form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
(Mark
One)
(X)
|
Quarterly
report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of
1934
|
For
the quarterly period ended August 2, 2008
OR
(
)
|
Transition
report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of
1934
|
Commission
File Number: 0-25464
DOLLAR
TREE, INC.
(Exact
name of registrant as specified in its charter)
Virginia
|
|
26-2018846
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
500
Volvo Parkway
Chesapeake,
Virginia 23320
(Address
of principal executive offices)
Telephone
Number (757) 321-5000
(Registrant's
telephone number, including area code)
Indicate
by check mark whether Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
(X)
|
Accelerated
filer ( )
|
Non accelerated filer
( )
|
Smaller
reporting company ( )
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
As of
September 2, 2008, there were 90,426,246 shares of the Registrant’s Common Stock
outstanding.
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
INDEX
PART
I-FINANCIAL INFORMATION
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|
Page
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Item
1.
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Financial
Statements:
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|
|
|
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|
Condensed
Consolidated Income Statements for the 13 and 26 Weeks Ended August 2,
2008 and August 4, 2007
|
3
|
|
|
|
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Condensed
Consolidated Balance Sheets as of August 2, 2008, February 2, 2008 and
August 4, 2007
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4
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Condensed
Consolidated Statements of Cash Flows for the 26 Weeks Ended August 2,
2008 and August 4, 2007
|
5
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|
|
Notes
to Condensed Consolidated Financial Statements
|
6
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|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
12
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|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
17
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|
|
|
Item
4.
|
Controls
and Procedures
|
17
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PART
II-OTHER INFORMATION
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|
|
Item
1.
|
Legal
Proceedings
|
17
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|
|
|
Item
1A.
|
Risk
Factors
|
18
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|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
18
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|
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|
Item
3.
|
Defaults
Upon Senior Securities
|
18
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|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
18
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Item
5.
|
Other
Information
|
19
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|
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Item
6.
|
Exhibits
|
20
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Signatures
|
21
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DOLLAR
TREE, INC.
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED INCOME STATEMENTS
|
|
13
Weeks Ended
|
|
|
26
Weeks Ended
|
|
|
|
August
2,
|
|
|
August
4,
|
|
|
August
2,
|
|
|
August
4,
|
|
(In
millions, except per share data)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,093.1 |
|
|
$ |
971.2 |
|
|
$ |
2,144.4 |
|
|
$ |
1,946.2 |
|
Cost
of sales
|
|
|
730.0 |
|
|
|
644.6 |
|
|
|
1,424.8 |
|
|
|
1,294.3 |
|
Gross
profit
|
|
|
363.1 |
|
|
|
326.6 |
|
|
|
719.6 |
|
|
|
651.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Selling,
general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
|
301.5 |
|
|
|
273.2 |
|
|
|
588.3 |
|
|
|
536.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
61.6 |
|
|
|
53.4 |
|
|
|
131.3 |
|
|
|
115.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
1.9 |
|
|
|
1.6 |
|
|
|
3.5 |
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
59.7 |
|
|
|
51.8 |
|
|
|
127.8 |
|
|
|
112.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
22.1 |
|
|
|
19.2 |
|
|
|
46.6 |
|
|
|
41.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net
income
|
|
$ |
37.6 |
|
|
$ |
32.6 |
|
|
$ |
81.2 |
|
|
$ |
70.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.42 |
|
|
$ |
0.33 |
|
|
$ |
0.90 |
|
|
$ |
0.72 |
|
Diluted
|
|
$ |
0.42 |
|
|
$ |
0.33 |
|
|
$ |
0.90 |
|
|
$ |
0.71 |
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
August
2,
|
|
|
February
2,
|
|
|
August
4,
|
|
(In
millions)
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
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|
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ASSETS
|
|
|
|
|
|
|
|
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Current
assets:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
114.6 |
|
|
$ |
40.6 |
|
|
$ |
43.5 |
|
Short-term
investments
|
|
|
- |
|
|
|
40.5 |
|
|
|
144.0 |
|
Merchandise
inventories
|
|
|
717.1 |
|
|
|
641.2 |
|
|
|
651.7 |
|
Other
current assets
|
|
|
64.1 |
|
|
|
66.5 |
|
|
|
53.6 |
|
Total
current assets
|
|
|
895.8 |
|
|
|
788.8 |
|
|
|
892.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
726.1 |
|
|
|
743.6 |
|
|
|
725.4 |
|
Intangibles,
net
|
|
|
145.4 |
|
|
|
147.8 |
|
|
|
148.9 |
|
Deferred
tax assets
|
|
|
26.3 |
|
|
|
38.7 |
|
|
|
9.6 |
|
Other
assets, net
|
|
|
71.1 |
|
|
|
68.8 |
|
|
|
60.3 |
|
|
|
|
|
|
|
|
|
|
|
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|
TOTAL
ASSETS
|
|
$ |
1,864.7 |
|
|
$ |
1,787.7 |
|
|
$ |
1,837.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$ |
18.0 |
|
|
$ |
18.5 |
|
|
$ |
18.5 |
|
Accounts
payable
|
|
|
272.8 |
|
|
|
200.4 |
|
|
|
230.7 |
|
Other
current liabilities
|
|
|
121.1 |
|
|
|
143.6 |
|
|
|
138.5 |
|
Income
taxes payable
|
|
|
- |
|
|
|
43.4 |
|
|
|
0.7 |
|
