Dollar Tree 2007 Annual Report Download - page 44

TREE
TREE
Notes to Consolidated Financial Statements continued
Derivative Origination Expiration Pay Fixed Knock-out
Instrument Date Date Rate Rate
$18.5 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).
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
associated with interest rate fluctuations on a portion
of the Company’s $250.0 million variable rate term
note. Under these agreements, the Company pays
interest to financial institutions at a fixed rate of 2.8%.
In exchange, the financial institutions pay the
Company at a variable rate, which approximates the
variable rate on the debt, excluding the credit spread.
The Company believes these swaps are highly effec-
tive 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 treat-
ment pursuant to SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities and
expire in March 2011.
NOTE 7 - SHAREHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue 10,000,000
shares of Preferred Stock, $0.01 par value per share.
No preferred shares are issued and outstanding at
February 2, 2008 and February 3, 2007.
At February 2, 2008, February 3, 2007, and
January 28, 2006, respectively, 0.4 million, 1.5 million,
and 3.4 million stock options are not included in the
calculation of the weighted average number of shares
and dilutive potential shares outstanding because their
effect would be anti-dilutive.
Share Repurchase Programs
In December 2006, the Company entered into two
agreements with a third party to repurchase approxi-
mately $100.0 million of the Company’s common shares
under an Accelerated Share Repurchase Agreement.
The first $50.0 million was executed in an “uncol-
lared” agreement. In this transaction the Company ini-
tially received 1.7 million shares based on the market
price of the Company’s stock of $30.19 as of the trade
date (December 8, 2006). A weighted average price of
$32.17 was calculated using stock prices from
December 16, 2006 – March 8, 2007. This represent-
ed the calculation period for the weighted average
price. Based on this weighted average price, the
Company paid the third party an additional $3.3 mil-
lion on March 8, 2007 for the 1.7 million shares deliv-
ered under this agreement.
Net Income Per Share
The following table sets forth the calculation of basic and diluted net income per share:
Year Ended Year Ended Year Ended
February 2, February 3, January 28,
(in millions, except per share data) 2008 2007 2006
Basic net income per share:
Net income $201.3 $192.0 $173.9
Weighted average number of shares outstanding 95.9 103.2 108.3
Basic net income per share $2.10 $1.86 $1.61
Diluted net income per share:
Net income $201.3 $192.0 $173.9
Weighted average number of shares outstanding 95.9 103.2 108.3
Dilutive effect of stock options and restricted stock
(as determined by applying the treasury stock method) 0.5 0.6 0.4
Weighted average number of shares and
dilutive potential shares outstanding 96.4 103.8 108.7
Diluted net income per share $ 2.09 $ 1.85 $ 1.60
42 DOLLAR TREE, INC. • 2007 ANNUAL REPORT