected life of the options is based on an analysis of historical and expected future exercise behavior, as well as
certain demographic characteristics. These assumptions are evaluated and revised for future grants, as necessary,
to reflect market conditions and experience. There were no significant changes made to the methodology used to
determine the assumptions during fiscal 2009. The weighted-average grant-date fair value of stock options
granted was $5.78 during fiscal 2009, $6.89 during fiscal 2008 and $7.86 during fiscal 2007.
The following table summarizes the transactions under the stock option plans during fiscal 2009:
(in thousands, except per share amounts)
Options
Outstanding
Weighted-
Average Exercise
Price
Weighted-Average
Remaining
Contractual Life in
Years
Aggregate Intrinsic
Value
Balance at August 30, 2008 .............. 4,559 $29.71
Granted ............................. 1,079 23.48
Exercised ............................ 1,207 26.08
Forfeited ............................. 93 26.34
Expired .............................. 1,164 40.30
Balance at August 29, 2009 .............. 3,174 $25.17 2.71 $17,460
Exercisable at August 29, 2009 ........... 821 $24.99 1.14 $ 4,603
The total intrinsic value of stock options exercised was $7.1 million during fiscal 2009, $0.1 million during fiscal
2008 and $5.4 million during fiscal 2007. As of August 29, 2009, there was approximately $7.1 million of
unrecognized compensation cost related to outstanding stock options. The unrecognized compensation cost will
be recognized over a weighted-average period of 2.4 years.
Performance Share Rights
The Company grants performance share rights to key employees on an annual basis and in connection with
employment or promotion. Performance share rights give employees the right to receive shares of the Company’s
common stock at a future date based on the Company’s performance relative to a peer group. Performance is
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