UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended February 28, 2009

Or



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

Commission File Number: 1-6807

FAMILY DOLLAR STORES, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 56-0942963                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                                           |  |           
|---------------------------------------------------------- |  | ----------
|P.O. Box 1017, 10401 Monroe Road Charlotte, North Carolina |  | 28201-1017
|(Address of principal executive offices)                   |  | (Zip Code)

Registrants telephone number, including area
code:    (704) 847-6961

Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days.  Yes x    No  ̈

Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and
smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



| |  |                                                                          |  |                             |  | 
| |  | ------------------------------------------------------------------------ |  | --------------------------- |  | 
| |  | Large accelerated filer x                                                |  | Accelerated filer  ̈         |  | 
| |  |                                                                          | 
| |  | Non-accelerated filer  ̈    (Do not check if a smaller reporting company) |  | Smaller reporting company  ̈ |  | 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ̈    No x

Indicate the number of shares
outstanding of each of the issuers classes of common stock, as of the latest practicable date.



| |  |                               |  |  |  |                               |  | 
| |  | ----------------------------- |  |  |  | ----------------------------- |  | 
| |  | Class                         |  |  |  | Outstanding at March 27, 2009 |  | 
| |  | Common Stock, $0.10 par value |  |  |  | 140,238,155 shares            |  | 



---

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES

INDEX



|                                                                                                            |  |         
|----------------------------------------------------------------------------------------------------------- |  | --------
|                                                                                                            |  | Page No.
|                                                                                                            | 
|Part I - Financial Information                                                                              |  |         
|                                                                                                            | 
|Item 1 - Consolidated Condensed Financial Statements (unaudited):                                           |  | 3       
|                                                                                                            | 
|Consolidated Condensed Balance Sheets February 
28, 2009, and August 30, 2008                              |  | 3       
|                                                                                                            | 
|Consolidated Condensed Statements of Income Quarter Ended February 
28, 2009, and March 1, 2008            |  | 4       
|                                                                                                            | 
|Consolidated Condensed Statements of Income First Half Ended February 
28, 2009, and March 1, 2008         |  | 5       
|                                                                                                            | 
|Consolidated Condensed Statements of Cash Flows First Half Ended February 28, 2009, and March 1, 2008      |  | 6       
|                                                                                                            | 
|Notes to Consolidated Condensed Financial Statements                                                        |  | 7       
|                                                                                                            | 
|Item 2 - Managements Discussion and Analysis of Financial Condition
and              Results of Operations |  | 14      
|                                                                                                            | 
|Item 3 - Quantitative and Qualitative Disclosures About Market Risk                                         |  | 20      
|                                                                                                            | 
|Item 4 - Controls and Procedures                                                                            |  | 20      
|                                                                                                            | 
|Part II - Other Information and Signatures                                                                  |  |         
|                                                                                                            | 
|Item 1 - Legal Proceedings                                                                                  |  | 21      
|                                                                                                            | 
|Item 1A - Risk Factors                                                                                      |  | 21      
|                                                                                                            | 
|Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds                                        |  | 22      
|                                                                                                            | 
|Item 4 - Submission of Matters to a Vote of Security Holders                                                |  | 22      
|                                                                                                            | 
|Item 6 - Exhibits                                                                                           |  | 23      
|                                                                                                            | 
|Signatures                                                                                                  |  | 24      



2



---

PART I  FINANCIAL INFORMATION

Item 1.    Consolidated Condensed Financial Statements

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)



|                                                                                                                                                                                                                                                  |  |                   |           |   |                 |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | - | --------------- | - | --------- | -
|(in thousands, except per share and share amounts)                                                                                                                                                                                                |  | February 28, 2009 |           |   | August 30, 2008 |  
|Assets                                                                                                                                                                                                                                            |  |                   |           |   |                 |   |           |  
|Current assets:                                                                                                                                                                                                                                   |  |                   |           |   |                 |   |           |  
|Cash and cash equivalents                                                                                                                                                                                                                         |  | $                 | 299,289   |   |                 | $ | 158,502   |  
|Merchandise inventories                                                                                                                                                                                                                           |  |                   | 1,035,196 |   |                 |   | 1,032,685 |  
|Deferred income taxes                                                                                                                                                                                                                             |  |                   | 96,382    |   |                 |   | 87,715    |  
|Income tax refund receivable                                                                                                                                                                                                                      |  |                   |          |   |                 |   | 7,007     |  
|Prepayments and other current assets                                                                                                                                                                                                              |  |                   | 56,973    |   |                 |   | 58,182    |  
|                                                                                                                                                                                                                                                  |  |                   |           |   |                 |   |           |  
|Total current assets                                                                                                                                                                                                                              |  |                   | 1,487,840 |   |                 |   | 1,344,091 |  
|                                                                                                                                                                                                                                                  |  |                  
|Property and equipment, net                                                                                                                                                                                                                       |  |                   | 1,049,923 |   |                 |   | 1,071,883 |  
|Investment securities                                                                                                                                                                                                                             |  |                   | 207,842   |   |                 |   | 222,104   |  
|Other assets                                                                                                                                                                                                                                      |  |                   | 23,678    |   |                 |   | 23,704    |  
|                                                                                                                                                                                                                                                  |  |                   |           |   |                 |   |           |  
|                                                                                                                                                                                                                                                  |  | $                 | 2,769,283 |   |                 | $ | 2,661,782 |  
|                                                                                                                                                                                                                                                  |  |                   |           |   |                 |   |           |  
|                                                                                                                                                                                                                                                  |  |                  
|Liabilities and Shareholders Equity                                                                                                                                                                                                              |  |                   |           |   |                 |   |           |  
|Current liabilities:                                                                                                                                                                                                                              |  |                   |           |   |                 |   |           |  
|Accounts payable                                                                                                                                                                                                                                  |  | $                 | 538,902   |   |                 | $ | 570,699   |  
|Accrued liabilities                                                                                                                                                                                                                               |  |                   | 506,893   |   |                 |   | 496,820   |  
|Income taxes                                                                                                                                                                                                                                      |  |                   | 28,239    |   |                 |   | 1,466     |  
|                                                                                                                                                                                                                                                  |  |                   |           |   |                 |   |           |  
|Total current liabilities                                                                                                                                                                                                                         |  |                   | 1,074,034 |   |                 |   | 1,068,985 |  
|                                                                                                                                                                                                                                                  |  |                  
|Long-term debt                                                                                                                                                                                                                                    |  |                   | 250,000   |   |                 |   | 250,000   |  
|Deferred income taxes                                                                                                                                                                                                                             |  |                   | 45,180    |   |                 |   | 50,998    |  
|Income taxes                                                                                                                                                                                                                                      |  |                   | 32,328    |   |                 |   | 37,716    |  
|Commitments and contingencies                                                                                                                                                                                                                     |  |                   |           |   |                 |   |           |  
|                                                                                                                                                                                                                                                  |  |                  
|Shareholders equity:                                                                                                                                                                                                                             |  |                   |           |   |                 |   |           |  
|Preferred stock, $1 par; authorized and unissued 500,000 shares                                                                                                                                                                                   |  |                   |           |   |                 |   |           |  
|Common stock, $.10 par; authorized 600,000,000 shares; issued144,539,287 shares at February 28, 2009, and 144,132,321 sharesat
August 30, 2008, and outstanding 140,120,913 sharesat February 28, 2009, and 139,704,542 shares at August 30, 2008 |  |                   | 14,454    |   |                 |   | 14,413    |  
|Capital in excess of par                                                                                                                                                                                                                          |  |                   | 178,579   |   |                 |   | 166,669   |  
|Retained earnings                                                                                                                                                                                                                                 |  |                   | 1,277,675 |   |                 |   | 1,170,652 |  
|Accumulated other comprehensive loss                                                                                                                                                                                                              |  |                   | (10,251   | ) |                 |   | (4,862    | )
|                                                                                                                                                                                                                                                  |  |                   |           |   |                 |   |           |  
|                                                                                                                                                                                                                                                  |  |                   | 1,460,457 |   |                 |   | 1,346,872 |  
|                                                                                                                                                                                                                                                  |  |                   |           |   |                 |   |           |  
|Less: common stock held in treasury, at cost (4,418,374 sharesat February 28, 2009, and 4,427,779 shares at August 30, 2008)                                                                                                                      |  |                   | 92,716    |   |                 |   | 92,789    |  
|                                                                                                                                                                                                                                                  |  |                   |           |   |                 |   |           |  
|Total shareholders equity                                                                                                                                                                                                                        |  |                   | 1,367,741 |   |                 |   | 1,254,083 |  
|                                                                                                                                                                                                                                                  |  |                   |           |   |                 |   |           |  
|                                                                                                                                                                                                                                                  |  | $                 | 2,769,283 |   |                 | $ | 2,661,782 |  
|                                                                                                                                                                                                                                                  |  |                   |           |   |                 |   |           |  

See notes to the consolidated condensed financial statements.



