The
following table presents a summary of our selected financial data for the fiscal
years ended January 31, 2009, February 2, 2008, February 3, 2007, January 28,
2006, and January 29, 2005. Fiscal 2006 included 53 weeks,
commensurate with the retail calendar, while all other fiscal years reported in
the table contain 52 weeks. The selected income statement and balance sheet data
have been derived from our consolidated financial statements that have been
audited by our independent registered public accounting firm. This
information should be read in conjunction with the consolidated financial
statements and related notes, "Management’s Discussion and Analysis of Financial
Condition and Results of Operations" and our financial information found
elsewhere in this report.
Comparable
store net sales compare net sales for stores open throughout each of the two
periods being compared, including expanded stores. Net sales per
store and net sales per selling square foot are calculated for stores open
throughout the period presented.
Amounts
in the following tables are in millions, except per share data, number of stores
data, net sales per selling square foot data and inventory
turns.
|
|
Years
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
|
January
28,
|
|
|
January
29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Income
Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
4,644.9 |
|
|
$ |
4,242.6 |
|
|
$ |
3,969.4 |
|
|
$ |
3,393.9 |
|
|
$ |
3,126.0 |
|
Gross
profit
|
|
|
1,592.2 |
|
|
|
1,461.1 |
|
|
|
1,357.2 |
|
|
|
1,172.4 |
|
|
|
1,112.5 |
|
Selling,
general and administrative expenses
|
|
|
1,226.4 |
|
|
|
1,130.8 |
|
|
|
1,046.4 |
|
|
|
888.5 |
|
|
|
819.0 |
|
Operating
income
|
|
|
365.8 |
|
|
|
330.3 |
|
|
|
310.8 |
|
|
|
283.9 |
|
|
|
293.5 |
|
Net
income
|
|
|
229.5 |
|
|
|
201.3 |
|
|
|
192.0 |
|
|
|
173.9 |
|
|
|
180.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin
Data (as a percentage of net sales):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
34.3 |
% |
|
|
34.4 |
% |
|
|
34.2 |
% |
|
|
34.5 |
% |
|
|
35.6 |
% |
Selling,
general and administrative expenses
|
|
|
26.4 |
% |
|
|
26.6 |
% |
|
|
26.4 |
% |
|
|
26.2 |
% |
|
|
26.2 |
% |
Operating
income
|
|
|
7.9 |
% |
|
|
7.8 |
% |
|
|
7.8 |
% |
|
|
8.3 |
% |
|
|
9.4 |
% |
Net
income
|
|
|
4.9 |
% |
|
|
4.7 |
% |
|
|
4.8 |
% |
|
|
5.1 |
% |
|
|
5.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$ |
2.53 |
|
|
$ |
2.09 |
|
|
$ |
1.85 |
|
|
$ |
1.60 |
|
|
$ |
1.58 |
|
Diluted
net income per share increase
|
|
|
21.1 |
% |
|
|
13.0 |
% |
|
|
15.6 |
% |
|
|
1.3 |
% |
|
|
2.6 |
% |
|
|
As
of
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
|
January
28,
|
|
|
January
29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
short-term investments
|
|
$ |
364.4 |
|
|
$ |
81.1 |
|
|
$ |
306.8 |
|
|
$ |
339.8 |
|
|
$ |
317.8 |
|
Working
capital
|
|
|
663.3 |
|
|
|
382.9 |
|
|
|
575.7 |
|
|
|
648.2 |
|
|
|
675.5 |
|
Total
assets
|
|
|
2,035.7 |
|
|
|
1,787.7 |
|
|
|
1,882.2 |
|
|
|
1,798.4 |
|
|
|
1,792.7 |
|
Total
debt, including capital lease obligations
|
|
|
268.2 |
|
|
|
269.4 |
|
|
|
269.5 |
|
|
|
269.9 |
|
|
|
281.7 |
|
Shareholders'
equity
|
|
|
1,253.2 |
|
|
|
988.4 |
|
|
|
1,167.7 |
|
|
|
1,172.3 |
|
|
|
1,164.2 |
|
|
|
Years
Ended
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
|
January
28,
|
|
|
January
29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Selected
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of stores open at end of period
|
|
|
3,591 |
|
|
|
3,411 |
|
|
|
3,219 |
|
|
|
2,914 |
|
|
|
2,735 |
|
Gross
square footage at end of period
|
|
|
38.5 |
|
|
|
36.1 |
|
|
|
33.3 |
|
|
|
29.2 |
|
|
|
25.9 |
|
Selling
square footage at end of period
|
|
|
30.3 |
|
|
|
28.4 |
|
|
|
26.3 |
|
|
|
23.0 |
|
|
|
20.4 |
|
Selling
square footage annual growth
|
|
|
6.7 |
% |
|
|
8.0 |
% |
|
|
14.3 |
% |
|
|
12.6 |
% |
|
|
21.1 |
% |
Net
sales annual growth
|
|
|
9.5 |
% |
|
|
6.9 |
% |
|
|
16.9 |
% |
|
|
8.6 |
% |
|
|
11.6 |
% |
Comparable
store net sales increase (decrease)
|
|
|
4.1 |
% |
|
|
2.7 |
% |
|
|
4.6 |
% |
|
|
(0.8 |
%) |
|
|
0.5 |
% |
Net
sales per selling square foot
|
|
$ |
158 |
|
|
$ |
155 |
|
|
$ |
161 |
|
|
$ |
156 |
|
|
$ |
168 |
|
Net
sales per store
|
|
$ |
1.3 |
|
|
$ |
1.3 |
|
|
$ |
1.3 |
|
|
$ |
1.2 |
|
|
$ |
1.2 |
|
Selected
Financial Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on assets
|
|
|
12.0 |
% |
|
|
11.0 |
% |
|
|
10.4 |
% |
|
|
9.7 |
% |
|
|
10.9 |
% |
Return
on equity
|
|
|
20.5 |
% |
|
|
18.7 |
% |
|
|
16.4 |
% |
|
|
14.9 |
% |
|
|
16.5 |
% |
Inventory
turns
|
|
|
3.8 |
|
|
|
3.7 |
|
|
|
3.5 |
|
|
|
3.1 |
|
|
|
2.9 |
|
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In
Management’s Discussion and Analysis, we explain the general financial condition
and the results of operations for our company, including:
|
|
·
|
what
factors affect our business;
|
|
|
·
|
what
our net sales, earnings, gross margins and costs were in 2008, 2007 and
2006;
|
|
|
·
|
why
those net sales, earnings, gross margins and costs were different from the
year before;
|
|
|
·
|
how
all of this affects our overall financial condition;
|
|
|
·
|
what
our expenditures for capital projects were in 2008 and 2007 and what we
expect them to be in 2009; and
|
|
|
·
|
where
funds will come from to pay for future
expenditures.
|
As you
read Management’s Discussion and Analysis, please refer to our consolidated financial statements, included in Item 8 of this Form
10-K, which present the results of operations for the fiscal years ended
January 31, 2009, February 2, 2008 and February 3, 2007. In
Management’s Discussion and Analysis, we analyze and explain the annual changes
in some specific line items in the consolidated financial statements for the
fiscal year 2008 compared to the comparable fiscal year 2007 and the fiscal year
2007 compared to the comparable fiscal year 2006.
Key
Events and Recent Developments
Several
key events have had or are expected to have a significant effect on our
operations. You should keep in mind that:
·
|
On
February 20, 2008, we entered into a five-year $550.0 million unsecured
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. Our March 2004, $450.0 million unsecured revolving
credit facility was terminated concurrent with entering into the
Agreement.
|
·
|
On
March 2, 2008, we reorganized by creating a new holding company
structure. The new parent company is Dollar Tree, Inc.,
replacing Dollar Tree Stores, Inc., which is now an operating
subsidiary.
|
·
|
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 $250.0
million variable rate term loan.
|
·
|
In
October 2007, our Board of Directors authorized the repurchase of an
additional $500.0 million of our common stock. This authorization was in
addition to the November 2006 authorization which had approximately $98.4
million remaining. At January 31, 2009, we had approximately $453.7
million remaining under Board
authorizations.
|
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 acquisitions. Second, 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 compare only
those stores that are open throughout both of the periods being
compared. We include sales from stores expanded during the year in
the calculation of comparable store net sales, which has the effect of
increasing our comparable store net sales. The term 'expanded' also
includes stores that are relocated.
At
January 31, 2009, we operated 3,591 stores in 48 states, with 30.3 million
selling square feet compared to 3,411 stores with 28.4 million selling square
feet at February 2, 2008. During fiscal 2008, we opened 231 stores,
expanded 86 stores and closed 51 stores, compared to 240 new stores opened, 102
stores expanded and 48 stores closed during fiscal 2007. In the
current year we increased our selling square footage by 6.7%. Of the
1.9 million selling square foot increase in 2008, 0.3 million was added by
expanding existing stores. The average size of our stores opened in
2008 was approximately 8,100 selling square feet (or about 10,300 gross square
feet). The average new store size decreased slightly in 2008 from
approximately 8,500 selling square feet (or about 10,800 gross square feet) for
new stores in 2007. For 2009, we continue to plan to open stores that
are approximately 8,000 - 10,000 selling square feet (or about 10,000 - 12,000
gross square feet). We believe that this store size is our optimal
size operationally and that this size also gives our customers an ideal shopping
environment that invites them to shop longer and buy more. We expect
the majority of our future net sales growth to come from the square footage
growth resulting from new store openings and expansion of existing
stores.
Fiscal
2006 ended on February 3, 2007 and included 53 weeks, commensurate with the
retail calendar. The 53rd week in
2006 added approximately $70 million in sales. Fiscal 2008 and 2007 ended on
January 31, 2009 and February 2, 2008, respectively, and both years included 52
weeks.
In fiscal
2008, comparable store net sales increased by 4.1%. The comparable
store net sales increase was the result of increases of 3.7% in the number of
transactions and a 0.4% increase in average transaction size. 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 roll-out of freezers and coolers to more of our
stores. At January 31, 2009 we had frozen and refrigerated
merchandise in approximately 1,200 stores compared to approximately 1,100 stores
at February 2, 2008. We believe that this enables us to increase sales and
earnings by increasing the number of shopping trips made by our customers and
increasing the average transaction size. In addition, we now accept
food stamps in approximately 2,200 qualified stores compared to 1,000 at the end
of 2007. Beginning October 31, 2007, all of our stores accept Visa
credit which has had a positive impact on our sales for fiscal
2008.
With the
pressures of the current economic environment, we have seen an increase in the
demand for basic, consumable merchandise 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 and has helped
to increase our sales even during the current economic downturn. This
shift has negatively impacted our margins in 2008, and we believe that this
increase in basic, consumer product merchandise will negatively impact our
margins in the first half of 2009.
Our
point-of-sale technology provides us with valuable sales and inventory
information to assist our buyers and improve our merchandise allocation to our
stores. We believe that this has enabled us to better manage our
inventory flow resulting in more efficient distribution and store operations and
increased inventory turnover for each of the last two
years. Inventory turnover improved by approximately 5 basis points in
2008 compared to 2007 and by approximately 25 basis points in 2007 compared to
2006. Fiscal 2008 was the fourth consecutive year of increased
inventory turnover. Inventory per selling square foot also decreased
1.2% at January 31, 2009 compared to February 2, 2008.
On May
25, 2007, legislation was enacted that increased the Federal Minimum Wage from
$5.15 an hour to $7.25 an hour by July 2009. As a result, our wages
will increase in 2009; however, we believe that we can partially offset the
increase in payroll costs through increased store productivity and continued
efficiencies in product flow to our stores.
We must
continue to control our merchandise costs, inventory levels and our general and
administrative expenses. Increases in these line items could
negatively impact our operating results.
On March
25, 2006, we completed our acquisition of 138 Deal$ stores, which included
stores that offered an expanded assortment of merchandise including items that
sell for more than $1. Most of these stores continue to operate under
the Deal$ banner while providing us an opportunity to leverage our Dollar Tree
infrastructure in the testing of new merchandise concepts, including higher
price points, without disrupting the single-price point model in our Dollar Tree
stores. We have opened new Deal$ stores, including some in new
markets, and as of January 31, 2009, we have 143 stores under the Deal$ banner
that are selling most items for $1 or less but also sell items for more
than $1, compared to 131 stores at February 2, 2008.
Results
of Operations
The
following table expresses items from our consolidated statements of operations,
as a percentage of net sales:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost
of sales
|
|
|
65.7 |
% |
|
|
65.6 |
% |
|
|
65.8 |
% |
Gross
profit
|
|
|
34.3 |
% |
|
|
34.4 |
% |
|
|
34.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
|
26.4 |
% |
|
|
26.6 |
% |
|
|
26.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
7.9 |
% |
|
|
7.8 |
% |
|
|
7.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
0.0 |
% |
|
|
0.1 |
% |
|
|
0.2 |
% |
Interest
expense
|
|
|
(0.2 |
%) |
|
|
(0.4 |
%) |
|
|
(0.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
7.7 |
% |
|
|
7.5 |
% |
|
|
7.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
(2.8 |
%) |
|
|
(2.8 |
%) |
|
|
(2.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
4.9 |
% |
|
|
4.7 |
% |
|
|
4.8 |
% |
Fiscal
year ended January 31, 2009 compared to fiscal year ended February 2,
2008
Net Sales. Net
sales increased 9.5%, or $402.3 million, in 2008 compared to 2007, resulting
from sales in our new and expanded stores and a 4.1% increase in comparable
store net sales. 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 ones.
