Dollar Tree 2007 Annual Report Download - page 47

DOLLAR TREE, INC. • 2007 ANNUAL REPORT 45
certain other executive officers. These officers no
longer receive awards under the EIP. The EOEP allows
the Company to grant the same type of equity awards
as does the EIP. These awards generally vest over a
three-year period, with a maximum term of 10 years.
Stock appreciation rights may be awarded alone
or in tandem with stock options. When the stock
appreciation rights are exercisable, the holder may sur-
render all or a portion of the unexercised stock appre-
ciation right and receive in exchange an amount equal
to the excess of the fair market value at the date of
exercise over the fair market value at the date of the
grant. No stock appreciation rights have been granted
to date.
Any restricted stock or RSUs awarded are subject
to certain general restrictions. The restricted stock
shares or units may not be sold, transferred, pledged or
disposed of until the restrictions on the shares or units
have lapsed or have been removed under the provi-
sions of the plan. In addition, if a holder of restricted
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 to 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. 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 2007 and 2006, the Company granted a total of
386,490 and 342,216 stock options from the EIP,
EOEP and the NEDP, respectively. 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. For these
options, the fair value of each option grant was esti-
mated on the date of grant using the Black-Scholes
option-pricing model. All options granted to directors
vest immediately and are expensed on the grant date.
During 2007 and 2006, the Company recognized $2.7
million and $1.3 million, respectively of expense relat-
ed to stock option grants. As of February 2, 2008,
there was approximately $4.3 million of total unrecog-
nized compensation expense related to these stock
options which is expected to be recognized over a
weighted average period of 23 months. The expected
term of the awards granted 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. For pro
forma disclosures required under FAS 123, the fair
value of option awards in 2005 were also calculated
using the Black-Scholes option-pricing model. The
weighted average assumptions used in the Black-
Scholes option-pricing model for grants in 2007, 2006
and 2005 are as follows:
Fiscal Fiscal Fiscal
2007 2006 2005
Expected term in years 6.0 6.0 4.7
Expected volatility 28.4% 30.2% 48.7%
Annual dividend yield ———
Risk free interest rate 4.5% 4.8% 3.7%
Weighted average fair
value of options
granted during
the period $14.33 $10.93 $11.27
Options granted 386,490 342,216 320,220