All in the Family

May 25, 2011

Pershing Square Capital Management, L.P.

Disclaimer
The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential information in the possession of the companies discussed in the presentation that could lead these companies to disagree with Pershing Squares conclusions. This presentation and the information contained herein is not a recommendation or solicitation to buy or sell any securities. The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies, access to capital markets and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein. Funds managed by Pershing Square and its affiliates have invested in common stock of Family Dollar Stores Inc. (FDO). Pershing Square manages funds that are in the business of trading buying and selling securities and financial instruments. It is possible that there will be developments in the future that cause Pershing Square to change its position regarding FDO. Pershing Square may buy, sell, cover or otherwise change the form of its investment in FDO for any reason. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.

Family Dollar

Ticker: FDO Stock Price: $54 Market Cap: ~$6.6B EV: ~$6.7B FY2012 P/E: 14x (August FY)

________________________________________________

Note: Pershing Square EPS esimtate of $3.88 All stock prices and financials are as of May 24, 2011 close

Business Overview

Business Description

Family Dollar

Mix
~65% of sales are consumables ~13% home products ~11% apparel ~11% seasonal High velocity, generally nondiscretionary SKUs

Pricing
Lower prices than drug stores, gas stations, and grocery stores Comparable to mass merchants Avg. basket is ~$10 and 4 to 5 items

Customers
~55% of sales are to <$40k income households ~68% are over age 45

Real Estate
~7,000 stores ~7k selling sq ft per unit $8.50/sq ft avg. rent, short-term leases ~60% of sales in rural or small town locations

Value Proposition: Price and Convenience

Dollar stores offer pricing comparable to Wal-Mart in a more convenient format. Dollar stores offer pricing comparable to Wal-Mart in a more convenient format. Lower income customers use dollar stores as weekly fill-in trips between Lower income customers use dollar stores as weekly fill-in trips between supercenter destination shopping. The average FDO store visit is 8 minutes supercenter destination shopping. The average FDO store visit is 8 minutes

Concept Dollar Stores Drug Stores Grocers Mass Merchants

Price Index 100 ~120 ~115 ~95

Store Size ('000) 7 40 40 125

Wal-Mart and dollar stores can coexist. Management believes FDO has ~3% Wal-Mart and dollar stores can coexist. Management believes FDO has ~3% share of their core customers wallet compared to WMTs ~35% share share of their core customers wallet compared to WMTs ~35% share

Share Gain in Retail

High unit and same store sales growth have led to significant share gains for High unit and same store sales growth have led to significant share gains for the dollar store channel the dollar store channel

Public Dollar Stores Share of Core Retail Sales (Rolling 4Q Avg.)

Recession

Recession

________________________________________________

Source: Bernstein, 2009

Consistent Same Store Sales Growth

Family Dollar, like other dollar store retailers, has consistently grown SSS over Family Dollar, like other dollar store retailers, has consistently grown SSS over the last decade even during recessions the last decade even during recessions
Same Store Sales Growth
9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Recession

Recession

________________________________________________

Note: Years are Fiscal Year Ending August

Sales Mix
Consumables make up a growing percentage of Family Dollars sales volume. Consumables make up a growing percentage of Family Dollars sales volume. Growth in consumables is responsible for most of FDOs recent traffic and Growth in consumables is responsible for most of FDOs recent traffic and same-store sales growth same-store sales growth

Sales by Category
Seasonal & Electronics, 11% Apparel and Accessories, 11% Consumables, 65%

Consumables Sales Mix

67.0% 65.0% 63.0%

Home Products, 13%

61.0% 59.0% 57.0% 2007 2008 2009 2010

Substantial Long-Term Growth Opportunity

The three major dollar store retail chains (Family Dollar, Dollar General, Dollar The three major dollar store retail chains (Family Dollar, Dollar General, Dollar Tree) operate ~20k units today. We believe there is room for 10k to 12k Tree) operate ~20k units today. We believe there is room for 10k to 12k additional stores or a decade of store growth at the current industry build rate additional stores or a decade of store growth at the current industry build rate

________________________________________________

Source: For research see Morgan Stanley, 2010; Bernstein, 2009; Dollar General management comments Map: UBS, 2010

High Rates of Return on Capital

Historical Returns on Capital

Family Dollar has a strong track record of earning high returns on capital Family Dollar has a strong track record of earning high returns on capital

Percent Return on Capital (without capitalizing leases)

30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
________________________________________________

20% Avg.