3



---

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)



|                                         |  |                   |           |               |   |          
|---------------------------------------- |  | ----------------- | --------- | ------------- | - | ---------
|                                         |  | Quarter Ended    
|                                         |  |                  
|(in thousands, except per share amounts) |  | February 28, 2009 |           | March 1, 2008
|Net sales                                |  | $                 | 1,992,260 |               | $ | 1,832,611
|                                         |  |                  
|Cost and expenses:                       |  |                   |           |               |   |          
|Cost of sales                            |  |                   | 1,320,956 |               |   | 1,233,528
|Selling, general and administrative      |  |                   | 537,218   |               |   | 502,620  
|                                         |  |                   |           |               |   |          
|Cost of sales and operating expenses     |  |                   | 1,858,174 |               |   | 1,736,148
|                                         |  |                   |           |               |   |          
|                                         |  |                  
|Operating profit                         |  |                   | 134,086   |               |   | 96,463   
|                                         |  |                  
|Interest income                          |  |                   | 1,564     |               |   | 3,344    
|                                         |  |                  
|Interest expense                         |  |                   | 3,345     |               |   | 3,355    
|                                         |  |                   |           |               |   |          
|                                         |  |                  
|Income before income taxes               |  |                   | 132,305   |               |   | 96,452   
|                                         |  |                  
|Income taxes                             |  |                   | 48,165    |               |   | 33,149   
|                                         |  |                   |           |               |   |          
|                                         |  |                  
|Net income                               |  | $                 | 84,140    |               | $ | 63,303   
|                                         |  |                   |           |               |   |          
|                                         |  |                  
|Net income per common share  basic      |  | $                 | 0.60      |               | $ | 0.45     
|                                         |  |                   |           |               |   |          
|Weighted average shares  basic          |  |                   | 139,996   |               |   | 140,439  
|                                         |  |                   |           |               |   |          
|                                         |  |                  
|Net income per common share  diluted    |  | $                 | 0.60      |               | $ | 0.45     
|                                         |  |                   |           |               |   |          
|Weighted average shares  diluted        |  |                   | 140,456   |               |   | 140,617  
|                                         |  |                   |           |               |   |          
|                                         |  |                  
|Dividends declared per common share      |  | $                 | 0.135     |               | $ | 0.125    
|                                         |  |                   |           |               |   |          

See notes to the consolidated condensed financial statements.



4



---

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)



|                                         |  |                   |           |               |   |          
|---------------------------------------- |  | ----------------- | --------- | ------------- | - | ---------
|                                         |  | First Half Ended 
|                                         |  |                  
|(in thousands, except per share amounts) |  | February 28, 2009 |           | March 1, 2008
|Net sales                                |  | $                 | 3,746,093 |               | $ | 3,515,654
|                                         |  |                  
|Cost and expenses:                       |  |                   |           |               |   |          
|Cost of sales                            |  |                   | 2,460,336 |               |   | 2,340,546
|Selling, general and administrative      |  |                   | 1,059,267 |               |   | 993,505  
|                                         |  |                   |           |               |   |          
|Cost of sales and operating expenses     |  |                   | 3,519,603 |               |   | 3,334,051
|                                         |  |                   |           |               |   |          
|                                         |  |                  
|Operating profit                         |  |                   | 226,490   |               |   | 181,603  
|                                         |  |                  
|Interest income                          |  |                   | 5,163     |               |   | 5,429    
|                                         |  |                  
|Interest expense                         |  |                   | 6,562     |               |   | 7,966    
|                                         |  |                   |           |               |   |          
|                                         |  |                  
|Income before income taxes               |  |                   | 225,091   |               |   | 179,066  
|                                         |  |                  
|Income taxes                             |  |                   | 81,662    |               |   | 63,817   
|                                         |  |                   |           |               |   |          
|                                         |  |                  
|Net income                               |  | $                 | 143,429   |               | $ | 115,249  
|                                         |  |                   |           |               |   |          
|                                         |  |                  
|Net income per common share  basic      |  | $                 | 1.03      |               | $ | 0.82     
|                                         |  |                   |           |               |   |          
|Weighted average shares  basic          |  |                   | 139,907   |               |   | 140,688  
|                                         |  |                   |           |               |   |          
|                                         |  |                  
|Net income per common share  diluted    |  | $                 | 1.02      |               | $ | 0.82     
|                                         |  |                   |           |               |   |          
|Weighted average shares  diluted        |  |                   | 140,346   |               |   | 140,970  
|                                         |  |                   |           |               |   |          
|                                         |  |                  
|Dividends declared per common share      |  | $                 | 0.260     |               | $ | 0.240    
|                                         |  |                   |           |               |   |          

See notes to the consolidated condensed financial statements.



5



---

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                 |  |                   |         |   |               |   |            |  
|-------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ------------- | - | ---------- | -
|                                                                                 |  | First Half Ended  |        
|                                                                                 |  |                  
|(in thousands)                                                                   |  | February 28, 2009 |         |   | March 1, 2008 |  
|Cash flows from operating activities:                                            |  |                   |         |   |               |   |            |  
|Net income                                                                       |  | $                 | 143,429 |   |               | $ | 115,249    |  
|Adjustments to reconcile net income to net cash provided byoperating activities: |  |                   |         |   |               |   |            |  
|Depreciation and amortization                                                    |  |                   | 77,736  |   |               |   | 76,789     |  
|Deferred income taxes                                                            |  |                   | (11,134 | ) |               |   | (23,425    | )
|Stock-based compensation                                                         |  |                   | 6,087   |   |               |   | 5,240      |  
|Loss on disposition of property and equipment                                    |  |                   | 5,955   |   |               |   | 2,753      |  
|Changes in operating assets and liabilities:                                     |  |                   |         |   |               |   |            |  
|Merchandise inventories                                                          |  |                   | (2,511  | ) |               |   | 67,637     |  
|Income tax refund receivable                                                     |  |                   | 7,007   |   |               |   | 41,723     |  
|Prepayments and other current assets                                             |  |                   | 1,209   |   |               |   | (8,547     | )
|Other assets                                                                     |  |                   | 650     |   |               |   | 771        |  
|Accounts payable and accrued liabilities                                         |  |                   | 4,080   |   |               |   | (48,996    | )
|Income taxes                                                                     |  |                   | 21,021  |   |               |   | 45,429     |  
|                                                                                 |  |                   |         |   |               |   |            |  
|                                                                                 |  |                   | 253,529 |   |               |   | 274,623    |  
|                                                                                 |  |                   |         |   |               |   |            |  
|Cash flows from investing activities:                                            |  |                   |         |   |               |   |            |  
|Purchases of investment securities                                               |  |                   |        |   |               |   | (1,071,270 | )
|Sales of investment securities                                                   |  |                   | 5,600   |   |               |   | 1,027,865  |  
|Capital expenditures                                                             |  |                   | (61,788 | ) |               |   | (64,414    | )
|Proceeds from dispositions of property and equipment                             |  |                   | 57      |   |               |   | 345        |  
|                                                                                 |  |                   |         |   |               |   |            |  
|                                                                                 |  |                   | (56,131 | ) |               |   | (107,474   | )
|                                                                                 |  |                   |         |   |               |   |            |  
|Cash flows from financing activities:                                            |  |                   |         |   |               |   |            |  
|Revolving credit facility borrowings                                             |  |                   |        |   |               |   | 557,300    |  
|Repayment of revolving credit facility borrowings                                |  |                   |        |   |               |   | (557,300   | )
|Payment of debt issuance costs                                                   |  |                   | (624    | ) |               |   | (304       | )
|Repurchases of common stock                                                      |  |                   |        |   |               |   | (97,674    | )
|Change in cash overdrafts                                                        |  |                   | (27,256 | ) |               |   | (44,002    | )
|Proceeds from exercise of stock options                                          |  |                   | 6,222   |   |               |   | 81         |  
|Payment of dividends                                                             |  |                   | (34,953 | ) |               |   | (32,482    | )
|                                                                                 |  |                   |         |   |               |   |            |  
|                                                                                 |  |                   | (56,611 | ) |               |   | (174,381   | )
|                                                                                 |  |                   |         |   |               |   |            |  
|                                                                                 |  |                  
|Net change in cash and cash equivalents                                          |  |                   | 140,787 |   |               |   | (7,232     | )
|Cash and cash equivalents at beginning of period                                 |  |                   | 158,502 |   |               |   | 87,176     |  
|                                                                                 |  |                   |         |   |               |   |            |  
|Cash and cash equivalents at end of period                                       |  | $                 | 299,289 |   |               | $ | 79,944     |  
|                                                                                 |  |                   |         |   |               |   |            |  

See notes to the consolidated condensed financial statements.



6



---

FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS



|1. | In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the Companys financial position as of February 28, 2009; the results of operations for the second quarter and first half ended February 28, 2009 (second quarter and first half of fiscal 2009),
and March 1, 2008 (second quarter and first half of fiscal 2008); and the cash flows for the first half of fiscal 2009 and first half of fiscal 2008. For further information, refer to the consolidated financial statements and
footnotes included in the Companys Annual Report on Form 10-K for the fiscal year ended August 30, 2008 (fiscal 2008).
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The results of operations for the second quarter and first half of fiscal 2009 are not necessarily indicative of the results to be expected for the full year.