Total
current liabilities
|
|
|
411.9 |
|
|
|
405.9 |
|
|
|
388.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, excluding current portion
|
|
|
250.0 |
|
|
|
250.0 |
|
|
|
250.0 |
|
Income
taxes payable, long-term
|
|
|
20.3 |
|
|
|
55.0 |
|
|
|
19.1 |
|
Other
liabilities
|
|
|
96.2 |
|
|
|
88.4 |
|
|
|
76.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
778.4 |
|
|
|
799.3 |
|
|
|
733.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
1,086.3 |
|
|
|
988.4 |
|
|
|
1,103.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
$ |
1,864.7 |
|
|
$ |
1,787.7 |
|
|
$ |
1,837.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares outstanding
|
|
|
90.3 |
|
|
|
89.8 |
|
|
|
97.0 |
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
26
Weeks Ended
|
|
|
|
August
2,
|
|
|
August
4,
|
|
(In
millions)
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
81.2 |
|
|
$ |
70.7 |
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
81.5 |
|
|
|
78.3 |
|
Other
non-cash adjustments to net income
|
|
|
40.3 |
|
|
|
4.1 |
|
Changes
in operating assets and liabilities
|
|
|
(111.9 |
) |
|
|
(57.2 |
) |
Net
cash provided by operating activities
|
|
|
91.1 |
|
|
|
95.9 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(65.4 |
) |
|
|
(88.9 |
) |
Purchase
of short-term investments
|
|
|
(34.7 |
) |
|
|
(790.5 |
) |
Proceeds
from sales of short-term investments
|
|
|
75.2 |
|
|
|
868.3 |
|
Purchase
of restricted investments
|
|
|
(12.8 |
) |
|
|
(35.3 |
) |
Proceeds
from sales of restricted investments
|
|
|
12.4 |
|
|
|
34.5 |
|
Other
|
|
|
(0.3 |
) |
|
|
(4.8 |
) |
Net
cash used in investing activities
|
|
|
(25.6 |
) |
|
|
(16.7 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Principal
payments under long-term debt and
|
|
|
|
|
|
|
|
|
capital
lease obligations
|
|
|
(0.7 |
) |
|
|
(0.4 |
) |
Payments
for share repurchases
|
|
|
- |
|
|
|
(198.0 |
) |
Proceeds
from stock issued pursuant to stock-based
|
|
|
|
|
|
|
|
|
compensation
plans
|
|
|
8.8 |
|
|
|
65.3 |
|
Tax
benefit of stock options exercised
|
|
|
0.4 |
|
|
|
12.4 |
|
Net
cash provided by (used in) financing activities
|
|
|
8.5 |
|
|
|
(120.7 |
) |
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
74.0 |
|
|
|
(41.5 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
40.6 |
|
|
|
85.0 |
|
Cash
and cash equivalents at end of period
|
|
$ |
114.6 |
|
|
$ |
43.5 |
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
5.3 |
|
|
$ |
9.3 |
|
Income
taxes
|
|
$ |
102.5 |
|
|
$ |
66.3 |
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS
OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements of Dollar
Tree, Inc. and its wholly-owned subsidiaries (the "Company") have been prepared
in accordance with U.S. generally accepted accounting principles for interim
financial information and are presented in accordance with the requirements of
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended February 2, 2008 contained in the Company’s Annual Report on Form
10-K filed April 1, 2008. The results of
operations for the 13 and 26 weeks ended August 2, 2008 are not necessarily
indicative of the results to be expected for the entire fiscal year ending
January 31, 2009.
In the
Company’s opinion, the unaudited condensed consolidated financial statements
included herein contain all adjustments (consisting of those of a normal
recurring nature) considered necessary for a fair presentation of its financial
position as of August 2, 2008 and August 4, 2007 and the results of its
operations and cash flows for the periods presented. The February 2,
2008 balance sheet information was derived from the audited consolidated
financial statements as of that date.
Certain
2007 amounts have been reclassified for comparability with the current period
presentation. The gross amount of purchases of restricted investments
and proceeds from the sale of restricted investments have been presented for
2007. These amounts were previously reported on a net
basis.
2.
LONG-TERM DEBT
On
February 20, 2008, the Company entered into a five-year $550.0 million Credit
Agreement (the Agreement). The Agreement provides for a $300.0
million revolving line of credit, including up to $150.0 million in available
letters of credit, and a $250.0 million term loan. The interest rate
on the facility will be based, at the Company’s option, on a LIBOR rate, plus a
margin, or an alternate base rate, plus a margin. The revolving line
of credit also bears a facilities fee, calculated as a percentage, as defined,
of the amount available under the line of credit, payable
quarterly. The term loan is due and payable in full at the five year
maturity date of the Agreement. The Agreement also bears an
administrative fee payable annually. The Agreement, among other
things, requires the maintenance of certain specified financial ratios,
restricts the payment of certain distributions and prohibits the incurrence of
certain new indebtedness. The Company’s March 2004, $450.0 million
unsecured revolving credit facility was terminated concurrent with entering into
the Agreement. As of August 2, 2008, only the $250.0 million term
loan was outstanding under this Agreement.
3.
INTEREST RATE SWAPS
On March
20, 2008, the Company entered into two $75.0 million interest rate swap
agreements. These interest rate swaps are used to manage the risk
associated with interest rate fluctuations on a portion of the Company’s
variable rate debt. Under these agreements, the Company pays interest
to financial institutions at a fixed rate of 2.8%. In exchange, the
financial institutions pay the Company at a variable rate, which equals the
variable rate on the debt, excluding the credit spread. These swaps
qualify for hedge accounting treatment pursuant to SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities and expire in March
2011. The fair value of these swaps as of August 2, 2008 is an asset
of $2.6 million and is included in “Other Assets” on the accompanying condensed
consolidated balance sheets.