Note: Years are Fiscal Year Ending August ROIC Defined as: (Taxed EBIT)/Average (Assets Cash A/P Accrued Expenses)

11

Shareholder-Oriented Capital Allocation Strategy

In FY2011, Family Dollar plans to invest $300-$350mm of capex and repurchase In FY2011, Family Dollar plans to invest $300-$350mm of capex and repurchase nearly $750mm of stock nearly $750mm of stock

New Store Growth (~$60mm Capex, ~$15mm SG&A): 300 new store openings and 80-100 store closings, 3% net growth Long-term, management expects to grow store count 5-7% annually Store Renovation Program (~$60mm Capex, ~$30mm SG&A): Over 800 stores in FY2011 Going forward, management expects to renovate 1,000+ stores per year Share Repurchases & Dividends: Management has committed to buyback $750mm of shares by fall 2011 FDO raised its dividend this year to $.72/share ($85mm)

12

New Unit Growth

New unit growth is accelerating after a pause that allowed management to New unit growth is accelerating after a pause that allowed management to refocus on improving core operations. Management now believes that with the refocus on improving core operations. Management now believes that with the current model FDO can grow units 5-7% per year by FY2013 current model FDO can grow units 5-7% per year by FY2013
Ending Unit Count
14.0% 7,500 12.0%

10.0% 5,000 # Units % Annual Growth

Accelerating to 5% -7% growth

8.0%

6.0% 2,500

4.0%

2.0%

1999 2000 2001 2002 2003 2004 2005 2006 2007

13

0.0% 2008 2009 2010 2011E 2012E 2013E

________________________________________________

Note: Years are Fiscal Year Ending August

New Unit Economics

New units are generally inexpensive to build and highly profitable. On average, New units are generally inexpensive to build and highly profitable. On average, units are 90% productive in their first year units are 90% productive in their first year

Estimated New Store Investment Capex SG&A Inventory, net Estimated Investment New Store Earnings Mature Revenue Estimated Mature 4-wall EBIT Margin Estimated EBIT % Pre-Tax Return

$ 200,000 50,000 75,000 $ 325,000 Low High $1,200,000 $1,200,000 10.00% 15.00% $ 120,000 $ 180,000 37% 55%

14

High Return on Renovation Capital

Management began an ambitious renovation program this year. While the Management began an ambitious renovation program this year. While the company has not disclosed detailed data, it has revealed that renovated stores company has not disclosed detailed data, it has revealed that renovated stores achieve at least a 10% sales lift achieve at least a 10% sales lift
Renovation ROIC Estimate Capex SG&A Estimated Investment $ $ 77,000 38,000 115,000

Base Store Sales Sales Lift % Incremental Gross Margin Estimated Incremental EBIT % Pre-Tax Return

Low Mid High $ 1,200,000 $ 1,200,000 $ 1,200,000 10.00% 12.50% 15.00% 30.00% 30.00% 30.00% 36,000 45,000 54,000 31% 39% 47%

Lower than company average (35.7%) to account for increased consumables mix

FDO plans to renovate 6,000 stores FDO plans to renovate 6,000 stores
15

Productivity Opportunity

Family Dollar vs. Dollar General

In many ways, Family Dollar and Dollar General are very similar companies: In many ways, Family Dollar and Dollar General are very similar companies:

Number of Stores Sales per Store Size of Average Store Consumables Mix Properties

~7,000 ~$1.2mm ~7k sqft 65% Leased, Mostly rural & suburban

~9,500 ~$1.4mm ~7k sqft 72% Leased, Mostly rural & suburban

Despite these similarities, the two business performance has diverged Despite these similarities, the two business performance has diverged

Family Dollar vs. Dollar General (Cont.)

