Dollar Tree 2009 Annual Report Download - page 27

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Management’s Discussion And Analysis Of Financial Condition
And Results Of Operations
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We฀are฀exposed฀to฀various฀types฀of฀market฀risk฀in฀the฀
normal course of our business, including the impact
of interest rate changes and diesel fuel cost changes.
We฀may฀enter฀into฀interest฀rate฀or฀diesel฀fuel฀swaps฀to฀
manage exposure to interest rate and diesel fuel price
changes.฀We฀do฀not฀enter฀into฀derivative฀instruments฀
for any purpose other than cash flow hedging and we
do not hold derivative instruments for trading purposes.
Interest Rate Risk
We฀use฀variable-rate฀debt฀to฀nance฀certain฀of฀our฀
operations and capital improvements. These obliga-
tions expose us to variability in interest payments due
to฀changes฀in฀interest฀rates.฀If฀interest฀rates฀increase,฀
interest expense increases. Conversely, if interest rates
decrease,฀interest฀expense฀also฀decreases.฀We฀believe฀
it฀is฀benecial฀to฀limit฀the฀variability฀of฀our฀interest฀
payments.
To฀meet฀this฀objective,฀we฀entered฀into฀deriva-
tive instruments in the form of interest rate swaps
to manage fluctuations in cash flows resulting from
changes in the variable-interest rates on a portion of
our฀$250.0฀million฀term฀loan.฀The฀interest฀rate฀swaps฀
reduce the interest rate exposure on these variable-rate
obligations. Under the interest rate swaps, we pay the
bank฀at฀a฀xed-rate฀and฀receive฀variable-interest฀at฀a฀
rate approximating the variable-rate on the obligation,
thereby฀creating฀the฀economic฀equivalent฀of฀a฀xed-rate฀
obligation.฀We฀entered฀into฀two฀$75.0฀million฀interest฀
rate฀swap฀agreements฀in฀March฀2008฀to฀manage฀the฀
risk associated with the interest rate fluctuations on a
portion฀of฀our฀$250.0฀million฀variable฀rate฀term฀loan.
฀฀฀DOLLAR฀TREE,฀INC.฀•฀2009฀Annual฀Report฀฀฀25