Certain reclassifications of the amounts for the first half of fiscal 2008 have been made to conform to the presentation for the first half of fiscal
2009.

The preparation of the Companys Consolidated Condensed Financial Statements, in conformity with accounting principles
generally accepted in the United States of America, requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.



|2. | In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for the first annual period beginning after
November 15, 2007. The effective date has been delayed for non-financial assets and liabilities to the first annual period beginning after November 15, 2008. The Company adopted SFAS 157 during the first quarter of fiscal 2009. The
adoption of SFAS 157 did not have a material impact on the Companys Consolidated Condensed Financial Statements.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SFAS
157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 establishes a fair value hierarchy which prioritizes
the inputs used to measure fair value into three levels, with Level 1 being of the highest priority.



| | ¡ |  | Level 1  Quoted prices in active markets for identical assets or liabilities.
| | - |  | ------------------------------------------------------------------------------



| | ¡ |  | Level 2  Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted
prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that
are derived principally from or corroborated by observable market data by correlation or other means.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | Level 3  Inputs that are unobservable for the asset or liability.
| | - |  | ------------------------------------------------------------------

The unobservable inputs in Level 3 can only be used to measure fair value to the extent that observable inputs in Level 1 and Level 2 are not available.
The following table represents the Companys fair value hierarchy for its financial assets that are required to be measured at fair value as of February 28, 2009:



|                        |  |                   |         |         |   |         |  |         |   |  |   |        
|----------------------- |  | ----------------- | ------- | ------- | - | ------- |  | ------- | - |  | - | -------
|                        |  | February 28, 2009
|(in
thousands)          |  | Fair Value        |         | Level
1 |   | Level 2 |  | Level 3
|Cash
equivalents:       |  |                   |         |         |   |         |  |         |   |  |   |        
|                        |  |                   |         |        
|Money market funds      |  | $                 | 222,371 |         | $ | 222,371 |  | $       |  |  | $ |       
|                        |  |                   |         |        
|Investment securities:  |  |                   |         |         |   |         |  |         |   |  |   |        
|                        |  |                   |         |        
|Auction rate securities |  |                   | 207,842 |         |   |        |  |         |  |  |   | 207,842
|                        |  |                   |         |         |   |         |  |         |   |  |   |        
|Total                   |  | $                 | 430,213 |         | $ | 222,371 |  | $       |  |  | $ | 207,842
|                        |  |                   |         |         |   |         |  |         |   |  |   |        



7



---

Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying amount of the Companys cash equivalents approximates fair value due
to the short maturities of these investments and consists primarily of money market funds and other overnight investments.

Investment
Securities

The Company accounts for its investment securities in accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. All of the Companys investments are currently classified as available-for-sale due to the fact that the Company does not intend to hold the securities to maturity and does not purchase the
securities for the purpose of selling them to make a profit on short-term differences in price. Available-for-sale securities are carried at estimated fair value, with unrealized gains and losses, if any, reported as a component of
shareholders equity.

The Companys investment securities currently consist of auction rate securities that were measured at
fair value using Level 3 inputs. While the underlying securities generally have long-term nominal maturities that exceed one year, the interest rates reset periodically in scheduled auctions (generally every 7-35 days). The Company generally has the
opportunity to sell its investments during such periodic auctions subject to the availability of buyers.

Beginning in the second quarter
of fiscal 2008, issues in the global credit and capital markets led to failed auctions with respect to substantially all of the Companys auction rate securities. A failed auction typically occurs when the number of securities submitted for
sale in the auction exceeds the number of purchase bids. As of February 28, 2009, all of the Companys $224.4 million par value investments were subject to failed auctions. As a result of the failed auctions, the interest rates on the
investments reset to the established rates per the applicable investment offering statements. The Company will not be able to liquidate the investments until a successful auction occurs, a buyer is found outside the auction process, the securities
are called or refinanced by the issuer, or the securities mature.

The Company does not currently expect to liquidate any auction rate
securities going forward through the normal auction process. However, the Company does expect to be able to liquidate its remaining auction rate securities at par through issuer calls or refinancings, settlements with broker dealers, or upon
maturity. During the first half of fiscal 2009, the Company liquidated $5.6 million of auction rate securities at par as a result of issuer calls. Since the auctions began failing in the second quarter of fiscal 2008, the Company has liquidated
$15.6 million of its auction rate securities at par as a result of issuer calls or refinancings.

The Companys investments were
classified as long-term assets on the Consolidated Condensed Balance Sheet as of February 28, 2009, due to the continued failure of the auction process and the continued uncertainty regarding the timing of future liquidity. The Company believes
operating cash flows and existing credit facilities will provide sufficient liquidity for the Companys ongoing operations and growth initiatives.

The credit quality of the Companys auction rate securities portfolio remains high (80% AAA-rated, 2% AA-rated, 9% A-rated, and 9% BBB rated as of February 28, 2009), with substantially all of the securities
being tax-exempt bonds, which are collateralized by federally guaranteed student loans. Historically, the carrying value (par value) of the auction rate securities approximated fair market value due to the resetting rates, and the Company had no
cumulative gross unrealized or realized gains or losses from these investments prior to fiscal 2008. However, due to the liquidity issues noted above, the Company had a temporary gross unrealized loss of $16.5 million ($10.3 million, net of taxes)
as of February 28, 2009. Because there is no active market for the Companys auction rate securities, the fair value of each security was determined through the use of a discounted cash flow analysis using Level 3 inputs. The terms used in
the analysis were based on managements estimate of the timing of future liquidity, which assumes that the securities will be called or refinanced by the issuer or settled with broker dealers prior to maturity. The discount rates used in the
analysis were based on market rates for similar tax-exempt securities with comparable ratings. Due to the uncertainty surrounding the timing of future liquidity, the discount rates were adjusted further to reflect the illiquidity of the investments.
The Companys valuation is sensitive to market conditions and managements judgment and can change significantly based on the assumptions used. A 100 basis point increase or decrease in the discount rate along with a 12-month increase
or decrease in the term could result in a gross unrealized loss ranging from $6.9 million to $30.5 million.



8



---

The following table summarizes the change in the fair value of the Companys auction rate securities
measured using Level 3 inputs during the first half of fiscal 2009:



|                                                       |  |            |         |  
|------------------------------------------------------ |  | ---------- | ------- | -
|(in thousands)                                         |  | Fair Value |        
|Balance at August 30, 2008                             |  | $          | 222,104 |  
|Unrealized loss included in
other comprehensive income |  |            | (8,662  | )
|Net
sales/settlements                                  |  |            | (5,600  | )
|                                                       |  |            |         |  
|                                                       | 
|Balance at February 28, 2009                           |  | $          | 207,842 |  
|                                                       |  |            |         |  

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 permits all entities the option to measure many financial instruments and certain other items at fair value. If a
company elects the fair value option for an eligible item, then it will report unrealized gains and losses on those items at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company
did not elect the fair value option under SFAS 159.



|3. | On December 18, 2008, the Company entered into an unsecured revolving credit facility with a syndicate of lenders for short-term borrowings of up to $250 million. The credit
facility replaces the Companys $250 million unsecured revolving credit facility that was scheduled to mature on January 29, 2009. The credit facility has an initial term of 364 days and includes two one-year extensions that require lender
consent. The credit facility also includes a one year term-out option that does not require lender consent. Any borrowings under the credit facility accrue interest at a variable rate based on short-term market interest rates.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company also maintains a $350 million unsecured revolving credit facility expiring on August 24, 2011. Any
borrowings under this credit facility also accrue interest at a variable rate based on short-term market interest rates. Outstanding standby letters of credit ($187.5 million as of February 28, 2009) reduce the borrowing capacity of the $350
million credit facility.

There were no borrowings under the credit facilities during the first half of fiscal 2009. The credit facilities
contain certain restrictive financial covenants, which include a consolidated debt to consolidated capitalization ratio, a fixed charge coverage ratio, and a priority debt to consolidated net worth ratio. As of February 28, 2009, the Company
was in compliance with all such covenants.



|4. | During the first half of fiscal 2009, the Company did not purchase any shares of its common stock. During the first half of fiscal 2008, the Company purchased 3.7 million
shares of its common stock at a cost of $97.7 million.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

All shares are purchased pursuant to share repurchase authorizations
approved by the Board of Directors. On November 5, 2007, the Company announced that the Board of Directors authorized the Company to purchase up to $150 million of the Companys common stock from time to time as market conditions warrant.
As of February 28, 2009, the Company had $133.0 million remaining under this authorization. Shares purchased under the share repurchase authorizations are generally held in treasury or have been canceled and returned to the status of authorized
but unissued shares.



