Dollar Tree 2012 Annual Report Download - page 26

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Management’s Discussion & Analysis of
Financial Condition and Results of Operations
Inflation and Other Economic Factors
Ourabilitytoprovidequalitymerchandiseataxed
priceandonaprotablebasismaybesubjectto
economic factors and influences that we cannot control.
Consumer spending could decline because of economic
pressures, including unemployment and rising fuel
prices.Reductionsinconsumercondenceandspending
couldhaveanadverseeectonoursales.Nationalor
international events, including war or terrorism, could
lead to disruptions in economies in the United States
or in foreign countries. ese and other factors could
increase our merchandise costs, fuel costs and other costs
that are critical to our operations, such as shipping and
wage rates.
Shipping Costs.Currently,trans-Pacicshippingrates
are negotiated with individual freight lines and are
subjecttouctuationbasedonsupplyanddemandfor
containersandcurrentfuelcosts.Wecangivenoassur-
ancesastothenalratetrendsfor2013,asweareinthe
early stages of our negotiations.
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 deriva-
tive instruments for trading purposes.
Diesel Fuel Cost Risk
In order to manage fluctuations in cash flows resulting
from changes in diesel fuel costs, we entered into fuel
derivativecontractswiththirdparties.Wehedged4.8
million,3.5millionand5.0milliongallonsofdiesel
fuelin2012,2011and2010,respectively.esehedges
representedapproximately35%,31%and39%ofour
totaldomestictruckloadfuelneedsin2012,2011and
2010,respectively.Wecurrentlyhavefuelderivative
contractstohedge0.7milliongallonsofdieselfuel,or
approximately20%ofourdomestictruckloadfuelneeds
fromFebruary2013throughApril2013.Underthese
contracts,wepaythethirdpartyaxedpricefordiesel
fuel and receive variable diesel fuel prices at amounts
approximating current diesel fuel costs, thereby creating
theeconomicequivalentofaxed-rateobligation.ese
derivative contracts do not qualify for hedge accounting
and therefore all changes in fair value for these derivatives
are included in earnings. e fair value of these contracts
atFebruary2,2013wasanassetof$0.5million.
24 Dollar Tree, Inc.