For many years, the two companies had very similar performance: For many years, the two companies had very similar performance:

EBIT per square foot

$14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $-

Dollar General Dollar General Family Dollar

Family Dollar

2000

2001

2002

2003

2004

2005

2006

________________________________________________
Note: Family Dollar results are calendarized to year end Feb. 18

Family Dollar vs. Dollar General (Cont.)

In July 2007, KKR bought Dollar General. Less than four years later, lets In July 2007, KKR bought Dollar General. Less than four years later, lets compare the two companies: compare the two companies:
EBIT per square foot

$25.00

Dollar General Dollar General Family Dollar

Family Dollar
KKR Buyout July 2007

$20.00

$15.00

$10.00

$5.00

$2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

________________________________________________
Note: Family Dollar results are calendarized to year end Feb. 19

And the Winner is: Dollar General

EBIT per square foot

$25.00

Dollar General Dollar General Family Dollar

Family Dollar
KKR Buyout July 2007 37% Performance Gap

$20.00

$15.00

$10.00

$5.00

$2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

________________________________________________
Note: Family Dollar results are calendarized to year end Feb. 20

Productivity Gap
Family Dollars lower profitability is a result of both lower sales per square foot Family Dollars lower profitability is a result of both lower sales per square foot growth and lower margins growth and lower margins

Sales Per Square Foot FDO 8% lower

$220

EBIT Margin FDO 70bps higher

11.0%

FDO 15% lower

FDO 250bps lower DG

DG
$200 $180

10.0%

FDO DG FDO

9.0%

FDO
8.0%

$160

DG

FDO

$140

7.0%

$120

6.0%

$100

5.0%

2003

2010

2003

2010

Dollar General

Family Dollar

Dollar General

Family Dollar

________________________________________________
Note: 2003 Family Dollar results are calendarized year end Feb. 2004 21

Relative Margin Trends

Under KKRs ownership, Dollar General has dramatically improved margins Under KKRs ownership, Dollar General has dramatically improved margins
EBIT Margin

12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2000

Dollar General Dollar General Family Dollar

Family Dollar

KKR Buyout July 2007

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

________________________________________________
Note: Family Dollar results are calendarized to year end Feb. 22

Relative Sales Trends

After years of similar SSS results, since the KKR deal, Dollar General has After years of similar SSS results, since the KKR deal, Dollar General has grown at a much faster rate than Family Dollar grown at a much faster rate than Family Dollar
Same Store Sales

10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2000 2001 2002 2003 2004 2005
23

Dollar General Dollar General Family Dollar

Family Dollar

KKR Buyout July 2007

2006

2007

2008

2009

2010

________________________________________________
Note: Family Dollar results are calendarized to year end Feb.

Dollar General Post KKR

Despite similar sales mix, geography, unit count, and store size: Despite similar sales mix, geography, unit count, and store size: Dollar General has Dollar General has -

Higher sales per square foot Higher margins Faster profit growth

24

Management is Working to Close the Gap

FDO is Playing Catch Up

FDO has launched gross margin enhancement initiatives that are similar to the FDO has launched gross margin enhancement initiatives that are similar to the ones DG has successfully implemented ones DG has successfully implemented

Private Label Penetration

Dollar Generals consumable private label penetration is ~22% Family Dollars consumable private label penetration is ~14% Family Dollars goal is to get to 20%

Global Sourcing
Bypassing a broker and directly sourcing unlabeled and private labeled goods can offer 1,000bps to 1,500bps of margin improvement Currently, only 9% of FDOs goods are directly imported. We believe this number could approach 15% in the future

Improved Pricing
FDO recently implemented sophisticated pricing software allowing management to better manage regional pricing zones and elasticity data

Reduced Shrink
26

FDO is Playing Catch Up (cont).