4.
FAIR VALUE MEASUREMENTS
The
Company adopted SFAS No. 157, “Fair Value Measurements” (SFAS 157) on February 3, 2008.
This statement defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. Additionally, on
February 3, 2008, the Company elected the partial adoption of SFAS 157 under the
provisions of Financial Accounting Standards Board Staff Position FAS
157-2, which amends SFAS 157 to allow an entity to delay the application of this
statement until fiscal 2009 for certain non-financial assets and liabilities.
The adoption of SFAS 157 did not have a material impact on the condensed
consolidated financial statements.
SFAS 157
clarifies that fair value is an exit price, representing the amount that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. As such, fair value is a
market-based measurement that should be determined based on assumptions that
market participants would use in pricing an asset and liability. As a
basis for considering such assumptions, SFAS 157 establishes a fair value
hierarchy that prioritizes the inputs used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1 measurement) and the lowest
priority to unobservable inputs (level 3 measurements). The three
levels of the fair value hierarchy defined by SFAS 157 are as
follows:
Level 1 -
Quoted prices in active markets for identical assets or
liabilities;
Level 2 -
Quoted prices for similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active;
and
Level 3 -
Unobservable inputs in which there is little or no market data which require the
reporting entity to develop its own assumptions.
The
Company’s cash and cash equivalents, restricted investments and interest rate
swaps represent the financial assets and liabilities that were accounted for at
fair value on a recurring basis as of August 2, 2008. As required by
SFAS 157, financial assets and liabilities are classified in their entirety
based on the lowest level of input that is significant to the fair value
measurement. The Company's assessment of the significance of a
particular input to the fair value measurement requires judgment, and may affect
the valuation of fair value assets and liabilities and their placement within
the fair value hierarchy levels. The fair value of the Company’s cash
and cash equivalents and restricted investments was $114.6 million and $48.1
million, respectively at August 2, 2008. These fair values were
determined using Level 1 measurements in the fair value
hierarchy. The fair value of the swaps as of August 2, 2008 included
assets of $2.6 million and liabilities of $0.3 million. These fair
values were estimated using Level 2 measurements in the fair value
hierarchy. These estimates used discounted cash flow calculations
based upon forward interest-rate yield curves. The curves were
obtained from independent pricing services reflecting broker market
quotes.
5.
INCOME TAXES
During
2008, the Company adjusted its balance of unrecognized tax benefits primarily as
a result of the filing of accounting method changes for certain temporary
differences. Accordingly, “income taxes payable long-term” was reduced by $34.7
million, of which $32.8 million reduced “deferred tax assets”, $1.6 million
represented the after tax impact associated with accrued interest on uncertain
tax liabilities and $0.3 million represented the settlement of federal and state
tax audits. During the second quarter of 2008, IRS concluded its
audit of the January 29, 2005 tax year leaving the year ended January 28, 2006
through the current year as tax years open with the IRS. The total
amount of unrecognized tax benefits at August 2, 2008, that, if recognized,
would affect the effective tax rate was $13.4 million (net of the federal tax
benefit).
6.
NET INCOME PER SHARE
The
following table sets forth the calculation of basic and diluted net income per
share:
|
|
13
Weeks Ended
|
|
|
26
Weeks Ended
|
|
|
|
August
2,
|
|
|
August
4,
|
|
|
August
2,
|
|
|
August
4,
|
|
(In millions, except per share
data)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
37.6 |
|
|
$ |
32.6 |
|
|
$ |
81.2 |
|
|
$ |
70.7 |
|
Weighted
average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
90.1 |
|
|
|
98.2 |
|
|
|
90.0 |
|
|
|
98.7 |
|
Basic
net income per share
|
|
$ |
0.42 |
|
|
$ |
0.33 |
|
|
$ |
0.90 |
|
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
37.6 |
|
|
$ |
32.6 |
|
|
$ |
81.2 |
|
|
$ |
70.7 |
|
Weighted
average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
90.1 |
|
|
|
98.2 |
|
|
|
90.0 |
|
|
|
98.7 |
|
Dilutive
effect of stock options and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted
stock units (as determined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
by
applying the treasury stock method)
|
|
|
0.4 |
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
0.7 |
|
Weighted
average number of shares and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dilutive
potential shares outstanding
|
|
|
90.5 |
|
|
|
98.7 |
|
|
|
90.4 |
|
|
|
99.4 |
|
Diluted
net income per share
|
|
$ |
0.42 |
|
|
$ |
0.33 |
|
|
$ |
0.90 |
|
|
$ |
0.71 |
|
For the
13 and 26 weeks ended August 2, 2008, approximately 0.5 million and 0.7 million
stock options, respectively, were not included in the calculation of the
weighted average number of shares and dilutive potential shares outstanding
because their effect would be anti-dilutive. For the 13 weeks ended
August 4, 2007, substantially all of the stock options outstanding were included
in the calculation of the weighted average number of shares. For the
26 weeks ended August 4, 2007, approximately 0.2 million stock options were not
included in the calculation of the weighted average number of shares and
dilutive potential shares outstanding because their effect would be
anti-dilutive.
7.
