Dollar General 2008 Annual Report Download - page 97

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2009 and matures in February 2010. The December 2008 swap amortizes to a notional amount of
$300.0 million upon its maturity in January 2013.
As of January 30, 2009 and February 1, 2008, the fair value of the Company’ s interest
rate swaps of $(63.5) million and $(82.3) million was recorded in non-current Other liabilities on
the consolidated balance sheets. For the year ended January 30, 2009, the effective portion of the
change in fair value of the swaps of $14.2 million was recorded in Accumulated other
comprehensive loss, a separate component of equity, offset by related income taxes of $4.5
million. From the date the swaps were designated as hedges to February 1, 2008, the effective
portion of the change in fair value of the swaps of ($78.6) million was recorded in Accumulated
other comprehensive loss, offset by related income taxes of $29.5 million. The Company also
recorded expense in Other (income) expense in the consolidated statements of operations related
to hedge ineffectiveness of $1.0 million and $0.4 million during 2008 and the 2007 Successor
period, respectively.
In February 2009, the Company entered into a contract to hedge approximately 50% of
its anticipated 2009 fuel usage related to the transportation of merchandise. Such contract is not
expected to qualify for hedge accounting treatment, and as a result, gains or losses under this
contract will be recorded in Other (gains) losses in the consolidated statement of operations.
8. Commitments and contingencies
Leases
As of January 30, 2009, the Company was committed under capital and operating lease
agreements and financing obligations for most of its retail stores, three of its DCs, and certain of
its furniture, fixtures and equipment. The majority of the Company’ s stores are subject to short-
term leases (usually with initial or current terms of three to five years), often with multiple
renewal options. The Company also has stores subject to build-to-suit arrangements with
landlords, which typically carry a primary lease term of 10 years with multiple renewal options.
Approximately 42% of the stores have provisions for contingent rentals based upon a percentage
of defined sales volume. Certain leases contain restrictive covenants. As of January 30, 2009,
the Company is not aware of any material violations of such covenants.
The Merger and certain of the related financing transactions may be interpreted as giving
rise to certain trigger events (which may include events of default) under leases for three of the
Company’ s distribution centers (“DCs”). The Company does not believe such an interpretation
would be appropriate under the terms of the leases. During the 2007 Successor period, the
Company concluded that a probable loss existed in connection with the restructurings and
accrued SG&A expenses totaling $12.0 million in the Successor statement of operations for the
period ended February 1, 2008. As of January 30, 2009, $7.0 million of such amount has been
paid. The Company believes that it has negotiated with the property owners proposed lease terms
that would be implemented if the owners were to refinance or sell the property and that the
resolution of these negotiations is primarily dependent on conditions in the real estate and
financial markets. The Company’ s current position is that any remaining potential loss on the
resolution of these matters would currently be properly characterized as reasonably possible
rather than probable and has therefore reversed the remaining $5.0 million of SG&A expenses