The
following table summarizes the components of the changes in our store count for
fiscal years ended January 31, 2009 and February 2, 2008.
|
|
January 31, 2009
|
|
|
February 2, 2008
|
|
|
|
|
|
|
|
|
New
stores
|
|
|
227 |
|
|
|
208 |
|
Acquired
leases
|
|
|
4 |
|
|
|
32 |
|
Expanded
or relocated stores
|
|
|
86 |
|
|
|
102 |
|
Closed
stores
|
|
|
(51 |
) |
|
|
(48 |
) |
Of the
1.9 million selling square foot increase in 2008 approximately 0.3 million was
added by expanding existing stores.
Gross
Profit. Gross profit margin decreased to 34.3% in 2008
compared to 34.4% in 2007. The decrease was primarily due to a 30
basis point increase in merchandise cost, including inbound freight, resulting
from an increase in the sales mix of higher cost consumer product merchandise
and higher diesel fuel costs compared with 2007. Partially offsetting this
increase was a 20 basis point decrease in shrink expense due to favorable
adjustments to shrink estimates based on actual inventory results during the
year.
Selling, General and Administrative
Expenses. Selling, general and administrative expenses, as a
percentage of net sales, decreased to 26.4% for 2008 compared to 26.6% for
2007. The decrease is primarily due to the following:
·
|
Depreciation
expense decreased 25 basis points primarily due to the leveraging
associated with the comparable store net sales increase for the
year.
|
·
|
Payroll-related
expenses decreased 10 basis points primarily as a result of lower field
payroll costs as a percentage of sales, due to the leveraging from the
comparable store net sales increase in 2008.
|
·
|
Partially offsetting these decreases was an approximate 10 basis point
increase in store operating costs due to increases in repairs and
maintenance and utility costs in the current
year.
|
Operating
Income. Due to the reasons discussed above, operating income
margin was 7.9% in 2008 compared to 7.8% in 2007.
Income Taxes. Our
effective tax rate was 36.1% in 2008 compared to 37.1% in 2007. The
lower rate in the current year reflects the recognition of certain tax benefits
in accordance with Financial Accounting Standards Board’s Financial
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48),
and a lower blended state tax rate resulting from the settlement of state
tax audits in the current year which allowed us to release income tax reserves
and accrue less interest expense on tax uncertainties in the current year. These
benefits to the tax rate were partially offset by a reduction in tax-exempt
interest income in the current year.
Fiscal
year ended February 2, 2008 compared to fiscal year ended February 2,
2007
Net Sales. Net
sales increased 6.9%, or $273.2 million, in 2007 compared to 2006, resulting
primarily from sales in our new and expanded stores. Our sales increase was also
impacted by a 2.7% increase in comparable store net sales for
2007. This increase is based on the comparable 52-weeks for both
years. These increases were partially offset by an extra week of sales in 2006
due to the 53-week retail calendar for 2006. On a comparative 52-week
basis, sales increased approximately 8.8% in 2007 compared to 2006. Comparable
store net sales are positively affected by our expanded and relocated stores,
which we include in the calculation, and, to a lesser extent, are negatively
affected when we open new stores or expand stores near existing
ones.
The
following table summarizes the components of the changes in our store count for
fiscal years ended February 2, 2008 and February 3, 2007.
|
|
February 2, 2008
|
|
|
February 3, 2007
|
|
|
|
|
|
|
|
|
New
stores
|
|
|
208 |
|
|
|
190 |
|
Deal$
acquisition
|
|
|
-- |
|
|
|
138 |
|
Acquired
leases
|
|
|
32 |
|
|
|
21 |
|
Expanded
or relocated stores
|
|
|
102 |
|
|
|
85 |
|
Closed
stores
|
|
|
(48 |
) |
|
|
(44 |
) |
Of the
2.1 million selling square foot increase in 2007 approximately 0.4 million was
added by expanding existing stores.
Gross
Profit. Gross profit margin increased to 34.4% in 2007
compared to 34.2% in 2006. The increase was primarily due to a 50
basis point decrease in merchandise cost, including inbound freight, due to
improved initial mark-up in many categories in 2007. This decrease
was partially offset by a 40 basis point increase in occupancy costs due to the
loss of leverage from the extra week of sales in 2006.
Selling, General and Administrative
Expenses. Selling, general and administrative expenses, as a
percentage of net sales, increased to 26.6% for 2007 compared to 26.4% for
2006. The increase is primarily due to the following:
·
|
Operating
and corporate expenses increased approximately 25 basis points due to
increased debit and credit fees resulting from increased debit
transactions in 2007 and the rollout of VISA credit at October 31,
2007. Also, in 2006, we had approximately 10 basis points of
income related to early lease terminations.
|
·
|
Occupancy
costs increased 15 basis points primarily due to increased repairs and
maintenance costs in 2007.
|
·
|
Partially offsetting these increases was an approximate 15 basis point
decrease in depreciation expense due to the expiration of the
depreciable life on much of the supply chain hardware and software placed
in service in 2002.
|
Operating
Income. Due to the reasons discussed above, operating income
margin was 7.8% in 2007 and 2006.
Income Taxes. Our
effective tax rate was 37.1% in 2007 compared to 36.6% in 2006. The
increase in the rate for 2007 reflects a reduction of tax-exempt interest income
in the current year due to lower investment levels resulting from increased
share repurchase activity and an increase in tax reserves in accordance with FIN
48. These increases more than offset a slight decrease in our net
state tax rate.
Liquidity
and Capital Resources
Our
business requires capital to build and open new stores, expand our distribution
network and operate existing stores. Our working capital requirements
for existing stores are seasonal and usually reach their peak in September and
October. Historically, we have satisfied our seasonal working capital
requirements for existing stores and have funded our store opening and
distribution network expansion programs from internally generated funds and
borrowings under our credit facilities.
The
following table compares cash-related information for the years ended January
31, 2009, February 2, 2008, and February 3, 2007:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$ |
403.1 |
|
|
$ |
367.3 |
|
|
$ |
412.8 |
|
Investing
activities
|
|
|
(102.0 |
) |
|
|
(22.7 |
) |
|
|
(190.7 |
) |
Financing
activities
|
|
|
22.7 |
|
|
|
(389.0 |
) |
|
|
(202.9 |
) |
Net cash
provided by operating activities increased $35.8 million compared to last year
due to increased earnings before income taxes, depreciation and amortization in
the current year and lower prepaid rent amounts at the end of January
2009. February 2008 rent payments were made prior to the end of
fiscal 2007 which resulted in a prepaid asset in fiscal 2007 whereas February
2009 rent was paid in fiscal 2009.
Net cash
provided by operating activities decreased $45.5 million in 2007 compared to
2006 due to increased working capital requirements in 2007 and increases in the
provision for deferred taxes, partially offset by improved earnings before
depreciation and amortization in 2007.
Net cash
used in investing activities increased $79.3 million in the current year. Net
proceeds from the sale of short-term investments were higher in the prior year
in order to fund share repurchases. Overall, short-term investment
activity has decreased in the current year resulting from the liquidation of our
short-term investments early in the current year due to market
conditions. These amounts were primarily invested in cash equivalent
money market accounts. Partially offsetting the decrease in net
proceeds from the sales of short-term investments was higher capital
expenditures ($57.7 million higher) in the prior year due to the expansions of
the Briar Creek distribution center and corporate headquarters.
Net cash
used in investing activities decreased $168.0 million in 2007 compared to
2006. This decrease is due to $129.1 million of increased proceeds
from short-term investment activity in 2007 to fund increased share repurchases
and $54.1 million used in 2006 to acquire Deal$ assets. These were
partially offset by increased capital expenditures in 2007 resulting from the
Briar Creek distribution center and the corporate headquarters
expansions.
In the
current year, financing activities provided cash of $22.7 million as a result of
stock option exercises and employee stock plan purchases. In the
prior year, net cash used in financing activities was $389.0
million. This was the result of share repurchases of $473.0 million
for fiscal 2007, partially offset by stock option exercises resulting from the
Company’s stock price last year being higher than it had been in the prior
several years.
Net cash
used in financing activities increased $186.1 million in 2007 due primarily to
increased share repurchases in 2007 partially offset by increased proceeds from
stock option exercises in 2007 resulting from the Company’s higher stock price
earlier in the year.
At
January 31, 2009, our long-term borrowings were $267.6 million and our capital
lease commitments were $0.6 million. We also have $121.5 million and
$50.0 million Letter of Credit Reimbursement and Security Agreements, under
which approximately $97.8 million were committed to letters of credit issued for
routine purchases of imported merchandise at January 31, 2009.
On
February 20, 2008, we entered into a five-year $550.0 million unsecured 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
Agreement is 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. As of January 31, 2009, the $250.0 million
term loan is outstanding under the Agreement.
In March
2005, our Board of Directors authorized the repurchase of up to $300.0 million
of our common stock through March 2008. In November 2006, our Board
of Directors authorized the repurchase of up to $500.0 million of our common
stock. This amount was in addition to the $27.0 million remaining on
the March 2005 authorization. Then, in October 2007, our Board of
Directors authorized the repurchase of an additional $500.0 million of our
common stock. This authorization was in addition to the November 2006
authorization which had approximately $98.4 million remaining at the
time.
We
repurchased approximately 12.8 million shares for approximately $473.0 million
in fiscal 2007 and approximately 8.8 million shares for approximately $248.2
million in fiscal 2006. We had no share repurchases in fiscal
2008. At January 31, 2009, we have approximately $453.7 million
remaining under Board authorization.
Overview
We expect
our cash needs for opening new stores and expanding existing stores in fiscal
2009 to total approximately $138.1 million, which includes
capital expenditures, initial inventory and pre-opening costs. Our
estimated capital expenditures for fiscal 2009 are between $135.0 and $145.0
million, including planned expenditures for our new and expanded stores and the
addition of freezers and coolers to approximately 175 stores. We
believe that we can adequately fund our working capital requirements and planned
capital expenditures for the next few years from net cash provided by operations
and potential borrowings under our existing credit facility.
The
following tables summarize our material contractual obligations at January 31,
2009, including both on- and off-balance sheet arrangements, and our
commitments, including interest on long-term borrowings (in
millions):
Contractual
Obligations
|
|
Total
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
Lease
Financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease obligations
|
|
$ |
1,439.4 |
|
|
$ |
348.1 |
|
|
$ |
304.6 |
|
|
$ |
251.4 |
|
|
$ |
194.8 |
|
|
$ |
130.1 |
|
|
$ |
210.4 |
|
Capital
lease obligations
|
|
|
0.6 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Agreement
|
|
|
250.0 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
250.0 |
|
|
|
-- |
|
Revenue
bond financing
|
|
|
17.6 |
|
|
|
17.6 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Interest
on long-term borrowings
|
|
|
12.6 |
|
|
|
3.3 |
|
|
|
3.0 |
|
|
|
3.0 |
|
|
|
3.0 |
|
|
|
0.3 |
|
|
|
-- |
|
Total
obligations
|
|
$ |
1,720.2 |
|
|
$ |
369.2 |
|
|
$ |
307.8 |
|
|
$ |
254.5 |
|
|
$ |
197.9 |
|
|
$ |
380.4 |
|
|
$ |
210.4 |
|
Commitments
|
|
Total
|
|
|
Expiring
in 2009
|
|
|
Expiring
in 2010
|
|
|
Expiring
in 2011
|
|
|
Expiring
in 2012
|
|
|
Expiring
in 2013
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters
of credit and surety bonds
|
|
$ |
124.3 |
|
|
$ |
124.3 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
Freight
contracts
|
|
|
109.6 |
|
|
|
86.6 |
|
|
|
15.6 |
|
|
|
4.4 |
|
|
|
3.0 |
|
|
|
-- |
|
|
|
-- |
|
Technology
assets
|
|
|
3.2 |
|
|
|
3.2 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Total
commitments
|
|
$ |
237.1 |
|
|
$ |
214.1 |
|
|
$ |
15.6 |
|
|
$ |
4.4 |
|
|
$ |
3.0 |
|
|
$ |
-- |
|
|
$ |
-- |
|
Lease
Financing
Operating Lease
Obligations. Our operating lease obligations are primarily for
payments under noncancelable store leases. The commitment includes
amounts for leases that were signed prior to January 31, 2009 for stores that
were not yet open on January 31, 2009.
Capital Lease
Obligations. Our capital lease obligations are primarily for
distribution center equipment and computer equipment at the store support
center.
Credit Agreement. On February
20, 2008, we entered into a five-year $550.0 million unsecured 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. This rate was 1.21% at January
31, 2009. 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. As of January 31, 2009, we
had $250.0 million outstanding on the Agreement. Our March 2004,
$450.0 million unsecured revolving credit facility was terminated concurrent
with entering into the Agreement.
Revenue Bond
Financing. In May 1998, we entered into an agreement with the
Mississippi Business Finance Corporation under which it issued $19.0 million of
variable-rate demand revenue bonds. We used the proceeds from the
bonds to finance the acquisition, construction and installation of land,
buildings, machinery and equipment for our distribution facility in Olive
Branch, Mississippi. At January 31, 2009, the balance outstanding on
the bonds was $17.6 million. These bonds are due to be fully repaid
in June 2018. The bonds do not have a prepayment penalty as long as
the interest rate remains variable. The bonds contain a demand
provision and, therefore, outstanding amounts are classified as current
liabilities. We pay interest monthly based on a variable interest
rate, which was 1.50% at January 31, 2009.