STOCK-BASED COMPENSATION
The
Company’s stock-based compensation expense includes the fair value of granted
stock options and restricted stock units (RSUs) and employees’ purchase rights
under the Company’s Employee Stock Purchase Plan. Stock-based
compensation expense was $4.6 million and $8.6 million, respectively, during the
13 and 26 weeks ended August 2, 2008. Total stock-based compensation
expense was $2.8 million and $5.8 million, respectively, during the 13 and 26
weeks ended August 4, 2007.
Stock
Options
In the 26
weeks ended August 2, 2008, the Company granted a total of 0.5 million stock
options from the Equity Incentive Plan (EIP), Executive Officer Equity Plan
(EOEP) and the Directors Deferred Compensation Plan (DDCP). The fair
value of the 2008 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
|
|
45.7%
|
Annual
dividend yield
|
|
-
|
Risk
free interest rate
|
|
2.8%
|
The
estimated fair value of these stock options granted approximated $6.1 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 and 26 weeks ended August 2, 2008,
the Company recognized $1.0 million and $1.4 million of expense, respectively,
related to these options. During the 13 and 26 weeks ended August 2,
2008, the Company recognized $0.6 million and $1.2 million, respectively, of
expense related to options granted prior to 2008. 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 and 26 weeks ended August 2, 2008, approximately 0.2 million and 0.3
million stock options were exercised yielding $6.1 million and $6.9
respectively, of cash proceeds. The Company recognized $0.4 million
of tax benefits as additional paid in capital related to these stock option
exercises in the 13 weeks ended August 2, 2008. The amount
recognized as tax benefits as additional paid in capital on the stock options
exercised in the first quarter of 2008 was less than $0.1 million. During the 13
and 26 weeks ended August 4, 2007, approximately 1.0 million and 2.5 million
stock options were exercised yielding $26.7 million and $63.5 million of cash
proceeds and $5.9 million and $12.4 million of tax benefits recognized as
additional paid in capital, respectively. The intrinsic value of
options exercised during the 13 and 26 weeks ended August 2, 2008 was
approximately $7.3 million and $7.5 million, respectively. The
intrinsic value of options exercised during the 13 and 26 weeks ended August 4,
2007 was approximately $13.0 million and $30.4 million,
respectively.
Restricted
Stock Units (RSUs)
The
Company granted approximately 0.5 million RSUs in the 26 weeks ended August 2,
2008 from the EIP and the EOEP to employees and officers. The
estimated $11.9 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 $1.1 million and $1.9 million, respectively, of expense related to
these RSUs for the 13 and 26 weeks ended August 2, 2008. The Company
recognized $1.7 million and $3.6 million of expense related to RSUs granted
prior to 2008 in each of the 13 and 26 weeks ended August 2,
2008. For the 13 and 26 weeks ended August 4, 2007, the Company
recognized $2.0 million and $3.9 million of expense related to
RSUs.
In the 13
and 26 weeks ended August 2, 2008, approximately 0.1 million and 0.3 million
RSUs vested, respectively and less than 0.1 million and approximately 0.2
million shares net of taxes were issued. In the 13 and 26 weeks ended
August 4, 2007, approximately 0.1 million and 0.2 million RSUs vested,
respectively and approximately 0.1 million shares net of taxes were issued for
both periods.
8.
SHAREHOLDERS’ EQUITY
Comprehensive
Income
The
Company's comprehensive income reflects the effect of recording the derivative
financial instrument entered into in March 2008, pursuant to SFAS No. 133,
“Accounting for Derivative
Instruments and Hedging Activities.” The following table
provides a reconciliation of net income to total comprehensive
income:
|
|
13
Weeks Ended
|
|
|
26
Weeks Ended
|
|
|
|
August
2,
|
|
|
August
4,
|
|
|
August
2,
|
|
|
August
4,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
37.6 |
|
|
$ |
32.6 |
|
|
$ |
81.2 |
|
|
$ |
70.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value adjustment-derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
flow hedging instrument
|
|
|
0.3 |
|
|
|
- |
|
|
|
2.6 |
|
|
|
- |
|
Income
tax expense
|
|
|
(0.1 |
) |
|
|
- |
|
|
|
(1.0 |
) |
|
|
- |
|
Fair
value adjustment, net of tax
|
|
|
0.2 |
|
|
|
- |
|
|
|
1.6 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
$ |
37.8 |
|
|
$ |
32.6 |
|
|
$ |
82.8 |
|
|
$ |
70.7 |
|
Share
Repurchase Program
The
Company had no share repurchases during the 13 and 26 weeks ended August 2,
2008. As of August 2, 2008, the Company had approximately $453.7
million remaining under Board approved repurchase authorizations.
9.
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 hour
violations. The suit requested that the Court certify the case as a
class action. The parties engaged in mediation and reached an
agreement which upon presentation to the Court, received preliminary approval
and the certification of a settlement class. Notices were mailed to
the class members and the final fairness hearing occurred on May 22,
2008. The settlement amount was accrued in the accompanying condensed
consolidated balance sheet as of February 2, 2008 and was paid to class members
during the second quarter of 2008.
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,
and that terminated employees were not paid in a timely manner. The
trial court certified three classes, two for alleged violations of that state’s
labor laws concerning rest breaks and one related to untimely payments upon
termination. Thereafter, following a ruling by the Oregon Supreme
Court in a similar rest break class action case, the trial court dismissed one
of the classes. The parties agreed to mediate which resulted in a
settlement of all remaining issues. In the near future, the agreement will be
submitted to the court for approval. The entire settlement amount is
accrued in the accompanying consolidated condensed balance sheet as of August 2,
2008.
