DOLLAR TREE, INC. This section of Form 10-K generally discusses 2020 and 2019 events and results and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year endedFebruary 1, 2020 . In Management's Discussion and Analysis, we explain the general financial condition and the results of operations for our company, including, factors that affect our business, analysis of annual changes in certain line items in the consolidated financial statements, performance of each of our operating segments, expenditures incurred for capital projects and sources of funding for future expenditures. As you read Management's Discussion and Analysis, please refer to our consolidated financial statements and related notes, included in " Item 8. Financial Statements and Supplementary Data " of this Form 10-K. Key Events and Recent Developments Several key events have had or are expected to have a significant effect on our operations. They are listed below: •Impact of COVID-19 The COVID-19 pandemic has materially affected, and likely will continue to affect, our financial condition and results of operations for the foreseeable future. As you review the Management's Discussion and Analysis of Financial Condition and Results of Operations, please keep in mind the following. As an essential business, our stores and distribution centers have remained open during the pandemic; however, our business trends and financial results are materially different than what we expected. We estimate that our increased costs related to COVID-19 for premium pay including bonuses, supplies, protective equipment, and similar items in fiscal 2020 was$279.0 million . Although we believe that the pandemic has resulted in higher sales at Family Dollar, we also believe it has resulted in significantly lower sales atDollar Tree during the Easter season in 2020 and in our party departments. In addition, as a result of fewer customer trips, sales in certain consumable departments such as snacks and candy have been lower. We have experienced fewer customer visits and higher average ticket. The mix and profit margin of products being purchased by our customers has been different and has changed during 2020. As demand for essential goods, including cleaning supplies and sanitizer, household products, paper goods, food and over-the-counter medicine, increased to unprecedented levels, both our domestic suppliers and distribution centers were stressed to keep up with the demand. We expect this disruption with certain vendors and SKUs to continue into 2021. The effect of COVID-19-related stimulus purchases for some other non-essential items may create additional disruptions. We have implemented several changes to support our associates in adhering to CDC recommendations. We have: •Activated ourBusiness Response Team to communicate, assess and address potential exposure throughout the organization; •Provided personal protective equipment including masks, gloves and sanitizers for our store and distribution center associates; •Deployed plexiglass sneeze guards for all registers at all stores; •Deployed hand sanitizer stands in each of our stores; •Equipped stores, distribution centers and the store support center with necessary supplies for enhanced cleaning protocol; •Provided wage premiums for all store and distribution center hourly associates, excluding hourly-paid store managers; •Provided minimum guaranteed sales bonuses for each store manager as well as "Thank You" bonuses and bonuses for certain salaried associates in our field operations and distribution centers; •Provided pay continuation for associates who test positive or who are Group 1 associates who have to self-quarantine; •Created a "store" within each distribution center to allow our associates to shop for needed supplies at work when supplies were scarce in retail locations; •Eliminated all non-essential air travel; •Utilized technology options for all large group meetings; •Prohibited external visitors' access to the store support center; •Enabled the majority of our store support center teams to work remotely; •Enabled contactless payments to our POS systems for our customers; 28 -------------------------------------------------------------------------------- Table of Contents •Followed local municipality, county, and state guidelines and regulations needed to be open as an essential business; •Encouraged safe social distancing protocols for our customers with signing, graphics and communications; •Enabled health prescreening questionnaire for all store and distribution associates before entering work; and •Established temperature check protocols for our associates at all distribution centers and the store support center. Given the level of volatility and uncertainty surrounding the future impact of COVID-19 on our customers, suppliers and the broader economies in the locations that we operate as well as uncertainty around the future impact on our supply chain, it is challenging to predict our future operations and financial results. Following is a discussion of the impacts that we have seen and the factors which could influence our future performance. DuringMarch 2020 , ourDollar Tree and Family Dollar stores began to experience a significant increase in customer demand and sales related to essential products and comparable store net sales increased significantly. However, beginning the last week ofMarch 2020 and continuing into April during the peak of the Easter selling season, comparable store net sales at ourDollar Tree stores decreased. Beginning in mid-April, comparable store net sales at ourDollar Tree stores increased as the comparable Easter period from 2019 had passed. For fiscal 2020, enterprise comparable store net sales increased 6.1% resulting from an increase in average ticket of 20.0%, partially offset by decreased traffic of 11.6%. After the Easter selling season, in both banners, we saw an increase in demand for and sales of discretionary products and our seasonal business for the other holidays throughout the year was strong. The future impact of COVID-19 on our customers and our business is difficult to predict. The course of the pandemic, the effectiveness of health measures such as vaccines, and the impact of ongoing economic stabilization efforts is uncertain and government assistance payments may not provide enough funding to support current spending. The American Rescue Plan Act of 2021 ("Rescue Act"), which was enacted onMarch 11, 2021 , providesU.S. government funding to address the continuing impact of COVID-19 on the economy, public health, individuals and businesses. Among other things, the Rescue Act provides for$1,400 direct payments to individuals, continues supplemental unemployment benefits untilSeptember 2021 , extends a prior increase in food stamp benefits, expands the child tax credit and earned income tax credit, provides for rent and utility assistance, and funds COVID-19 vaccinations, testing, treatment and prevention. An increase in the federal minimum wage was not included in the Rescue Act as enacted. The demand for essential supplies has increased and we are dependent on our suppliers to replenish the goods in our stores. Disruptions in our supply chain or sources of supply could adversely impact our sales. Our new store openings in fiscal 2020 were affected by construction delays due to challenges with the permitting process during COVID-19. During 2020, we opened 341 newDollar Tree stores and 156 new Family Dollar stores compared to an original plan of 350 newDollar Tree stores and 200 new Family Dollar stores. With the increase in customer activity in our Family Dollar stores and COVID-19-related travel restrictions, we paused the roll-out of our H2 stores during the first quarter of 2020. We resumed the roll-out during the second quarter of 2020 and renovated approximately 770 stores to this format in fiscal 2020 compared with our original plan of 1,250 renovations. Also, as a result of COVID-19-related delays in obtaining permits, we added adult beverage product to approximately 570 stores in fiscal 2020 compared with our original plan of 1,000. For further discussion of the impacts that COVID-19 had on our financial condition and results of operations during fiscal 2020, refer to "Results of Operations" in this Item 7. below. •Family Dollar •In 2018, based on our strategic and operational reassessment of the Family Dollar segment following challenges that the business experienced that impacted our ability to grow the business at the originally estimated rate when we acquired Family Dollar in 2015, management determined there were indicators that the goodwill of the business may be impaired. Accordingly, a goodwill impairment test was performed in the fourth quarter of fiscal 2018 and we recorded a$2.73 billion non-cash pre-tax and after-tax goodwill impairment charge. The results of our 2019 annual impairment test showed that the fair value of the Family Dollar reporting unit was lower than its carrying value resulting in a$313.0 million non-cash pre-tax and after-tax goodwill impairment charge. •InMarch 2019 , we announced plans for a store optimization program for Family Dollar. For fiscal 2019, this program included rolling out a new model for both new and renovated Family Dollar stores, internally known as H2, re-bannering selected stores to the Dollar Tree brand, closing under-performing stores, and installing adult beverages and expanding freezers and coolers in selected stores. In fiscal 2020, we continued to roll out the H2 29 -------------------------------------------------------------------------------- Table of Contents concept to more stores, increased the number of stores with adult beverages and expanded freezers and coolers in selected stores and plan to continue these initiatives in fiscal 2021. •In fiscal 2019, we substantially completed our consolidation of our store support centers inMatthews, North Carolina andChesapeake, Virginia to our Summit Pointe development inChesapeake, Virginia . •Building on the success of the H2 format, we have developed aCombination Store which leverages both theDollar Tree and Family Dollar brands to serve small towns across the country. We are taking Family Dollar's great value and assortment and blending in selectDollar Tree merchandise categories, creating a new store format targeted for small towns and rural communities with populations of 3,000 to 4,000 residents. •Supply Chain •In the third quarter of 2019, we opened a new 1.2 million square foot distribution center inMorrow County, Ohio . •In the third quarter of 2020, we opened a new 1.2 million square foot distribution center inRosenberg, Texas and opened the first phase of our newOcala, Florida distribution center. •Long-term Debt •During the first quarter of 2018, we redeemed our$750.0 million acquisition notes and accelerated the amortization of debt-issuance costs associated with the notes of$6.1 million . •During the first quarter of 2018, we refinanced our long-term debt obligations as follows: ?We completed the registered offering of$750.0 million of Senior Floating Rate Notes due 2020,$1.0 billion of 3.70% Senior Notes due 2023,$1.0 billion of 4.00% Senior Notes due 2025 and$1.25 billion of 4.20% Senior Notes due 2028; ?We entered into a credit agreement for a$782.0 million term loan facility and a$1.25 billion revolving credit facility; ?We used the proceeds of the above offerings to repay the$2,182.7 million outstanding under our senior secured credit facilities and redeem the remaining$2.5 billion outstanding under our acquisition debt, resulting in the acceleration of the expensing of$41.2 million of deferred financing costs and our incurring$114.3 million in prepayment penalties. •During the fourth quarter of 2018, we prepaid the$782.0 million outstanding under the term loan facility and accelerated the expensing of$1.5 million of deferred financing costs. •During the fourth quarter of 2019, we prepaid$500.0 million of the$750.0 million Senior Floating Rate Notes due 2020 and accelerated the expensing of$0.3 million of deferred financing costs. •During the first quarter of 2020, we repaid the remaining$250.0 million outstanding under the Senior Floating Rate Notes. •During the first quarter of 2020, we preemptively drew$750.0 million on our revolving credit facility to reduce our exposure to potential short-term liquidity risk in the banking system as a result of the COVID-19 pandemic, all of which was repaid by the end of the third quarter of 2020. •During the fourth quarter of 2020, we repaid the$300.0 million 5.00% Senior Notes that we assumed upon the acquisition of Family Dollar. Overview We are a leading operator of more than 15,600 retail discount stores and we conduct our operations in two reporting segments. OurDollar Tree segment is the leading operator of discount variety stores offering merchandise predominantly at the fixed price of$1.00 . Our Family Dollar segment operates general merchandise retail discount stores providing consumers with a selection of competitively-priced merchandise in convenient neighborhood stores. Our net sales are derived from the sale of merchandise. Two major factors tend to affect our net sales trends. First is our success at opening new stores. Second is the performance of stores once they are open. Sales vary at our existing stores from one year to the next. We refer to this as a change in comparable store net sales, because we include only those stores that are open throughout both of the periods being compared, beginning after the first fifteen months of operation. We include sales from stores expanded or remodeled during the year in the calculation of comparable store net sales, which has the effect of increasing our comparable store net sales. The term 'expanded' also includes stores that are relocated. Stores that have been re-bannered are considered to be new stores and are not included in the calculation of the comparable store net sales change until after the first fifteen months of operation under the new brand. 30 -------------------------------------------------------------------------------- Table of Contents AtJanuary 30, 2021 , we operated stores in 48 states and theDistrict of Columbia , as well as stores in five Canadian provinces. A breakdown of store counts and square footage by segment for the years endedJanuary 30, 2021 andFebruary 1, 2020 is as follows: Year Ended January 30, 2021 February 1, 2020 Dollar Tree Family Dollar Total Dollar Tree Family Dollar Total Store Count: Beginning 7,505 7,783 15,288 7,001 8,236 15,237 New stores 341 156 497 348 170 518 Re-bannered stores (4) 5 1 200 (200) - Closings (37) (64) (101) (44) (423) (467) Ending 7,805 7,880 15,685 7,505 7,783 15,288 Relocations 49 39 88 47 15 62 Selling Square Feet (in millions): Beginning 64.6 56.7 121.3 60.3 59.8 120.1 New stores 3.1 1.3 4.4 3.0 1.3 4.3 Re-bannered stores (0.1) 0.1 - 1.5 (1.5) - Closings (0.3) (0.5) (0.8) (0.4) (2.9) (3.3) Relocations 0.1 0.1 0.2 0.2 - 0.2 Ending 67.4 57.7 125.1 64.6 56.7 121.3 Stores are included as re-banners when they close or open, respectively. Comparable store net sales forDollar Tree may be negatively affected when a Family Dollar store is re-bannered near an existing Dollar Tree store. The average size of stores opened in 2020 was approximately 8,640 selling square feet (or about 10,800 gross square feet) for theDollar Tree segment and 8,460 selling square feet (or about 10,360 gross square feet) for the Family Dollar segment. For 2021, we continue to plan to open stores that are 8,000 - 10,000 selling square feet (or about 10,000 - 12,000 gross square feet) for theDollar Tree segment and 7,000 - 10,000 selling square feet (or about 9,000 - 12,000 gross square feet) for the Family Dollar segment. We believe that these size stores are in the ranges of our optimal sizes operationally and give our customers a shopping environment which invites them to shop longer, buy more and make return visits. Fiscal 2020, fiscal 2019 and fiscal 2018 each included 52 weeks. The percentage change in comparable store net sales on a constant currency basis for the fiscal year endedJanuary 30, 2021 , as compared with the preceding year, is as follows: Year Ended January 30, 2021 Sales Growth Change in Customer Traffic Change in Average Ticket Consolidated 6.1 % (11.6) % 20.0 % Dollar Tree Segment 2.2 % (13.3) % 17.9 % Family Dollar Segment 10.5 % (9.1) % 21.5 % Constant currency basis refers to the calculation excluding the impact of currency exchange rate fluctuations. We calculated the constant currency basis change by translating the current year's comparable store net sales inCanada using the prior year's currency exchange rates. We believe that the constant currency basis provides a more accurate measure of comparable store net sales performance. Comparable store net sales are positively affected by our expanded and relocated stores, which we include in the calculation, and are negatively affected when we open new stores, re-banner stores or expand stores near existing stores. Dollar Tree Initiatives We believe that ourDollar Tree initiatives continue to positively affect our comparable store net sales. In fiscal 2019, we introduced our Crafter's Square initiative in more than 650 stores. This offering includes a new expanded assortment of arts and crafts supplies. During fiscal 2020, we expanded this program, completing the roll-out to all of ourDollar Tree stores. The Crafter's Square assortment carries mark-ups which are higher than our average mark-up. Additionally, for more than a year, we have tested a multi-price initiative referred to as Dollar Tree Plus! Beginning in fiscal 2019, we began testing multi-price assortments in more than 100 stores in southwestern markets. Based on learnings from the test, we made modifications to: the mix of products offered to include 31 -------------------------------------------------------------------------------- Table of Contents primarily discretionary items; the displays and signage to drive awareness and excitement to the stores; the price points to focus on the$1 ,$3 and$5 price points; and increase the number of offerings above the$1 price point. We plan to expand this initiative into a total of 500 stores beginning in the first quarter of fiscal 2021. We believe these initiatives have and will continue to enable us to increase sales and earnings. Family Dollar Initiatives We are executing several initiatives in our Family Dollar stores to increase sales. During 2020, we entered into a partnership with Instacart to enable our customers to shop online and receive merchandise without having to visit a store. In fiscal 2019, we executed a store optimization program for our Family Dollar stores to improve performance. Included in that program was a roll-out of a new model for both new and renovated Family Dollar stores internally known as H2. The H2 model has significantly improved merchandise offerings, including approximately 20Dollar Tree $1.00 merchandise sections and establishing a minimum number of freezer and cooler doors, throughout the store. H2 stores have higher customer traffic and provide an average comparable store net sales lift in excess of 10%, when compared to non-renovated stores, in the first year following renovation. H2 stores perform well in a variety of locations and especially in locations where our Family Dollar stores have been most challenged in the past. As ofJanuary 30, 2021 , we have approximately 2,385 H2 stores. We plan to renovate at least 1,250 stores to this format in fiscal 2021 and also plan to build new stores in this format. In addition, we installed adult beverage product in approximately 570 stores in fiscal 2020 and plan to add it to approximately 1,000 stores in fiscal 2021. We believe the addition of adult beverage to our assortment will drive traffic to our stores. Building on the success of the H2 format, we have developed aCombination Store which leverages both theDollar Tree and Family Dollar brands to serve small towns across the country. We are taking Family Dollar's great value and assortment and blending in selectDollar Tree merchandise categories, creating a new store format targeted for small towns and rural communities with populations of 3,000 to 4,000 residents. Other Items Additionally, the following items have already impacted or could impact our business or results of operations during 2021 or in the future: •We are experiencing delays in receiving import merchandise as a result of worldwide container and other equipment shortages and issues with port congestion. Inthe United States , the port congestion is resulting in ships not returning toAsia in a timely manner as well as impacting equipment availability. This is resulting in delays in product being loaded and shipped from overseas locations. Although this has not yet impacted our sales and we believe we are adequately stocked with merchandise for Easter, the delays could potentially have a material adverse impact on our sales after Easter, especially atDollar Tree , if the delays do not improve. In addition to creating business uncertainty, this disruption in the import transportation process is also resulting in higher costs. We are also seeing increases in the cost to ship domestic freight from our suppliers to our distribution centers. We are currently projecting approximately$80.0 to$100.0 million of additional costs in fiscal 2021 as a result of higher shipping and domestic freight costs. •In 2021, the minimum wage has increased in certain States and localities and may increase nationally depending on the outcome of future legislation proposed inCongress . The currently scheduled minimum wage increases are estimated to increase store payroll by$45.0 million to$50.0 million in 2021, which is less than the COVID-19-related payroll increases in 2020. Additional minimum wage increases and other wage and hour law changes in the future could materially impact our results of operations. •The amount of COVID-19-related costs for premium pay including bonuses, supplies, protective equipment, and similar items was$279.0 million in fiscal 2020; the amount of these costs for 2021 is highly uncertain. Among other things, the duration and severity of the pandemic is uncertain, and a number of States and localities are considering legislation that could require premium pay for certain essential workers during certain government mandated restricted work periods. We must continue to control our merchandise costs, inventory levels and our general and administrative expenses as increases in these items could negatively impact our operating results. 32 -------------------------------------------------------------------------------- Table of Contents Results of Operations Our results of operations as a percentage of net sales and year-over-year changes are discussed in the following section.Net Sales Year Ended Percentage Change January 30, February 1, February 2, Fiscal 2020 vs. Fiscal
(dollars in millions) 2021 2020 2019 2019 Net sales$ 25,509.3 $ 23,610.8 $ 22,823.3 8.0 % Comparable store net sales change, on a constant currency basis 6.1 % 1.8 %
1.7 %
The increase in net sales from 2019 to 2020 was a result of comparable store net sales increases in the Family Dollar andDollar Tree segments and sales of$852.4 million at new stores. These sales increases were partially offset by lost sales resulting from store closures during fiscal 2019 in connection with our Family Dollar segment store optimization program. Enterprise comparable store net sales increased 6.1% on a constant currency basis in 2020, as a result of a 20.0% increase in average ticket and an 11.6% decrease in customer traffic. Comparable store net sales increased 6.0% when including the impact of Canadian currency fluctuations. On a constant currency basis, comparable store net sales increased 10.5% in the Family Dollar segment and 2.2% in theDollar Tree segment. Lower traffic resulting from the COVID-19 pandemic negatively affected Easter sales in theDollar Tree segment in the first quarter of fiscal 2020. Gross Profit Year Ended Percentage Change January 30, February 1, February 2, Fiscal 2020 vs. Fiscal (dollars in millions) 2021 2020 2019 2019 Gross profit$ 7,788.3 $ 7,040.7 $ 6,947.5 10.6 % Gross profit margin 30.5 % 29.8 % 30.4 % 0.7 % The increase in gross profit margin from 2019 to 2020 was a result of the net of the following: •Occupancy costs decreased 40 basis points as a result of the leverage from the increase in comparable store net sales. •Markdown costs decreased 25 basis points resulting primarily from the prior year including markdowns related to Family Dollar store closures and clearance sales as well as lower promotional activity in the current year on the Family Dollar segment as a result of the increase in sales of discretionary product. Both segments also had higher sell-through of both Christmas andHalloween merchandise. These decreases were partially offset by$10.4 million of uninsured markdown costs for stores affected by civil unrest during 2020 and higher seasonal markdowns in theDollar Tree segment in the first quarter of 2020 due to the lower than planned sell-through on Easter merchandise as a result of the COVID-19 pandemic. •Merchandise cost, including freight, decreased 20 basis points in 2020 compared to 2019 resulting from higher sales of higher margin discretionary merchandise and improved initial mark-on, partially offset by incremental tariff costs of$30.7 million . •Shrink costs decreased 15 basis points resulting from favorable inventory reconciliations on the Family Dollar segment in the current year, partially offset by unfavorable physical inventory results in relation to accruals on theDollar Tree segment. •Distribution costs increased 30 basis points resulting primarily from higher distribution center payroll and depreciation costs. We paid our hourly distribution center associates a wage premium for all hours worked fromMarch 8, 2020 throughJanuary 2, 2021 . Total distribution center COVID-19-related expenses were$36.3 million , or 15 basis points of this increase. 33 -------------------------------------------------------------------------------- Table of Contents Selling, General and Administrative Expenses Year Ended Percentage Change January 30, February 1, February 2, Fiscal 2020 vs. Fiscal (dollars in millions) 2021 2020 2019 2019 Selling, general and administrative expenses$ 5,900.4 $ 5,778.5 $ 7,887.0 2.1 % As a percentage of Net sales 23.1 % 24.5 % 34.5 % (1.4) % We recorded non-cash goodwill impairment charges of$313.0 million and$2,727.0 million in fiscal 2019 and fiscal 2018, respectively. The goodwill impairments are discussed further in Note 3 to our consolidated financial statements. Excluding the goodwill impairment charges in 2019 and 2018, selling, general and administrative expenses were 23.2% and 22.6%, as a percentage of net sales, in 2019 and 2018, respectively. The decrease in selling, general and administrative expenses, as a percentage of net sales, from 2019 to 2020, excluding the goodwill impairment charge from 2019, was the result of the net of the following: •Other selling, general and administrative expenses decreased 40 basis points as a result of the leverage from the comparable store net sales increase, higher costs in the prior year related to the disposal of fixed assets in connection with the store optimization program on the Family Dollar segment, lower promotional advertising on the Family Dollar segment, decreases in travel due to the COVID-19 pandemic, lower legal expenses and higher costs in the prior year for the store support center consolidation. These improvements were partially offset by an increase in store supplies expenses due to the COVID-19 pandemic. Fiscal 2020 included$26.5 million , or 10 basis points, of costs for the installation of plexiglass sneeze guards at all registers in our stores as well as incremental costs for masks, gloves and cleaning supplies due to the COVID-19 pandemic and$2.7 million of uninsured costs associated with stores damaged in civil unrest. •Store facility costs decreased 20 basis points due to leverage from the comparable store net sales increase and lower electricity costs. Fiscal 2020 included$1.3 million of COVID-19-related expenses and$4.5 million of expenses for stores damaged in civil unrest. •Depreciation costs decreased 5 basis points due primarily to the leverage from the comparable store net sales increase. •Payroll expenses increased 65 basis points primarily due to incremental costs associated with the COVID-19 pandemic and increases in incentive compensation, store sales bonuses and stock compensation expenses resulting from improved operating performance in the Family Dollar segment. These increases were partially offset by leverage from the comparable store net sales increase, lower benefits costs and lower temporary help expenses as a result of the prior year including higher expenses to support store-level initiatives. Office payroll costs also decreased resulting from the store support center consolidation in the prior year and other leadership changes made in the fourth quarter of fiscal 2019. Incremental payroll costs associated with the COVID-19 pandemic, including a wage premium paid to all store hourly associates for all hours workedMarch 8, 2020 throughSeptember 26, 2020 , bonuses for certain field management associates, guaranteed bonus payouts and "Thank You" bonuses for store managers, quarantine pay and sick pay as well as the related payroll taxes, totaled$212.6 million , or 85 basis points. Operating Income (Loss) Year Ended Percentage Change January 30,
2021 2020 2019 2019
Operating income (loss) $ 1,887.9 $ 1,262.2 $ (939.5) 49.6 %
Operating income margin 7.4 % 5.3 % (4.1) % 2.1 %
Excluding the non-cash goodwill impairment charges in 2019 and 2018, operating
income margin was 6.7% in 2019 and 7.8% in 2018. Operating income margin
increased to 7.4% in fiscal 2020 compared to 6.7% in fiscal 2019, excluding the
goodwill impairment charge, as operating income margin in the Family Dollar
segment increased 330 basis points, partially offset by a 140 basis point
decrease in the Dollar Tree segment operating income margin. Operating income in
fiscal 2020 includes $279.0 million of COVID-19-related expenses and $18.2
million of uninsured expenses related to civil unrest.
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Interest Expense, Net
Year Ended Percentage Change
January 30, February 1, February 2, Fiscal 2020 vs. Fiscal
(dollars in millions) 2021 2020 2019 2019
Interest expense, net $ 147.3 $ 162.1 $ 370.0 (9.1) %
Interest expense, net decreased $14.8 million in fiscal 2020 compared to the
prior year, resulting from lower average debt outstanding in the current year,
partially offset by lower interest income.
In fiscal 2018, we refinanced our debt, resulting in the acceleration of the
expensing of $41.2 million of amortizable non-cash deferred financing costs and
prepayment penalties totaling $114.3 million .
Provision for Income taxes
Year Ended Percentage Change
January 30, February 1, February 2, Fiscal 2020 vs. Fiscal
(dollars in millions) 2021 2020 2019 2019
Provision for income taxes $ 397.9 $ 271.7 $ 281.8 46.4 %
Effective tax rate 22.9 % 24.7 % 21.5 % (1.8) %
The effective tax rate for 2020 was 22.9% compared to 24.7% for 2019. The 2020
effective rate decreased compared to the prior year rate as the $313.0 million
goodwill impairment charge in 2019 was not tax deductible. Partially offsetting
that decrease, the 2020 rate reflects higher state tax rates, higher income
amounts taxed at the statutory rate and additional tax expense for restricted
stock vestings due to the stock price for certain grants being lower at the vest
date than the grant date. The 2019 effective tax rate also includes the benefit
of the reversal of a valuation allowance of $24.6 million .
Segment Information
We operate a chain of more than 15,600 retail discount stores in 48 states and
five Canadian provinces. Our operations are conducted in two reporting business
segments: Dollar Tree and Family Dollar. We define our segments as those
operations whose results our chief operating decision maker ("CODM") regularly
reviews to analyze performance and allocate resources.
We measure the results of our segments using, among other measures, each
segment's net sales, gross profit and operating income. The CODM reviews these
metrics for each of our reporting segments. We may revise the measurement of
each segment's operating income, as determined by the information regularly
reviewed by the CODM. If the measurement of a segment changes, prior period
amounts and balances are reclassified to be comparable to the current period's
presentation. Corporate, support and Other consists primarily of store support
center costs that are considered shared services and therefore these selling,
general and administrative costs are excluded from our two reporting business
segments. These costs include operating expenses for our store support centers
in Chesapeake, Virginia and Matthews, North Carolina . During fiscal 2019, we
consolidated our Matthews, North Carolina store support center with our store
support center in Chesapeake, Virginia . Corporate, support and Other also
includes the results of operations for our Summit Pointe property in Chesapeake,
Virginia . Prior year amounts have been reclassified to be comparable to the
current year presentation.
Dollar Tree
The following table summarizes the operating results of the Dollar Tree segment:
Year Ended Percentage Change
January 30, 2021 February 1, 2020 February 2, 2019
% of % of % of Fiscal 2020 vs.
(in millions) $ Net Sales $ Net Sales $ Net Sales Fiscal 2019
Net sales $ 13,265.0 $ 12,507.9 $ 11,712.1
Gross profit 4,543.8 34.3 % 4,342.9 34.7 % 4,137.5 35.3 % (0.4) %
Operating income 1,598.0 12.0 % 1,670.2 13.4 % 1,657.4 14.2 % (1.4) %
Net sales for the
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Gross profit margin for the Dollar Tree segment decreased to 34.3% in 2020 from
34.7% in 2019. The decrease is due to the net of the following:
•Distribution costs increased 50 basis points resulting primarily from higher
distribution center payroll and depreciation costs. We paid our hourly
distribution center associates a wage premium for all hours worked from March 8,
2020 through January 2, 2021 . Total distribution center COVID-19-related
expenses were $21.3 million , or 15 basis points of this increase.
•Shrink costs increased 5 basis points resulting from unfavorable physical
inventory results in relation to accruals in the current year and an increase in
the shrink accrual rate.
•Markdown costs were flat as a percentage of net sales compared to the prior
year as lower markdowns from higher seasonal merchandise sell-through in the
third and fourth quarters of 2020 were offset by higher markdowns from the lower
sell-through of Easter merchandise as a result of the COVID-19 pandemic in the
first quarter of 2020, and $2.9 million of uninsured markdown costs for stores
affected by civil unrest.
•Merchandise cost, including freight, decreased 10 basis points primarily due to
increased sales of higher margin discretionary merchandise and increased initial
mark-on, partially offset by incremental tariffs of $23.7 million . Discretionary
merchandise sales were a higher proportion of total sales in the second, third
and fourth quarters of 2020 while they were a lower proportion in the first
quarter of 2020 as a result of the lower Easter sales due to the COVID-19
pandemic.
Operating income margin for the Dollar Tree segment decreased to 12.0% in 2020
compared to 13.4% in 2019. The decrease in operating income margin in 2020 was
the result of lower gross profit margin as noted above and higher selling,
general and administrative expenses as a percentage of net sales. Selling,
general and administrative expenses, as a percentage of net sales, increased to
22.3% in 2020 compared to 21.3% in 2019 as a result of the net of the following:
•Payroll expenses increased 100 basis points primarily due to incremental costs
associated with the COVID-19 pandemic and higher incentive compensation and
store sales bonuses. Incremental payroll costs associated with the COVID-19
pandemic included a wage premium paid to all store hourly associates for all
hours worked from March 8, 2020 through September 26, 2020 , bonuses for certain
field management associates, guaranteed bonus payouts and "Thank You" bonuses
for store managers, quarantine pay and sick pay as well as the related payroll
taxes. These costs totaled $124.2 million , or 95 basis points, in fiscal 2020.
These increases were partially offset by leverage from the comparable store net
sales increase and lower benefits costs.
•Other selling, general and administrative expenses decreased 5 basis points as
a result of decreased travel costs due to the COVID-19 pandemic and lower legal
expenses, partially offset by an increase in store supplies costs resulting from
the COVID-19 pandemic. Fiscal 2020 includes $14.9 million , or 10 basis points,
of costs for the installation of plexiglass sneeze guards at all registers in
our stores as well as incremental costs for masks, gloves and cleaning supplies
due to the COVID-19 pandemic.
•Store facility costs decreased 10 basis points due to leverage from the
comparable store net sales increase. Fiscal 2020 includes $1.7 million of
expenses for repairs to stores damaged in civil unrest.
Operating income in fiscal 2020 includes $161.1 million of COVID-19-related
expenses and $5.4 million of uninsured costs related to civil unrest.
Family Dollar
The following table summarizes the operating results of the Family Dollar
segment:
Year Ended Percentage Change
January 30, 2021 February 1, 2020 February 2, 2019
% of % of % of Fiscal 2020 vs.
(in millions) $ Net Sales $ Net Sales $ Net Sales Fiscal 2019
Net sales $ 12,243.4 $ 11,102.9 $ 11,111.2
Gross profit 3,243.6 26.5 % 2,697.8 24.3 % 2,810.0 25.3 % 2.2 %
Operating income (loss) 655.6 5.4 % (74.9) (0.7) % (2,312.8) (20.8) % 6.1 %
Net sales for the Family Dollar segment increased $1,140.5 million or 10.3% in
2020 compared to 2019 due to a comparable store net sales increase of 10.5% and
$261.4 million of new store sales, partially offset by lost sales resulting from
store closures during
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fiscal 2019 in connection with our store optimization program. Average ticket
increased 21.5% and customer traffic declined 9.1% in 2020.
Gross profit margin for the Family Dollar segment increased to 26.5% in 2020
compared to 24.3% in 2019. The increase is due to the net of the following:
•Occupancy costs decreased 80 basis points as a result of the leverage from the
comparable store net sales increase.
•Markdowns at cost decreased 55 basis points primarily due to higher store
closure and clearance sale markdowns in the prior year and lower promotional
activity in the current year as a result of the increase in sales of
discretionary product. Family Dollar also had higher sell-through of both
Christmas and Halloween merchandise. These markdown reductions were partially
offset by $7.5 million of uninsured markdown costs for stores affected by civil
unrest.
•Merchandise cost, including freight, decreased 50 basis points primarily due to
increased sales of higher margin discretionary merchandise and improved initial
mark-on, partially offset by incremental tariffs of $7.1 million .
•Shrink expense decreased 45 basis points resulting from favorable physical
inventory results in relation to accruals in the current year and a decrease in
the accrual rate compared to an increase in the accrual rate in the prior year.
•Distribution costs increased 5 basis points resulting primarily from higher
distribution center payroll costs. We paid our hourly distribution center
associates a wage premium for all hours worked from March 8, 2020 through
January 2, 2021 . Total distribution center COVID-19-related expenses were $15.0
million , or 10 basis points of this increase.
Excluding the $313.0 million and $2,727.0 million non-cash goodwill impairment
charges in 2019 and 2018, respectively, operating income margin for the Family
Dollar segment was 2.1% in 2019 and 3.7% in 2018. Operating income margin
increased to 5.4% in fiscal 2020 compared to 2.1% in fiscal 2019, excluding the
goodwill impairment charge, resulting from the gross margin increase noted above
and a decrease in selling, general and administrative expenses, as a percentage
of net sales. Selling, general and administrative expenses were 21.1%, as a
percentage of net sales, in 2020 compared to 22.2% in 2019, excluding the
goodwill impairment charge. The decrease in selling, general and administrative
expenses, as a percentage of net sales, was due to the following:
•Other selling, general and administrative expenses decreased 60 basis points
primarily due to a decrease in promotional advertising, less travel during the
COVID-19 pandemic, higher costs in the prior year related to the disposal of
fixed assets in connection with the store optimization program, lower legal
expenses, and leverage associated with the increase in comparable store net
sales during the period, partially offset by an increase in store supplies
expense. Fiscal 2020 included $11.6 million or 10 basis points of costs for the
installation of plexiglass sneeze guards at all registers in our stores as well
as incremental costs for masks, gloves and cleaning supplies due to the COVID-19
pandemic and $2.1 million of expenses primarily for fixed asset disposals for
stores damaged by civil unrest.
•Store facility costs decreased 25 basis points primarily due to leverage from
the comparable store net sales increase and lower electricity costs. Fiscal 2020
included $2.8 million of incremental repairs and maintenance expenses for stores
damaged by civil unrest.
•Depreciation and amortization expense decreased 15 basis points primarily due
to leverage from the comparable store net sales increase.
•Payroll expenses decreased 5 basis points as incremental costs associated with
the COVID-19 pandemic and increased incentive compensation and store sales bonus
expenses resulting from the improved Family Dollar operating performance were
more than offset by leverage from the comparable store net sales increase, lower
temporary help expenses as a result of the prior year including higher expenses
to support store-level initiatives, a decrease in workers' compensation expenses
and lower benefits costs. Incremental costs associated with the COVID-19
pandemic, including a wage premium paid to all store hourly associates for all
hours worked from March 8, 2020 to September 26, 2020 , bonuses for certain field
management associates, guaranteed bonus payouts and "Thank You" bonuses for
store managers, quarantine pay and sick pay as well as the related payroll taxes
totaled $88.4 million or 70 basis points.
Operating income in fiscal 2020 includes $115.5 million for COVID-19-related
expenses and $12.8 million of uninsured costs related to civil unrest.
Liquidity and Capital Resources
Our business requires capital to build and open new stores, expand and renovate
existing stores, expand our distribution network and operate our existing
stores. Our working capital requirements for existing stores are seasonal in
nature and typically reach their peak in the months of September and October.
Historically, we have satisfied our seasonal working capital requirements for
existing
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stores and have funded our store opening and distribution network expansion
programs from internally generated funds and borrowings under our credit
facilities.
The following table compares cash-flow related information for the years ended
January 30, 2021 , February 1, 2020 and February 2, 2019 :
Year Ended
January 30, February 1, February 2,
(in millions) 2021 2020 2019
Net cash provided by (used in):
Operating activities $ 2,716.3 $ 1,869.8 $ 1,766.0
Investing activities (889.7) (1,020.2) (816.7)
Financing activities (949.9) (709.8) (1,599.9)
Operating Activities
Net cash provided by operating activities increased $846.5 million in 2020
compared to 2019 primarily as a result of higher accounts payable, current
liabilities and other liabilities and lower inventory levels at January 30,
2021 , and higher earnings before depreciation and amortization in the current
year.
Investing Activities
Net cash used in investing activities decreased $130.5 million in 2020 compared
with 2019 primarily due to 2019 including higher capital expenditures related to
the Family Dollar segment store optimization program, including H2 renovations
and re-banners. H2 renovations were slowed in the current year due to the
COVID-19 pandemic. The decrease was partially offset by increased capital
expenditures related to distribution center projects in the current year and
grant funds received from state and local governments for our Summit Pointe
development in the prior year.
Financing Activities
Net cash used in financing activities increased $240.1 million in 2020 compared
to 2019 primarily due to $400.0 million of stock repurchases in 2020 compared to
$200.0 million in 2019. In 2020, we also repaid the remaining $250.0 million of
our $750.0 million Floating Rate Notes and the $300.0 million 5% Senior Notes.
In fiscal 2019, we prepaid $500.0 million of our $750.0 million Floating Rate
Notes.
At January 30, 2021 , our long-term borrowings were $3.25 billion and we had
$1.25 billion available under our revolving credit facility, less amounts
outstanding for standby letters of credit totaling $98.7 million . For additional
detail on our long-term borrowings and other commitments, refer to the
discussion of Funding Requirements below, as well as Note 5 and Note 6
to our consolidated financial statements.
Share Repurchases
We repurchased 3,982,478 shares of common stock on the open market for $400.0
million in fiscal 2020 and we repurchased 1,967,355 shares of common stock on
the open market for $200.0 million in fiscal 2019. There were no shares
repurchased in fiscal 2018. At January 30, 2021 , we had $400.0 million remaining
under Board repurchase authorization. Subsequently, on March 2, 2021 , the Board
increased the share repurchase authorization by $2.0 billion resulting in a
total share repurchase authorization of $2.4 billion .
Funding Requirements
Overview
We expect our cash needs for opening new stores and expanding and renovating
existing stores in fiscal 2021 to total approximately $592.7 million , which
includes capital expenditures, initial inventory and pre-opening costs.
Our estimated capital expenditures for fiscal 2021 are approximately $1.2
billion , including planned expenditures for our new and expanded stores,
approximately 1,250 planned H2 renovations of Family Dollar segment stores,
distribution center expansions and the development of additional parcels on our
Summit Pointe property, located in Chesapeake, Virginia , for mixed-use purposes.
We believe that we can adequately fund our working capital requirements and
planned capital expenditures for the foreseeable future from net cash provided
by operations and potential borrowings under our revolving credit facility.
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The following tables summarize our material contractual obligations at
January 30, 2021 , including both on- and off-balance sheet arrangements, and our
commitments, including interest on long-term borrowings (in millions):
Contractual Obligations Total 2021 2022 2023 2024 2025 Thereafter Lease Financing Operating lease obligations
$ 7,459.5 $ 1,480.1 $ 1,396.4 $ 1,184.1 $ 965.0 $ 731.2 $ 1,702.7 Long-term Borrowings Principal 3,250.0 - - 1,000.0 - 1,000.0 1,250.0 Interest 639.2 129.1 129.1 104.8 92.0 64.1 120.1 Total obligations$ 11,348.7 $ 1,609.2 $ 1,525.5 $ 2,288.9 $ 1,057.0 $ 1,795.3 $ 3,072.8 Expiring in Expiring in Expiring in Expiring in Expiring in Commitments Total 2021 2022 2023 2024 2025 Thereafter Letters of credit and surety bonds$ 404.8 $ 378.5 $ 25.7 $ 0.5 $ 0.1 $ - $ - Purchase obligations 189.8 68.3 43.2 35.5 27.6 15.2 - Total commitments$ 594.6 $ 446.8 $ 68.9 $ 36.0 $ 27.7 $ 15.2 $ - Lease Financing Operating lease obligations. Refer to Note 7 to our consolidated financial statements for information on our operating leases. The obligation above includes amounts for leases that were signed prior toJanuary 30, 2021 for stores that were not yet open onJanuary 30, 2021 . Long-term Borrowings In the first quarter of 2018, we redeemed our$750.0 million acquisition notes and accelerated the amortization of debt-issuance costs associated with the notes of$6.1 million . Additionally, in the first quarter of 2018, we completed the registered offering of$750.0 million aggregate principal amount of Senior Floating Rate Notes due 2020,$1.0 billion aggregate principal amount of 3.70% Senior Notes due 2023,$1.0 billion aggregate principal amount of 4.00% Senior Notes due 2025 and$1.25 billion aggregate principal amount of 4.20% Senior Notes due 2028. We also entered into a credit agreement withJPMorgan Chase Bank, N.A ., as administrative agent, providing for$2.03 billion in senior credit facilities, consisting of a$1.25 billion revolving credit facility and a$782.0 million term loan facility. We used the proceeds of these borrowings and cash on hand to repay all of the outstanding loans under our then-existing senior secured credit facilities and acquisition notes, resulting in the acceleration of the expensing of$41.2 million of deferred financing costs and our incurring$114.3 million in prepayment penalties. In the fourth quarter of 2018, we prepaid in full the$782.0 million term loan facility. In the fourth quarter of 2019, we prepaid$500.0 million of the$750.0 million Senior Floating Rate Notes and repaid the remaining$250.0 million outstanding in the first quarter of 2020. In addition, upon the acquisition of Family Dollar in 2015, we assumed the liability for$300.0 million of 5.00% senior notes, which we repaid in the fourth quarter of 2020. The interest on our long-term borrowings represents the interest payments on the foregoing long-term borrowings that were outstanding atJanuary 30, 2021 using the interest rates for each atJanuary 30, 2021 . For additional information on our long-term borrowings, please refer to Note 6 to our consolidated financial statements. Commitments Letters of credit and surety bonds. We have$356.5 million in Letter of Credit Reimbursement and Security Agreements with various financial institutions, under which$209.6 million was committed to letters of credit issued for routine purchases of imported merchandise atJanuary 30, 2021 . We also have$98.7 million of letters of credit outstanding that serve as collateral for our large-deductible insurance programs and$96.5 million of surety bonds outstanding primarily for certain utility payment obligations at some of our stores and self-insured insurance programs. Purchase obligations. We have commitments totaling$189.8 million related to agreements for software licenses and support, telecommunication services and store technology assets and maintenance for our stores. 39 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies The preparation of financial statements requires the use of estimates. Certain of our estimates require a high level of judgment and have the potential to have a material effect on the financial statements if actual results vary significantly from those estimates. Following is a discussion of the policies that we consider critical. Inventory Valuation As discussed in Note 1 to our consolidated financial statements under the caption "Merchandise Inventories," inventories at the distribution centers are stated at the lower of cost or net realizable value with cost determined on a weighted-average basis. Cost is assigned to store inventories using the retail inventory method on a weighted-average basis. Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are computed by applying a calculated cost-to-retail ratio to the retail value of inventories. The retail inventory method is an averaging method that is widely used in the retail industry and results in valuing inventories at lower of cost or market when markdowns are taken as a reduction of the retail value of inventories on a timely basis. Inventory valuation methods require certain management estimates and judgments, including estimates of future merchandise markdowns and shrink, which significantly affect the ending inventory valuation at cost as well as the resulting gross margins. The averaging required in applying the retail inventory method and the estimates of shrink and markdowns could, under certain circumstances, result in costs not being recorded in the proper period. We estimate our markdown reserve based on the consideration of a variety of factors, including, but not limited to, quantities of slow moving or seasonal carryover merchandise on hand, historical markdown statistics and future merchandising plans. The accuracy of our estimates can be affected by many factors, some of which are outside of our control, including changes in economic conditions and consumer buying trends. Historically, we have not experienced significant differences in our estimated reserve for markdowns compared with actual results. Our accrual for shrink is based on the actual, historical shrink results of our most recent physical inventories adjusted, if necessary, for current economic conditions and business trends. These estimates are compared to actual results as physical inventory counts are taken and reconciled to the general ledger. Our physical inventory counts are generally taken between January and October of each year; therefore, the shrink accrual recorded atJanuary 30, 2021 is based on estimated shrink for most of 2020, including the fourth quarter. The amounts recorded in the current year reflect theDollar Tree and Family Dollar segments' historical results. We periodically adjust our shrink estimates to reflect our best estimates based on the factors described. Our management believes that our application of the retail inventory method results in an inventory valuation that reasonably approximates cost and results in carrying inventory at the lower of cost or market each year on a consistent basis. Self-Insurance Liabilities The liabilities related to our self-insurance programs for workers' compensation and general liability are estimates that require judgment and the use of assumptions. Semiannually, we obtain third-party actuarial valuations to aid in valuing the liabilities and in determining the amount to accrue during the year. These actuarial valuations are estimates based on our historical loss development factors and the related accruals are adjusted as management's estimates change. Management's estimate for self-insurance liabilities could vary from the ultimate loss sustained given the difficulty in predicting future events; however, historically, the net total of these differences has not had a material effect on our financial condition or results of operations.Goodwill and Indefinite-Lived Intangible AssetsGoodwill and indefinite-lived intangible assets are initially recorded at their fair values. These assets are not amortized but are evaluated annually for impairment. A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred. Such events or circumstances could include, but are not limited to, significant negative industry or economic trends, unanticipated changes in the competitive environment and a significant sustained decline in the market price of our stock. For purposes of our goodwill impairment evaluation, the reporting units are Family Dollar,Dollar Tree and Dollar Tree Canada.Goodwill has been assigned to the reporting units based on prior business combinations related to the brands. In the event a qualitative assessment of the fair value of a reporting unit indicates it is more likely than not that the fair value is less than the carrying amount, we then estimate the fair value using a combination of a market multiple method and a discounted cash flow method. Under the market multiple approach, we estimate a fair value based on comparable companies' market multiples of revenues and earnings before interest, taxes, depreciation and amortization ("EBITDA") and adjusted for a control premium. Under the discounted cash flow approach, we project future cash flows which are discounted using a weighted-average cost of capital analysis that reflects current market conditions, adjusted for specific reporting unit risks (primarily the uncertainty of achieving projected operating cash flows). If 40 -------------------------------------------------------------------------------- Table of Contents the carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is recognized in an amount equal to that excess. The Family Dollar goodwill and trade name comprise a substantial portion of our goodwill and indefinite-lived intangible assets and management's judgment utilized in the Family Dollar goodwill and trade name impairment evaluations is critical. The computations require management to make estimates and assumptions and actual results may differ significantly, particularly if there are significant adverse changes in the operating environment. Critical assumptions that are used as part of the Family Dollar goodwill evaluation include: •The potential future revenue, EBITDA and cash flows of the reporting unit. The projections use management's assumptions about economic and market conditions over the projected period as well as our estimates of future performance and reporting unit revenue, gross margin, expenses and other factors. The resulting revenue, EBITDA and cash flow estimates are based on our most recent business operating plans, and various growth rates have been assumed for years beyond the current business plan period. We believe that the assumptions, estimates and rates used in our fiscal 2020 impairment evaluations are reasonable; however, variations in the assumptions, estimates and rates could result in significantly different estimates of fair value. •Selection of an appropriate discount rate. Calculating the present value of future cash flows requires the selection of an appropriate discount rate, which is based on a weighted-average cost of capital analysis. The discount rate is affected by changes in short-term interest rates and long-term yield as well as variances in the typical capital structure of marketplace participants. Given current economic conditions, it is possible that the discount rate will fluctuate in the near term. We engaged third party experts to assist in the determination of the weighted-average cost of capital used to discount the cash flows for our Family Dollar reporting unit. The weighted-average cost of capital used to discount the cash flows for our evaluation was 8.25% for our fiscal 2020 analysis. Indefinite-lived intangible assets, such as the Family Dollar trade name, are not subject to amortization but are reviewed at least annually for impairment. The indefinite-lived intangible asset impairment evaluations are performed by comparing the fair value of the indefinite-lived intangible assets to their carrying values. We estimate the fair value of our trade name intangible asset based on an income approach using the relief-from-royalty method. This approach is dependent upon a number of factors, including estimates of future growth and trends, royalty rates, discount rates and other variables. We base our fair value estimates on assumptions we believe to be reasonable, but which are inherently uncertain. The discount rate includes a premium compared to the discount used for the Family Dollar goodwill impairment evaluation due to the inherently higher risk profile of intangible assets compared to the overall reporting unit. Our evaluation of goodwill did not result in an impairment charge being recorded in fiscal 2020. Non-cash impairment charges of$313.0 million and$2.73 billion were recorded in fiscal 2019 and 2018, respectively, related to the Family Dollar reporting unit. Our evaluation of the Family Dollar trade name did not result in impairment charges during fiscal 2020, 2019 or 2018. Based on the results of the 2020 evaluation, the fair value of the Family Dollar reporting unit exceeded its carrying value by a significant margin and the fair value of the Family Dollar trade name exceeded its carrying value by approximately 7.5%. For additional information related to goodwill and indefinite-lived intangible assets, including the related impairment evaluations, refer to Note 3 to our consolidated financial statements. For additional information related to uncertainties associated with the key assumptions and any potential events and/or circumstances that could have a negative effect on the key assumptions, please refer to " Item 1A. Risk Factors " and elsewhere within this "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." If our assumptions and related estimates change in the future, we may be required to record impairment charges against earnings in future periods. Any impairment charges that we may take in the future could be material to our results of operations and financial condition. Item 7A. 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 Our exposure to interest rate risk relates to our revolving credit facility, as borrowings under the revolving credit facility bear interest at LIBOR, reset periodically, plus 1.00% to 1.50% as determined by our credit ratings and leverage ratio. AtJanuary 30, 2021 , there were no borrowings outstanding under the revolving credit facility. 41
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