Interest on Long-term Borrowings.
This amount represents interest payments on the Credit Agreement and the
revenue bond financing using the interest rates for each at January 31,
2009.
Commitments
Letters of Credit and Surety
Bonds. In March 2001, we entered into a Letter of Credit
Reimbursement and Security Agreement, which provides $121.5 million for letters
of credit. In December 2004, we entered into an additional Letter of Credit
Reimbursement and Security Agreement, which provides $50.0 million for letters
of credit. Letters of credit are generally issued for the routine
purchase of imported merchandise and we had approximately $97.8 million of
purchases committed under these letters of credit at January 31,
2009.
We also
have approximately $26.5 million of letters of credit or surety bonds
outstanding for our self-insurance programs and certain utility payment
obligations at some of our stores.
Freight
Contracts. We have contracted outbound freight services from
various carriers with contracts expiring through February 2013. The
total amount of these commitments is approximately $109.6 million.
Technology
Assets. We have commitments totaling approximately $3.2
million to primarily purchase store technology assets for our stores during
2009.
Derivative
Financial Instruments
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 $250.0
million variable rate term loan. 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
approximates 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. These swaps
expire in March 2011.
We are
party to one additional interest rate swap, which allows us to manage the risk
associated with interest rate fluctuations on the demand revenue bonds. The swap
is based on a notional amount of $17.6 million. Under the $17.6 million
agreement, as amended, we pay interest to the bank that provided the swap at a
fixed rate. In exchange, the financial institution pays us at a
variable-interest rate, which is similar to the rate on the demand revenue
bonds. The variable-interest rate on the interest rate swap is set
monthly. No payments are made by either party under the swap for
monthly periods with an established interest rate greater than a predetermined
rate (the knock-out rate). The swap may be canceled by the bank or us
and settled for the fair value of the swap as determined by market rates and
expires in 2009.
Critical
Accounting Policies
The
preparation of financial statements requires the use of
estimates. Certain of our estimates require a high level of judgment
and have the potential to have a material effect on the financial statements if
actual results vary significantly from those
estimates. Following is a discussion of the estimates that we
consider critical.
Inventory
Valuation
As
discussed in Note 1 to the Consolidated Financial
Statements, inventories at the distribution centers are stated at the lower
of cost or market with cost determined on a weighted-average
basis. Cost is assigned to store inventories using the retail
inventory method on a weighted-average basis. Under the retail
inventory method, the valuation of inventories at cost and the resulting gross
margins are computed by applying a calculated cost-to-retail ratio to the retail
value of inventories. The retail inventory method is an averaging
method that has been widely used in the retail industry and results in valuing
inventories at lower of cost or market when markdowns are taken as a reduction
of the retail value of inventories on a timely basis.
Inventory
valuation methods require certain significant management estimates and
judgments, including estimates of future merchandise markdowns and shrink, which
significantly affect the ending inventory valuation at cost as well as the
resulting gross margins. The averaging required in applying the
retail inventory method and the estimates of shrink and markdowns could, under
certain circumstances, result in costs not being recorded in the proper
period.
We
estimate our markdown reserve based on the consideration of a variety of
factors, including, but not limited to, quantities of slow moving or seasonal,
carryover merchandise on hand, historical markdown statistics and future
merchandising plans. The accuracy of our estimates can be affected by
many factors, some of which are outside of our control, including changes in
economic conditions and consumer buying trends. Historically, we have
not experienced significant differences in our estimated reserve for markdowns
compared with actual results.
Our
accrual for shrink is based on the actual, historical shrink results of our most
recent physical inventories adjusted, if necessary, for current economic
conditions. These estimates are compared to actual results as
physical inventory counts are taken and reconciled to the general
ledger. Our physical inventory counts are generally taken between
January and September of each year; therefore, the shrink accrual recorded at
January 31, 2009 is based on estimated shrink for most of 2008, including the
fourth quarter. We have not experienced significant fluctuations in
historical shrink rates beyond approximately 10-20 basis points in our Dollar
Tree stores for the last few years. However, we have sometimes
experienced higher than typical shrink in acquired stores in the year following
an acquisition. We periodically adjust our shrink estimates to
address these factors as they become apparent.
Our
management believes that our application of the retail inventory method results
in an inventory valuation that reasonably approximates cost and results in
carrying inventory at the lower of cost or market each year on a consistent
basis.
Accrued
Expenses
On a
monthly basis, we estimate certain expenses in an effort to record those
expenses in the period incurred. Our most material estimates include
domestic freight expenses, self-insurance programs, store-level operating
expenses, such as property taxes and utilities, and certain other
expenses. Our freight and store-level operating expenses are
estimated based on current activity and historical trends and
results. Our workers' compensation and general liability insurance
accruals are recorded based on actuarial valuations which are adjusted at least
annually based on a review performed by a third-party actuary. These
actuarial valuations are estimates based on our historical loss development
factors. Certain other expenses are estimated and recorded in the
periods that management becomes aware of them. The related accruals
are adjusted as management’s estimates change. Differences in
management's estimates and assumptions could result in an accrual materially
different from the calculated accrual. Our experience has been that
some of our estimates are too high and others are too
low. Historically, the net total of these differences has not had a
material effect on our financial condition or results of
operations.
Income
Taxes
On a
quarterly basis, we estimate our required income tax liability and assess the
recoverability of our deferred tax assets. Our income taxes payable
are estimated based on enacted tax rates, including estimated tax rates in
states where our store base is growing, applied to the income expected to be
taxed currently. Management assesses the recoverability of deferred
tax assets based on the availability of carrybacks of future deductible amounts
and management’s projections for future taxable income. We cannot
guarantee that we will generate taxable income in future
years. Historically, we have not experienced significant differences
in our estimates of our tax accrual.
In
addition, we have a recorded liability for our estimate of uncertain tax
positions taken or expected to be taken in our tax returns. Judgment
is required in evaluating the application of federal and state tax laws,
including relevant case law, and assessing whether it is more likely than not
that a tax position will be sustained on examination and, if so, judgment is
also required as to the measurement of the amount of tax benefit that will be
realized upon settlement with the taxing authority. Income tax
expense is adjusted in the period in which new information about a tax position
becomes available or the final outcome differs from the amounts recorded. We
believe that our liability for uncertain tax positions is
adequate. For further discussion of our changes in reserves during
2008, see Item 8 “Financial Statements and Supplementary Data - Note 3 to the Consolidated Financial Statements” beginning on
page 41 of this Form 10-K.
Seasonality
and Quarterly Fluctuations
We
experience seasonal fluctuations in our net sales, comparable store net sales,
operating income and net income and expect this trend to
continue. Our results of operations may also fluctuate significantly
as a result of a variety of factors, including:
|
|
·
|
Shifts
in the timing of certain holidays, especially Easter;
|
|
|
·
|
The
timing of new store openings;
|
|
|
·
|
The
net sales contributed by new stores;
|
|
|
·
|
Changes
in our merchandise mix; and
|
|
|
·
|
Competition.
|
Our
highest sales periods are the Christmas and Easter seasons. Easter
was observed on April 8, 2007, March 23, 2008, and will be observed on April 12,
2009. We believe that the later Easter in 2009 could result in a
$25.0 million increase in sales in the first quarter of 2009 as compared to the
first quarter of 2008. We generally realize a disproportionate amount
of our net sales and of our operating and net income during the fourth
quarter. In anticipation of increased sales activity during these
months, we purchase substantial amounts of inventory and hire a significant
number of temporary employees to supplement our continuing store
staff. Our operating results, particularly operating and net income,
could suffer if our net sales were below seasonal norms during the fourth
quarter or during the Easter season for any reason, including merchandise
delivery delays due to receiving or distribution problems, consumer sentiment or
inclement weather.
Our
unaudited results of operations for the eight most recent quarters are shown in
a table in Footnote 12 of the Consolidated Financial
Statements in Item 8 of this Form 10-K.
Inflation
and Other Economic Factors
Our
ability to provide quality merchandise at a fixed price and on a profitable
basis may be subject to economic factors and influences that we cannot
control. Consumer spending could decline because of economic
pressures, including unemployment and rising fuel prices. Reductions
in consumer confidence and spending could have an adverse effect on our
sales. National or international events, including war or terrorism,
could lead to disruptions in economies in the United States or in foreign
countries where we purchase some of our merchandise. These and other
factors could increase our merchandise costs and other costs that are critical
to our operations, such as shipping and wage rates.
Shipping
Costs. Currently, trans-Pacific shipping rates are negotiated
with individual freight lines and are subject to fluctuation based on supply and
demand for containers and current fuel costs. We can give no
assurances as to the final actual rates for 2009, as we are in the early stages
of our negotiations.
Minimum Wage. On May 25,
2007, legislation was enacted that increased the Federal Minimum Wage from $5.15
an hour to $7.25 an hour by July 2009. As a result, our wages will
increase in 2009; however, we believe that we can partially offset the increase
in payroll costs through increased store productivity and continued efficiencies
in product flow to our stores.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We are
exposed to various types of market risk in the normal course of our business,
including the impact of interest rate changes and foreign currency rate
fluctuations. We may enter into interest rate swaps to manage
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 and we do not hold derivative instruments
for trading purposes.
Interest
Rate Risk
We use
variable-rate debt to finance certain of our operations and capital
improvements. These obligations expose us to variability in interest
payments due to changes in interest rates. If interest rates
increase, interest expense increases. Conversely, if interest rates decrease,
interest expense also decreases. We believe it is beneficial to limit
the variability of our interest payments.
To meet
this objective, we entered into derivative instruments in the form of interest
rate swaps to manage fluctuations in cash flows resulting from changes in the
variable-interest rates on a portion of our $250.0 million term loan and on our
Demand Revenue Bonds. The interest rate swaps reduce the interest
rate exposure on these variable-rate obligations. Under the interest
rate swaps, we pay the bank at a fixed-rate and receive variable-interest at a
rate approximating the variable-rate on the obligation, thereby creating the
economic equivalent of a fixed-rate obligation. We entered into two
$75.0 million interest rate swap agreements in March 2008 to manage the risk
associated with the interest rate fluctuations on a portion of our $250.0
million variable rate term loan and we have an additional $17.6 million interest
rate swap to manage the risk associated with the interest rate fluctuations on
our Demand Revenue Bonds. Under this $17.6 million swap, no payments
are made by parties under the swap for monthly periods in which the
variable-interest rate is greater than the predetermined knock-out
rate.
The
following table summarizes the financial terms of our interest rate swap
agreements and the fair value of the interest rate swaps at January 31,
2009:
Hedging
Instrument
|
Receive
Variable
|
Pay
Fixed
|
Knock-out
Rate
|
Expiration
|
Fair
Value
|
Two
$75.0 million interest rate swaps
|
LIBOR
|
2.80%
|
N/A
|
3/31/11
|
($4.4
million)
|
$17.6
million interest
rate swap
|
LIBOR
|
4.88%
|
7.75%
|
4/1/09
|
($0.1
million)
|
Hypothetically,
a 1% change in interest rates results in an approximate $1.7 million change in
the amount paid or received under the terms of the interest rate swap agreement
on an annual basis. Due to many factors, management is not able to
predict the changes in the fair values of our interest rate
swaps. These fair values are obtained from our outside financial
institutions.
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Index
to Consolidated Financial Statements
|
Page
|
|
|
|
31
|
|
|
|
|
January
31, 2009, February 2, 2008 and February 3, 2007
|
31
|
|
|
|
|
February
2, 2008
|
33
|
|
|
|
|
for
the years ended January 31, 2009, February 2, 2008 and
|
|
February
3, 2007
|
34
|
|
|
|
|
January
31, 2009, February 2, 2008 and February 3, 2007
|
35
|
|
|
|
36
|
The Board
of Directors and Shareholders
Dollar
Tree, Inc.:
We have
audited the accompanying consolidated balance sheets of Dollar Tree, Inc.
and subsidiaries (the Company) as of January 31, 2009 and February 2, 2008,
and the related consolidated statements of operations, shareholders’ equity and
comprehensive income, and cash flows for each of the fiscal years in the
three-year period ended January 31, 2009. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of January
31, 2009 and February 2, 2008, and the results of their operations and their
cash flows for each of the years in the three-year period ended January 31,
2009, in conformity with U.S. generally accepted accounting
principles.