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 and those
claims as a class action. The parties reached a settlement and
executed an Agreement by which the named plaintiff individually settled her
Equal Pay Act and late payment claims. The Court accepted the
proposed settlement and certified a class for the check
claim. Notices were mailed to class members and a hearing for final
approval of the settlement occurred on April 22, 2008. The settlement
amount was accrued in the accompanying condensed consolidated balance sheet as
of February 2, 2008 and was paid to class members during the second quarter of
2008.
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. Plaintiff sought and received from the Court 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 was mailed and less than fifteen percent of those
eligible to opt-in as a plaintiff did so. The Company will challenge
the anticipated effort by the opt-in plaintiffs to be certified as a class
following discovery which is on-going. A second suit was recently
filed in the same court by the same plaintiffs’ attorneys by named plaintiffs
who sue on behalf of themselves and others similarly situated. The
named plaintiffs in the second suit failed to opt-in to the original suit in a
timely manner. The allegations in the second suit are essentially the
same as the first.
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 the
Court granted with respect to allegations of fraud. The plaintiff
then filed an amended complaint which has been answered by the
Company. The Company was thereafter served with a second suit in a
California state court which alleges essentially the same claims as those
contained in the federal action and which likewise seeks class certification of
all California store managers. The Company has removed the case to
the same federal court as the first suit, answered it and the two cases have
been consolidated. The Company will defend the plaintiffs’
anticipated effort to seek class certification.
In 2007,
the Company was served with a lawsuit filed in federal court in California by
two former employees who allege they were not paid all wages due and owing for
time worked, that they were not paid in a timely manner upon termination of
their employment and that they did not receive accurate itemized wage
statements. They filed the suit as a class action and seek to include
in the class all of the Company’s former employees in the state of
California. The Company responded with a motion to dismiss which the
Court denied. The Company thereafter answered and opposed plaintiffs’
motion for class certification. The Court denied certification on the
grounds their counsel failed to demonstrate he would adequately represent the
class as required by the applicable federal rule. Plaintiffs have now
engaged other counsel. The Company will contest any effort by
plaintiffs to certify a class.
In 2008,
the Company was served with a lawsuit filed in federal court in the state of
Alabama by one present and one former store manager, both females, alleging that
they and other female store managers similarly situated were paid less than male
store managers for performing jobs of equal skill and effort. They
seek monetary damages, back pay, injunctive and other relief. The
Company has filed in response to the Complaint, its answer denying the
plaintiffs’ allegations and a motion to transfer the venue of the case from the
Alabama court to the U.S, District Court for the Eastern District of
Virginia.
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, 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 2008 and their
performance compared with other store
sizes;
|
·
|
the
effect of a shift in merchandise mix to consumables and the continued
roll-out of frozen and refrigerated merchandise on gross profit margin and
sales;
|
·
|
the
effect of expanding forms of tender type accepted, including VISA, on
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 diesel fuel
costs;
|
·
|
our
cash needs, including our ability to fund our future capital expenditures
and working capital requirements;
|
·
|
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 1,
2008. 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, such as diesel
fuel costs.
|
·
|
Our
profitability is affected by the mix of products we
sell.
|
·
|
A
downturn in economic conditions could adversely affect our
sales.
|
·
|
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.
|
·
|
Our
sales and profits rely on directly and indirectly imported merchandise
which may increase in cost, become unavailable, or not meet U.S. product
safety standards.
|
·
|
We
may be unable to expand our square footage as timely and profitably as
planned.
|
·
|
Pressure
from competitors, including competition for merchandise, 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
interests.
|
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. 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 August
2, 2008 we operated 3,517 stores in 48 states, with 29.5 million selling square
feet compared to 3,334 stores with 27.5 million selling square feet at August 4,
2007. During the 26 weeks ended August 2, 2008, we opened 133 stores,
expanded 43 stores and closed 27 stores, compared to 134 stores opened, 53
stores expanded and 19 stores closed during the 26 weeks ended August 4,
2007. In the 13 and 26 weeks ended August 2, 2008, we added
approximately 0.6 million and 1.1 million selling square feet, respectively, of
which approximately 0.2 million and 0.3 million, respectively, was added through
expanding existing stores. The average size of stores opened during
the 26 weeks ended August 2, 2008 was approximately 8,400 selling square feet
(or about 10,600 gross square feet). For the remainder of 2008, we
continue to plan to open stores that are approximately 8,500 - 9,000 selling
square feet (or about 10,000 – 12,000 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 and 26 weeks ended August 2, 2008, comparable store net sales increased 6.5%
and 4.3%, respectively. The comparable store net sales increase was
the result of increases of 3.7% in the number of transactions and 2.8% in
transaction size for the 13 weeks ended August 2, 2008, compared to the 13 weeks
ended August 4, 2007. The number of transactions and the transaction
size increased 2.8% and 1.5%, respectively, in the 26 weeks ended August 2,
2008, as compared to the same period last year. We believe comparable
store net sales continue to be positively affected by a number of our
initiatives, including expansion of forms of payment accepted by our stores and
the continued roll-out of frozen and refrigerated merchandise to more of our
stores. During 2006 we completed the roll-out of pin-capture 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 1,570 qualified stores compared to approximately 820 stores at
August 4, 2007. As of October 31, 2007, all of our stores accepted
Visa credit which has had a positive impact on sales during the quarter and we
expect it to have a positive impact on sales this year. At August 2,
2008, we had frozen and refrigerated merchandise in approximately 1,200 stores
compared to approximately 870 stores at August 4, 2007. We believe
that this has and will continue to enable us to increase sales and earnings by
increasing the number of shopping trips made by our customers and increasing the
average transaction size.