9



---

|5. | Basic net income per common share is computed by dividing net income by the weighted average number of shares outstanding during each period. Diluted net income per common share
gives effect to all securities representing potential common shares that were dilutive and outstanding during the period. Certain stock options and performance share rights were excluded from the calculation of diluted net income per common share
because their effects were antidilutive (3.3 million shares and 3.4 million shares for the quarter and first half ended February 28, 2009, respectively, and 4.9 million shares and 4.4 million shares for the quarter and first half
ended March 1, 2008, respectively). In the calculation of diluted net income per common share, the denominator includes the number of additional common shares that would have been outstanding if the Companys outstanding dilutive stock
options and performance share rights had been exercised.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table sets forth the computation of basic and diluted
net income per common share:



|                                                         |  |                    |         |                  |   |                    |  |                |         |  |   |        
|-------------------------------------------------------- |  | ------------------ | ------- | ---------------- | - | ------------------ |  | -------------- | ------- |  | - | -------
|                                                         |  | Quarter Ended      |         | First Half Ended
|(in thousands, except per share amounts)                 |  | February 28,  2009 |         | March 1,  2008   |   | February 28,  2009 |  | March 1,  2008
|Basic Net Income Per
Share:                              |  |                    |         |                  |   |                    |  |                |         |  |   |        
|Net income                                               |  | $                  | 84,140  |                  | $ | 63,303             |  | $              | 143,429 |  | $ | 115,249
|                                                         |  |                    |         |                  |   |                    |  |                |         |  |   |        
|Weighted average number of shares
outstanding            |  |                    | 139,996 |                  |   | 140,439            |  |                | 139,907 |  |   | 140,688
|                                                         |  |                    |         |                  |   |                    |  |                |         |  |   |        
|Net income per common share 
basic                      |  | $                  | 0.60    |                  | $ | 0.45               |  | $              | 1.03    |  | $ | 0.82   
|                                                         |  |                    |         |                  |   |                    |  |                |         |  |   |        
|                                                         |  |                    |         |                 
|Diluted Net Income Per Share:                            |  |                    |         |                  |   |                    |  |                |         |  |   |        
|Net income                                               |  | $                  | 84,140  |                  | $ | 63,303             |  | $              | 143,429 |  | $ | 115,249
|                                                         |  |                    |         |                  |   |                    |  |                |         |  |   |        
|Weighted average number of shares outstanding            |  |                    | 139,996 |                  |   | 140,439            |  |                | 139,907 |  |   | 140,688
|Effect of dilutive securities 
stock options            |  |                    | 159     |                  |   |                   |  |                | 145     |  |   | 47     
|Effect of dilutive securities
 performance share rights |  |                    | 301     |                  |   | 178                |  |                | 294     |  |   | 235    
|                                                         |  |                    |         |                  |   |                    |  |                |         |  |   |        
|Weighted average shares  diluted                        |  |                    | 140,456 |                  |   | 140,617            |  |                | 140,346 |  |   | 140,970
|                                                         |  |                    |         |                  |   |                    |  |                |         |  |   |        
|Net income per common share 
diluted                    |  | $                  | 0.60    |                  | $ | 0.45               |  | $              | 1.02    |  |   | 0.82   
|                                                         |  |                    |         |                  |   |                    |  |                |         |  |   |        



|6. | On January 30, 2001, Janice Morgan and Barbara Richardson, two individuals who have held the position of Store Manager for subsidiaries of the Company, filed a Complaint
against the Company in the United States District Court for the Northern District of Alabama. The Complaint alleged that the Company violated the Fair Labor Standards Act (FLSA) by classifying the named plaintiffs and other similarly
situated current and former Store Managers as exempt employees who are not entitled to overtime compensation. The court allowed the case to proceed as a collective action and notice of the pendency of the lawsuit was sent to
approximately 13,000 current and former Store Managers holding the position on or after July 1, 1999. Approximately 2,550 of those receiving such notice filed consent forms and joined the lawsuit as plaintiffs, including approximately 2,300
former Store Managers and approximately 250 then current employees. After rulings by the Court on motions to dismiss certain plaintiffs filed by the Company, 1,424 plaintiffs remained in the case at the commencement of trial.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A jury trial was held in June 2005, in Tuscaloosa, Alabama, and ended with the judge declaring a mistrial after the jury was
unable to reach a unanimous decision in the matter. The case was subsequently retried before another Tuscaloosa jury, which found that the Company should have classified the Store Manager plaintiffs as hourly employees entitled to overtime pay,
rather than as salaried exempt managers, and awarded damages. Subsequently, the Court ruled that the Company did not act in good faith in classifying the plaintiffs as exempt, and after making adjustments to the damages award based upon the filing
of personal bankruptcy by certain plaintiffs, the Court entered a final modified judgment for approximately $35.6 million. The District Court advised that it would consider the plaintiffs motion for an award of attorneys fees and
expenses at the conclusion of the appellate process.

The Company appealed this final
judgment to the United States Court of Appeals for the 11thCircuit. On December 16, 2008, the Court of Appeals issued a ruling affirming the
judgment of the District Court. The Company plans to petition the United States Supreme Court to grant certiorari for review of this ruling.

As of February 28, 2009, the Company had accrued liabilities of approximately $51.1 million with respect to this litigation, including $45.0 million recognized as a litigation charge in the second quarter of fiscal 2006 and $6.1
million related to previous charges and ongoing interest.



10



---

In general, the Company continues to believe that the Store Managers are exempt employees
under the FLSA and have been properly compensated. The Company believes that it has meritorious positions on appeal, but the outcome of any litigation is uncertain. Therefore, the Company has accrued liabilities with respect to the Morgan
litigation, as discussed above. If the Company determines that a reclassification of some or all of its Store Managers as non-exempt employees under the FLSA is required, such action could have a material adverse effect on the Companys
financial position, liquidity or results of operation. At this time, the Company cannot quantify the impact of such a determination.

In
addition to the Morgan case described above, since 2004, numerous cases have been filed by other plaintiffs making similar allegations against the Company, i.e., that the Company violated the FLSA or similar state laws by classifying the
named plaintiffs and other current and former Store Managers as exempt employees who are not entitled to overtime compensation. The complaints in each action request that the cases proceed as collective actions under the FLSA or as class
actions under state law and request recovery of overtime pay, liquidated damages, and attorneys fees and court costs. Several of these cases have been dismissed or voluntarily withdrawn.

The first two of those remaining cases are Grace v. Family Dollar Stores, Inc. and Ward v. Family Dollar, Inc., both pending in the U.S.
District Court for the Western District of North Carolina, Charlotte Division (the N.C. Federal Court). In those cases, the court has returned orders finding that the plaintiffs were not similarly situated and, therefore, that neither
nationwide notice nor collective treatment under the FLSA is appropriate. Hence, the Grace and Ward cases are proceeding as approximately 80 individual plaintiff cases.

In addition to Grace and Ward, a total of twelve other similar class or collective cases are now pending, all of which are before the
N.C. Federal Court. All of these cases have been either transferred by U.S. District Courts in various states to the N.C. Federal Court or were the subject of an order entered by the United States Judicial Panel on MultiDistrict Litigation
transferring the cases which were originally filed in the United States District Courts in various states to the N.C. Federal Court for coordination of discovery with the other pending cases.

Discovery in the Grace and Ward cases is moving forward on the merits of the individuals exemption claims and discovery in the
remaining cases is being conducted regarding a determination whether the plaintiffs are similarly situated such that the cases should proceed as collective actions, or, in the case of the actions brought under state law, as class
actions.

As noted above, in general, the Company continues to believe that its Store Managers are exempt employees under the
FLSA and have been and are being properly compensated under both federal and state laws. The Company further believes that these actions are not appropriate for collective or class action treatment. The Company intends to vigorously defend the
claims in these actions. While the N.C. Federal Court has previously found that the Grace and Ward actions are not appropriate for collective action treatment, at this time it is not possible to predict whether one or more of the
remaining cases may be permitted to proceed collectively on a nationwide or other basis. No assurances can be given that the Company will be successful in the defense of these actions, on the merits or otherwise.

On October 14, 2008, a complaint was filed in the U.S. District Court in Birmingham, Alabama captioned Scott, et al v. Family Dollar Stores,
Inc. alleging discriminatory pay practices with respect to the Companys female store managers. This case was pled as a putative class action or collective action under applicable statutes on behalf of all Family Dollar female store
managers. The plaintiffs seek recovery of compensatory and punitive money damages, recovery of attorneys fees and equitable relief. The case has been transferred to the N.C. Federal Court. The Company intends to vigorously defend the
allegations in the Scottcase, however, no assurances can be given that the Company will be successful in the defense of this action.

The Company is involved in numerous other legal proceedings and claims incidental to its business, including, as noted above, litigation related to alleged failures to comply with various state and federal employment laws, some of which are
or may be pled as class or collective actions, and litigation related to alleged personal or property damage, as to which the Company carries insurance coverage and/or, pursuant to SFAS No. 5, Accounting for Contingencies, has
established reserves as set forth in the Companys financial statements. While the ultimate outcome cannot be determined, the Company currently believes that these proceedings and claims, both individually and in the aggregate, should not
have a material adverse effect on the Companys financial position, liquidity or results of operations, except as noted above. However, the outcome of any litigation is inherently uncertain and, if decided adversely to the Company, or if
the Company determines that settlement of such actions is appropriate, the Company may be subject to liability that could have a material adverse effect on the Companys financial position, liquidity or results of operations.