As
discussed in note 1 to the consolidated financial statements, the Company
adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, effective February 4, 2007.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Dollar Tree, Inc.’s internal control over
financial reporting as of January 31, 2009, based on criteria established in
Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 26, 2009 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
/s/ KPMG
LLP
Norfolk,
Virginia
March 26,
2009
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
(In
millions, except per share data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
sales
|
|
$ |
4,644.9 |
|
|
$ |
4,242.6 |
|
|
$ |
3,969.4 |
|
|
|
|
3,052.7 |
|
|
|
2,781.5 |
|
|
|
2,612.2 |
|
Gross
profit
|
|
|
1,592.2 |
|
|
|
1,461.1 |
|
|
|
1,357.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
(Notes 4, 8 and 9)
|
|
|
1,226.4 |
|
|
|
1,130.8 |
|
|
|
1,046.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
365.8 |
|
|
|
330.3 |
|
|
|
310.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
2.6 |
|
|
|
6.7 |
|
|
|
8.6 |
|
Interest
expense (Notes 5 and 6)
|
|
|
(9.3 |
) |
|
|
(17.2 |
) |
|
|
(16.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
359.1 |
|
|
|
319.8 |
|
|
|
302.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes (Note 3)
|
|
|
129.6 |
|
|
|
118.5 |
|
|
|
110.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
229.5 |
|
|
$ |
201.3 |
|
|
$ |
192.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share (Note 7)
|
|
$ |
2.54 |
|
|
$ |
2.10 |
|
|
$ |
1.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share (Note 7)
|
|
$ |
2.53 |
|
|
$ |
2.09 |
|
|
$ |
1.85 |
|
See
accompanying Notes to Consolidated Financial Statements.
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In
millions, except share and per share data)
|
|
January
31, 2009
|
|
|
February
2, 2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
364.4 |
|
|
$ |
40.6 |
|
Short-term
investments
|
|
|
- |
|
|
|
40.5 |
|
Merchandise
inventories
|
|
|
675.8 |
|
|
|
641.2 |
|
|
|
|
7.7 |
|
|
|
17.3 |
|
Prepaid
expenses and other current assets
|
|
|
25.3 |
|
|
|
49.2 |
|
Total
current assets
|
|
|
1,073.2 |
|
|
|
788.8 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net (Note 2)
|
|
|
710.3 |
|
|
|
743.6 |
|
|
|
|
133.3 |
|
|
|
133.3 |
|
|
|
|
33.0 |
|
|
|
38.7 |
|
Other
assets, net (Notes 8 and 11)
|
|
|
85.9 |
|
|
|
83.3 |
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
2,035.7 |
|
|
$ |
1,787.7 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt (Note 5)
|
|
$ |
17.6 |
|
|
$ |
18.5 |
|
Accounts
payable
|
|
|
192.9 |
|
|
|
200.4 |
|
Other
current liabilities (Note 2)
|
|
|
152.5 |
|
|
|
143.6 |
|
|
|
|
46.9 |
|
|
|
43.4 |
|
Total
current liabilities
|
|
|
409.9 |
|
|
|
405.9 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt, excluding current portion (Note
5)
|
|
|
250.0 |
|
|
|
250.0 |
|
Income
taxes payable, long-term (Note 3)
|
|
|
14.7 |
|
|
|
55.0 |
|
Other
liabilities (Notes 2, 6 and 8)
|
|
|
107.9 |
|
|
|
88.4 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
782.5 |
|
|
|
799.3 |
|
|
|
|
|
|
|
|
|
|
Commitments,
contingencies and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity (Notes 6, 7 and 9):
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.01. 300,000,000 shares
|
|
|
|
|
|
|
|
|
authorized,
90,771,397 and 89,784,776 shares
|
|
|
|
|
|
|
|
|
issued
and outstanding at January 31, 2009
|
|
|
|
|
|
|
|
|
and
February 2, 2008, respectively
|
|
|
0.9 |
|
|
|
0.9 |
|
Additional
paid-in capital
|
|
|
38.0 |
|
|
|
- |
|
Accumulated
other comprehensive income (loss)
|
|
|
(2.6 |
) |
|
|
0.1 |
|
Retained
earnings
|
|
|
1,216.9 |
|
|
|
987.4 |
|
Total
shareholders' equity
|
|
|
1,253.2 |
|
|
|
988.4 |
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
$ |
2,035.7 |
|
|
$ |
1,787.7 |
|
See
accompanying Notes to Consolidated Financial Statements.
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
YEARS
ENDED JANUARY 31, 2009, FEBRUARY 2, 2008, AND FEBRUARY 3, 2007
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Share-
|
|
|
|
Stock
|
|
|
Common
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
holders'
|
|
(in
millions)
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Income
(Loss)
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 28, 2006
|
|
|
106.5 |
|
|
$ |
1.1 |
|
|
$ |
11.4 |
|
|
$ |
0.1 |
|
|
$ |
1,159.7 |
|
|
$ |
1,172.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
3, 2007
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
192.0 |
|
|
|
192.0 |
|
Other
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
192.0 |
|
Issuance
of stock under Employee Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
- |
|
|
|
2.8 |
|
|
|
- |
|
|
|
- |
|
|
|
2.8 |
|
Exercise
of stock options, including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax benefit of $5.6 (Note 9)
|
|
|
1.7 |
|
|
|
- |
|
|
|
43.1 |
|
|
|
- |
|
|
|
- |
|
|
|
43.1 |
|
Repurchase
and retirement of shares (Note 7)
|
|
|
(8.8 |
) |
|
|
(0.1 |
) |
|
|
(63.0 |
) |
|
|
|
|
|
|
(185.1 |
) |
|
|
(248.2 |
) |
Stock-based
compensation, net (Notes 1 and 9)
|
|
|
0.1 |
|
|
|
- |
|
|
|
5.7 |
|
|
|
- |
|
|
|
- |
|
|
|
5.7 |
|
Balance
at February 3, 2007
|
|
|
99.6 |
|
|
|
1.0 |
|
|
|
- |
|
|
|
0.1 |
|
|
|
1,166.6 |
|
|
|
1,167.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
2, 2008
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
201.3 |
|
|
|
201.3 |
|
Other
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201.3 |
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(0.6 |
) |
|
|
(0.6 |
) |
Issuance
of stock under Employee Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3.5 |
|
|
|
3.5 |
|
Exercise
of stock options, including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax benefit of $13.0 (Note 9)
|
|
|
2.7 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
81.1 |
|
|
|
81.1 |
|
Repurchase
and retirement of shares (Note 7)
|
|
|
(12.8 |
) |
|
|
(0.1 |
) |
|
|
- |
|
|
|
|
|
|
|
(472.9 |
) |
|
|
(473.0 |
) |
Stock-based
compensation, net (Notes 1 and 9)
|
|
|
0.2 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8.4 |
|
|
|
8.4 |
|
Balance
at February 2,2008
|
|
|
89.8 |
|
|
|
0.9 |
|
|
|
- |
|
|
|
0.1 |
|
|
|
987.4 |
|
|
|
988.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
31, 2009
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
229.5 |
|
|
|
229.5 |
|
Other
comprehensive loss, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit
of $1.7
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2.7 |
) |
|
|
- |
|
|
|
(2.7 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226.8 |
|
Issuance
of stock under Employee Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
- |
|
|
|
3.6 |
|
|
|
- |
|
|
|
- |
|
|
|
3.6 |
|
Exercise
of stock options, including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax benefit of $2.3 (Note 9)
|
|
|
0.7 |
|
|
|
- |
|
|
|
20.3 |
|
|
|
- |
|
|
|
- |
|
|
|
20.3 |
|
Stock-based
compensation, net (Notes 1 and 9)
|
|
|
0.2 |
|
|
|
- |
|
|
|
14.1 |
|
|
|
- |
|
|
|
- |
|
|
|
14.1 |
|
Balance
at January 31, 2009
|
|
|
90.8 |
|
|
$ |
0.9 |
|
|
$ |
38.0 |
|
|
$ |
(2.6 |
) |
|
$ |
1,216.9 |
|
|
$ |
1,253.2 |
|
See
accompanying Notes to Consolidated Financial Statements.
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
(In
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
229.5 |
|
|
$ |
201.3 |
|
|
$ |
192.0 |
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
161.7 |
|
|
|
159.3 |
|
|
|
159.0 |
|
Provision
for deferred income taxes
|
|
|
17.0 |
|
|
|
(46.8 |
) |
|
|
(21.9 |
) |
Stock
based compensation expense
|
|
|
16.7 |
|
|
|
11.3 |
|
|
|
6.7 |
|
Other
non-cash adjustments to net income
|
|
|
7.9 |
|
|
|
8.0 |
|
|
|
5.1 |
|
Changes
in assets and liabilities increasing
|
|
|
|
|
|
|
|
|
|
|
|
|
(decreasing)
cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise
inventories
|
|
|
(34.6 |
) |
|
|
(36.2 |
) |
|
|
(6.2 |
) |
Other
assets
|
|
|
27.3 |
|
|
|
(4.4 |
) |
|
|
(19.8 |
) |
Accounts
payable
|
|
|
(7.5 |
) |
|
|
2.3 |
|
|
|
53.7 |
|
Income
taxes payable
|
|
|
(36.8 |
) |
|
|
46.9 |
|
|
|
1.6 |
|
Other
current liabilities
|
|
|
6.1 |
|
|
|
8.7 |
|
|
|
31.8 |
|
Other
liabilities
|
|
|
15.8 |
|
|
|
16.9 |
|
|
|
10.8 |
|
Net
cash provided by operating activities
|
|
|
403.1 |
|
|
|
367.3 |
|
|
|
412.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(131.3 |
) |
|
|
(189.0 |
) |
|
|
(175.3 |
) |
Purchase
of short-term investments
|
|
|
(34.7 |
) |
|
|
(1,119.2 |
) |
|
|
(1,044.4 |
) |
Proceeds
from sale of short-term investments
|
|
|
75.2 |
|
|
|
1,300.5 |
|
|
|
1,096.6 |
|
Purchase
of restricted investments
|
|
|
(29.0 |
) |
|
|
(99.3 |
) |
|
|
(84.5 |
) |
Proceeds
from sale of restricted investments
|
|
|
18.2 |
|
|
|
90.9 |
|
|
|
75.2 |
|
Purchase
of Deal$ assets, net of cash acquired of $0.3
|
|
|
- |
|
|
|
- |
|
|
|
(54.1 |
) |
Acquisition
of favorable lease rights
|
|
|
(0.4 |
) |
|
|
(6.6 |
) |
|
|
(4.2 |
) |
Net
cash used in investing activities
|
|
|
(102.0 |
) |
|
|
(22.7 |
) |
|
|
(190.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
payments under long-term debt and capital lease
obligations
|
|
|
(1.2 |
) |
|
|
(0.6 |
) |
|
|
(0.6 |
) |
Borrowings
from revolving credit facility
|
|
|
- |
|
|
|
362.4 |
|
|
|
- |
|
Repayments
of revolving credit facility
|
|
|
- |
|
|
|
(362.4 |
) |
|
|
- |
|
Payments
for share repurchases
|
|
|
- |
|
|
|
(473.0 |
) |
|
|
(248.2 |
) |
Proceeds
from stock issued pursuant to stock-based
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
plans
|
|
|
21.6 |
|
|
|
71.6 |
|
|
|
40.3 |
|
Tax
benefit of stock options exercised
|
|
|
2.3 |
|
|
|
13.0 |
|
|
|
5.6 |
|
Net
cash provided by (used in) financing activities
|
|
|
22.7 |
|
|
|
(389.0 |
) |
|
|
(202.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
323.8 |
|
|
|
(44.4 |
) |
|
|
19.2 |
|
Cash
and cash equivalents at beginning of year
|
|
|
40.6 |
|
|
|
85.0 |
|
|
|
65.8 |
|
Cash
and cash equivalents at end of year
|
|
$ |
364.4 |
|
|
$ |
40.6 |
|
|
$ |
85.0 |
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
9.7 |
|
|
$ |
18.7 |
|
|
$ |
14.9 |
|
Income
taxes
|
|
$ |
140.4 |
|
|
$ |
109.5 |
|
|
$ |
125.5 |
|
Supplemental
disclosure of non-cash investing and financing activities:
The
Company purchased equipment under capital lease obligations amounting to $0.5
million and $0.1 million in the years ended February 2, 2008 and February 3,
2007, respectively. Equipment purchased under capital lease
obligations in the year ended January 31, 2009 was less than $0.1
million.
See
accompanying Notes to Consolidated Financial Statements
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
Description
of Business
At
January 31, 2009, Dollar Tree, Inc. (the Company) owned and operated 3,591
discount variety retail stores. Approximately 3,450 of these stores
sell substantially all items for $1.00 or less. The remaining stores
are Deal$ stores, most of which were acquired in the Deal$ acquisition and these
stores sell most items for $1.00 or less but also sell items at prices greater
than $1.00. The Company's stores operate under the names of Dollar
Tree, Deal$ and Dollar Bills. The Company’s stores average
approximately 8,400 selling square feet.
The
Company's headquarters and one of its distribution centers are located in
Chesapeake, Virginia. The Company also operates distribution centers
in Mississippi, Illinois, California, Pennsylvania, Georgia, Oklahoma, Utah and
Washington. The Company's stores are located in all 48 contiguous
states. The Company's merchandise includes food, household
consumables and products, party goods, health and beauty care, candy, toys,
seasonal goods, stationery and other consumer items. Approximately
40% to 45% of the Company's merchandise is imported, primarily from
China.
On March
2, 2008, the Company reorganized by creating a new holding company
structure. The primary purpose of the reorganization was to create a
more efficient corporate structure. The business operations of the
Company and its subsidiaries did not change as a result of this
reorganization. As a part of the holding company reorganization, a
new parent company, Dollar Tree, Inc., was formed. Outstanding shares
of the capital stock of Dollar Tree Stores, Inc., were automatically converted,
on a share for share basis, into identical shares of common stock of the new
holding company. The articles of incorporation, the bylaws, the
executive officers and the board of directors of the new holding company are the
same as those of the former Dollar Tree Stores, Inc. in effect immediately prior
to the reorganization. The common stock of the new holding company
continues to be listed on the NASDAQ Global Select Market under the symbol
“DLTR”. The rights, privileges and interests of the Company’s
stockholders remain the same with respect to the new holding
company.