With the
pressures of the current economic environment, we have seen greater increases in
the demand for basic, consumable products beginning in 2008. As a
result, we have shifted the mix of inventory carried in our stores to more
consumer product merchandise which we believe increases the traffic in our
stores; however, this merchandise has lower margins. This shift
negatively impacted our second quarter 2008 margins and we believe that this
increase in basic, consumer product merchandise and higher diesel fuel prices
will negatively impact our margins for the remainder of 2008.
On May
25, 2007, the President signed legislation that increased the Federal Minimum
Wage from $5.15 an hour to $7.25 an hour by July 2009. We do not
expect this legislation to have a material effect on our operations for the
remainder of fiscal 2008.
We
estimate that sales for the third quarter of 2008 will be in the range of $1.075
billion to $1.105 billion and earnings per diluted share will be in the range of
$0.40 to $0.43. For fiscal 2008, we estimate sales will be in the
range of $4.61 billion to $4.68 billion and diluted earnings per share will be
in the range of $2.33 to $2.43. Guidance for the third quarter and
the full year fiscal 2008 is based on low to low-mid single digit positive
comparable store net sales. The earnings per share guidance for 2008 is also
based on selling square footage growth of 7% and includes the continued shift in
mix to more consumer product merchandise and freight costs continuing to
increase as a percentage of sales. This guidance is exclusive of any
potential share repurchase activity in 2008.
Results
of Operations
13
Weeks Ended August 2, 2008 Compared to the 13 Weeks Ended August 4,
2007
Net
sales. Net sales
increased 12.5%, or $121.9 million, over last year’s second quarter resulting
from a 6.5% increase in comparable store net sales and sales in our new stores
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 August 2, 2008, our gross profit margin was 33.2% compared to the gross
profit margin of 33.6% for the 13 weeks ended August 4, 2007. This
decrease can be attributed to the following:
·
|
Merchandise
costs, including inbound freight, increased 70 basis points due primarily
to an increase in the sales mix of higher cost consumer product
merchandise. In addition we had increased freight costs due to
the higher cost of fuel in the current year
quarter.
|
·
|
Outbound
freight also increased 20 basis points in the current year quarter due to
increased fuel costs.
|
·
|
Shrink
expense decreased 30 basis points in the quarter due to favorable
adjustments to shrink estimates in the current quarter based on actual
inventory results.
|
·
|
Markdown
expense decreased 20 basis points in the current quarter due to an
increase in the markdown reserve in the prior year quarter for the planned
promotion of slower moving inventory
items.
|
Selling, General
and Administrative Expenses. Selling,
general, and administrative expenses for the current quarter decreased to 27.6%,
as a percentage of net sales, compared to 28.1% for the same period last
year. This decrease was primarily due to the following:
·
|
Payroll-related
expenses decreased 30 basis points resulting from the
following:
|
o
|
lower
field payroll costs as a percentage of sales, resulting from the
leveraging of the comparable store sales
increase;
|
o
|
lower
workers’ compensation costs based on improved experience; partially offset
by,
|
o
|
increased
health care costs in the quarter due to increased claims;
and,
|
o
|
increased
store manager bonuses due to better sales results in the current
quarter.
|
·
|
Depreciation
decreased 40 basis points primarily due to the leveraging associated with
the increase in comparable store net sales in the current
quarter.
|
·
|
Partially
offsetting these decreases was a 10 basis point increase in store
operating costs due to increased utility costs in the current year due to
higher rates and increased
consumption.
|
Operating
Income. Operating income for the
current quarter was 5.6% as a percentage of sales compared to 5.5% for the same
period last year as a result of decreased selling, general and administrative
expenses being partially offset by decreased gross profit.
26
Weeks Ended August 2, 2008 Compared to the 26 Weeks Ended August 4,
2007
Net
sales. Net sales increased 10.2%, or $198.2 million, over the
same time period last year resulting from sales in our new stores and a 4.3%
increase in comparable store net sales in the current
year. 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 26 weeks ended August 2, 2008, our gross
profit margin was 33.6% compared to the gross profit margin of 33.5% for the
first six months of 2007. This increase can be attributed to the
following:
·
|
Shrink
expense decreased 30 basis points in the current year due to favorable
adjustments to shrink estimates based on actual inventory
results.
|
·
|
The
aforementioned improvement was partially offset by a 20 basis point
increase in occupancy costs.
|
Selling, General
and Administrative Expenses. Selling,
general, and administrative expenses for the 26 weeks ended August 2, 2008,
decreased to 27.4%, as a percentage of net sales, compared to 27.6% for the same
period last year. This decrease was primarily due to the
following:
·
|
Payroll-related
expenses decreased 20 basis points as a result of lower payroll costs as a
percentage of sales, due to the leveraging from the comparable store sales
increase, partially offset by increased health care costs due to increased
claims in the current year.
|
·
|
Depreciation
decreased 20 basis points primarily due to the leveraging associated with
the increase in comparable store net
sales.
|
·
|
Partially
offsetting these decreases was a 15 basis point increase in operating and
corporate expenses due to increased debit and credit fees in the current
year resulting from increased debit card penetration and the acceptance of
VISA credit beginning in the fourth quarter of
2007.
|
Operating
Income. Operating income for the
26 weeks ended August 2, 2008, was 6.1% as a percentage of sales compared to
5.9% for the same period last year as a result of decreased selling, general and
administrative expenses partially offset by decreased gross profit.
