Dollar General 2006 Annual Report Download - page 37

periods through fiscal 2008 to take into account the impact that the initiatives discussed above in
the “Executive Overview” related to merchandising and real estate strategies may have on the
ratio in those periods. At February 2, 2007, we had no outstanding borrowings or letters of credit
outstanding under the amended credit facility, and were in compliance with all financial
covenants contained in the amended credit facility.
We have $200 million (principal amount) of 8 5/8% unsecured notes due June 15, 2010.
This indebtedness was incurred to assist in funding our growth. Interest on the notes is payable
semi-annually on June 15 and December 15 of each year. We may seek, from time to time, to
retire the notes through cash purchases on the open market, in privately negotiated transactions
or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity
requirements, contractual restrictions and other factors. The amounts involved may be material.
In July 2005, as an inducement for us to select Marion, Indiana as the site for
construction of a new DC, the Economic Development Board of Marion approved a tax
increment financing in the amount of $14.5 million, which matures February 1, 2035. Pursuant to
this financing, proceeds from the issuance of certain revenue bonds were loaned to us in
connection with the construction of this DC. The variable interest rate on this loan is based on
the weekly remarketing of the bonds, which are supported by a bank letter of credit, and ranged
from 4.60% to 5.43% in 2006, and from 3.52% to 4.60% in 2005.
Significant terms of our outstanding debt obligations could have an effect on our ability
to incur additional debt financing. The amended credit facility contains financial covenants,
which include limits on certain debt to cash flow ratios, a fixed charge coverage test, and
minimum allowable consolidated net worth. The amended credit facility also places certain
specified limitations on secured and unsecured debt. Our outstanding notes discussed above
place certain specified limitations on secured debt and place certain limitations on our ability to
execute sale-leaseback transactions.
We have generated significant cash flows from operations during recent years. We had
peak borrowings under the amended credit facility of $253.4 million during 2006, $100.3 million
during 2005 and $73.1 million during 2004, all of which were repaid prior to February 2, 2007,
February 3, 2006, and January 28, 2005, respectively. Therefore, we do not believe that any
existing limitations on our ability to incur additional indebtedness will have a material impact on
liquidity. Notes 6 and 8 to the Consolidated Financial Statements contain additional disclosures
related to our debt and financing obligations.
At February 2, 2007 and February 3, 2006, we had commercial letter of credit facilities
totaling $200.0 million and $195.0 million, respectively, of which $116.1 million and $85.1
million, respectively, were outstanding for the funding of imported merchandise purchases.
During 2005, we incurred significant losses caused by Hurricane Katrina, primarily
inventory and fixed assets, in the form of store fixtures and leasehold improvements. We reached
final settlement of our related insurance claim in 2006 and received proceeds totaling $21.0
million due to these losses, including $13.0 million in 2006 and $8.0 million in 2005, and have
utilized a portion of these proceeds to replace lost assets. Insurance proceeds related to fixed
35