Principles
of Consolidation
The
consolidated financial statements include the financial statements of Dollar
Tree, Inc., and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Fiscal
Year
The
Company's fiscal year ends on the Saturday closest to January 31. Any
reference herein to “2008” or “Fiscal 2008”, “2007” or “Fiscal 2007,” and “2006”
or “Fiscal 2006,” relates to as of or for the years ended January 31, 2009,
February 2, 2008, and February 3, 2007, respectively. Fiscal year
2006 consisted of 53 weeks, while 2008 and 2007 both consisted of 52
weeks.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash
and Cash Equivalents
Cash and
cash equivalents at January 31, 2009 and February 2, 2008 includes $336.1
million and $12.8 million, respectively, of investments primarily in money
market securities which are valued at cost, which approximates fair value. For
purposes of the consolidated statements of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months or less
to be cash equivalents. The majority of payments due from financial
institutions for the settlement of debit card and credit card transactions
process within three business days, and therefore are classified as cash and
cash equivalents.
Short-Term
Investments
The
Company has no short-term investments at January 31, 2009. The
amounts at February 2, 2008, consisted primarily of government-sponsored
municipal bonds. These investments were classified as available for
sale and were recorded at fair value, which approximates cost. The
government-sponsored municipal bonds could be converted into cash depending on
terms of the underlying agreement. The securities underlying the
government-sponsored municipal bonds had longer legal maturity
dates.
Merchandise
inventories at the distribution centers are stated at the lower of cost or
market, determined on a weighted average cost basis. Cost is assigned
to store inventories using the retail inventory method, determined on a weighted
average cost basis.
Costs
directly associated with warehousing and distribution are capitalized as
merchandise inventories. Total warehousing and distribution costs
capitalized into inventory amounted to $26.9 million and $26.3 million at
January 31, 2009 and February 2, 2008, respectively.
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost and depreciated using the straight-line
method over the estimated useful lives of the respective assets as
follows:
Buildings
|
39
to 40 years
|
Furniture,
fixtures and equipment
|
3
to 15
years
|
Leasehold
improvements and assets held under capital leases are amortized over the
estimated useful lives of the respective assets or the committed terms of the
related leases, whichever is shorter. Amortization is included in
"selling, general and administrative expenses" on the accompanying consolidated
statements of operations.
Costs
incurred related to software developed for internal use are capitalized and
amortized over three years. Costs capitalized include those incurred
in the application development stage as defined in Statement of Position 98-1,
Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use.
Goodwill
Goodwill
is not amortized, but rather tested for impairment at least annually in
accordance with SFAS No. 142. In addition, goodwill will be tested on
an interim basis if an event or circumstance indicates that it is more likely
than not that an impairment loss has been incurred. The Company
performed its annual impairment testing in November 2008 and determined that no
impairment loss existed.
Other
Assets, Net
Other
assets, net consists primarily of restricted investments and intangible
assets. Restricted investments were $58.5 million and $47.6 million
at January 31, 2009 and February 2, 2008, respectively and were purchased to
collateralize long-term insurance obligations. These investments
consist primarily of government-sponsored municipal bonds, similar to the
Company's short-term investments and money market
securities. These investments are classified as available for sale
and are recorded at fair value, which approximates cost. Intangible
assets primarily include favorable lease rights with finite useful lives and are
amortized over their respective estimated useful lives and reviewed for
impairment in accordance with Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144). The
Company performs its annual assessment of impairment following the finalization
of each November’s financial statements and as a result determined no impairment
loss existed in the current year.
Impairment
of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The
Company reviews its long-lived assets and certain identifiable intangible assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, in accordance with SFAS
144. Recoverability of assets to be held and used is measured by
comparing the carrying amount of an asset to future net undiscounted cash flows
expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured as the amount by
which the carrying amount of the assets exceeds the fair value of the assets
based on discounted cash flows or other readily available evidence of fair
value, if any. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. In fiscal 2008,
2007 and 2006, the Company recorded charges of $1.2 million, $0.8 million and
$0.5 million, respectively, to write down certain assets. These
charges are recorded as a component of "selling, general and administrative
expenses" in the accompanying consolidated statements of
operations.
Financial
Instruments
The
Company utilizes derivative financial instruments to reduce its exposure to
market risks from changes in interest rates. By entering into
receive-variable, pay-fixed interest rate swaps, the Company limits its exposure
to changes in variable interest rates. The Company is exposed to
credit-related losses in the event of non-performance by the counterparty to the
interest rate swaps. However, these swaps are in a net liability
position as of January 31, 2009, therefore no credit risk exists as of that
date. Interest rate differentials paid or received on the swaps are
recognized as adjustments to interest expense in the period earned or
incurred. The Company formally documents all hedging relationships,
if applicable, and assesses hedge effectiveness both at inception and on an
ongoing basis. These interest rate swaps that qualify for hedge
accounting are recorded at fair value in the accompanying consolidated balance
sheets as a component of “other liabilities” (note 6). Changes in the
fair value of these interest rate swaps are recorded in “accumulated other
comprehensive income (loss)”, net of tax, in the accompanying consolidated
balance sheets.
One of
the Company’s interest rate swaps does not qualify for hedge accounting
treatment pursuant to the provisions of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). This interest
rate swap is recorded at fair value in the accompanying consolidated balance
sheets as a component of “other liabilities” (see Note 6). Changes in
the fair value of this interest rate swap are recorded as "interest expense” in
the accompanying consolidated statements of operations.
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 January 31, 2009. 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 $364.4 million and $58.5
million, respectively at January 31, 2009. These fair values were
determined using Level 1 measurements in the fair value
hierarchy. The fair value of the swaps as of January 31, 2009 was a
liability of $4.5 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.
The
carrying value of the Company's long-term debt approximates its fair value
because the debt’s interest rates vary with market interest rates and was
recently renegotiated.
Lease
Accounting
The
Company leases all of its retail locations under operating
leases. The Company recognizes minimum rent expense starting when
possession of the property is taken from the landlord, which normally includes a
construction period prior to store opening. When a lease contains a
predetermined fixed escalation of the minimum rent, the Company recognizes the
related rent expense on a straight-line basis and records the difference between
the recognized rental expense and the amounts payable under the lease as
deferred rent. The Company also receives tenant allowances, which are
recorded in deferred rent and are amortized as a reduction of rent expense over
the term of the lease.
Revenue
Recognition
The
Company recognizes sales revenue at the time a sale is made to its
customer.
Taxes
Collected
The
Company reports taxes assessed by a governmental authority that are directly
imposed on revenue-producing transactions (i.e., sales tax) on a net (excluded
from revenues) basis.
Cost
of Sales
The
Company includes the cost of merchandise, warehousing and distribution costs,
and certain occupancy costs in cost of sales.
Pre-Opening
Costs
The
Company expenses pre-opening costs for new, expanded and relocated stores, as
incurred.
Advertising
Costs
The
Company expenses advertising costs as they are incurred and they are included in
"selling, general and administrative expenses" on the accompanying consolidated
statements of operations. Advertising costs approximated $6.6
million, $8.4 million and $10.6 million for the years ended January 31, 2009,
February 2, 2008, and February 3, 2007, respectively.
Income
Taxes
Income
taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date of such
change.
On
February 4, 2007, the Company adopted Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48), which clarified the accounting for uncertainty in income
taxes recognized in the financial statements in accordance with SFAS No. 109,
Accounting for Income
Taxes. With the adoption of FIN 48, the Company includes
interest and penalties in the provision for income tax expense and income taxes
payable. The Company does not provide for any penalties associated
with tax contingencies unless they are considered probable of
assessment.
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with Statement of
Financial Accounting Standards, No. 123 (revised 2004), Share-Based Payment, (SFAS
123R). SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial
statements based on their fair values. Total stock-based compensation
expense for 2008, 2007 and 2006 was $16.7 million, $11.3 million and $6.7
million, respectively.
The
Company recognizes expense related to the fair value of stock options and
restricted stock units (RSUs) over the requisite service period on a
straight-line basis. The fair value of stock option grants is
estimated on the date of grant using the Black Scholes option pricing model. The
fair value of the RSUs is determined using the closing price of the Company’s
common stock on the date of grant.
Net
Income Per Share
Basic net
income per share has been computed by dividing net income by the weighted
average number of shares outstanding. Diluted net income per share
reflects the potential dilution that could occur assuming the inclusion of
dilutive potential shares and has been computed by dividing net income by the
weighted average number of shares and dilutive potential shares
outstanding. Dilutive potential shares include all outstanding stock
options and unvested restricted stock, excluding certain performance-based
restricted stock grants, after applying the treasury stock method.
Property,
Plant and Equipment, Net
Property,
plant and equipment, net, as of January 31, 2009 and February 2, 2008 consists
of the following:
|
|
January
31,
|
|
|
February
2,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
29.4 |
|
|
$ |
29.4 |
|
Buildings
|
|
|
181.9 |
|
|
|
172.7 |
|
Improvements
|
|
|
590.9 |
|
|
|
535.1 |
|
Furniture,
fixtures and equipment
|
|
|
856.0 |
|
|
|
785.0 |
|
Construction
in progress
|
|
|
22.4 |
|
|
|
52.9 |
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment
|
|
|
1,680.6 |
|
|
|
1,575.1 |
|
|
|
|
|
|
|
|
|
|
Less: accumulated
depreciation and amortization
|
|
|
970.3 |
|
|
|
831.5 |
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment, net
|
|
$ |
710.3 |
|
|
$ |
743.6 |
|
Depreciation
expense was $161.1 million, 158.5 million and $158.2 million for the years ended
January 31, 2009, February 2, 2008, and February 3, 2007,
respectively.
Other
Current Liabilities
Other
current liabilities as of January 31, 2009 and February 2, 2008 consist of
accrued expenses for the following:
|
|
January
31,
|
|
|
February
2,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
$ |
49.9 |
|
|
$ |
45.5 |
|
Taxes
(other than income taxes)
|
|
|
22.3 |
|
|
|
16.3 |
|
Insurance
|
|
|
30.3 |
|
|
|
27.6 |
|
Other
|
|
|
50.0 |
|
|
|
54.2 |
|
|
|
|
|
|
|
|
|
|
Total
other current liabilities
|
|
$ |
152.5 |
|
|
$ |
143.6 |
|
Total
income taxes were allocated as follows:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
129.6 |
|
|
$ |
118.5 |
|
|
$ |
110.9 |
|
Accumulated
other comprehensive income,
|
|
|
|
|
|
|
|
|
|
|
|
|
marking
derivative financial
|
|
|
|
|
|
|
|
|
|
|
|
|
instruments
to fair value
|
|
|
(1.7 |
) |
|
|
- |
|
|
|
- |
|
Stockholders'
equity, tax benefit on
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of stock options
|
|
|
(2.3 |
) |
|
|
(13.0 |
) |
|
|
(5.6 |
) |
|
|
$ |
125.6 |
|
|
$ |
105.5 |
|
|
$ |
105.3 |
|
The
provision for income taxes consists of the following:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Federal
- current
|
|
$ |
91.9 |
|
|
$ |
147.5 |
|
|
$ |
116.2 |
|
State
- current
|
|
|
20.7 |
|
|
|
17.8 |
|
|
|
16.6 |
|
Total
current
|
|
|
112.6 |
|
|
|
165.3 |
|
|
|
132.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
- deferred
|
|
|
15.4 |
|
|
|
(39.4 |
) |
|
|
(19.1 |
) |
State
- deferred
|
|
|
1.6 |
|
|
|
(7.4 |
) |
|
|
(2.8 |
) |
Total
deferred
|
|
|
17.0 |
|
|
|
(46.8 |
) |
|
|
(21.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$ |
129.6 |
|
|
$ |
118.5 |
|
|
$ |
110.9 |
|
Included
in current tax expense for the years ended January 31, 2009 and February 2,
2008, are amounts related to uncertain tax positions associated with temporary
differences, in accordance with FIN 48.
A
reconciliation of the statutory federal income tax rate and the effective rate
follows:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
|
|
|
2009 |
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
tax rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
Effect
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and local income taxes,
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of federal income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit
|
|
|
3.0 |
|
|
|
2.9 |
|
|
|
3.3 |
|
Other,
net
|
|
|
(1.9 |
) |
|
|
(0.8 |
) |
|
|
(1.7 |
) |
Effective
tax rate
|
|
|
36.1 |
% |
|
|
37.1 |
% |
|
|
36.6 |
% |
The rate
reduction in “other, net” consists primarily of benefits from the resolution of
tax uncertainties, interest on tax reserves, federal jobs credits and tax exempt
interest.
