Family Dollar 2011 Annual Report Download - page 32

Most costs in fiscal 2010, as compared to fiscal 2009, including occupancy costs, were leveraged as a result
of a 4.8% increase in comparable store sales and continued productivity improvements. As a percentage of net
sales, decreases in insurance expense (approximately 0.2% of net sales) and utility expense (approximately 0.2%
of net sales) more than offset an increase in store payroll expense (approximately 0.3% of net sales). Insurance
expense continued to benefit from favorable trends in workers’ compensation and general liability costs, and our
energy management efforts contributed to the decrease in utility expense. The increase in store payroll expense
was due primarily to the expansion of our store operating hours.
Investment Income
Investment income decreased $0.1 million in fiscal 2011, compared to fiscal 2010, and $5.0 million in fiscal
2010, compared to fiscal 2009. The decreases in both years were primarily due to lower interest rates.
Interest Expense
Interest expense increased $9.1 million in fiscal 2011, compared to fiscal 2010, and increased $0.4 million
in fiscal 2010, compared to fiscal 2009. On January 28, 2011, we issued $300 million in senior unsecured notes
with a coupon rate of 5.00% maturing in 2021 (the “2021 Notes”). During fiscal 2011, we incurred $8.9 million
in interest expense related to the 2021 Notes. We did not incur any interest expense during fiscal 2010 or fiscal
2009 related to the 2021 Notes.
Income Taxes
The effective tax rate was 37.1% for fiscal 2011, 36.5% in fiscal 2010, and 35.4% in fiscal 2009. The
increase in the effective tax rate in fiscal 2011, as compared to fiscal 2010 was due primarily to an increase in our
liabilities for uncertain tax positions and increases in valuation allowances, partially offset by an increase in
federal jobs tax credits. The increase in the effective tax rate in fiscal 2010 as compared to fiscal 2009 was due
primarily to a decrease in federal jobs tax credits, changes in state income taxes, and lower tax-exempt interest
income, offset partially by a decrease in our liabilities for uncertain tax positions.
Liquidity and Capital Resources
General
We have consistently maintained a strong liquidity position. Cash provided by operating activities during
fiscal 2011 was $528.1 million compared to $591.5 million in fiscal 2010 and $529.2 million in fiscal 2009. Our
operating cash flows are generally sufficient to fund our regular operating needs, capital expenditure program,
cash dividend payments, share repurchases, interest payments, and debt maturities. In fiscal 2011, we completed
an initial public debt offering to supplement operating cash flows to provide additional capital for our investment
initiatives and share repurchase program. We believe operating cash flows and existing credit facilities will
provide sufficient liquidity for our ongoing operations, including our lease obligations and growth initiatives.
Credit Facilities
On November 17, 2010, we entered into a new four-year unsecured revolving credit facility with a syndicate
of lenders for borrowings of up to $400 million. The credit facility matures on November 17, 2014, and provides
for two, one-year extensions that require lender consent. Any borrowings under the credit facility accrue interest
at a variable rate based on short-term market interest rates. The credit facility replaced the previous 364-day $250
million unsecured revolving credit facility.
On August 17, 2011, we entered into a new five-year unsecured revolving credit facility with a syndicate of
lenders for borrowings of up to $300 million. The credit facility matures on August 17, 2016, and provides for
two, one-year extensions that require lender consent. Any borrowings under the credit facility accrue interest at a
variable rate based on short-term market interest rates. The credit facility replaced the previous five-year $200
million unsecured credit facility.
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