Dollar Tree 2008 Annual Report Download - page 43

DOLLAR TREE, INC. • 2008 ANNUAL REPORT 41
Unsecured Credit Agreement
On February 20, 2008, the Company entered into the
Agreement which provides for a $300.0 million
revolving line of credit, including up to $150.0 million
in available letters of credit, and a $250.0 million term
loan. The interest rate on the facility is based, at the
Company’s option, on a LIBOR rate, plus a margin, or
an alternate base rate, plus a margin. The revolving
line of credit also bears a facilities fee, calculated as a
percentage, as defined, of the amount available under
the line of credit, payable quarterly. The term loan is
due and payable in full at the five year maturity date
of the Agreement. The Agreement also bears an
administrative fee payable annually. The Agreement,
among other things, requires the maintenance of cer-
tain specified financial ratios, restricts the payment of
certain distributions and prohibits the incurrence of
certain new indebtedness. The Company’s March 2004,
$450.0 million unsecured revolving credit facility
was terminated concurrent with entering into the
Agreement. As of January 31, 2009, only the $250.0
million term loan was outstanding under this
Agreement.
Unsecured Revolving Credit Facility
In March 2004, the Company entered into a five-year
Unsecured Revolving Credit Facility (the Facility). The
Facility provided for a $450.0 million revolving line of
credit, including up to $50.0 million in available let-
ters of credit, bearing interest at LIBOR, plus 0.475%.
The Facility also contained an annual facilities fee,
calculated as a percentage, as defined, of the amount
available under the line of credit and an annual admin-
istrative fee payable quarterly. This facility was termi-
nated in February 2008 and replaced by the Agreement.
Demand Revenue Bonds
On May 20, 1998, the Company entered into an unse-
cured Loan Agreement with the Mississippi Business
Finance Corporation (MBFC) under which the MBFC
issued Taxable Variable Rate Demand Revenue Bonds
(the Bonds) in an aggregate principal amount of $19.0
million to finance the acquisition, construction, and
installation of land, buildings, machinery and equip-
ment for the Company's distribution facility in Olive
Branch, Mississippi. The Bonds do not contain a pre-
payment penalty as long as the interest rate remains
variable. The Bonds contain a demand provision and,
therefore, are classified as current liabilities.
NOTE 6 – DERIVATIVE FINANCIAL INSTRUMENTS
Hedging Derivatives
On March 20, 2008, the Company entered into two
$75.0 million interest rate swap agreements. These
interest rate swaps are used to manage the risk associ-
ated with interest rate fluctuations on a portion of the
Company’s variable rate debt. Under these agree-
ments, the Company pays interest to financial institu-
tions at a fixed rate of 2.8%. In exchange, the financial
institutions pay the Company at a variable rate, which
equals the variable rate on the debt, excluding the
credit spread. These swaps qualify for hedge account-
ing treatment pursuant to SFAS 133 and expire in
March 2011. The fair value of these swaps as of
January 31, 2009 was a liability of $4.4 million.
Non-Hedging Derivative
At January 31, 2009, the Company was party to a
derivative instrument in the form of an interest rate
swap that does not qualify for hedge accounting treat-
ment pursuant to the provisions of SFAS No. 133
because it contains a knock-out provision. The swap
creates the economic equivalent of a fixed rate obliga-
tion by converting the variable-interest rate to a fixed
rate. Under this interest rate swap, the Company pays
interest to a financial institution at a fixed rate, as
defined in the agreement. In exchange, the financial
institution pays the Company at a variable interest
rate, which approximates the floating rate on the vari-
able-rate obligation, excluding the credit spread. The
interest rate on the swap is subject to adjustment
monthly. No payments are made by either party for
months in which the variable-interest rate, as calculat-
ed under the swap agreement, is greater than the
"knock-out rate." The following table summarizes the
terms of the interest rate swap:
Derivative Origination Expiration Pay Fixed Knock-out
Instrument Date Date Rate Rate
$17.6 million swap 4/1/99 4/1/09 4.88% 7.75%
This swap reduces the Company's exposure to the variable interest rate related to the Demand Revenue
Bonds (see Note 5). The fair value of this swap as of January 31, 2009 and February 2, 2008 was a liability of
$0.1 million and $0.4 million, respectively.