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Deferred tax assets and
liabilities are classified on the accompanying consolidated balance sheets based
on the classification of the underlying asset or
liability. Significant components of the Company's net deferred tax
assets (liabilities) follows:
|
|
January
31,
|
|
|
February
2,
|
|
|
|
2009
|
|
|
2008
|
|
(in
millions)
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Accrued
expenses
|
|
$ |
39.2 |
|
|
$ |
38.2 |
|
Property
and equipment
|
|
|
12.3 |
|
|
|
22.2 |
|
State
tax net operating losses and credit
|
|
|
|
|
|
|
|
|
carryforwards,
net of federal benefit
|
|
|
5.4 |
|
|
|
2.1 |
|
Accrued
compensation expense
|
|
|
14.9 |
|
|
|
10.7 |
|
Other
|
|
|
1.7 |
|
|
|
- |
|
Total
deferred tax assets
|
|
|
73.5 |
|
|
|
73.2 |
|
Valuation
allowance
|
|
|
(4.9 |
) |
|
|
(2.1 |
) |
Deferred
tax assets, net
|
|
|
68.6 |
|
|
|
71.1 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
|
(13.5 |
) |
|
|
(11.0 |
) |
Prepaids
|
|
|
(10.4 |
) |
|
|
(2.2 |
) |
Other
|
|
|
(4.0 |
) |
|
|
(1.9 |
) |
Total
deferred tax liabilities
|
|
|
(27.9 |
) |
|
|
(15.1 |
) |
|
|
|
|
|
|
|
|
|
Net
deferred tax asset
|
|
$ |
40.7 |
|
|
$ |
56.0 |
|
A
valuation allowance of $4.9 million, net of Federal tax benefits, has been
provided principally for certain state credit net operating losses and
carryforwards. In assessing the realizability of deferred tax
assets, the Company considers whether it is more likely than not that
some portion or all of the deferred taxes will not be realized. Based
upon the availability of carrybacks of future deductible amounts to the past two
years’ taxable income and the Company's projections for future taxable income
over the periods in which the deferred tax assets are deductible, the
Company believes it is more likely than not the remaining existing
deductible temporary differences will reverse during periods in which carrybacks
are available or in which the Company generates net taxable income.
The
Internal Revenue Service completed its examination of the 2004 federal income
tax return during 2008 and is currently auditing the 2005-2007 consolidated
federal income tax returns. In addition, several states completed
their examination of fiscal years prior to 2005. In general, fiscal
years 2005 and forward are within the statute of limitations for Federal and
state tax purposes. The statute of limitations is still open prior to
2005 for some states.
In June
2006, the Financial Accounting Standards Board issued FIN 48. This
Interpretation clarifies accounting for income tax uncertainties recognized in
an enterprise’s financial statements in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income
Taxes. FIN 48 prescribes a recognition threshold and
measurement attribute for a tax position taken or expected to be taken in a tax
return. Under the guidelines of FIN 48, an entity should recognize a
financial statement benefit for a tax position if it determines that it is more
likely than not that the position will be sustained upon
examination. The Company adopted the provisions of FIN 48 on February
4, 2007, the first day of fiscal 2007.
The
balance for unrecognized tax benefits at January 31, 2009, was $14.8
million. The total amount of unrecognized tax benefits at January 31,
2009, that, if recognized, would affect the effective tax rate was $9.8 million
(net of the federal tax benefit). The following is a reconciliation
of the Company's total gross unrecognized tax benefits for the year-to-date
period ended January 31, 2009:
|
|
(in
millions)
|
|
Balance
at February 2, 2008
|
|
$ |
55.0 |
|
Additions,
based on tax positions related to current year
|
|
|
0.8 |
|
Additions
for tax positions of prior years
|
|
|
1.6 |
|
Reductions
for tax positions of prior years
|
|
|
(36.5 |
) |
Settlements
|
|
|
(3.8 |
) |
Lapses
in statute of limitations
|
|
|
(2.3 |
) |
Balance
at January 31, 2009
|
|
$ |
14.8 |
|
During
fiscal 2008, the Company accrued potential interest of $0.7 million, related to
these unrecognized tax benefits. No potential penalties were accrued
during 2008 related to the unrecognized tax benefits. As of January
31, 2009, the Company has recorded a liability for potential penalties and
interest of $0.1 million and $3.0 million, respectively.
Most of
the change in the Company’s reserve for uncertain tax positions relates to a
reduction of temporary differences and related interest expense for which
accounting method changes were filed at the beginning of fiscal year 2008 with
the Internal Revenue Service. Voluntarily filing accounting method
changes provides audit protection for the issues involved for the open periods
in exchange for agreeing to pay the tax over a prescribed period of
time.
It is
possible that state tax reserves will be reduced for audit settlements and
statute expirations within the next 12 months. At this point it is
not possible to estimate a range associated with these audits.
Operating
Lease Commitments
Future
minimum lease payments under noncancelable stores and distribution center
operating leases are as follows:
|
|
(in
millions)
|
|
2009
|
|
$ |
348.1 |
|
2010
|
|
|
304.6 |
|
2011
|
|
|
251.4 |
|
2012
|
|
|
194.8 |
|
2013
|
|
|
130.1 |
|
Thereafter
|
|
|
210.4 |
|
|
|
|
|
|
Total
minimum lease payments
|
|
$ |
1,439.4 |
|
Back
to 10-K Table of
Contents;
Financial Statement
Index;
Statement of
Operations; Balance
Sheets;
Statement of Shareholders'
Equity;
Cash Flow
The above
future minimum lease payments include amounts for leases that were signed prior
to January 31, 2009 for stores that were not open as of January 31,
2009.
Minimum
rental payments for operating leases do not include contingent rentals that may
be paid under certain store leases based on a percentage of sales in excess of
stipulated amounts. Future minimum lease payments have not been
reduced by expected future minimum sublease rentals of $1.7 million under
operating leases.
Minimum
and Contingent Rentals
Rental
expense for store and distribution center operating leases (including payments
to related parties) included in the accompanying consolidated statements of
operations are as follows:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
rentals
|
|
$ |
323.9 |
|
|
$ |
295.4 |
|
|
$ |
261.8 |
|
Contingent
rentals
|
|
|
(0.3 |
) |
|
|
1.2 |
|
|
|
0.9 |
|
Non-Operating
Facilities
The
Company is responsible for payments under leases for certain closed stores. The
Company accounts for abandoned lease facilities in accordance with SFAS No. 146,
Accounting for Costs
Associated with Exit or Disposal Activities. A facility is
considered abandoned on the date that the Company ceases to use
it. On this date, the Company records an expense for the present
value of the total remaining costs for the abandoned facility reduced by any
actual or probable sublease income. Due to the uncertainty regarding
the ultimate recovery of the future lease and related payments, the Company
recorded charges of $0.6 million, $0.1 million and $0.1 million in 2008, 2007
and 2006, respectively.
Related
Parties
The
Company also leases properties for six of its stores from partnerships owned by
related parties. The total rental payments related to these leases
were $0.5 million for each of the years ended January 31, 2009, February 2, 2008
and February 3, 2007, respectively. Total future commitments under
related party leases are $0.5 million.
Freight
Services
The
Company has contracted outbound freight services from various contract carriers
with contracts expiring through February 2013. The total amount of
these commitments is approximately $109.6 million, of which approximately $86.6
million is committed in 2009, $15.6 million is committed in 2010, $4.4 million
is committed in 2011 and $3.0 million is committed in 2012.
Technology
Assets
The
Company has commitments totaling approximately $3.2 million to purchase store
technology assets for its stores during 2009.
Letters
of Credit
In March
2001, the Company entered into a Letter of Credit Reimbursement and Security
Agreement. The agreement provides $121.5 million for letters of
credit. In December 2004, the Company entered into an additional
Letter of Credit Reimbursement and Security Agreement, which provides $50.0
million for letters of credit. Letters of credit under both of these
agreements are generally issued for the routine purchase of imported merchandise
and approximately $97.8 million was committed to these letters of credit at
January 31, 2009. As discussed in Note 5, the Company has $150.0
million of available letters of credit included in the $550.0 million Unsecured
Credit Agreement (the Agreement) entered into on February 20,
2008. As of January 31, 2009, there were no letters of credit
committed under the Agreement.
The
Company also has approximately $22.5 million in stand-by letters of credit that
serve as collateral for its self-insurance programs and expire in fiscal
2009.
Surety
Bonds
The
Company has issued various surety bonds that primarily serve as collateral for
utility payments at the Company’s stores. The total amount of the
commitment is approximately $4.0 million, which is committed through various
dates through fiscal 2009.
Contingencies
In August
of 2006, the Company was served with a lawsuit filed in federal court in the
state of Alabama by a former store manager. As a collective action,
she claims that she and all other store managers similarly situated should have
been classified as non-exempt employees under the Fair Labor Standards Act and,
therefore, should have received overtime compensation and other
benefits. The Court preliminarily allowed nationwide (except for the
state of California) notice to be sent to all store managers employed by the
Company for the three years immediately preceding the filing of the suit.
Approximately 770 individuals opted in. A second suit was filed in
the same Court, in which the allegations are essentially the same as those in
the first suit. The Court has consolidated the two
cases. The Court should decide whether to decertify the collective
action and other defensive motions late this summer. If the Court
eventually certifies a class, the case has been scheduled for trial in January
2010.
In April
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 employed
by the Company for the four years prior to the filing of the
suit. 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 plaintiffs’ motion to seek class certification
should be decided this spring or summer. No trial date has been
scheduled.
In July
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 deprived of
their rights under the Equal Pay Act, 29 U.S.C. 206(d) in that they were paid
less than male store managers for performing jobs of equal skill and
effort. They seek an unspecified amount of monetary damages, back
pay, injunctive and other relief. The Company has answered the
Complaint denying the plaintiffs’ allegations. The Court ordered
notice to be sent to female individuals employed by the Company as a store
manager between February 1, 2006 and January 30, 2009 (3,320 in number) to
participate as a member of a potential class. A second notice was
sent to 215 female store managers in California employed during the period March
1, 2006 through February 27, 2009. The opt in period ends April 23, 2009, so the
Company does not know at this date the number of persons who will elect to opt
in. Discovery is now ongoing. The Company expects that the
Court will consider a motion to decertify the collective action and other
defensive motions at a future date. The case has not been set for
trial.
In May
and June of 2008, 29 present or former female store managers filed claims with
the Norfolk, Virginia office of the EEOC alleging employment discrimination
pursuant to Title VII of the Civil Rights Act on the grounds that women store
managers throughout the Company are paid less than their male
counterparts. Eventually the EEOC issued Right to Sue letters to the
complaining parties. All are represented by the attorneys for the
plaintiffs in the existing pay discrimination case, who, following the letters,
sought to amend the existing Complaint to include the Title VII
charges. The Court presently has that matter under
consideration.
The
Company will vigorously defend itself in these lawsuits. 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.
Long-term
debt at January 31, 2009 and February 2, 2008 consists of the
following:
|
|
January
31,
|
|
|
February
2,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
$550.0
million Unsecured Credit Agreement,
|
|
|
|
|
|
|
interest
payable monthly at LIBOR,
|
|
|
|
|
|
|
plus
0.50%, which was 1.21% at
|
|
|
|
|
|
|
January
31, 2009, principal payable upon
|
|
|
|
|
|
|
expiration
of the facility in February 2013
|
|
$ |
250.0 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
$450.0
million Unsecured Revolving Credit Facility,
|
|
|
|
|
|
|
|
|
interest
payable monthly at LIBOR, plus 0.475%,
|
|
|
|
|
|
|
|
|
principal
payable upon expiration of the facility,
|
|
|
|
|
|
|
|
|
in
March 2009, amount refinanced in 2008
|
|
|
- |
|
|
|
250.0 |
|
|
|
|
|
|
|
|
|
|
Demand
Revenue Bonds, interest payable monthly
|
|
|
|
|
|
|
|
|
at
a variable rate which was 1.50% at
|
|
|
|
|
|
|
|
|
January
31, 2009, principal payable on
|
|
|
|
|
|
|
|
|
demand,
maturing June 2018
|
|
|
17.6 |
|
|
|
18.5 |
|
|
|
|
|
|
|
|
|
|
Total
long-term debt
|
|
$ |
267.6 |
|
|
$ |
268.5 |
|
Maturities
of long-term debt are as follows: 2009 - $17.6 million and 2013 - $250.0
million.
Unsecured
Credit Agreement
On
February 20, 2008, the Company entered into the Agreement which 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 is 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 January 31, 2009, only the $250.0 million term
loan was outstanding under this Agreement.
Unsecured
Revolving Credit Facility
In March
2004, the Company entered into a five-year Unsecured Revolving Credit Facility
(the Facility). The Facility provided for a $450.0 million revolving
line of credit, including up to $50.0 million in available letters of credit,
bearing interest at LIBOR, plus 0.475%. The Facility also contained
an annual facilities fee, calculated as a percentage, as defined, of the amount
available under the line of credit and an annual administrative fee payable
quarterly. This facility was terminated in February 2008 and replaced
by the Agreement.
On May
20, 1998, the Company entered into an unsecured Loan Agreement with the
Mississippi Business Finance Corporation (MBFC) under which the MBFC issued
Taxable Variable Rate Demand Revenue Bonds (the Bonds) in an aggregate principal
amount of $19.0 million to finance the acquisition, construction, and
installation of land, buildings, machinery and equipment for the Company's
distribution facility in Olive Branch, Mississippi. The Bonds do not
contain a prepayment penalty as long as the interest rate remains
variable. The Bonds contain a demand provision and, therefore, are
classified as current liabilities.
Hedging
Derivatives
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 133 and expire in March
2011. The fair value of these swaps as of January 31, 2009 was a
liability of $4.4 million.