Income
Taxes. The income tax
rate for the 26 weeks ended August 2, 2008 was 36.5% compared to 37.2% for the
26 weeks ended August 4, 2007. The lower rate in the current year
reflects the recognition of certain tax benefits in accordance with Financial
Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes” which was partially offset by a reduction in tax-exempt interest
income.
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, funded our store opening
and expansion programs and repurchased shares from internally generated funds
and borrowings under our credit facilities.
The
following table compares cash flow information for the 26 weeks ended August 2,
2008 and August 4, 2007:
|
|
26
Weeks ended
|
|
|
|
August
2,
|
|
|
August
4,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
Net
cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$ |
91.1 |
|
|
$ |
95.9 |
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
(25.6 |
) |
|
|
(16.7 |
) |
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
8.5 |
|
|
|
(120.7 |
) |
Net cash
provided by operating activities decreased $4.8 million due to increased
requirements for operating assets and liabilities in the current year, partially
offset by increased earnings before income taxes and depreciation and
amortization in the current year.
Net cash
used in investing activities increased $8.9 million in the current
year. In the prior year, we sold more investments to finance share
repurchases. Partially offsetting the decrease in net proceeds from
the sale of short-term investments, was lower capital expenditures in the
current year. Capital expenditures were higher in the prior year due
primarily to the expansion of one of our distribution centers.
In the
current year, financing activities provided cash of $8.5 million as a result of
stock option exercises and employee stock plan purchases. In the prior year, net
cash used in financing activities was $120.7 million as a result of share
repurchases of $198.0 million partially offset by stock option exercises
resulting from our higher stock price last year.
On
February 20, 2008, we entered into a five-year $550.0 million Credit Agreement
(the Agreement). The Agreement provides for a $300.0 million
revolving line of credit, including up to $150.0 million in available letters of
credit, and a $250.0 million term loan. The interest rate on the
facility will be based, at our option, on a LIBOR rate, plus a margin, or an
alternate base rate, plus a margin. The revolving line of credit also
bears a facilities fee, calculated as a percentage, as defined, of the amount
available under the line of credit, payable quarterly. The term loan
is due and payable in full at the five year maturity date of the
Agreement. The Agreement also bears an administrative fee payable
annually. The Agreement, among other things, requires the maintenance
of certain specified financial ratios, restricts the payment of certain
distributions and prohibits the incurrence of certain new
indebtedness. Our March 2004, $450.0 million unsecured revolving
credit facility was terminated concurrent with entering into the
Agreement.
At August
2, 2008, our long-term borrowings were $268.0 million, our capital lease
commitments were $0.7 million and we had $300.0 million available on our
revolving credit portion of the Agreement. We also have $125.0
million and $50.0 million Letter of Credit Reimbursement and Security
Agreements, under which approximately $135.0 million was committed to letters of
credit issued for routine purchases of imported merchandise as of August 2,
2008.
We had no
share repurchases during the 13 weeks ended August 2, 2008. As of August 2,
2008, we had approximately $453.7 million remaining under Board approved
repurchase authorizations.
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.
On March
20, 2008, we entered into two $75.0 million interest rate swap
agreements. These interest rate swaps are used to manage the risk
associated with interest rate fluctuations on a portion of our variable rate
debt. Under these agreements, we pay interest to financial
institutions at a fixed rate of 2.8%. In exchange, the financial
institutions pay us at a variable rate, which equals the variable rate on the
debt, excluding the credit spread. These swaps qualify for hedge
accounting treatment pursuant to SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities” and expire in March
2011. The fair value of these swaps as of August 2, 2008 is an asset
of $2.6 million and is included in “Other Assets” on the accompanying condensed
consolidated balance sheets.
Our other
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. As of August 2, 2008, the fair value of this interest rate swap
is a liability of $0.3 million. The fair value of this swap as of
August 4, 2007 was a liability of less than $0.1 million.
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 Principal 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 Principal Financial Officer concluded that our
disclosure controls and procedures are effective.
There
have been no changes in our internal control over financial reporting during the
quarter ended August 2, 2008 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 or other
jurisdictions;
|
|
|
·
|
personal
injury/wrongful death claims; and
|
|
|
·
|
real
estate matters related to store
leases.
|
For a
discussion of our current lawsuits, please refer to “Note 9. Litigation
Matters”, included in “Part I. Financial Information, Item 1. Financial
Statements” of this Form 10-Q.
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 1, 2008.
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
We had no
share repurchases during the 13 weeks ended August 2, 2008. As of
August 2, 2008, we had approximately $453.7 million remaining under Board
approved repurchase authorizations.
Item 3.
DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At our
Annual Meeting of Shareholders held on June 19, 2008, the following individuals
were elected to the Board of Directors:
|
Votes
For
|
|
Votes
Withheld
|
Macon
F. Brock, Jr.
|
78,294,410
|
|
3,116,949
|
Mary
Anne Citrino
|
79,420,506
|
|
1,990,853
|
Richard
G. Lesser
|
78,695,918
|
|
2,715,441
|
Thomas
E. Whiddon
|
77,195,603
|
|
4,215,756
|
Arnold
S. Barron
|
79,573,077
|
|
1,838,282
|
Carl
P. Zeithaml
|
79,572,303
|
|
1,839,056
|
Lemuel
E. Lewis
|
78,978,000
|
|
2,443,359
|
At our
Annual Meeting of Shareholders held on June 19, 2008, the shareholders approved
amendments to the 2005 Employee Stock Purchase Plan, 2003 Equity Incentive Plan
and the 2004 Executive Officer Equity Plan each of which reflects the assumption
of such plans by the company upon the formation of our holding company
structure. The results were as follows:
Approval
of the 2005 Employee Stock Purchase Plan holding company amendment
Votes for
– 73,463,212
Votes
against – 65,105
Abstentions
– 681,012
Approval
of the 2003 Equity Incentive Plan holding company amendment
Votes for
– 65,839,639
Votes
against – 7,928,210
Abstentions
– 1,027,480
Approval
of the 2004 Executive Officer Equity Plan holding company amendment
Votes for
– 66,142,304
Votes
against – 7,621,970
Abstentions
– 1,031,055
At our
Annual Meeting of Shareholders held on June 19, 2008, the shareholders
re-approved the measures that are used in establishing goals for performance
based awards and award limits in the 2003 Equity Incentive Plan, the 2004
Executive Officer Equity Plan and the 2004 Executive Officer Cash Bonus Plan.
The results were as follows:
Re-approval
of performance measures and award limits in the 2003 Equity Incentive
Plan
Votes for
– 70,875,278
Votes
against – 3,232,850
Abstentions
– 687,200
Re-approval
of performance measures and award limits in the 2004 Executive Officer Equity
Plan
Votes for
– 70,943,246
Votes
against – 3,165,013
Abstentions
– 687,070
Re-approval
of performance measures and award limits in the 2004 Executive Officer Cash
Bonus Plan
Votes for
– 72,467,866
Votes
against – 1,631,018
Abstentions
– 696,445
At our
Annual Meeting of Shareholders held on June 19, 2008, the shareholders approved
amendments to the 2004 Executive Officer Cash Bonus Plan and the 2004 Executive
Officer Equity Plan. The amendment to the 2004 Executive Officer Cash
Bonus Plan increased the annual limit of performance based cash awards from
$1,000,000 to $3,000,000. The amendment to the 2004 Executive Officer
Equity Plan increased the number of shares that may be granted under the plan
from one million (1,000,000) shares to two million (2,000,000)
shares. The results were as follows:
Approval
of the amendment to the 2004 Executive Officer Cash Bonus Plan
Votes for
– 71,402,871
Votes
against – 2,699,448
Abstentions
– 693,010
Approval
of the amendment to the 2004 Executive Officer Equity Plan
Votes for
– 64,866,699
Votes
against – 8,891,139
Abstentions
– 1,037,491
At our
Annual Meeting of Shareholders held on June 19, 2008, the shareholders approved
amendments to our Articles of Incorporation and Bylaws eliminating supermajority
requirements. The shareholders also approved a shareholder proposal
to eliminate the classified Board of Directors. The results
were as follows:
Approval
of amendments to the Articles of Incorporation and Bylaws eliminating
supermajority requirements
Votes for
– 79,413,564
Votes
against – 1,287,806
Abstentions
– 709,988
Approval
of the shareholder proposal to eliminate the classified Board of
Directors
Votes for
– 60,938,409
Votes
against – 13,380,311
Abstentions
– 721,831
Item 5.
OTHER INFORMATION.
None.
Item 6.
EXHIBITS.
|
3.1
|
Articles
of Incorporation of Dollar Tree, Inc. (the Company) (as Amended, effective
June 23, 2008) (Exhibit 3.1 to the Company’s June 19, 2008 Report on Form
8-K, incorporated herein by this
reference)
|
|
3.2
|
Bylaws
of the Company, as amended (Exhibit 3.2 to the Company’s June 19, 2008
Report on Form 8-K, incorporated herein by this
reference)
|
|
10.1
|
Amendments
to the Assumed Incentive Plans of the Company (Exhibit 10.1 to the
Company’s June 19, 2008 Report on Form 8-K, incorporated herein by this
reference)
|
|
10.2
|
Fourth
Amendment to the 2004 Executive Officer Equity Plan (Exhibit 10.2 to the
Company’s June 19, 2008 Report on Form 8-K, incorporated herein by this
reference)
|
|
10.3
|
Third
Amendment to the 2004 Executive Officer Cash Bonus Plan (Exhibit 10.3 to
the Company’s June 19, 2008 Report on Form 8-K, incorporated herein by
this reference)
|
|
31.
Certifications required under Section 302 of the Sarbanes-Oxley
Act
|
31.1
|
|
Certification
required under Section 302 of the Sarbanes-Oxley Act of Chief Executive
Officer |
31.2
|
|
Certification
required under Section 302 of the Sarbanes-Oxley Act of Principal
Financial Officer |
32.
Certifications required under Section 906 of the Sarbanes-Oxley Act
|
32.1
|
Certification
required under Section 906 of the Sarbanes-Oxley Act of Chief Executive
Officer
|
|
32.2
|
Certification
required under Section 906 of the Sarbanes-Oxley Act of Principal
Financial Officer
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
|
|
DOLLAR
TREE, INC.
|
|
|
|
Date:
September 10, 2008
|
By:
|
/s/ Kathleen E.
Mallas
|
|
Kathleen
E. Mallas
|
|
Vice
President - Controller
(Principal
Financial
Officer)
|