Dollar General 2010 Annual Report Download - page 161

10-K
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Commitments and contingencies (Continued)
for collective treatment and that its wage and hour policies and practices comply with both federal and
state law. Although the Company plans to vigorously defend Walker and McCown, no assurances can be
given that the Company will be successful in the defense on the merits or otherwise. Similarly, at this
time the Company cannot estimate either the size of any potential class or the value of the claims
raised in these actions. For these reasons, the Company is unable to estimate any potential loss or
range of loss; however if the Company is not successful in its defense efforts, the resolution of either or
both of these actions could have a material adverse effect on the Company’s financial statements as a
whole.
In October 2008, the Company terminated an interest rate swap as a result of the counterparty’s
declaration of bankruptcy. This declaration of bankruptcy constituted a default under the contract
governing the swap, giving the Company the right to terminate. The Company subsequently settled the
swap in November 2008 for approximately $7.6 million, including interest accrued to the date of
termination. On May 14, 2010, the Company received a demand from the counterparty for an
additional payment of approximately $19 million plus interest, claiming that the valuation used to
calculate the $7.6 million was commercially unreasonable, and seeking to invoke the alternative dispute
resolution procedures established by the bankruptcy court. The Company is participating in the
alternative dispute resolution procedures because it believes a reasonable settlement would be in the
best interest of the Company to avoid the substantial risk and costs of litigation, but does not believe
that additional payment is owed. The Company believes the methodology it used to calculate the
settlement amount was commercially reasonable and appropriate; however, no assurances can be given
that the Company will be successful in its defense on the merits or otherwise. If the Company is
successful in its defense, no loss will occur. If the Company is not successful or it deems it advisable to
resolve the matter prior to trial through the continuing mediation, the resolution of this action could
result in a loss up to the claimed $19 million plus interest.
From time to time, the Company is a party to various other legal actions involving claims
incidental to the conduct of its business, including actions by employees, consumers, suppliers,
government agencies, or others through private actions, class actions, administrative proceedings,
regulatory actions or other litigation, including without limitation under federal and state employment
laws and wage and hour laws. The Company believes, based upon information currently available, that
such other litigation and claims, both individually and in the aggregate, will be resolved without a
material adverse effect on the Company’s financial statements as a whole. However, litigation involves
an element of uncertainty. Future developments could cause these actions or claims to have a material
adverse effect on the Company’s results of operations, cash flows, or financial position. In addition,
certain of these lawsuits, if decided adversely to the Company or settled by the Company, may result in
liability material to the Company’s financial position or may negatively affect operating results if
changes to the Company’s business operation are required.
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