Dollar Tree 2011 Annual Report Download - page 44

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NOTE 7—SHAREHOLDERS’ EQUITY
Preferred Stock
e 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 28, 2012 and January 29, 2011.
Net Income Per Share
e following table sets forth the calculation of basic and diluted net income per share:
(in millions, except per share data)
Year Ended
January 28, 2012 January 29, 2011 January 30, 2010
Basic net income per share:
Net income $ 488.3 $ 397.3 $ 320.5
Weighted average number of shares outstanding 120.3 127.1 134.1
Basic net income per share $ 4.06 $ 3.13 $ 2.39
Diluted net income per share:
Net income $ 488.3 $ 397.3 $ 320.5
Weighted average number of shares outstanding 120.3 127.1 134.1
Dilutive effect of stock options and restricted stock
(as determined by applying the treasury stock method) 0.9 0.9 0.9
Weighted average number of shares and dilutive
potential shares outstanding 121.2 128.0 135.0
Diluted net income per share $ 4.03 $ 3.10 $ 2.37
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 finance the acquisition, construction, and
installation of land, buildings, machinery and equipment
for the Company’s distribution facility in Olive Branch,
Mississippi. e Bonds do not contain a prepayment
penalty as long as the interest rate remains variable. e
Bonds contain a demand provision and, therefore, are
classified as current liabilities.
NOTE 6—DERIVATIVE FINANCIAL INSTRUMENTS
Hedging Derivatives
In 2008, the Company entered into two $75.0 million
interest rate swap agreements. ese interest rate swaps
were used to manage the risk associated with interest
rate fluctuations on a portion of the Company’s variable
rate debt. Under these agreements, the Company paid
interest to financial institutions at a fixed rate of 2.8%. In
exchange, the financial institutions paid the Company at
a variable rate, which equals the variable rate on the debt,
excluding the credit spread. ese swaps qualified for
hedge accounting treatment and expired in March 2011.
In order to manage fluctuations in cash flows
resulting from changes in diesel fuel costs, the Company
entered into fuel derivative contracts with third parties.
e Company hedged 3.5 million and 5.0 million gallons
of diesel fuel in 2011 and 2010, respectively. ese
hedges represented approximately 31% and 39% of the
total domestic truckload fuel needs in 2011 and 2010,
respectively. e Company currently has fuel derivative
contracts to hedge 2.8 million gallons of diesel fuel, or
approximately 41% of the Company’s domestic truckload
fuel needs from February 2012 through July 2012 and 0.5
million gallons of diesel fuel, or approximately 16% of the
Company’s domestic truckload fuel needs from August
2012 through October 2012. Under these contracts, the
Company pays the third party a fixed price for diesel
fuel and receives variable diesel fuel prices at amounts
approximating current diesel fuel costs, thereby creating
the economic equivalent of a fixed-rate obligation. ese
derivative contracts do not qualify for hedge accounting
and therefore all changes in fair value for these derivatives
are included under “Other income, net” on the accom-
panying consolidated statements of operations. e fair
value of these contracts at January 28, 2012 was an asset
of $0.6 million.
42 Dollar Tree, Inc.