Non-Hedging
Derivative
At
January 31, 2009, the Company was party to a derivative instrument in the form
of an interest rate swap that does not qualify for hedge accounting treatment
pursuant to the provisions of SFAS No. 133 because it contains a knock-out
provision. The swap creates the economic equivalent of a fixed rate
obligation by converting the variable-interest rate to a fixed
rate. Under this interest rate swap, the Company pays interest to a
financial institution at a fixed rate, as defined in the
agreement. In exchange, the financial institution pays the Company at
a variable interest rate, which approximates the floating rate on the
variable-rate obligation, excluding the credit spread. The interest
rate on the swap is subject to adjustment monthly. No payments are
made by either party for months in which the variable-interest rate, as
calculated under the swap agreement, is greater than the "knock-out
rate." The following table summarizes the terms of the interest rate
swap:
Derivative
|
Origination
|
Expiration
|
Pay
Fixed
|
Knock-out
|
Instrument
|
Date
|
Date
|
Rate
|
Rate
|
|
|
|
|
|
$17.6
million swap
|
4/1/99
|
4/1/09
|
4.88%
|
7.75%
|
This swap
reduces the Company's exposure to the variable interest rate related to the Demand Revenue Bonds (see Note 5). The fair
value of this swap as of January 31, 2009 and February 2, 2008 was a liability
of $0.1 million and $0.4 million, respectively.
Preferred
Stock
The
Company is authorized to issue 10,000,000 shares of Preferred Stock, $0.01 par
value per share. No preferred shares are issued and outstanding at
January 31, 2009 and February 2, 2008.
Net
Income Per Share
The
following table sets forth the calculation of basic and diluted net income per
share:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
(in millions, except per share
data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
229.5 |
|
|
$ |
201.3 |
|
|
$ |
192.0 |
|
Weighted
average number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
90.3 |
|
|
|
95.9 |
|
|
|
103.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$ |
2.54 |
|
|
$ |
2.10 |
|
|
$ |
1.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
229.5 |
|
|
$ |
201.3 |
|
|
$ |
192.0 |
|
Weighted
average number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
90.3 |
|
|
|
95.9 |
|
|
|
103.2 |
|
Dilutive
effect of stock options and
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted
stock (as determined by
|
|
|
|
|
|
|
|
|
|
|
|
|
applying
the treasury stock method)
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.6 |
|
Weighted
average number of shares and
|
|
|
|
|
|
|
|
|
|
|
|
|
dilutive
potential shares outstanding
|
|
|
90.8 |
|
|
|
96.4 |
|
|
|
103.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$ |
2.53 |
|
|
$ |
2.09 |
|
|
$ |
1.85 |
|
At
January 31, 2009, February 2, 2008, and February 3, 2007, 0.5 million, 0.4
million, and 1.5 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.
Share
Repurchase Programs
In
December 2006, the Company entered into two agreements with a third party to
repurchase approximately $100.0 million of the Company’s common shares under an
Accelerated Share Repurchase Agreement.
The first
$50.0 million was executed in an “uncollared” agreement. In this
transaction the Company initially received 1.7 million shares based on the
market price of the Company’s stock of $30.19 as of the trade date (December 8,
2006). A weighted average price of $32.17 was calculated using stock
prices from December 16, 2006 – March 8, 2007. This represented the
calculation period for the weighted average price. Based
on this weighted average price, the Company paid the third party an additional
$3.3 million on March 8, 2007 for the 1.7 million shares delivered under this
agreement.
The
remaining $50.0 million was executed under a “collared”
agreement. Under this agreement, the Company initially received 1.5
million shares through December 15, 2006, 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 number of shares received under the
agreement was determined based on the weighted average market price of the
Company’s common stock, net of a predetermined discount, during the time after
the initial execution date through March 8, 2007. The calculated
weighted average market price through March 8, 2007, net of a predetermined
discount, as defined in the “collared” agreement, was
$31.97. Therefore, on March 8, 2007, the Company received an
additional 0.1 million shares under the “collared” agreement resulting in 1.6
million total shares being repurchased under this agreement.
On March
29, 2007, the Company entered into an agreement with a third party to repurchase
$150.0 million of the Company’s common shares under an Accelerated Share
Repurchase Agreement. 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 could have been received under the agreement was 4.1
million. The number of shares was determined based on the weighted
average market price of the Company’s common stock during the four months after
the initial execution date. The calculated weighted average market
price through July 30, 2007, net of a predetermined discount, as defined in the
“collared” agreement, was $40.78. Therefore, on July 30, 2007, the
Company received an additional 0.1 million shares under the “collared” agreement
resulting in 3.7 million total shares being repurchased under this
agreement.
On August
30, 2007, the Company entered into an agreement with a third party to repurchase
$100.0 million of the Company’s common shares under an Accelerated Share
Repurchase Agreement. The entire $100.0 million was executed under a
“collared” agreement. Under this agreement, the Company initially
received 2.1 million shares through September 10, 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 number of shares
received under the agreement was determined based on the weighted average market
price of the Company’s common stock, net of a predetermined discount, during the
time after the initial execution date through a period of up to four and one
half months. The contract terminated on October 22, 2007 and the
weighted average price through that date was $41.16. Therefore, on
October 22, 2007, the Company received an additional 0.3 million shares
resulting in 2.4 million total shares repurchased under this
agreement.
In March
2005, the Company’s Board of Directors authorized the repurchase of up to $300.0
million of the Company’s common stock through March 2008. In November
2006, the Company’s Board of Directors authorized the repurchase of up to $500.0
million of the Company’s common stock. This amount was in addition to
the $27.0 million remaining on the March 2005 authorization. In
October 2007, the Company’s Board of Directors authorized the repurchase of an
additional $500.0 million of the Company’s common stock. This
authorization was in addition to the November 2006 authorization which had
approximately $98.4 million remaining.
The
Company repurchased approximately 12.8 million shares for approximately $473.0
million in fiscal 2007 and approximately 8.8 million shares for approximately
$248.2 million in fiscal 2006. The Company had no share repurchases
in fiscal 2008. At January 31, 2009, the Company had approximately
$453.7 remaining under Board authorization.
Profit
Sharing and 401(k) Retirement Plan
The
Company maintains a defined contribution profit sharing and 401(k) plan which is
available to all employees over 21 years of age who have completed one year of
service in which they have worked at least 1,000 hours. Eligible
employees may make elective salary deferrals. The Company may make
contributions at its discretion.
Contributions
to and reimbursements by the Company of expenses of the plan included in the
accompanying consolidated statements of operations were as follows:
Year
Ended January 31, 2009
|
$21.6
million
|
Year
Ended February 2, 2008
|
19.0
million
|
Year
Ended February 3, 2007
|
16.8
million
|
Eligible
employees hired prior to January 1, 2007 are immediately vested in the Company’s
profit sharing contributions. Eligible employees hired on or
subsequent to January 1, 2007 vest in the Company’s profit sharing contributions
based on the following schedule:
· 25%
after three years of service
|
· 50%
after four years of service
|
· 100%
after five years of
service
|
All
eligible employees are immediately vested in any Company match contributions
under the 401(k) portion of the plan.
Deferred
Compensation Plan
The
Company has a deferred compensation plan which provides certain officers and
executives the ability to defer a portion of their base compensation and bonuses
and invest their deferred amounts. The plan is a nonqualified plan
and the Company may make discretionary contributions. The deferred
amounts and earnings thereon are payable to participants, or designated
beneficiaries, at specified future dates, or upon retirement or
death. Total cumulative participant deferrals were approximately $1.5
million and $2.5 million, respectively, at January 31, 2009 and February 2,
2008, and are included in "other liabilities" on the accompanying consolidated
balance sheets. The related assets are included in "other assets,
net" on the accompanying consolidated balance sheets. The Company did
not make any discretionary contributions in the years ended January 31, 2009,
February 2, 2008, or February 3, 2007.
All of
the employee benefit plans noted above were adopted by Dollar Tree, Inc. on
March 2, 2008 as a part of the holding company reorganization. Refer
to Note 1 for a discussion of the holding company reorganization.
At
January 31, 2009, the Company has eight stock-based compensation
plans. Each plan and the accounting method are described
below.
Fixed
Stock Option Compensation Plans
Under the
Non-Qualified Stock Option Plan (SOP), the Company granted options to its
employees for 1,047,264 shares of Common Stock in 1993 and 1,048,289 shares in
1994. Options granted under the SOP have an exercise price of $0.86
and are fully vested at the date of grant.
Under the
1995 Stock Incentive Plan (SIP), the Company granted options to its employees
for the purchase of up to 12.6 million shares of Common Stock. The
exercise price of each option equaled the market price of the Company's stock at
the date of grant, unless a higher price was established by the Board of
Directors, and an option's maximum term is 10 years. Options granted
under the SIP generally vested over a three-year period. This plan
was terminated on July 1, 2003 and replaced with the Company’s 2003 Equity
Incentive Plan, discussed below.
The Step
Ahead Investments, Inc. Long-Term Incentive Plan (SAI Plan) provided for the
issuance of stock options, stock appreciation rights, phantom stock and
restricted stock awards to officers and key employees. Effective with
the merger with 98 Cent Clearance Center in December 1998 and in accordance with
the terms of the SAI Plan, outstanding 98 Cent Clearance Center options were
assumed by the Company and converted, based on 1.6818 Company options for each
98 Cent Clearance Center option, to options to purchase the Company's common
stock. Options issued as a result of this conversion were fully
vested as of the date of the merger.
Under the
1998 Special Stock Option Plan (Special Plan), options to purchase 247,500
shares were granted to five former officers of 98 Cent Clearance Center who were
serving as employees or consultants of the Company following the
merger. The options were granted as consideration for entering into
non-competition agreements and a consulting agreement. The exercise
price of each option equaled the market price of the Company's stock at the date
of grant, and the options' maximum term was 10 years. Options granted
under the Special Plan vested over a five-year period. As of January
31, 2009, all of these options have been exercised or have expired.
The EIP
replaces the Company's SIP discussed above. Under the EIP, the
Company may grant up to 6.0 million shares of its Common Stock, plus any shares
available for future awards under the SIP, to the Company’s employees, including
executive officers and independent contractors. The EIP permits the
Company to grant equity awards in the form of stock options, stock appreciation
rights and restricted stock. The exercise price of each stock option
granted equals the market price of the Company’s stock at the date of
grant. The options generally vest over a three-year period and have a
maximum term of 10 years.
The EOEP
is available only to the Chief Executive Officer and certain other executive
officers. These officers no longer receive awards under the
EIP. The EOEP allows the Company to grant the same type of equity
awards as does the EIP. These awards generally vest over a three-year
period, with a maximum term of 10 years.
Stock
appreciation rights may be awarded alone or in tandem with stock
options. When the stock appreciation rights are exercisable, the
holder may surrender all or a portion of the unexercised stock appreciation
right and receive in exchange an amount equal to the excess of the fair market
value at the date of exercise over the fair market value at the date of the
grant. No stock appreciation rights have been granted to
date.
Any
restricted stock or RSUs awarded are subject to certain general
restrictions. The restricted stock shares or units may not be sold,
transferred, pledged or disposed of until the restrictions on the shares or
units have lapsed or have been removed under the provisions of the
plan. In addition, if a holder of restricted shares or units ceases
to be employed by the Company, any shares or units in which the restrictions
have not lapsed will be forfeited.
The 2003
Non-Employee Director Stock Option Plan (NEDP) provides non-qualified stock
options to non-employee members of the Company's Board of
Directors. The stock options are functionally equivalent to such
options issued under the EIP discussed above. The exercise price of
each stock option granted equals the market price of the Company’s stock at the
date of grant. The options generally vest immediately.
The 2003
Director Deferred Compensation Plan permits any of the Company's directors who
receive a retainer or other fees for Board or Board committee service to defer
all or a portion of such fees until a future date, at which time they may be
paid in cash or shares of the Company's common stock, or receive all or a
portion of such fees in non-statutory stock options. Deferred fees
that are paid out in cash will earn interest at the 30-year Treasury Bond
Rate. If a director elects to be paid in common stock, the number of
shares will be determined by dividing the deferred fee amount by the current
market price of
a share of the Company's common stock on the date of deferral. The
number of options issued to a director will equal the deferred fee amount
divided by 33% of the price of a share of the Company's common
stock. The exercise price will equal the fair market value of the
Company's common stock at the date the option is issued. The options
are fully vested when issued and have a term of 10 years.
All of
the shareholder approved plans noted above were adopted by Dollar Tree, Inc. on
March 2, 2008 as a part of the holding company reorganization. Refer
to Note 1 for a discussion of the holding company reorganization.
Stock
Options
In 2008,
2007 and 2006, the Company granted a total of 0.5 million, 0.4 million and 0.3
million stock options from the EIP, EOEP and the NEDP,
respectively. The fair value of all of these options is being
expensed ratably over the three-year vesting periods, or a shorter period based
on the retirement eligibility of the grantee. All options granted to
directors vest immediately and are expensed on the grant date. During
2008, 2007 and 2006, the Company recognized $4.7 million, $2.7 million and $1.3
million, respectively of expense related to these stock option
grants. As of January 31, 2009, there was approximately $6.0 million
of total unrecognized compensation expense related to these stock options which
is expected to be recognized over a weighted average period of 23
months.
