Dollar Tree 2010 Annual Report Download - page 44

Notes to Consolidated Financial Statements
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 January 29, 2011 and January 30, 2010.
Net Income Per Share
The following table sets forth the calculation of basic and diluted net income per share:
(in millions, except per share data)
Year Ended
January 29, 2011
Yea r E nd ed
January 30, 2010
Yea r E nd ed
January 31, 2009
Basic net income per share:
Net income $ 397.3 $ 320.5 $ 229.5
Weighted average number of shares outstanding 127.1 134.1 135.4
Basic net income per share $ 3.13 $ 2.39 $ 1.69
Diluted net income per share:
Net income $ 397.3 $ 320.5 $ 229.5
Weighted average number of shares outstanding 127.1 134.1 135.4
Dilutive effect of stock options and restricted stock
(as determined by applying the treasury stock
method) 0.9 0.9 0.7
Weighted average number of shares and dilutive
potential shares outstanding 128.0 135.0 136.1
Diluted net income per share $ 3.10 $ 2.37 $ 1.69
Demand Revenue Bonds
In 1998, the Company entered into an unsecured
Loan Agreement with the Mississippi Business Finance
Corporation (MBFC) under which the MBFC issued
Taxable Variable Rate Demand Revenue Bonds (the
Bonds) in an aggregate principal amount of $19.0
million to fi nance the acquisition, construction, and
installation of land, buildings, machinery and equip-
ment for the Company’s distribution facility in Olive
Branch, Mississippi. The Bonds do not contain a
prepayment penalty as long as the interest rate remains
variable. The Bonds contain a demand provision and,
therefore, are classifi ed as current liabilities.
NOTE 6—DERIVATIVE FINANCIAL
INSTRUMENTS
Hedging Derivatives
In 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 fl uctuations on a portion of the
Company’s variable rate debt. Under these agreements,
the Company pays interest to fi nancial institutions
at a fi xed rate of 2.8%. In exchange, the fi nancial
institutions pay the Company at a variable rate, which
equals the variable rate on the debt, excluding the
credit spread. These swaps qualify for hedge accounting
treatment and expire in March 2011. The fair value
of these swaps as of January 29, 2011 was a liability of
$0.6 million.
In order to manage fl uctuations in cash fl ows
resulting from changes in diesel fuel costs, the
Company entered into fuel derivative contracts with
third parties in 2009 and 2010 for 2.1 million gallons
of diesel fuel, or approximately 65% of the Company’s
fuel needs from November 2010 through January
2011 and approximately 0.6 million gallons of diesel
fuel, or approximately 20% of the Company’s fuel
needs from February 2011 through April 2011. Under
these contracts, the Company pays the third party a
fi xed price for diesel fuel and receives variable diesel
fuel prices at amounts approximating current diesel
fuel costs, thereby creating the economic equivalent
of a fi xed-rate obligation. These derivative contracts
do not qualify for hedge accounting and therefore all
changes in fair value for these derivatives are included
in earnings. The fair value of these contracts at January
29, 2011 was an asset of $0.2 million. In March 2011,
the Company entered into fuel derivative contracts
for approximately 2.8 million gallons of diesel fuel, or
approximately 50% of the Company’s fuel needs from
August 2011 through January 2012.
42 DOLLAR TREE, INC. ♦ 2010 Annual Report