|
|
13
Weeks Ended
|
|
|
|
May
5,
|
|
|
April
29,
|
|
(In
millions, except per share data)
|
|
2007
|
|
|
2006
|
|
Basic
net income per share:
|
|
|
|
|
|
|
Net
income
|
|
$ |
38.1
|
|
|
$ |
32.9
|
|
Weighted
average number of
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
99.2
|
|
|
|
106.3
|
|
Basic
net income per share
|
|
$ |
0.38
|
|
|
$ |
0.31
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
38.1
|
|
|
$ |
32.9
|
|
Weighted
average number of
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
99.2
|
|
|
|
106.3
|
|
Dilutive
effect of stock options and
|
|
|
|
|
|
|
|
|
restricted
stock units (as determined
|
|
|
|
|
|
|
|
|
by
applying the treasury stock method)
|
|
|
0.8
|
|
|
|
0.5
|
|
Weighted
average number of shares and
|
|
|
|
|
|
|
|
|
dilutive
potential shares outstanding
|
|
|
100.0
|
|
|
|
106.8
|
|
Diluted
net income per share
|
|
$ |
0.38
|
|
|
$ |
0.31
|
|
For
the
13 weeks ended May 5, 2007 and April 29, 2006, approximately 0.5 million
and 1.7
million stock options, respectively, are not included in the calculation
of the
weighted average number of shares and dilutive potential shares outstanding
because their effect would be anti-dilutive.
4.
STOCK-BASED COMPENSATION
Stock-based
compensation expense was $3.0 million and $1.0 million, respectively,
during the
13 weeks ended May 5, 2007 and April 29, 2006.
Stock
Options
In
the 13
weeks ended May 5, 2007, the Company granted a total of 0.4 million
stock
options from the Equity Incentive Plan (EIP), Executive Officer Equity
Plan
(EOEP) and the Deferred Directors Compensation Plan. The fair value
of the 2007 options was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average
assumptions:
Expected
term in years
|
|
6.0
|
Expected
volatility
|
|
28.4%
|
Annual
dividend yield
|
|
-
|
Risk
free interest rate
|
|
4.5%
|
The
estimated fair value of these stock options granted approximated $4.8
million,
net of expected forfeitures and is being recognized over their three-year
vesting period, or a shorter period based on the retirement eligibility
of
certain grantees. During the 13 weeks ended May 5, 2007, the Company
recognized
$0.5 million of expense related to these options. The expected term
of the awards granted was calculated using the “simplified method” in accordance
with Staff Accounting Bulletin No. 107. Expected volatility is
derived from an analysis of the historical and implied volatility of
the
Company’s publicly traded stock.
The
risk
free rate is based on the U.S. Treasury rates on the grant date with
maturity
dates approximating the expected life of the option on the grant
date.
During
the 13 weeks ended May 5, 2007, approximately 1.5 million stock options
were
exercised yielding $36.8 million of cash proceeds and $6.6 million
of tax
benefits recognized as additional paid in capital. In the 13 weeks
ended April 29, 2006, approximately 0.5 million stock options were
exercised
yielding $9.8 million of cash proceeds and $1.1 million of tax benefits
recognized as additional paid in capital. The intrinsic value of
options exercised during the 13 weeks ended May 5, 2007 and April 29,
2006 was
approximately $17.4 million and $2.8 million, respectively.
Restricted
Stock Units (RSU)
The
Company granted approximately 0.3 million RSUs, net of forfeitures
in the 13
weeks ended May 5, 2007 from the EIP and the EOEP to employees and
officers. The estimated $13.0 million fair value of these RSUs is
being expensed ratably over the three-year vesting periods, or a shorter
period
based on the retirement eligibility of certain grantees. The fair
value was determined using the Company’s closing stock price on the date of
grant. The Company recognized $0.8 million of expense related to the
RSUs for the 13 weeks ended May 5, 2007.
In
the 13
weeks ended May 5, 2007, approximately 0.1 million RSUs vested and
approximately
0.1 million shares net of taxes were issued.
5.