In 2008,
the Company granted 0.1 million stock options from the EIP and the EOEP to
certain officers of the Company, contingent on the Company meeting certain
performance targets in 2008 and future service of these officers through fiscal
2009. The Company met these performance targets in fiscal 2008;
therefore, the fair value of these stock options of $1.0 million is being
expensed over the service period. The Company recognized $0.5 million
of expense on these stock options in 2008. The fair value of these
stock options was determined using the Company’s closing stock price on the
grant date in accordance with FAS 123R.
The fair
value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model. 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. The weighted average assumptions used in the
Black-Scholes option pricing model for grants in 2008, 2007 and 2006 are as
follows:
|
|
Fiscal
2008
|
|
|
Fiscal
2007
|
|
|
Fiscal
2006
|
|
Expected
term in years
|
|
|
6.0 |
|
|
|
6.0 |
|
|
|
6.0 |
|
Expected
volatility
|
|
|
45.7 |
% |
|
|
28.4 |
% |
|
|
30.2 |
% |
Annual
dividend yield
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Risk
free interest rate
|
|
|
2.8 |
% |
|
|
4.5 |
% |
|
|
4.8 |
% |
Weighted
average fair value of options
|
|
|
|
|
|
|
|
|
|
|
|
|
granted
during the period
|
|
$ |
13.45 |
|
|
$ |
14.33 |
|
|
$ |
10.93 |
|
Options
granted
|
|
|
558,293 |
|
|
|
386,490 |
|
|
|
342,216 |
|
The
following tables summarize the Company's various option plans and information
about options outstanding at January 31, 2009 and changes during the year then
ended.
Stock
Option Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
Per
Share
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
Value
(in
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of period
|
|
|
2,089,914 |
|
|
$ |
28.63 |
|
|
|
|
|
|
|
Granted
|
|
|
558,293 |
|
|
|
28.51 |
|
|
|
|
|
|
|
Exercised
|
|
|
(681,609 |
) |
|
|
26.47 |
|
|
|
|
|
|
|
Forfeited
|
|
|
(23,982 |
) |
|
|
24.41 |
|
|
|
|
|
|
|
Outstanding,
end of period
|
|
|
1,942,616 |
|
|
$ |
29.41 |
|
|
|
6.4 |
|
|
$ |
25.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
vested and expected to vest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at
January 31, 2009
|
|
|
1,909,041 |
|
|
$ |
29.44 |
|
|
|
6.3 |
|
|
$ |
25.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at end of period
|
|
|
1,097,837 |
|
|
$ |
28.46 |
|
|
|
4.6 |
|
|
$ |
15.6 |
|
|
|
|
Options
Outstanding
|
Options
Exercisable
|
|
|
Options
|
|
|
|
Options
|
|
|
Range
of
|
|
Outstanding
|
Weighted
Avg.
|
Weighted
Avg.
|
Exercisable
|
Weighted
Avg.
|
Exercise
|
|
at
January 31,
|
Remaining
|
Exercise
|
at
January 31,
|
Exercise
|
Prices
|
|
2009
|
Contractual
Life
|
Price
|
|
2009
|
|
Price
|
|
|
|
|
|
|
|
|
|
$0.86
|
|
2,706
|
N/A
|
$ 0.86
|
|
2,706
|
|
$ 0.86
|
$10.99
to $21.28
|
216,387
|
3.6
|
19.51
|
|
216,387
|
|
19.51
|
$21.29
to $29.79
|
930,425
|
7.2
|
26.21
|
|
379,491
|
|
25.52
|
$29.80
to $42.56
|
793,098
|
6.0
|
35.97
|
|
499,253
|
|
34.73
|
|
|
|
|
|
|
|
|
|
$0.86
to $42.56
|
1,942,616
|
6.4
|
$
29.41
|
|
1,097,837
|
|
$ 28.46
|
The
intrinsic value of options exercised during 2008, 2007 and 2006 was
approximately $7.2 million, $32.8 million and $13.1 million,
respectively.
Restricted
Stock
The
Company granted 0.4 million, 0.3 million and 0.3 million RSUs, net of
forfeitures in 2008, 2007 and 2006, respectively, from the EIP and the EOEP to
the Company’s employees and officers. The fair value of all of these
RSUs is being expensed ratably over the three-year vesting periods, or a shorter
period based on the retirement eligibility of the grantee. The fair
value was determined using the Company’s closing stock price on the date of
grant. The Company recognized $9.5 million, $7.7 million and $4.5
million of expense related to these RSUs during 2008, 2007 and
2006. As of January 31, 2009, there was approximately $11.9 million
of total unrecognized compensation expense related to these RSUs which is
expected to be recognized over a weighted average period of 21
months.
In 2008,
the Company granted 0.1 million RSUs from the EIP and the EOEP to certain
officers of the Company, contingent on the Company meeting certain performance
targets in 2008 and future service of these officers through fiscal
2009. The Company met these performance targets in fiscal 2008;
therefore, the fair value of these RSUs of $2.3 million is being expensed over
the service period. The Company recognized $1.2 million of expense on
these RSUs in 2008. The fair value of these RSUs was determined using
the Company’s closing stock price on the grant date in accordance with FAS
123R.
Back
to 10-K Table of
Contents;
Financial Statement
Index;
Statement of
Operations; Balance
Sheets;
Statement of Shareholders'
Equity;
Cash Flow
In 2006,
the Company granted less than 0.1 million RSUs from the EOEP and the EIP to
certain officers of the Company, contingent on the Company meeting certain
performance targets in 2006 and future service of the these officers through
fiscal 2006. The Company met these performance targets in fiscal
2006; therefore, the Company recognized the fair value of these RSUs of $0.2
million during fiscal 2006. The fair value of these RSUs was
determined using the Company’s closing stock price on the grant date in
accordance with SFAS 123R.
In 2005,
the Company granted less than 0.1 million RSUs from the EOEP to certain officers
of the Company, contingent on the Company meeting certain performance targets in
2005 and future service of these officers through various points through July
2007. The Company met these performance targets in fiscal 2005;
therefore, the fair value of these RSUs of $1.0 million was expensed over the
service period. The fair value of these RSUs was determined using the
Company’s closing stock price January 28, 2006 (the last day of fiscal 2005),
when the performance targets were satisfied. The Company recognized
$0.3 million and $0.7 million, of expense related to these RSUs in 2006 and
2005, respectively. The amount recognized in 2007 was less than $0.1
million.
The
following table summarizes the status of RSUs as of January 31, 2009, and
changes during the year then ended:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
Date
Fair
|
|
|
|
Shares
|
|
|
Value
|
|
|
|
|
|
|
|
|
Nonvested
at February 2, 2008
|
|
|
555,935 |
|
|
$ |
26.57 |
|
Granted
|
|
|
469,645 |
|
|
|
27.05 |
|
Vested
|
|
|
(256,870 |
) |
|
|
31.20 |
|
Forfeited
|
|
|
(21,217 |
) |
|
|
31.57 |
|
Nonvested
at January 31, 2009
|
|
|
747,493 |
|
|
$ |
30.13 |
|
In
connection with the vesting of RSUs in 2008 and 2007, certain employees elected
to receive shares net of minimum statutory tax withholding amounts which totaled
$2.6 million and $2.9 million, respectively. The total fair value of
the restricted shares vested during the years ended January 31, 2009 and
February 2, 2008 was $8.0 million and $8.2 million, respectively.
Employee
Stock Purchase Plan
Under the
Dollar Tree, Inc. Employee Stock Purchase Plan (ESPP), the Company is authorized
to issue up to 1,759,375 shares of common stock to eligible
employees. Under the terms of the ESPP, employees can choose to have
up to 10% of their annual base earnings withheld to purchase the Company's
common stock. The purchase price of the stock is 85% of the lower of
the price at the beginning or the end of the quarterly offering
period. Under the ESPP, the Company has sold 1,213,640 shares as of
January 31, 2009.
The fair
value of the employees' purchase rights is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
|
|
Fiscal
2008
|
Fiscal
2007
|
Fiscal
2006
|
|
|
|
|
|
Expected
term
|
|
3
months
|
3
months
|
3
months
|
Expected
volatility
|
|
14.4%
|
16.3%
|
13.1%
|
Annual
dividend yield
|
|
-
|
-
|
-
|
Risk
free interest rate
|
|
3.8%
|
4.4%
|
4.8%
|
The
weighted average per share fair value of those purchase rights granted in 2008,
2007 and 2006 was $5.64, $5.74 and $4.59, respectively. Total expense
recognized for these purchase rights was $0.8 million, $0.9 million and $0.4
million in 2008, 2007 and 2006, respectively.
On March
2, 2008, the ESPP was adopted by Dollar Tree, Inc. as a part of the holding
company reorganization. Refer to Note 1 for discussion of the holding
company reorganization.
On March
25, 2006, the Company completed its acquisition of 138 Deal$
stores. These stores are located primarily in the Midwest part of the
United States and the Company has existing logistics capacity to service these
stores. This acquisition included stores that offer an expanded
assortment of merchandise including items that sell for more than
$1. Substantially all Deal$ stores acquired continue to operate under
the Deal$ banner while providing the Company an opportunity to leverage its
Dollar Tree infrastructure in the testing of new merchandise concepts, including
higher price points, without disrupting the single-price point model in its
Dollar Tree stores.
The
Company paid approximately $32.0 million for store-related and other assets and
$22.1 million for inventory. This amount includes approximately $0.6
million of direct costs associated with the acquisition. The results
of Deal$ store operations are included in the Company’s financial statements
since the acquisition date and did not have a significant impact on the
Company’s operating results in 2006. This acquisition is immaterial
to the Company’s operations as a whole and therefore no proforma disclosure of
financial information has been presented. The following table
summarizes the allocation of the purchase price to the fair value of the assets
acquired.
(In millions)
|
|
|
|
Inventory
|
|
$ |
22.1 |
|
Other
current assets
|
|
|
0.1 |
|
Property
and equipment
|
|
|
15.1 |
|
Goodwill
|
|
|
14.6 |
|
Other
intangibles
|
|
|
2.2 |
|
|
|
$ |
54.1 |
|
The Company has a $4.0 million
investment which represents a 10.5% fully diluted interest in Ollie's Holdings,
Inc. (Ollie's), a multi-price point discount retailer located in the
mid-Atlantic region. In addition, the SKM Equity Fund III, L.P. (SKM
Equity) and SKM
Investment Fund (SKM Investment) acquired a combined fully diluted interest in
Ollie's of 53.1%. One of the Company's current directors, Thomas
Saunders, is a principal member of SKM Partners, L.L.C., which serves as the
general partner of SKM Equity. The $4.0 million investment in Ollie's
is accounted for under the cost method and is included in "other assets" in the
accompanying consolidated balance sheets.
The
following table sets forth certain items from the Company's unaudited
consolidated statements of operations for each quarter of fiscal year 2008 and
2007. The unaudited information has been prepared on the same basis
as the audited consolidated financial statements appearing elsewhere in this
report and includes all adjustments, consisting only of normal recurring
adjustments, which management considers necessary for a fair presentation of the
financial data shown. The operating results for any quarter are not
necessarily indicative of results for a full year or for any future
period.
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
(1)
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,051.3 |
|
|
$ |
1,093.1 |
|
|
$ |
1,114.0 |
|
|
$ |
1,386.5 |
|
Gross
profit
|
|
$ |
356.5 |
|
|
$ |
363.1 |
|
|
$ |
379.4 |
|
|
$ |
493.2 |
|
Operating
income
|
|
$ |
69.7 |
|
|
$ |
61.6 |
|
|
$ |
69.3 |
|
|
$ |
165.2 |
|
Net
income
|
|
$ |
43.6 |
|
|
$ |
37.6 |
|
|
$ |
43.1 |
|
|
$ |
105.2 |
|
Diluted
net income per share
|
|
$ |
0.48 |
|
|
$ |
0.42 |
|
|
$ |
0.47 |
|
|
$ |
1.15 |
|
Stores
open at end of quarter
|
|
|
3,474 |
|
|
|
3,517 |
|
|
|
3,572 |
|
|
|
3,591 |
|
Comparable
store net sales change
|
|
|
2.1 |
% |
|
|
6.5 |
% |
|
|
6.2 |
% |
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
975.0 |
|
|
$ |
971.2 |
|
|
$ |
997.8 |
|
|
$ |
1,298.6 |
|
Gross
profit
|
|
$ |
325.3 |
|
|
$ |
326.6 |
|
|
$ |
343.9 |
|
|
$ |
465.3 |
|
Operating
income
|
|
$ |
62.3 |
|
|
$ |
53.4 |
|
|
$ |
60.2 |
|
|
$ |
154.4 |
|
Net
income
|
|
$ |
38.1 |
|
|
$ |
32.6 |
|
|
$ |
35.9 |
|
|
$ |
94.7 |
|
Diluted
net income per share
|
|
$ |
0.38 |
|
|
$ |
0.33 |
|
|
$ |
0.38 |
|
|
$ |
1.04 |
|
Stores
open at end of quarter
|
|
|
3,280 |
|
|
|
3,334 |
|
|
|
3,401 |
|
|
|
3,411 |
|
Comparable
store net sales change
|
|
|
5.8 |
% |
|
|
4.4 |
% |
|
|
1.9 |
% |
|
|
(0.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Easter was observed on March 23, 2008 and April 8, 2007
|
|
|
|
|
|
|
|
|
|
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE