Family Dollar 2012 Annual Report Download - page 35

in Other Assets in the Consolidated Balance Sheets. The classification between current and non-current is based
on the timing of expected payments of the secured insurance obligations. Previously, these obligations were
collateralized using standby letters of credit under our revolving credit facilities. We made this change to achieve
savings in the cost of collateralizing our insurance obligations.
Additionally, in conjunction with the sale-leaseback transactions completed during the second half of fiscal
2012, certain proceeds of the transaction were placed into an escrow account with an independent third party in
connection with like-kind exchange transactions, which permits the deferral of a portion of the tax gain
associated with the sale of the stores. We intend to use these proceeds to purchase additional new stores and must
do so within 180 days from the closing of the transactions to realize the deferral. At the Company’s option, the
proceeds can be returned for general operating needs; however, the tax gain deferral would not be realized. As of
August 25, 2012, the balance of this account was $80.4 million. These assets are classified as Restricted Cash
and Investments in the Consolidated Balance Sheets.
Fee Development Program
We occupy most of our stores under operating leases. As part of our new store growth strategy, we have
created a Fee Development Program (“Fee Development Program”), intended to provide us with a more cost
effective means to finance the construction of new store locations. Previously, developers would use their own
capital to fund the construction of new sites, which they would then lease to us. Under the new program, we work
with select developers to construct the new sites using our own investment grade credit rating to achieve a lower
all-in cost. Upon completion of construction we own the stores. We intend to continue to use sale-leaseback
transactions as a source of capital, providing additional liquidity for the Fee Development Program. As a result,
we expect to achieve a lower cost of occupancy when compared to the previous program. During fiscal 2012, we
purchased stores at a cost of $135.3 million under this program.
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.
During fiscal 2012, we borrowed a total of $362.3 million from time to time under the credit facilities at a
weighted-average interest rate of 1.6%. As of August 25, 2012, we had $15.0 million in outstanding borrowings
under the credit facilities. There were no outstanding borrowings under the credit facilities as of August 27, 2011.
The credit facilities contain certain restrictive financial covenants, which include a consolidated debt to
consolidated total capitalization ratio, a fixed charge coverage ratio, and a priority debt to consolidated net worth
ratio. As of August 25, 2012, we were in compliance with all such covenants.
Long-Term Debt
On January 28, 2011, we issued $300 million of 5.00% unsecured senior notes due February 1, 2021 (the
“2021 Notes”) in a public offering. Our proceeds were approximately $298.5 million, net of an issuance discount
of $1.5 million. In addition, we incurred issuance costs of approximately $3.3 million. Both the discount and
issuance costs are being amortized to interest expense over the term of the 2021 Notes. We may redeem the 2021
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