We estimate FDO will benefit significantly from its gross margin initiatives We estimate FDO will benefit significantly from its gross margin initiatives
Estimated Gap Global Sourcing Private Label - Consumables 2010 Potential 9% 15% 14% 20%

Estimated Margin Improvement % of Sales Delta Global Sourcing 6% 1250 bps Private Label - Consumables 4% 1250 bps Shrink, Pricing Offsets - Private label reinvestment, inflation, mix Total Total 75 bps 50 bps 100 bps ? <225 bps

FDOs substantial gross margin opportunity and high percentage of sales in lowpriced necessities, provide a margin of safety against commodities inflation
________________________________________________
27 Note: Consumables are ~2/3 of sales a 6% change in consumables sales corresponds to a 4% change in total sales

SG&A: Highly Leverageable

Two thirds of Family Dollars SG&A expense is composed of occupancy and Two thirds of Family Dollars SG&A expense is composed of occupancy and store payroll costs, which are highly leverageable. Management believes core store payroll costs, which are highly leverageable. Management believes core SG&A costs, excluding growth initiatives, will grow modestly at 2 to 3% per SG&A costs, excluding growth initiatives, will grow modestly at 2 to 3% per year year
SG&A Composition (FY 2009)

SG&A includes ~$45mm (~50bps of sales) of renovation and new store pre-opening expense

28

Sales Growth Opportunity

Family Dollar has several initiatives in place to support managements 4-6% Family Dollar has several initiatives in place to support managements 4-6% medium-term SSS growth guidance medium-term SSS growth guidance

Expanded hours FDO completed its expanded hours rollout Q2 FY2010 New store growth and renovations Could contribute 1.5% to 2.0% SSS at the current build rate New stores can contribute a ~10% comp in the second year Renovated stores are growing SSS at a double digit rate New fixtures to support continued consumables growth FDOs consumable mix trails DG by ~700bps Managing to lower stock outs Improved marketing
29

Valuation

FDO Shares are Cheap

What you get What you pay

Stable, secular sales growth The opportunity to invest in an existing store base at high rates of return 10+ years of high return new unit growth

A modest forward multiple on consensus numbers (7.6% EBIT margin) 14.7x FY2012 EPS (August)

The option that FDO closes a large productivity gap with its closest competitor, Dollar General

Nothing FDO trades at nearly the same consensus forward EBIT multiple as DG (~9x), a company with similar growth prospects, excluding the productivity gap
31

What Is the Productivity Gap Opportunity Worth?

If Family Dollars square footage were as productive as Dollar Generals, the If Family Dollars square footage were as productive as Dollar Generals, the company would earn ~$6 of EPS and be worth ~$90 per share at a 15x P/E company would earn ~$6 of EPS and be worth ~$90 per share at a 15x P/E

Consensus

FY 2012 Sales/sqft FY 2012 EBIT Margin EBIT/sqft FY 2012 EPS - Consensus FY 2012 EPS - Pro Forma

DG FDO $ 210 $ 180 10.5% 7.6% $ 22.05 $ 13.65

% Diff '12 EPS 17% $ 0.65 38% 1.46 62% $ 2.36 $ $ $ 3.68 6.03 92 70%

Price at 15x EPS (Including 1.5yrs of dividends) % Return

________________________________________________
Note: Estimates for DG are FY ending Jan. 2013, and for FDO FY ending Aug. 2012 32

What if FDO only Partly Closes the Gap?

