Dollar General 2015 Annual Report Download - page 113

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10-K
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Risk Management
We are exposed to market risk primarily from adverse changes in interest rates, and to a lesser
degree commodity prices. To minimize this risk, we may periodically use financial instruments, including
derivatives. All derivative financial instrument transactions must be authorized and executed pursuant
to approval by the Board of Directors. As a matter of policy, we do not buy or sell financial
instruments for speculative or trading purposes, and any such derivative financial instruments are
intended to be used to reduce risk by hedging an underlying economic exposure. Our objective is to
correlate derivative financial instruments and the underlying exposure being hedged, so that
fluctuations in the value of the financial instruments are generally offset by reciprocal changes in the
value of the underlying economic exposure.
Interest Rate Risk
We manage our interest rate risk through the strategic use of fixed and variable interest rate debt
and, from time to time, derivative financial instruments. Our principal interest rate exposure relates to
outstanding amounts under our unsecured debt Facilities. As of January 29, 2016, we had variable rate
borrowings of $425 million under our Term Facility and borrowings of $251 million outstanding under
our Revolving Facility. In order to mitigate a portion of the variable rate interest exposure under the
Facilities, in prior years we have entered into various interest rate swaps. As of January 29, 2016, no
such interest rate swaps were outstanding and, as a result, we are exposed to fluctuations in variable
interest rates under the Facilities. For a detailed discussion of our Facilities, see Note 5 to the
consolidated financial statements.
A change in interest rates on variable rate debt impacts our pre-tax earnings and cash flows;
whereas a change in interest rates on fixed rate debt impacts the economic fair value of debt but not
our pre-tax earnings and cash flows. Based on our variable rate borrowing levels and interest rate swaps
outstanding as of January 29, 2016 and January 30, 2015, the annualized effect of a one percentage
point increase in variable interest rates would have resulted in a pretax reduction of our earnings and
cash flows of approximately $6.9 million in 2015 and $0.6 million in 2014.
39