Dollar Tree 2010 Annual Report Download - page 24

Management’s Discussion And Analysis
Of Financial Condition And Results Of Operations
Interest on Long-term Borrowings. This amount
represents interest payments on the Credit Agreement
and the revenue bond fi nancing using the interest rates
for each at January 29, 2011.
Commitments
Letters of Credit and Surety Bonds. We are a
party to two Letter of Credit Reimbursement and
Security Agreements, one which provides $121.5
million for letters of credit and one which provides
$50.0 million for letters of credit. Letters of credit are
generally issued for the routine purchase of imported
merchandise and we had approximately $106.9 million
of purchases committed under these letters of credit at
January 29, 2011.
We also have approximately $13.1 million of letters
of credit and $2.5 million of surety bonds outstanding
for our self-insurance programs and certain utility
payment obligations at some of our stores.
Freight Contracts. We have contracted outbound
freight services from various carriers with contracts
expiring through fi scal 2014. The total amount of
these commitments is approximately $288.8 million.
Technology Assets. We have commitments totaling
approximately $5.9 million to primarily purchase store
technology assets for our stores during 2011.
Derivative Financial Instruments
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 fl uctuations on a portion of our
$250.0 million variable rate term loan. Under these
agreements, we pay interest to fi nancial institutions at
a fi xed rate of 2.8%. In exchange, the fi nancial institu-
tions pay us at a variable rate, which approximates the
variable rate on the debt, excluding the credit spread.
These swaps qualify for hedge accounting treatment
and expire in March 2011.
In 2010, we entered into fuel derivative contracts
with third parties which included approximately 0.6
million gallons of diesel fuel, or approximately 20%
of our fuel needs from February 2011 through April
2011. These derivative contracts do not qualify for
hedge accounting and therefore all changes in fair
value for these derivatives are included in earnings.
Lease Financing
Operating Lease Obligations. Our operating lease
obligations are primarily for payments under noncan-
celable store leases. The commitment includes amounts
for leases that were signed prior to January 29, 2011 for
stores that were not yet open on January 29, 2011.
Long-term Borrowings
Credit Agreement. On February 20, 2008, we
entered into a fi ve-year $550.0 million unsecured
Credit Agreement (the Agreement). The Agreement
provides for a $300.0 million revolving line of credit,
including up to $150.0 million in available letters of
credit, and a $250.0 million term loan. The interest
rate on the facility will be based, at our option, on
a LIBOR rate, plus a margin, or an alternate base
rate, plus a margin. The interest rate on the facility
was 0.76% at January 29, 2011. The revolving line
of credit also bears a facilities fee, calculated as a
percentage, as defi ned, of the amount available under
the line of credit, payable quarterly. The term loan
is due and payable in full at the fi ve year maturity
date of the Agreement. The Agreement also bears an
administrative fee payable annually. The Agreement,
among other things, requires the maintenance of
certain specifi ed fi nancial ratios, restricts the payment
of certain distributions and prohibits the incurrence of
certain new indebtedness. As of January 29, 2011, we
had the $250.0 million term loan outstanding under
the Agreement and no amounts outstanding under the
$300.0 million revolving line of credit.
Revenue Bond Financing. In May 1998, we
entered into an agreement with the Mississippi
Business Finance Corporation under which it issued
$19.0 million of variable-rate demand revenue bonds.
We used the proceeds from the bonds to fi nance
the acquisition, construction and installation of land,
buildings, machinery and equipment for our distribu-
tion facility in Olive Branch, Mississippi. At January
29, 2011, the balance outstanding on the bonds was
$16.5 million. These bonds are due to be fully repaid
in June 2018. The bonds do not have a prepayment
penalty as long as the interest rate remains variable.
The bonds contain a demand provision and, therefore,
outstanding amounts are classifi ed as current liabilities.
We pay interest monthly based on a variable interest
rate, which was 0.30% at January 29, 2011.
22 DOLLAR TREE, INC. ♦ 2010 Annual Report