Family Dollar 2010 Annual Report Download - page 37

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Stock-based Compensation Expense:
We measure stock-based compensation expense based on the estimated fair value of the award on the grant
date. The determination of the fair value of our employee stock options on the grant date is calculated using a
Black-Scholes option-pricing model and 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 to
measure stock-based compensation in future periods, the compensation expense recorded may differ significantly
from the amount recorded in the current period. Our results for fiscal 2010, fiscal 2009 and fiscal 2008 include
stock-based compensation expense of $15.7 million, $13.3 million and $11.3 million, respectively. There were
no material changes in the estimates or assumptions used to determine stock-based compensation during fiscal
2010. See Note 11 to the Consolidated Financial Statements included in this Report for more information on
stock-based compensation.
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 2010 and
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. Our $250.0 million of long-term debt bears interest
at fixed rates ranging from 5.24% to 5.41%.
We are also subject to market risk from exposure to changes in the fair value of our investment securities.
Our investment securities currently include auction rate securities that are subject to failed auctions and are not
currently liquid. As of August 28, 2010, we had a $11.4 million unrealized loss ($7.2 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, repurchases by the 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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