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26
DOLLAR TREE, INC. • 2007 ANNUAL REPORT
The following table summarizes the financial terms of our interest rate swap agreement and the fair value of
the interest rate swap at February 2, 2008:
Hedging Receive Pay Knock-out Fair
Instrument Variable Fixed Rate Expiration Value
$18.5 million interest rate swap LIBOR 4.88% 7.75% 4/1/09 $0.5 million
Hypothetically, a 1% change in interest rates
results in approximately a $0.2 million change in the
amount paid or received under the terms of the inter-
est rate swap agreement on an annual basis. Due to
many factors, management is not able to predict the
changes in fair value of our interest rate swap. These
fair values are obtained from an outside financial
institution.
On March 20, 2008, we entered into two $75.0
million interest rate swap agreements. These interest
rate swaps are used to manage the risk associated with
interest rate fluctuations on a portion of our $250.0
Management’s Discussion & Analysis of Financial Condition and Results of Operations
million variable rate term note. Under these agree-
ments, we pay interest to financial institutions at a
fixed rate of 2.8%. In exchange, the financial institu-
tions pay us at a variable rate, which approximates the
variable rate on the debt, excluding the credit spread.
We believe these swaps are highly effective as the
interest reset dates and the underlying interest rate
indices are identical for the swaps and the debt. These
swaps qualify for hedge accounting treatment pur-
suant to SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and expire in
March 2011.