11



---

|7. | The Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) effective
September 2, 2007. FIN 48 clarifies the accounting for uncertain income tax positions in an enterprises financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a minimum
recognition threshold a tax position is required to meet before being recognized in the financial statements. This pronouncement also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. Effective with the adoption of FIN 48, the Company classifies accrued interest expense and penalties related to uncertain tax positions as a component of income tax expense.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During the first half of fiscal 2009, liabilities for unrecognized tax benefits increased by $1.5 million and accrued interest and penalties increased by
$1.0 million. As of February 28, 2009, the Company had a liability for uncertain tax positions of $41.7 million, of which $17.8 million would, if recognized, affect the Companys effective tax rate.

On a quarterly and annual basis, the Company accrues for the effects of open uncertain tax positions and the related interest and penalties. The Company
is subject to U.S. federal income tax as well as income tax in multiple state and local jurisdictions. As of February 28, 2009, the Company was subject to income tax examinations for its U.S. federal income taxes for fiscal years ending
subsequent to 2005. With few exceptions, the Company is subject to state and local income tax examinations for fiscal years ending subsequent to 2004.

The amount of future unrecognized tax positions may be reduced because the statute of limitations has expired or the tax position is resolved with the taxing authority. It is reasonably possible that during the next
12 months the unrecognized tax benefit may be reduced by a range of zero to $9.3 million due to audits by taxing authorities. Such unrecognized tax benefits relate primarily to state tax issues.



|8. | As of February 28, 2009, the Company recorded unrealized losses related to its auction rate securities, as discussed in Note 2. The unrealized losses are shown net of tax in
the comprehensive income table below.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                   |  |                   |        |   |                  |   |        |                   |  |   |               |   |  |   |         |  
|-------------------------------------------------- |  | ----------------- | ------ | - | ---------------- | - | ------ | ----------------- |  | - | ------------- | - |  | - | ------- | -
|                                                   |  | Quarter Ended     |        |   | First Half Ended |  
|(in
thousands)                                     |  | February 28, 2009 |        |   | March 1, 2008    |   |        | February 28, 2009 |  |   | March 1, 2008 |  
|Net income                                         |  | $                 | 84,140 |   |                  | $ | 63,303 |                   |  | $ | 143,429       |   |  | $ | 115,249 |  
|Other comprehensive income
(loss):                 |  |                   |        |   |                  |   |        |                   |  |   |               |   |  |   |         |  
|Unrealized gains (losses) on investment
securities |  |                   | (2,350 | ) |                  |   | (2,398 | )                 |  |   | (5,389        | ) |  |   | (2,398  | )
|                                                   |  |                   |        |   |                  |   |        |                   |  |   |               |   |  |   |         |  
|Comprehensive income                               |  | $                 | 81,790 |   |                  | $ | 60,905 |                   |  | $ | 138,040       |   |  | $ | 112,851 |  
|                                                   |  |                   |        |   |                  |   |        |                   |  |   |               |   |  |   |         |  



|9. | The Company operates a chain of more than 6,600 general merchandise retail discount stores in 44 states, serving the basic needs of customers primarily in the low and lower-middle
income brackets. The stores are supported by nine distribution centers and one corporate headquarters. All of the stores operate under the Family Dollar name and are substantially the same in terms of size, merchandise, customers, distribution and
operations. The Company has no franchised locations, foreign operations or other lines of business. The Company manages the business on the basis of one operating segment and therefore, has only one reportable segment. The following information
regarding classes of similar products is presented in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                             |  |                   |           |                  |   |                   |  |               |           |  |   |          
|---------------------------- |  | ----------------- | --------- | ---------------- | - | ----------------- |  | ------------- | --------- |  | - | ---------
|                             |  | Quarter Ended     |           | First Half Ended
|(in
thousands)               |  | February 28, 2009 |           | March 1, 2008    |   | February 28, 2009 |  | March 1, 2008
|Classes of similar
Products: |  |                   |           |                  |   |                   |  |               |           |  |   |          
|Consumables                  |  | $                 | 1,209,453 |                  | $ | 1,049,620         |  | $             | 2,364,508 |  | $ | 2,072,895
|Home Products                |  |                   | 300,602   |                  |   | 296,337           |  |               | 534,194   |  |   | 544,990  
|Apparel and Accessories      |  |                   | 214,882   |                  |   | 239,089           |  |               | 400,981   |  |   | 455,557  
|Seasonal and
Electronics     |  |                   | 267,323   |                  |   | 247,565           |  |               | 446,410   |  |   | 442,212  
|                             |  |                   |           |                  |   |                   |  |               |           |  |   |          
|Net sales                    |  | $                 | 1,992,260 |                  | $ | 1,832,611         |  | $             | 3,746,093 |  | $ | 3,515,654
|                             |  |                   |           |                  |   |                   |  |               |           |  |   |          



12



---

The following table describes the Companys product categories in more detail:



| |  |                          |  |                                                                      
| |  | ------------------------ |  | ---------------------------------------------------------------------
| |  | Consumables              |  | Household chemicals                                                  
| |  |                          |  | Paper products                                                       
| |  |                          |  | Candy, snacks and other food                                         
| |  |                          |  | Health and beauty aids                                               
| |  |                          |  | Hardware and automotive supplies                                     
| |  |                          |  | Pet food and supplies                                                
| |  |                         
| |  | Home Products            |  | Domestics, including blankets, sheets and towels                     
| |  |                          |  | Housewares                                                           
| |  |                          |  | Giftware                                                             
| |  |                          |  | Home décor                                                           
| |  |                         
| |  | Apparel and Accessories  |  | Mens clothing                                                       
| |  |                          |  | Womens clothing                                                     
| |  |                          |  | Boys and girls clothing                                            
| |  |                          |  | Infants clothing                                                    
| |  |                          |  | Shoes                                                                
| |  |                          |  | Fashion accessories                                                  
| |  |                         
| |  | Seasonal and Electronics |  | Toys                                                                 
| |  |                          |  | Stationery and school supplies                                       
| |  |                          |  | Seasonal goods                                                       
| |  |                          |  | Personal electronics, including pre-paid cellular phones and services



13



---

Item 2.  Managements Discussion and Analysis of Financial Condition and
Results of Operations

The following discussion summarizes the significant factors affecting our consolidated results of operations and
financial condition for the thirteen-week periods ended February 28, 2009, and March 1, 2008 (second quarter of fiscal 2009 and second quarter of fiscal 2008, respectively) and the twenty-six-week periods ended
February 28, 2009, and March 1, 2008 (first half of fiscal 2009 and first half of fiscal 2008, respectively). This discussion should be read in conjunction with, and is qualified by, the financial statements
included in this Report, the financial statements for the fiscal year ended August 30, 2008 (fiscal 2008), and Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
contained in our Annual Report on Form 10-K for fiscal 2008. This discussion should also be read in conjunction with the Cautionary Statement Regarding Forward Looking Statements set forth following this MD&A, and the Risk
Factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for fiscal 2008.

Results of Operations

Overview and Fiscal 2009 Outlook

During the first
half of fiscal 2009, as compared with the first half of fiscal 2008, our net sales increased 6.6% to $3.7 billion, our net income increased 24.5% to $143.4 million, and our diluted net income per common share increased 24.4% to $1.02. Comparable
store sales (stores open more than 13 months) for the first half of fiscal 2009 increased 4.4%, compared with the first half of fiscal 2008. Our strong results during the first half of fiscal 2009 resulted from strong sales of consumable merchandise
and improvements in cost of sales, as a percentage of net sales. While the economic environment remained difficult for our customers during the first half of fiscal 2009, we believe our customers benefited from lower gasoline prices. In addition, we
believe our strategy of providing both value and convenience continues to resonate well with budget-minded consumers. The various components affecting our results for the first half of fiscal 2009 are discussed in more detail below.

During the first half of fiscal 2009, we focused on driving revenues, mitigating risk and managing costs through the following key initiatives:



| | ¡ |  | We continued the expansion of our assortment of traffic-driving consumables, providing customers with more of what they need in a challenging economic environment.
Due to the success of these efforts and the increasing demand for consumable merchandise, we plan to continue the expansion of our consumable assortment. To accommodate this growth, we plan to continue adjusting the space in our stores, expanding
space for high growth categories and improving merchandise adjacencies while also reducing space for underperforming categories.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | To strengthen the Family Dollar brand with customers and to reinforce the values we offer, we focused on increasing the productivity and returns of our advertising
and customer communications and improving our in-store execution of promotional events.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | We continued the roll-out of our Store of the Future initiative, upgrading the technology platform in approximately 1,100 additional stores. As of February 28,
2009, approximately 3,500 stores were operating on the Store of the Future platform, and we expect to have approximately 4,700 stores operating on the platform at the end of fiscal 2009. The Store of the Future platform facilitates the acceptance of
additional payment types, including credit cards and food stamps, and includes a number of on-line tools designed to provide our store managers with better analytics and work flow management.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | Through our price management work, the continued development of our private label offering, and our global sourcing efforts, we worked to offset the impact of the
shift in the merchandise mix to more lower-margin consumable merchandise.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ¡ |  | Reflecting the uncertainty that exists in the current economic environment, we continued our measured pace of new store openings so that we can focus on improving
our returns on existing assets. We opened 122 stores and closed 50 stores.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Based on the operating results
for the first half of fiscal 2009, as discussed below, and our plans for the remainder of the year, we currently expect diluted net income per common share to be between $1.90 and $2.00 for fiscal 2009, compared to $1.66 in fiscal 2008. We currently
expect diluted net income per common share to be between $0.54 and $0.58 for the third quarter of fiscal 2009, compared to $0.46 in the third quarter of fiscal 2008. We currently expect sales in comparable stores to increase 5% to 7% in the third
quarter of fiscal 2009 and 3% to 5% for all of fiscal 2009.



14



---

Second Quarter Results

Net Sales

Net sales increased 8.7% in the second quarter of fiscal 2009, as compared with the second quarter of fiscal
2008. The increase in the second quarter of fiscal 2009 was due primarily to a 6.4% increase in comparable store sales, with the balance of the increase relating to sales from new stores opened as part of our store growth program. Comparable
store sales includes stores that have been open more than 13 months. Stores that have been renovated, relocated, or expanded are included in the comparable store sales calculation to the extent that they had sales during comparable weeks in each
year. The increase in comparable store sales resulted from an increase in customer traffic, as measured by the number of register transactions in comparable stores and an increase in the dollar value of the average customer transaction. Sales during
the second quarter of fiscal 2009, on a comparable store basis, were strongest in Consumables, driven primarily by sales of food. Sales in more discretionary categories were mixed. While sales of Apparel and Accessories continued to be soft, sales
in Seasonal and Electronics increased and Home Products were approximately flat, all on a comparable store basis.

The average number of
stores in operation during the second quarter of fiscal 2009 was 2.1% higher than the average number of stores in operation during the second quarter of fiscal 2008.

Cost of Sales

Cost of sales increased 7.1% in the second quarter of fiscal 2009, compared with the
second quarter of fiscal 2008. This increase primarily reflected the additional sales volume between years. Cost of sales, as a percentage of net sales, was 66.3% in the second quarter of fiscal 2009 and 67.3% in the second quarter of
fiscal 2008. The decrease in cost of sales, as a percentage of net sales, was due primarily to lower seasonal markdowns, lower inventory shrinkage, lower freight expense, and higher purchase mark-ups, which more than offset the effect of
stronger sales of lower-margin consumable merchandise. Strong sales during the second quarter of fiscal 2009, particularly in Seasonal and Electronics, and our continued focus on managing inventory risk, resulted in lower seasonal markdowns. We
believe that inventory shrinkage benefited from higher store manager retention, lower levels of discretionary merchandise and improved analytics and monitoring processes. Freight expense benefited from lower diesel costs and increased transportation
productivity and efficiency. The increase in purchase mark-ups was due primarily to our price management work, including zone pricing and price optimization.

The Consumer Product Safety Improvement Act of 2008 was signed into law in August 2008. The new legislation addresses a number of consumer product safety issues, including the permissible levels of lead and phthalates
in certain products. During the second quarter of fiscal 2009, we incurred markdowns of approximately $8.0 million in response to the new legislation.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses increased
6.9% in the second quarter of fiscal 2009, compared with the second quarter of fiscal 2008. The increases in these expenses were due in part to additional costs arising from the continued growth in the number of stores in
operation. SG&A expenses, as a percentage of net sales, were 27.0% in the second quarter of fiscal 2009 and 27.4% in the second quarter of fiscal 2008. The decrease in SG&A expenses, as a percentage of net sales, was due primarily to a
decrease in occupancy costs (approximately 0.7% of net sales) and payroll expenses (approximately 0.3% of net sales), offset partially by higher incentive compensation (approximately 0.5% of net sales) and higher insurance expense (approximately
0.3% of net sales). Most costs in the second quarter of fiscal 2009, including occupancy costs and payroll expenses, were leveraged as a result of a 6.4% increase in comparable store sales and our continued focus on expense control. Occupancy costs
also benefited from a decrease in store rental expenses. During the second quarter of fiscal 2008, we increased our accrual estimates for store rental expenses (primarily property tax, insurance and common area maintenance expenses) in connection
with the implementation of our lease administration system and the increased visibility to the underlying lease information. We did not record similar adjustments during the second quarter of fiscal 2009. The increase in insurance expense was due
primarily to a decrease in our actuarily determined insurance liabilities during the second quarter of fiscal 2008. We began to see favorable trends in workers compensation and general liability claims during the first and second quarters of
fiscal 2008, resulting in a decrease in our actuarily determined insurance liabilities. While we continued to see favorable trends in the number of workers compensation and general liability claims during the second quarter of fiscal 2009, the
impact on our insurance expense was not as favorable as the second quarter of fiscal 2008. The increase in incentive compensation was due to certain adjustments to bonus and other performance-based compensation accruals to reflect our strong
performance during the second quarter of fiscal 2009.



15



---

Interest Income

Interest income decreased 53.2% ($1.8 million) in the second quarter of fiscal 2009 compared with the second quarter of fiscal 2008. The decrease in interest income was due to a decrease in interest rates.

Interest Expense

Interest expense
was approximately flat in the second quarter of fiscal 2009 compared with the second quarter of fiscal 2008.

Income Taxes

The effective tax rate was 36.4% for the second quarter of fiscal 2009 compared with 34.4% for the second quarter of fiscal 2008. The increase in
the effective tax rate was primarily the result of changes in our liabilities for uncertain tax positions and a decrease in tax-exempt interest income during the second quarter of fiscal 2009. The effective tax rate in the second quarter of fiscal
2008 benefited from a decrease in liabilities for uncertain tax positions resulting from the expiration of the statute of limitations with respect to uncertain tax positions and settlements with taxing authorities. We did not experience similar
benefits from our liabilities for uncertain tax positions during the second quarter of fiscal 2009.

Year-to date Results

Net Sales

Net sales increased 6.6% in the first
half of fiscal 2009, as compared with the first half of fiscal 2008. The increase in the first half of fiscal 2009 was due primarily to a 4.4% increase in comparable store sales, with the balance of the increase primarily relating to sales from
new stores opened as part of our store growth program. Comparable store sales includes stores that have been open more than 13 months. Stores that have been renovated, relocated, or expanded are included in the comparable store sales calculation to
the extent that they had sales during comparable weeks in each year. The increase in comparable store sales resulted from an increase in customer traffic, as measured by the number of register transactions in comparable stores and an increase in the
dollar value of the average customer transaction. Sales during the first half of fiscal 2009, on a comparable store basis, were strongest in Consumables, driven primarily by sales of food. Sales in more discretionary categories continued to be soft,
reflecting the current economic environment.

The average number of stores in operation during the first half of fiscal 2009 was 2.2%
higher than the average number of stores in operation during the first half of fiscal 2008. We had 6,643 stores in operation at the end of the first half of fiscal 2009, compared with 6,509 stores in operation at the end of the first half of
fiscal 2008, representing an increase of 2.1%.

Cost of Sales

Cost of sales increased 5.1% in the first half of fiscal 2009 compared with the first half of fiscal 2008. This increase primarily reflected the additional sales volume between years. Cost of sales, as a
percentage of net sales, was 65.7% in the first half of fiscal 2009 and 66.6% in the first half of fiscal 2008. The decrease in cost of sales, as a percentage of net sales, was due primarily to lower seasonal markdowns, lower inventory
shrinkage, lower freight expense, and higher purchase mark-ups, which more than offset the effect of stronger sales of lower-margin consumable merchandise. As a result of the shift in the merchandise sales mix to more consumable merchandise and our
continued focus on managing inventory risk, we lowered inventory levels in our discretionary merchandise categories, which resulted in lower seasonal markdowns. We believe that inventory shrinkage benefited from higher store manager retention, lower
levels of discretionary merchandise and improved analytics and monitoring processes. Freight expense benefited from lower diesel costs and increased transportation productivity and efficiency. The increase in purchase mark-ups was due primarily to
our price management work, including zone pricing and price optimization.

The Consumer Product Safety Improvement Act of 2008 was signed
into law in August 2008. The new legislation addresses a number of consumer product safety issues, including the permissible levels of lead and phthalates in certain products. During the first half of fiscal 2009, we incurred markdowns of
approximately $8.0 million in response to the new legislation.



16



---

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses increased 6.6% in the first half of fiscal 2009, compared with the first half of
fiscal 2008. The increases in these expenses were due in part to additional costs arising from the continued growth in the number of stores in operation. SG&A expenses, as a percentage of net sales, were 28.3% in both the first half of
fiscal 2009 and the first half of fiscal 2008. Most expenses, as a percentage of net sales, in the first half of fiscal 2009, including occupancy costs (approximately 0.3% of net sales) and payroll expenses (approximately 0.2% of net sales), were
leveraged as a result of a 4.4% increase in comparable store sales and our continued focus on expense control. Higher insurance expense (approximately 0.4% of net sales) and higher incentive compensation (approximately 0.3% of net sales) offset all
of the benefit, as a percentage of net sales. Occupancy costs also benefited from a decrease in store rental expenses. During the first half of fiscal 2008, we increased our accrual estimates for store rental expenses (primarily property tax,
insurance and common area maintenance expenses) in connection with the implementation of our lease administration system and the increased visibility to the underlying lease information. We did not record similar adjustments during the first half of
fiscal 2009. The increase in insurance expense was due primarily to a decrease in our actuarily determined insurance liabilities during the first half of fiscal 2008. We began to see favorable trends in workers compensation and general
liability claims during the first half of fiscal 2008, resulting in a decrease in our actuarily determined insurance liabilities. While we continued to see favorable trends in the number of workers compensation and general liability claims
during the first half of fiscal 2009, the impact on our insurance expense was not as favorable as the first half of fiscal 2008. The increase in incentive compensation was due to certain adjustments to bonus and other performance-based compensation
accruals to reflect our strong performance during the first half of fiscal 2009.

Interest Income

Interest income decreased 4.9% ($0.3 million) in the first half of fiscal 2009 compared with the first half of fiscal 2008. The decrease in interest
income was due to a decrease in interest rates.

Interest Expense

Interest expense decreased 17.6% ($1.4 million) in the first half of fiscal 2009 compared with the first half of fiscal 2008. There were no borrowings under our revolving credit facilities during the first half of
fiscal 2009, resulting in a decrease in interest expense. During the first half of fiscal 2008, we incurred $1.6 million in interest expense related to our revolving credit facilities.

Income Taxes

The effective tax rate was 36.3% for the first half of fiscal 2009 compared with 35.6%
for the first half of fiscal 2008. The increase in the effective tax rate was primarily the result of changes in our liabilities for uncertain tax positions and a decrease in tax-exempt interest income during the first half of fiscal 2009. The
effective tax rate in the first half of fiscal 2008 benefited from a decrease in liabilities for uncertain tax positions resulting from the expiration of the statute of limitations with respect to uncertain tax positions and settlements with taxing
authorities. We did not experience similar benefits from our liabilities for uncertain tax positions during the first half of fiscal 2009.

Liquidity
and Capital Resources

We have consistently maintained a strong liquidity position. Cash provided by operating activities during
the first half of fiscal 2009 was $253.5 million as compared to $274.6 million in the first half of fiscal 2008. These amounts have enabled us to fund our regular operating needs, capital expenditure program, cash dividend payments, and interest
payments, as well as a significant portion of our share repurchases. We believe operating cash flows and existing credit facilities will provide sufficient liquidity for our ongoing operations and growth initiatives.

On December 18, 2008, we entered into an unsecured revolving credit facility with a syndicate of lenders for short-term borrowings of up to $250
million. The credit facility replaces our $250 million unsecured revolving credit facility that was scheduled to mature on January 29, 2009. The credit facility has an initial term of 364 days and includes two one-year extensions that require
lender consent. The credit facility also includes a one year term-out option that does not require lender consent. Any borrowings under the credit facility accrue interest at a variable rate based on short-term market interest rates.

We also maintain a $350 million unsecured revolving credit facility expiring on August 24, 2011. Any borrowings under this credit facility also
accrue interest at a variable rate based on short-term market interest rates. Outstanding standby letters of credit ($187.5 million as of February 28, 2009) reduce the borrowing capacity of the $350 million credit facility.



17



---

There were no borrowings under the credit facilities during the first half of fiscal 2009. The credit
facilities contain certain restrictive financial covenants, which include a consolidated debt to consolidated capitalization ratio, a fixed charge coverage ratio, and a priority debt to consolidated net worth ratio. As of February 28, 2009, we
were in compliance with all such covenants.

Our inventories at the end of the first half of fiscal 2009 were 3.7% higher than at the end
of the first half of fiscal 2008. Inventory per store at the end of the first half of fiscal 2009 was approximately 1.6% higher than inventory per store at the end of the first half of fiscal 2008. The increase in inventory per store was
due to an increase in consumable merchandise, resulting from increased sales volume and anticipation of an expansion of our consumable assortment during the second half of fiscal 2009. Inventory levels in more discretionary categories decreased.

Capital expenditures for the first half of fiscal 2009 were $61.8 million, compared with $64.4 million for the first half of fiscal
2008. Capital expenditures for fiscal 2009 are expected to be between $160 and $180 million and relate primarily to new store openings; existing store expansions, relocations and renovations; distribution center improvements; and expenditures
related to store technology infrastructure.

In the first half of fiscal 2009, we opened 122 stores, closed 50 stores and expanded,
relocated, or renovated 20 stores. We occupy most of our stores under operating leases. Store opening, closing, expansion, relocation, and renovation plans, as well as overall capital expenditure plans, are continuously reviewed and may
change.

During the first half of fiscal 2009, we did not purchase any shares of our common stock. We purchased 3.7 million shares of
our common stock during the first half of fiscal 2008 at a cost of $97.7 million. As of February 28, 2009, we had outstanding authorizations to purchase a total of $133.0 million of our common stock.

Cash flows from operating activities

Cash provided
by operating activities decreased $21.1 million during the first half of fiscal 2009 as compared to the first half of fiscal 2008. The decrease was due primarily to changes in merchandise inventories and the income tax refund receivable, offset by
changes in accounts payable and accrued liabilities and an increase in net income. The changes in merchandise inventories, accounts payable and accrued liabilities, and net income were all in the ordinary course of business. The changes in the
income tax refund receivable are due to a tax refund received during the first quarter of fiscal 2008 in connection with the formation of our captive insurance subsidiary. As a result of the refund received, the income tax refund receivable balance
decreased $41.7 million in the first half of fiscal 2008 compared to a decrease of $7.0 million during the first half of fiscal 2009.

Cash flows from
investing activities

During the first half of fiscal 2009, we had a cash outflow from investing activities of $56.1 million, compared
to a cash outflow of $107.5 million in the first half of fiscal 2008. The change is due primarily to changes in the purchase/sale of investment securities. Due to the recent volatility in the financial markets and the liquidity issues surrounding
our auction rate securities, we did not purchase any investment securities during the first half of fiscal 2009 and only liquidated $5.6 million of investment securities. During the first half of fiscal 2008, we had a net cash outflow of $43.4
million related to investment securities. See Note 2 to the Consolidated Condensed Financial Statements included in this Report for more information on our auction rate securities.

Cash flows from financing activities

During the first half of fiscal 2009, we had a cash outflow
from financing activities of $56.6 million, compared to a cash outflow of $174.4 million during the first half of fiscal 2008. The change is due primarily to a decrease in purchases of our common stock. During the first half of fiscal 2009 we did
not purchase any shares of our common stock, compared to the purchase of $97.7 million of common stock in the first half of fiscal 2008.



18



---

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for the first annual period beginning after November 15,
2007. The effective date has been delayed for non-financial assets and liabilities to the first annual period beginning after November 15, 2008. We adopted SFAS 157 during the first quarter of fiscal 2009. See Note 2 to the Consolidated
Condensed Financial Statements included in this Report for more information on our adoption of SFAS 157.

In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 permits all entities the option to measure many
financial instruments and certain other items at fair value. If a company elects the fair value option for an eligible item, then it will report unrealized gains and losses on those items at each subsequent reporting date. SFAS 159 is effective for
fiscal years beginning after November 15, 2007. We did not elect the fair value option under SFAS 159.

Critical Accounting Policies

Our financial statements have been prepared in accordance with accounting policies generally accepted in the United States of America. Our
discussion and analysis of our financial condition and results of operations are based on these financial statements. The preparation of these financial statements requires the application of accounting policies in addition to certain estimates and
judgments by our management. Our estimates and judgments are based on currently available information, historical results and other assumptions we believe are reasonable. Actual results could differ from these estimates.

There have been no changes to the Critical Accounting Policies outlined in our Annual Report on Form 10-K for fiscal 2008.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements contained in this Report, or in other public filings, press releases, or other written or oral communications made by Family Dollar or our representatives, which are not historical facts, are
forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address our plans, activities or events which we expect will or may occur in the
future and may include express or implied projections of revenue or expenditures; statements of plans and objectives for future operations, growth or initiatives; statements of future economic performance; or statements regarding the outcome or
impact of pending or threatened litigation. These forward-looking statements may be identified by the use of the words plan, estimate, expect, anticipate, probably, should,
project, intend, continue, and other similar terms and expressions. Various risks, uncertainties and other factors may cause our actual results to differ materially from those expressed or implied in any
forward-looking statements. Factors, uncertainties and risks that may result in actual results differing from such forward-looking information include, but are not limited to those listed in Part I, Item 1A of our Annual Report on Form
10-K for fiscal 2008, as well as other factors discussed throughout this Report, including, without limitation, the factors described under Critical Accounting Policies in Part I, Item 2 above, or in other filings or statements made
by us. All of the forward-looking statements in this Report and other documents or statements are qualified by these and other factors, risks and uncertainties.

You should not place undue reliance on the forward-looking statements included in this Report. We assume no obligation to update publicly any forward-looking statements, even if experience or future changes make
it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law. In evaluating forward-looking statements, you should consider these risks and uncertainties, together with the other
risks described from time to time in our other reports and documents filed with the Securities and Exchange Commission (SEC).



19



---

Item 3. 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 the first half of fiscal 2009, we did not incur any interest expense related
to our credit facilities. During the first half of fiscal 2008 we incurred $1.6 million in interest expense related to our credit facilities. Our long-term debt bears interest at fixed rates.

Our investment securities currently include auction rate securities that are subject to failed auctions and are not currently liquid. As of
February 28, 2009, we recorded a $16.5 million unrealized loss ($10.3 million net of taxes) related to these investments and classified them as long-term assets on the Consolidated Condensed Balance Sheet. 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 Condensed Financial Statements included in this Report.

Item 4. Controls and Procedures

Based on an evaluation by our management (with the participation of our Chief Executive Officer and Chief Financial Officer), as of the end of the period covered by this report, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the Exchange Act)) were effective to provide reasonable
assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

We continuously seek to improve the efficiency and effectiveness of our operations and of our internal controls. These efforts result in refinements
to processes throughout our Company. However, there has been no change in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.



20



---

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The information in Note 6 to the Consolidated Condensed Financial Statements contained in Part I, Item 1 of the Form 10-Q is incorporated herein by this reference.

Item 1A. Risk Factors

You should review and consider the information
regarding certain factors which could materially affect our business, financial condition or future results set forth under Part I, Item 1A Risk Factors in our Annual Report on Form 10-K for fiscal 2008. Except as set forth below,
there have been no material changes during the quarter ended February 28, 2009, to the Risk Factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for fiscal 2008.

Changes in state or federal legislation or regulations, including the effects of legislation and regulations on product safety, wage levels and entitlement programs,
and changes in currency exchange rates, trade restrictions, tariffs, quotas and freight rates could increase our cost of doing business.

Changes in product safety legislation or regulations may lead to product recalls and the disposal/write off of merchandise inventories, as well as certain fines or penalties and reputational damage. Changes in federal or state wage
requirements (including changes in the process for our employees to join a union) or in entitlement programs such as health insurance, paid leave programs, or other changes in workplace regulation or federal tax rates could adversely impact our
ability to achieve our financial targets. Because a substantial amount of our imported merchandise comes from China, a change in the Chinese currency or other policies could negatively impact our merchandise costs. Changes in trade
restrictions, new tariffs and quotas, and higher shipping costs for goods could also adversely impact our ability to achieve anticipated operating results.

The Consumer Product Safety Improvement Act of 2008 was signed into law in August 2008. The new legislation addresses a number of consumer product safety issues, including the permissible levels of lead and phthalates
in certain products. During the first half of fiscal 2009, we began removing certain products from our merchandise inventories in response to the new legislation. While we do not believe the new legislation will have a material impact on our future
operating results, the scope and impact of the new legislation is still being determined in the retail marketplace generally and future adjustments to our merchandise inventories as a result of such legislation could adversely impact our future
operating results.

Higher costs and/or failure to achieve targeted results associated with the implementation of new programs or initiatives could
adversely affect our results of operations.

We are undertaking a variety of operating and infrastructure initiatives related to, among
other things, merchandising and supply chain systems, store technology, merchandise assortment and related schematic changes, Urban Initiative programs, and real estate remodeling and expansion goals. The failure to properly execute any of these
initiatives or the failure to obtain the anticipated results of such initiatives could have an adverse impact on our future operating results.



21



---

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information with respect to purchases of shares of our common stock made during the quarter ended February 28, 2009,
by us, on our behalf, or by any affiliated purchaser as defined by Rule 10b-18(a)(3) of the Securities Exchange Act of 1934.



|                             |  |                                |  |                             |   |                                                                                  |   |                                                                                    |          
|---------------------------- |  | ------------------------------ |  | --------------------------- | - | -------------------------------------------------------------------------------- | - | ---------------------------------------------------------------------------------- | ---------
|Period                       |  | Total Numberof SharesPurchased |  | Average PricePaid Per Share |   | Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms (1) |   | Maximum Numberof Shares that MayYet Be PurchasedUnder the Plans orPrograms (1)
(2)
|December (11/30/08 - 1/3/09) |  |                               |  | $                           |  |                                                                                  |  |                                                                                    | 5,118,674
|January (1/4/09 - 1/31/09)   |  |                               |  |                             |  |                                                                                  |  |                                                                                    | 4,790,577
|February (2/1/09 - 2/28/09)  |  |                               |  |                             |  |                                                                                  |  |                                                                                    | 4,848,190
|                             |  |                                |  |                             |   |                                                                                  |   |                                                                                    |          
|Total                        |  |                               |  | $                           |  |                                                                                  |  |                                                                                    | 4,848,190
|                             |  |                                |  |                             |   |                                                                                  |   |                                                                                    |          



|(1) | On November 5, 2007, we announced that the Board of Directors authorized the purchase of up to $150 million of our
outstanding common stock from time to time as market conditions warrant. As of February 28, 2009, there was $133.0 million remaining under this authorization.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Includes amounts converted to shares using the closing
stock price as of the end of the fiscal month.
|--- | -----------------------------------------------------------------------------------------------------

Item 4.  Submission of Matters to a Vote of
Security Holders

At our Annual Meeting of Stockholders held
January 15, 2009, stockholders voted to:



| | (a) | Elect to our Board of Directors the ten nominees named in the Proxy Statement for the Annual Meeting as follows:
| | --- | ----------------------------------------------------------------------------------------------------------------



|                       |  |                        |  |                       
|---------------------- |  | ---------------------- |  | ----------------------
|Nominee                |  | Shares Voting      For |  | Shares WithholdingVote
|Mark R. Bernstein      |  | 117,338,206            |  | 2,550,767             
|Pamela L. Davies       |  | 118,027,003            |  | 1,861,971             
|Sharon Allred Decker   |  | 118,404,007            |  | 1,484,967             
|Edward C. Dolby        |  | 118,447,322            |  | 1,441,652             
|Glenn A. Eisenberg     |  | 118,543,747            |  | 1,345,226             
|Howard R. Levine       |  | 117,694,625            |  | 2,194,349             
|George R. Mahoney, Jr. |  | 117,735,230            |  | 2,153,744             
|James G. Martin        |  | 104,840,470            |  | 15,048,504            
|Harvey Morgan          |  | 118,539,398            |  | 1,349,575             
|Dale C. Pond           |  | 118,451,120            |  | 1,437,853             

There were no abstentions or broker non-votes with respect to the election to the
Board of Directors.



| | (b) | Ratify the action of our Audit Committee of the Board of Directors in appointing PricewaterhouseCoopers LLP as independent registered public accountants of the Company and its
subsidiaries for fiscal 2009, with 117,855,360 shares voted for, 1,684,009 shares voted against, and 349,605 shares abstaining. There were no broker non-votes with respect to the appointment of PricewaterhouseCoopers LLP.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



22



---

Item 6. Exhibits



| | (a) | Exhibits incorporated by reference:
| | --- | -----------------------------------



| |  |      |  |  |  |                                                                                                                                                                                                                                                                                                                                 
| |  | ---- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 10.1 |  |  |  | $250 million 364-Day Credit Agreement between the Company and Family Dollar, Inc., as Borrowers and Wachovia Bank, National Association, as Administrative Agent and Swingline Lender, and
various other lenders named therein (filed as Exhibit 10 to the Companys Report on Form 8-K filed with the SEC on December 19, 2008)



| | (b) | Exhibits filed herewith:
| | --- | ------------------------



| |  |      |  |  |  |                                                                                                                                                                                                       
| |  | ---- |  |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 31.1 |  |  |  | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
| |  |      | 
| |  | 31.2 |  |  |  | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
| |  |      | 
| |  | 32   |  |  |  | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002                  



23



---

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                    |  |                                                
|------------------- |  | -----------------------------------------------
|                    |  | FAMILY DOLLAR STORES, INC.                     
|                    |  | (Registrant)                                   
|                    | 
|Date: April 8, 2009 |  | /s/ Kenneth T. Smith                           
|                    |  | Kenneth T. Smith                               
|                    |  | Senior Vice President  Chief Financial Officer
|                    | 
|Date: April 8, 2009 |  | /s/ C. Martin Sowers                           
|                    |  | C. Martin Sowers                               
|                    |  | Senior Vice President  Finance                



24