FDO 2012 EBIT Build 2012 Selling Sqft (mm) Sales/sqft EBIT Margin Pro Forma FY 2012 EBIT Pro Forma FY 2012 EPS 2012 P/E Price @ 15x EPS % Return

% of DG Profit Gap Closed 0% 50% 100% 51 51 51 $ 180 $ 195 $ 210 7.6% 9.1% 10.5% $ 692 $ 893 $ 1,118 $ 3.68 $ 14.7x 56 $ 4% 4.79 $ 11.3x 73 $ 35% 6.03 8.9x 92 70%

________________________________________________
Note: Estimates for DG are FY ending Jan. 2013, and for FDO FY ending Aug. 2012 Price includes 1.5yr of dividends 33

Strategic Alternatives

FDO is Under Pressure to Perform

Disappointing first quarter results and the rejection of Trians $55 - $60 per JCP shares arefirst quarter since early 2007. At this point, cash$55 balance sheet Disappointing down 75% results and the rejection of Trians on - $60 per share offer have raised shareholders performance expectations share offer have raised shareholders performance expectations
Historical Stock Price

$60 $55 $50 $45 $40 $35 $30 $25 $20 1/4/2010

Trian makes a hostile offer between $55 - $60

Board rejects Trians offer

Trian Files 13-D Trian files a letter urging management to accept its offer or commit to closing the performance gap with Dollar General

Management reports Q1 earnings and reduces top end of FY2011 guidance

4/4/2010

7/4/2010

10/4/2010
35

1/4/2011

4/4/2011

Family Dollars Shareholder Base is Changing

Since Trians February 15th bid, the shareholder base has changed to more Since Trians February 15th bid, the shareholder base has changed to more opportunistic investors: opportunistic investors:
Holder Name TRIAN FUNDS HOWARD LEVINE (CEO) PERSHING SQUARE CAPITAL MGMT VANGUARD GROUP INC BANK OF AMERICA CORP LONE PINE CAPITAL FRANKLIN RESOURCES STATE STREET CORP CREDIT SUISSE AG PAULSON & CO BLACKROCK INTECH INVESTMENT ADAGE CAPITAL BANK OF NEW YORK YORK CAPITAL MANAGEMENT ETON PARK CAPITAL RENAISSANCE TECHNOLOGY D E SHAW & COMPANY NORTHERN TRUST Shares Held 9,966 9,691 8,369 6,725 5,654 5,633 5,288 4,661 4,657 3,455 3,272 3,164 2,448 2,248 1,962 1,782 1,782 1,476 1,350 % Of Company 8.2% 7.9% 6.9% 5.5% 4.6% 4.6% 4.3% 3.8% 3.8% 2.8% 2.7% 2.6% 2.0% 1.8% 1.6% 1.5% 1.5% 1.2% 1.1% Change Since 12/31/10 1,130 0 8,369 36 (498) 900 208 (167) 489 3,455 228 824 (970) 528 1,962 1,782 (602) (1,248) (93)

Pershing Square purchased its position starting in February at prices between $43 and $54

FDO has implemented a poison pill at 9.9% that expires on March 2, 2012. FDO has implemented a poison pill at 9.9% that expires on March 2, 2012.
________________________________________________
Note: Pershing Shares as of May 24, 2011 36

There are Multiple Ways to Achieve Full Value:

Current management Operational Opportunity Margin improvement initiatives and renovation program Capital Structure Opportunity FDO remains under leveraged. A leveraged buy back would create meaningful value for shareholders Sale of the company Strategic Buyer Another retailer would bring synergies to the combined company and possibly accelerate the closing of the productivity gap Financial Buyer A private equity firm could optimize the capital structure and work with management to improve the business
37

How Accretive Would a Leveraged Buy Back be?