SHAREHOLDERS’ EQUITY
Share
Repurchase Program
On
March
29, 2007, the Company entered into an agreement with Goldman Sachs
to repurchase
$150.0 million of the Company’s common shares under an Accelerated Share
Repurchase Agreement (ASR). The entire $150.0 million was executed
under a “collared” agreement. Under this agreement, the Company
initially received 3.6 million shares through April 12, 2007, representing
the
minimum number of shares to be received based on a calculation using
the “cap”
or high-end of the price range of the collar. The maximum number of
shares that can be received under the agreement is 4.1 million. The
number of shares is determined based on the weighted average market
price of the
Company’s common stock during the four months after the initial execution
date. The weighted average market price through May 5, 2007 as
defined in the “collared” agreement was $38.20. Therefore, if the
transaction had settled on May 5, 2007, the Company would have received
an
additional 0.4 million shares under the “collared” agreement. Based
on the applicable accounting literature, these additional shares were
not
included in the weighted average diluted earnings per share calculation
because
their effect would be antidilutive. Based on the hedge period
reference price of $38.27, there is approximately $13.6 million of
the $150.0
million related to the agreement, as of May 5, 2007, that is recorded
as a
reduction to shareholders’ equity pending final settlement of the
agreement.
The
Company had approximately $273.4 million remaining under the $500.0
million
November 2006 authorization as of May 5, 2007 after reflecting the
impact of the
aforementioned transaction.
6.
LITIGATION MATTERS
In
2003,
the Company was served with a lawsuit in a California state court by
a former
employee who alleged that employees did not properly receive sufficient
meal
breaks and paid rest periods, along with other alleged wage and hourly
violations. The suit requested that the California state court
certify the case as a class action. This suit was dismissed with
prejudice in May 2005, and the dismissal was appealed. A California
appeals court granted the appeal and the Company’s petition for review to the
California Supreme Court was denied. The case has been remanded to
the trial court where it will likely be consolidated with a companion
suit which
had been filed in the same court following the trial court’s earlier
dismissal. It is anticipated that the plaintiff will seek class
certification which the Company will oppose.
In
2005,
the Company was served with a lawsuit by former employees in Oregon
who allege
that they did not properly receive sufficient meal breaks and paid
rest
periods. They also allege other wage and hour
violations. The plaintiffs requested the Court to certify classes for
their various claims and the presiding judge recently did so with respect
to two
classes, one alleging that our Oregon employees, in violation of that
state’s
labor laws, were not paid for rest breaks and the other that upon termination
of
employment, employees were not tendered their final pay in a timely
manner. Other claims of the plaintiffs were dismissed by an earlier
Order of the Court and are being appealed by the
plaintiffs. Discovery will ensue on the certified class issues; no
trial is anticipated before the end of 2007.
In
2006,
the Company was served with a lawsuit by a former employee in a California
state
court alleging that she was paid for wages with a check drawn on a
bank which
did not have any branches in the state, an alleged violation of the
state's
labor code; that she was paid less for her work than other similar
employees
with the same job title based on her gender; and that she was not paid
her final
wages in a timely manner, also an alleged violation of the labor
code. The plaintiff requested the court to certify the case as a
class action. The Company has been successful in removing the case
from the state to the federal court level. The parties
have reached a settlement and executed an Agreement which will be presented
to
the Court for its approval. The estimated settlement amount has been
accrued in
the accompanying condensed consolidated financial statements as of
May 5, 2007
and February 3, 2007.
In
2006,
the Company was served with a lawsuit filed in federal court in the
state of
Alabama by a former store manager. She claims that she should have
been classified as a non-exempt employee under the Fair Labor Standards
Act and,
therefore, should have received overtime compensation and other
benefits. She filed the case as a collective action on behalf of
herself and all other employees (store managers) similarly
situated. The Company’s motion requesting that the case be
transferred from Alabama to Virginia was denied. Plaintiff sought and
received from the Court of an Order allowing nationwide (except for
the state of
California) notice to be sent to all store managers employed by the
Company now
or within the past three years. Such notice has been mailed and each
involved person will determine whether he or she wishes to opt-in to
the class
as a plaintiff. The Company intends at the appropriate time to
challenge any effort by the opt-in plaintiffs to be certified as a
class.
In
2007,
the Company was served with a lawsuit filed in federal court in the
state of
California by one present and one former store manager. They
claim they should have been classified as non-exempt employees under
both the
California Labor Code and the Fair Labor Standards Act. They filed
the case as a class action on behalf of California based store
managers. The Company responded with a motion to dismiss which has
not yet been heard by the court.
The
Company will vigorously defend itself in these lawsuits. The Company
does not believe that any of these matters will, individually or in
the
aggregate, have a material adverse effect on its business or financial
condition. The Company cannot give assurance, however, that one or
more of these lawsuits will not have a material adverse effect on its
results of
operations for the period in which they are resolved.
Item
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS.
|
INTRODUCTORY
NOTE: Unless otherwise stated, references to "we," "our" and "us"
generally refer to Dollar Tree Stores, Inc. and its direct and indirect
subsidiaries on a consolidated basis.
A
WARNING ABOUT FORWARD-LOOKING STATEMENTS: This document
contains "forward-looking statements" as that term is used in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements
address future events, developments or results and typically use words
such as
"believe," "anticipate," "expect," "intend," "plan," “view,” “target” or
"estimate." For example, our forward-looking statements include
statements regarding:
·
|
our
anticipated sales, including comparable store net sales,
net sales growth,
earnings growth and new store
growth;
|
·
|
the
average size of our stores to be added for the remainder
of 2007 and their
performance compared with other store
sizes;
|
·
|
the
effect of a slight shift in merchandise mix to consumables
and the
roll-out of freezers and coolers on gross profit margin and
sales;
|
·
|
the
possible effect of inflation and other economic changes on
our future
costs and profitability, including future changes in minimum
wage rates,
shipping rates and fuel costs;
|
·
|
our
cash needs, including our ability to fund our future capital
expenditures
and working capital requirements;
|
·
|
the
impact, capacity, performance and cost of our existing distribution
centers;
|
·
|
the
future reliability of, and cost associated with, our sources
of supply,
particularly imported goods such as those sourced from China
and Hong
Kong;
|
·
|
costs
of pending and possible future legal and tax
claims.
|
For
a
discussion of the risks, uncertainties and assumptions that could affect
our
future events, developments or results, you should carefully review
the risk
factors summarized below and the more detailed discussions in the "Risk
Factors”
and “Business” sections in our Annual Report on Form 10-K filed April 4,
2007. Also see section 1A. “Risk Factors” in Part II of this
Quarterly Report on Form 10-Q.
·
|
Our
profitability is especially vulnerable to cost
increases.
|
·
|
Our
profitability is affected by the mix of products we
sell.
|
·
|
We
may be unable to expand our square footage as profitably
as
planned.
|
·
|
A
downturn in economic conditions could adversely affect our
sales.
|
·
|
Our
sales and profits rely on imported merchandise, which may
increase in cost
or become unavailable.
|
·
|
We
could encounter disruptions or additional costs in receiving
and
distributing merchandise.
|
·
|
Sales
below our expectations during peak seasons may cause our
operating results
to suffer materially.
|
·
|
Pressure
from competitors may reduce our sales and
profits.
|
·
|
The
resolution of certain legal and tax matters could have a
material adverse
effect on our results of operations, accrued liabilities
and
cash.
|
·
|
Certain
provisions in our articles of incorporation and bylaws could
delay or
discourage a takeover attempt that may be in shareholders’ best
interest.
|
Our
forward-looking statements could be wrong in light of these and other
risks,
uncertainties and assumptions. The future events, developments or
results described in this report could turn out to be materially
different. We have no obligation to publicly update or revise our
forward-looking statements after the date of this quarterly report
and you
should not expect us to do so.
Investors
should also be aware that while we do, from time to time, communicate
with
securities analysts and others, it is against our policy to selectively
disclose
to them any material nonpublic information or other confidential commercial
information. Accordingly, shareholders should not assume that we
agree with any statement or report issued by any analyst regardless
of the
content of the statement or report, as we have a policy against confirming
information issued by others. Thus, to the extent that reports issued
by
securities
analysts contain any financial projections, forecasts or opinions,
such reports
are not our responsibility.
Overview
Our
net
sales are derived from the sale of merchandise, usually
at
the point of sale. Two major factors tend to affect our net sales
trends. First is our success at opening new stores or adding new
stores through mergers or acquisitions. 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 change 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 during the period 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.
At
May 5,
2007 we operated 3,280 stores in 48 states, with 27.0 million selling
square
feet compared to 3,119 stores with 25.0 million selling square feet
at April 29,
2006. During the 13 weeks ended May 5, 2007, we opened 75 stores,
expanded 27 stores and closed 14 stores, compared to 74 stores opened,
30 stores
expanded and 7 stores closed during the 13 weeks ended April 29,
2006. In addition, we acquired 138 Deal$ stores on March 25,
2006. As of the end of the first quarter, we are behind our internal
plans for new store openings for the year, however we expect to make
up this
deficit during the year and are still expecting to achieve our approximate
10%
square footage growth target for fiscal 2007. In the 13 weeks ended
May 5, 2007, we added approximately 0.7 million selling square feet,
of which
approximately 0.2 million was added through expanding existing
stores. The average size of stores opened during the 13 weeks ended
May 5, 2007 was approximately 8,200 selling square feet (or about 10,400
gross
square feet). For the remainder of 2007, we continue to plan to open
stores around 9,000 selling square feet (or about 11,000 gross square
feet). We believe that this size store is our optimal size
operationally and that this size also gives the customer an improved
shopping
environment that invites them to shop longer and buy more.
For
the
13 weeks ended May 5, 2007, comparable store net sales increased
5.8%. The comparable store net sales increase was the result of a
2.7% increase in the number of transactions and 3.1% in transaction
size,
compared to the 13 weeks ended April 29, 2006. We believe comparable
store net sales were positively affected by a number of our initiatives
over the
past year, including expansion of forms of payment accepted by our
stores and
the roll-out of freezers and coolers to more of our stores. During
2006 we completed the roll-out of pin debit card acceptance to all
of our
stores, which has also enabled us to accept Electronic Benefit Transfer
cards. We now accept food stamps in approximately 700 qualified
stores. We believe the expansion of forms of payment accepted by our
stores has helped increase the average transaction size in our
stores.
We
continued to experience a slight shift in the mix of merchandise sold
to more
consumables which we believe increases the traffic and the efficiency
in our
stores; however, this merchandise has lower margins. The negative impact
from
the planned shift toward more consumables was smaller in the first
quarter 2007
than in 2006. The smaller negative impact in the first quarter was
due to a higher sell through of higher margin Easter items in the current
year
as compared to prior year. The planned shift in mix to more consumables
is
partially the result of the roll-out of freezers and coolers to more
stores in
2006 and 2007. At May 5, 2007 we had freezers and coolers in
approximately 740 stores compared to approximately 250 at April 29,
2006. We plan to add freezers and coolers to approximately 140 more
stores during 2007, which will continue to pressure margins for the
remainder of
the year. However, we believe that this will enable us to increase
sales and earnings in the future by increasing the number of shopping
trips made
by our customers.
Our
point-of-sale technology is now in all of our stores, and this technology
provides us with valuable sales and inventory information to assist
our buyers
and improve merchandise allocation to the stores. We believe that it
has enabled us to better control our inventory, resulting in more efficient
distribution and store operations and increased inventory
turnover. Using the data captured at the point of sale has enabled us
to better plan our inventory purchases and helped us reduce our inventory
investment per store by approximately 10.0% at May 5, 2007 compared
to April 29,
2006.
On
May
25, 2007, the President signed legislation that increased the Federal
Minimum
Wage from $5.15 an hour to $7.25 an hour over the next two years. We
do not expect this legislation to have a material effect on our operations
for
fiscal 2007.
We
estimate that sales for the second quarter of 2007 will be in the range
of $960
million to $985 million and earnings per diluted share will be in the
range of
$0.29 to $0.32. For fiscal 2007, we estimate sales will be in the
range of $4.28 billion to $4.38 billion and diluted earnings per share
will be
in the range of $2.00 to $2.12. Guidance for the second quarter of
2007 and full year fiscal 2007 is based on low single digit comparable
store net
sales growth. The guidance for earnings per share for fiscal 2007
reflects the impact of approximately $210.0 million of share
repurchases. During the 13 weeks ended May 5, 2007, we repurchased
approximately 3.6 million shares for approximately $153.3 million.
Results
of Operations
13
Weeks Ended May 5, 2007 Compared to the 13 Weeks Ended April 29,
2006
Net
sales. Net sales increased 13.8%, or $118.5 million, over last
year’s first quarter resulting from sales in our new and expanded stores,
including 138 Deal$ stores acquired in March 2006. Our sales increase
was also impacted by a 5.8% increase in comparable store net sales
in the
current quarter. Comparable store net sales are positively affected
by our expanded and relocated stores, which we include in the calculation,
and,
to a lesser extent, are negatively affected when we open new stores
or expand
stores near existing stores.
Gross
Profit. For the 13 weeks ended May 5, 2007 the gross profit
margin was 33.4% which is flat compared to the first quarter of
2006. While the rate was flat, there were fluctuations in the
following categories:
·
|
Merchandise
costs, including inbound freight, decreased 10 basis points
due to a
better sell through of higher margin seasonal merchandise
in the current
year, partially offset by increases in diesel fuel
costs.
|
·
|
The
aforementioned improvement was offset by a 10 basis point
increase in
occupancy costs resulting from a higher occupancy rate for
the Deal$
stores as compared to the Dollar Tree stores. This
increase was partially offset by the leverage associated
with the positive
comparable store net sales in the current
quarter.
|
Selling,
General and Administrative Expenses. Selling, general, and
administrative expenses for the current quarter decreased to 27.0%,
as a
percentage of net sales, compared to 27.2% for the same period last
year. This decrease was primarily due to the following:
·
|
A
10 basis point decrease in operating and corporate expense
due to lower
advertising costs in the current year as a result of the
increased use of
lower cost print advertising and less high cost radio and
television
advertising as compared to last year’s first quarter. Store
supplies expense also decreased in the current quarter due
to lower
materials costs in the current year. These decreases were
partially offset by increased debit fees due to increased
debit
transactions in the current year and increased legal costs
as compared to
prior year.
|
·
|
The
selling, general and administrative component of depreciation
expense also
decreased 10 basis points as a result of the leverage associated
with the
increase in comparable store net sales in the current
quarter.
|
Operating
Income. Due to the reasons discussed above, operating income
increased as a percentage of net sales to 6.4% in the first quarter
of 2007
compared to 6.2% in the same period of 2006.
Income
Taxes. Our effective tax rate was 37.2% in the first quarter of
2007 compared to 37.4% for the same period last year. The decreased
tax rate for 2007 was the result of work opportunity tax credits in
the current
year quarter that were not available until later in the year in
2006.
Liquidity
and Capital Resources
Our
business requires capital to open new stores, expand our distribution
network
and operate our existing business. Our working capital requirements
for our existing business 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 and funded our
store opening
and expansion programs from internally generated funds and borrowings
under our
credit facilities.
The
following table compares cash flow information for the 13 weeks ended
May 5,
2007 and April 29, 2006:
|
|
13
Weeks ended
|
|
|
|
May
5,
|
|
|
April
29,
|
|
(In
millions)
|
|
2007
|
|
|
2006
|
|
Net
cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$ |
30.5
|
|
|
$ |
77.5
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
53.2
|
|
|
|
(42.6 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
(108.9 |
) |
|
|
(36.5 |
) |
The
$47.0
million decrease in cash provided by operating activities was primarily
due to
the increased payout of incentive compensation and profits sharing
accrued at
the beginning of the current year and paid out in the quarter as compared
to the
prior year and increased tax payments made in the first quarter of
2007. These uses of operating cash were partially offset by improved
earnings before depreciation and amortization in the current year.
In
the
current year, investing activities provided cash of $53.2 million compared
to
uses of cash totaling $42.6 million in the prior year
quarter. The $95.8 million change is the result of $50.8
million in payments to acquire Deal$ assets in the prior year and increased
proceeds from short-term investments in the current year to help fund
the
current year accelerated stock buyback program.
The
$72.4
million increase in cash used in financing activities resulted primarily
from
increased share repurchases in the current year, partially offset by
increased
proceeds from stock option exercises and related tax benefits in the
current
year.
At
May 5, 2007, our long-term borrowings were $268.8 million and our capital
lease
commitments were $0.6 million. As of May 5, 2007, we had $200.0
million available under our revolving credit facility. We also have
$125.0 million and $50.0 million Letter of Credit Reimbursement and
Security
Agreements, under which approximately $85.2 million was committed to
letters of
credit issued for routine purchases of imported merchandise as of May
5,
2007.
On
March
29, 2007, we entered into an agreement with Goldman Sachs to repurchase
$150.0
million of our common shares under an Accelerated Share Repurchase
Agreement
(ASR).The entire $150.0 million was executed under a “collared”
agreement. Under this agreement, we initially received 3.6 million
shares through April 12, 2007, representing the minimum number of shares
to be
received based on a calculation using the “cap” or high-end of the price range
of the collar. The maximum number of shares that can be received
under the agreement is 4.1 million. The number of shares is
determined based on the weighted average market price of our common
stock during
the four months after the initial execution date. The weighted
average market price through May 5, 2007 as defined in the “collared” agreement
was $38.20. Therefore, if the transaction had settled on May 5, 2007,
we would have received an additional 0.4 million shares under the “collared”
agreement. Based on the applicable accounting literature, these
additional shares were not included in the weighted average diluted
earnings per
share calculation because their effect would be antidilutive. Based
on the hedge period reference price of $38.27, there is approximately
$13.6
million of the $150.0 million related to the agreement, as of May 5,
2007, that
is recorded as a reduction to shareholders’ equity pending final settlement of
the agreement.
We
had
approximately $273.4 million remaining under the $500.0 million November
2006
authorization as of May 5, 2007 after reflecting the impact of the
aforementioned agreement.
Item
3. 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 foreign currency
rate
fluctuations. We may enter into interest rate swaps to manage our
exposure to interest rate changes, and we may employ other risk management
strategies, including the use of foreign currency forward
contracts. We do not enter into derivative instruments for any
purpose other than cash flow hedging purposes. Our remaining interest
rate swap does not qualify for hedge accounting treatment under SFAS
No. 133, as
amended by SFAS No. 138, because it contains provisions that "knockout"
the swap
when the variable interest rate exceeds a predetermined rate.
Interest
Rate Risk
The
following table summarizes the financial terms and fair values of our
interest
rate swap agreement at May 5, 2007:
|
Receive
|
Pay
|
Knockout
|
|
Fair
Value
|
Hedging
Instrument
|
Variable
|
Fixed
|
Rate
|
Expiration
|
Asset
|
$18.8
million interest rate swap
|
LIBOR
|
4.88%
|
7.75%
|
4/1/2009
|
$0.0
million
|
Due
to
the many variables involved in determining the fair value, management
is not
able to predict the changes in fair value of our interest rate
swap. The fair value is the estimated amount we would pay or receive
to terminate the agreement as of the reporting date. The fair value
is obtained from an outside financial institution.
Item
4. CONTROLS AND PROCEDURES.
As
of the
end of the period covered by this report, we carried out an evaluation,
under
the supervision and with the participation of our management, including
our
Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the
design and operation of our disclosure controls and procedures
(as defined in
Rule 13a-15(e) of the Exchange Act). Based on this evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that
our
disclosure controls and procedures are effective.
There
have been no material changes in our internal control over financial
reporting
during the quarter ended May 5, 2007 that have materially affected,
or are
reasonably likely to materially affect, our internal control over
financial
reporting.
PART
II. OTHER INFORMATION
Item
1. LEGAL PROCEEDINGS.
From
time
to time, we are defendants in ordinary, routine litigation or proceedings
incidental to our business, including allegations regarding:
|
|
·
|
employment
related matters;
|
|
|
·
|
infringement
of intellectual property rights;
|
|
|
·
|
product
safety matters, which may include product recalls in
cooperation with the
Consumer Products Safety Commission;
|
|
|
·
|
personal
injury/wrongful death claims; and
|
|
|
·
|
real
estate matters related to store
leases.
|
In
2003,
we were served with a lawsuit in a California state court by a
former employee
who alleged that employees did not properly receive sufficient
meal breaks and
paid rest periods, along with other alleged wage and hourly
violations. The suit requested that the California state court
certify the case as a class action. This suit was dismissed with
prejudice in May 2005, and the dismissal was appealed. A California
appeals court granted the appeal and our petition for review to
the California
Supreme Court was denied. The case has been remanded to the trial
court where it will likely be consolidated with a companion suit
which had been
filed in the same court following the trial court’s earlier
dismissal. We anticipate that the plaintiff will seek class
certification which we will oppose.
In
2005,
we were served with a lawsuit by former employees in Oregon who
allege that they
did not properly receive sufficient meal breaks and paid rest
periods. They also allege other wage and hour
violations. The plaintiffs requested the Court to certify classes for
their various claims and the presiding judge did so with respect
to two classes,
one alleging that our Oregon employees, in violation of that state’s labor laws,
were not paid for rest breaks and the other that upon termination
of employment,
employees were not tendered their final pay in a timely manner. Other
claims of the plaintiffs were dismissed by an earlier Order of
the Court and are
being appealed by the plaintiffs. Discovery will ensue on the
certified class issues; no trial is anticipated before the end
of
2007.
In
2006,
we were served with a lawsuit by a former employee in a California
state court
alleging that she was paid for wages with a check drawn on a bank
which did not
have any branches in the state, an alleged violation of the state's
labor code;
that she was paid less for her work than other similar employees
with the same
job title based on her gender; and that she was not paid her final
wages in a
timely manner, also an alleged violation of the labor code. The
plaintiff requested the court to certify the case as a class
action. We have been successful in removing the case from state to
the federal court level. The parties have reached a settlement and
executed an Agreement which will be presented to the Court for
its approval. The
estimated settlement amount has been accrued in the accompanying
condensed
consolidated financial statements as of May 5, 2007 and February
3,
2007.
In
2006,
we were served with a lawsuit filed in federal court in the state
of Alabama by
a former store manager. She claims that she should have been
classified as a non-exempt employee under the Fair Labor Standards
Act and,
therefore, should have received overtime compensation and other
benefits. She filed the case as a collective action on behalf of
herself and all other employees (store managers) similarly
situated. Our motion requesting that the case be transferred from
Alabama to Virginia has been denied. Plaintiff sought and received
from the Court of an Order allowing nationwide (except for the
state of
California) notice to be sent to all store managers employed by
us now or within
the past three years. Such notice has been mailed and each involved
person will determine whether he or she wishes to opt-in to the
class as a
plaintiff. We intend at the appropriate time, to challenge any effort
by the opt-in plaintiffs to be certified as a class.
In
2007,
we were served with a lawsuit filed in federal court in the state
of California
by one present and one former store manager. They claim they
should have been classified as non-exempt employees under both
the California
Labor Code and the Fair Labor Standards Act. They filed the case as a
class action on behalf of California based store managers. We
responded with a motion to dismiss which has not yet been heard
by the
court.
We
will
vigorously defend ourselves in these lawsuits. We do not believe that
any of these matters will, individually or in the aggregate, have
a material
adverse effect on our business or financial condition. We cannot give
assurance, however, that one or more of these lawsuits will not
have a material
adverse effect on our results of operations for the period in which
they are
resolved.
Item
1A. RISK FACTORS
There
have been no material changes to the risk factors described in
Item 1A. “Risk
Factors” in the Company’s Annual Report on Form 10-K, filed with the SEC on
April 4, 2007.
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
The
following table presents our share repurchase activity for the
13 weeks ended
May 5, 2007.
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
|
|
|
dollar
value
|
|
|
|
|
|
|
|
|
|
Total
number
|
|
|
of
shares that
|
|
|
|
|
|
|
|
|
|
of
shares
|
|
|
may
yet be
|
|
|
|
|
|
|
|
|
|
purchased
as
|
|
|
purchased
under
|
|
|
|
Total
number
|
|
|
Average
|
|
|
part
of publicly
|
|
|
the
plans or
|
|
|
|
of
shares
|
|
|
price
paid
|
|
|
announced
plans
|
|
|
programs
|
|
Period
|
|
purchased
|
|
|
per
share
|
|
|
or
programs
|
|
|
(in
millions)
|
|
February
4, 2007 to March 3, 2007
|
|
|
-
|
|
|
$ |
-
|
|
|
|
-
|
|
|
$ |
426.7
|
|
March
4, 2007 to April 7, 2007
|
|
|
2,619,687
|
|
|
|
38.20
|
|
|
|
2,619,687
|
|
|
|
273.4
|
|
April
8, 2007 to May 5, 2007
|
|
|
1,007,268
|
|
|
|
38.20
|
|
|
|
1,007,268
|
|
|
|
273.4
|
|
Total
|
|
|
3,626,955
|
|
|
$ |
38.20
|
|
|
|
3,626,955
|
|
|
$ |
273.4
|
|