If FDO raised an incremental $1.5bn of debt, bought back stock at $60, and If FDO raised an incremental $1.5bn of debt, bought back stock at $60, and closed only half the productivity gap, the company would earn ~$5.50 of 2012 closed only half the productivity gap, the company would earn ~$5.50 of 2012 EPS and trade in the high $70s at a 14x P/E EPS and trade in the high $70s at a 14x P/E
Leveraged Buy Back Accretion Analysis: Incremental Debt Raised ($mm) $ 1,000 Base EPS: Consensus FY2012 EPS Accretion Value per share at 14x EPS $ 1,500 $ 2,000

$ $ $

3.91 0.23 55

$ $ $

4.04 0.37 57

$ $ $

4.19 0.51 59

Base EPS: Pro Forma Closing 50% of Productivity Gap FY2012 EPS $ 5.22 $ 5.47 Accretion $ 0.42 $ 0.68 Value per share at 14x EPS $ 73 $ 77

$ $ $

5.76 0.96 81

Assumptions: Incremental Debt Raised $ Total Net Debt (End FY2011) Net Debt/EBITDAR Assumed Cost of Total Debt (Gross)

1,000 $ 1,385 3.8x 5.6%

1,500 $ 1,885 4.2x 5.9%

2,000 2,385 4.6x 6.1%

Trian has sourced $5bn dollars of debt financing for their proposed deal 38 Trian has sourced $5bn dollars of debt financing for their proposed deal

What Could a Strategic Buyer Pay?

A strategic buyer could justifiably pay a ~50% premium to market A strategic buyer could justifiably pay a ~50% premium to market

Credit for Productivity Gap (% of total) $ Value per share @15x EPS Reduction in Overhead % Shared with Seller $ Value per share @15x EPS Gross Margin Expansion % Shared with Seller $ Value per share @15x EPS Total $ Premium to Market % Premium to Market Implied Takeout Price

Low Mid High 25% 50% 75% $ 9 $ 18 $ 27 20.0% 50.0% 3 $ 0.5% 50.0% 2 $ 14 $ 26% 68 $ 30.0% 50.0% 5 $ 1.0% 50.0% 4 $ 26 $ 48% 80 $ 40.0% 50.0% 6 1.5% 50.0% 6 38 71% 92

~15% of SG&A is corporate expenses. Distribution expense is also a potential source of SG&A synergy

$ $

Possible COGS synergies include: consolidating direct sourcing operations, private label brands, and national brand buyer power

39

Financial Sponsors Economics

A financial buyer could pay 40% to 55% above the current stock price and still A financial buyer could pay 40% to 55% above the current stock price and still earn a high teens to low 20s% rate of return over four years earn a high teens to low 20s% rate of return over four years

IRR Sensitivity (2015 Exit) 40.3% 9.5x 10.0x 10.5x 11.0x 11.5x 12.0x 12.5x Exit EBITDA Multiple (FY2016) 7.0x 7.5x 8.0x 8.5x 24% 27% 30% 33% 21% 24% 26% 29% 17% 20% 23% 26% 15% 17% 20% 23% 12% 15% 17% 20% 10% 13% 15% 17% 8% 10% 13% 15%

$ 67 70 74 78 81 85 88

Returns assume a 10% terminal EBIT margin, $230 sales sqft in 2015, and Returns assume a 10% terminal EBIT margin, $230 sales sqft in 2015, and $5bn of leverage (7x FY2011 EBITDAR) at 7.5% $5bn of leverage (7x FY2011 EBITDAR) at 7.5%
40

Entry Multiple EBITDA (FY2012)

Valuation Summary
Even if were wrong on both the value of the standalone operating opportunity and the Even if were wrong on both the value of the standalone operating opportunity and the transaction value, we believe shareholders will still make money owning FDO due to the transaction value, we believe shareholders will still make money owning FDO due to the companys attractive growth opportunities and modest forward earnings multiple companys attractive growth opportunities and modest forward earnings multiple
$100 $95 $90 $85 $80 $75 $70 $65 $60

Trian Bid
$55 $50

Current Stock Price

Operating Operating Strategic Buyer Improvements Improvements (50% to 100%) & (50% to 100%) $1.5bn Buy Back LBO

Decreasing Timing and Execution Risk

% of performance gap closed