form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
(Mark
One)
(X)
|
Quarterly
report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of
1934
|
For
the quarterly period ended May 2, 2009
OR
(
)
|
Transition
report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of
1934
|
Commission
File Number: 0-25464
DOLLAR
TREE, INC.
(Exact
name of registrant as specified in its charter)
Virginia
|
|
26-2018846
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
500
Volvo Parkway
Chesapeake,
Virginia 23320
(Address
of principal executive offices)
Telephone
Number (757) 321-5000
(Registrant's
telephone number, including area code)
Indicate
by check mark whether Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this
chapter) during the preceding 12 months (or for shorter period that the
registrant was required to submit and post such files).
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
(X)
|
Accelerated
filer ( )
|
Non accelerated filer
( )
|
Smaller
reporting company
( )
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
As of May
18, 2009, there were 89,895,866 shares of the Registrant’s Common Stock
outstanding.
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
PART
I-FINANCIAL INFORMATION
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Page
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Item
1.
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Financial
Statements:
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3
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4
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5
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6
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Item
2.
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10
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Item
3.
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14
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Item
4.
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14
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PART
II-OTHER INFORMATION
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Item
1.
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15
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Item
1A.
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15
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Item
2.
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16
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Item
3.
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16
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Item
4.
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16
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Item
5.
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16
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Item
6.
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16
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17
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Part
I. FINANCIAL INFORMATION
Item 1. FINANCIAL
STATEMENTS.
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
(Unaudited)
|
|
13
Weeks Ended
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|
|
|
May
2,
|
|
|
May
3,
|
|
(In
millions, except per share data)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,201.1 |
|
|
$ |
1,051.3 |
|
Cost
of sales
|
|
|
785.7 |
|
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|
694.8 |
|
Gross
profit
|
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|
415.4 |
|
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|
356.5 |
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Selling,
general and administrative
|
|
|
|
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|
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expenses
|
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|
317.8 |
|
|
|
286.8 |
|
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|
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|
|
|
|
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Operating
income
|
|
|
97.6 |
|
|
|
69.7 |
|
|
|
|
|
|
|
|
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Interest
expense, net
|
|
|
0.8 |
|
|
|
1.6 |
|
|
|
|
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|
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Income
before income taxes
|
|
|
96.8 |
|
|
|
68.1 |
|
|
|
|
|
|
|
|
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Provision
for income taxes
|
|
|
36.4 |
|
|
|
24.5 |
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
60.4 |
|
|
$ |
43.6 |
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
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Basic
|
|
$ |
0.67 |
|
|
$ |
0.48 |
|
Diluted
|
|
$ |
0.66 |
|
|
$ |
0.48 |
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
(Unaudited)
|
|
May
2,
|
|
|
January
31,
|
|
|
May
3,
|
|
(In
millions)
|
|
2009
|
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|
2009
|
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|
2008
|
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|
|
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ASSETS
|
|
|
|
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Current
assets:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
355.2 |
|
|
$ |
364.4 |
|
|
$ |
84.2 |
|
Merchandise
inventories
|
|
|
688.2 |
|
|
|
675.8 |
|
|
|
652.7 |
|
Other
current assets
|
|
|
65.8 |
|
|
|
33.0 |
|
|
|
60.2 |
|
Total
current assets
|
|
|
1,109.2 |
|
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|
1,073.2 |
|
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|
797.1 |
|
|
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|
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Property,
plant and equipment, net
|
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|
705.0 |
|
|
|
710.3 |
|
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|
733.7 |
|
Goodwill
|
|
|
133.3 |
|
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|
133.3 |
|
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133.3 |
|
Deferred
tax assets
|
|
|
41.5 |
|
|
|
33.0 |
|
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|
22.6 |
|
Other
assets, net
|
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|
84.7 |
|
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|
85.9 |
|
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|
84.4 |
|
|
|
|
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|
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TOTAL
ASSETS
|
|
$ |
2,073.7 |
|
|
$ |
2,035.7 |
|
|
$ |
1,771.1 |
|
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LIABILITIES
AND SHAREHOLDERS' EQUITY
|
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|
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|
Current
liabilities:
|
|
|
|
|
|
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|
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Current
portion of long-term debt
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|
$ |
17.6 |
|
|
$ |
17.6 |
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|
$ |
18.5 |
|
Accounts
payable
|
|
|
208.6 |
|
|
|
192.9 |
|
|
|
204.4 |
|
Other
current liabilities
|
|
|
145.3 |
|
|
|
152.5 |
|
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|
119.7 |
|
Income
taxes payable
|
|
|
42.9 |
|
|
|
46.9 |
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|
29.2 |
|
Total
current liabilities
|
|
|
414.4 |
|
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|
409.9 |
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|
371.8 |
|
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Long-term
debt, excluding current portion
|
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|
250.0 |
|
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|
250.0 |
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250.0 |
|
Income
taxes payable, long-term
|
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|
15.0 |
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|
14.7 |
|
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|
20.6 |
|
Other
liabilities
|
|
|
112.8 |
|
|
|
107.9 |
|
|
|
91.3 |
|
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Total
liabilities
|
|
|
792.2 |
|
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|
782.5 |
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|
733.7 |
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Commitments
and contingencies
|
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Shareholders'
equity
|
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|
1,281.5 |
|
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|
1,253.2 |
|
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|
1,037.4 |
|
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|
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TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
$ |
2,073.7 |
|
|
$ |
2,035.7 |
|
|
$ |
1,771.1 |
|
|
|
|
|
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|
|
|
|
|
|
|
|
Common
shares outstanding
|
|
|
90.2 |
|
|
|
90.8 |
|
|
|
90.0 |
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
(Unaudited)
|
13
Weeks Ended
|
|
|
|
May
2,
|
|
|
May
3,
|
|
(In
millions)
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
60.4 |
|
|
$ |
43.6 |
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
38.8 |
|
|
|
41.8 |
|
Other
non-cash adjustments to net income
|
|
|
2.0 |
|
|
|
33.7 |
|
Changes
in operating assets and liabilities
|
|
|
(46.6 |
) |
|
|
(84.6 |
) |
Net
cash provided by operating activities
|
|
|
54.6 |
|
|
|
34.5 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(34.1 |
) |
|
|
(32.7 |
) |
Purchase
of short-term investments
|
|
|
- |
|
|
|
(34.7 |
) |
Proceeds
from sales of short-term investments
|
|
|
- |
|
|
|
75.2 |
|
Purchase
of restricted investments
|
|
|
(0.1 |
) |
|
|
(14.4 |
) |
Proceeds
from sales of restricted investments
|
|
|
- |
|
|
|
14.1 |
|
Other
|
|
|
- |
|
|
|
(0.1 |
) |
Net
cash provided by (used in) investing activities
|
|
|
(34.2 |
) |
|
|
7.4 |
|
|
|
|
|
|
|
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Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments
for share repurchases
|
|
|
(39.6 |
) |
|
|
- |
|
Proceeds
from stock issued pursuant to stock-based
|
|
|
|
|
|
|
|
|
compensation
plans
|
|
|
9.3 |
|
|
|
1.8 |
|
Tax
benefit of stock options exercised
|
|
|
0.8 |
|
|
|
- |
|
Other
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Net
cash provided by (used in) financing activities
|
|
|
(29.6 |
) |
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(9.2 |
) |
|
|
43.6 |
|
Cash
and cash equivalents at beginning of period
|
|
|
364.4 |
|
|
|
40.6 |
|
Cash
and cash equivalents at end of period
|
|
$ |
355.2 |
|
|
$ |
84.2 |
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
2.2 |
|
|
$ |
2.8 |
|
Income
taxes
|
|
$ |
44.7 |
|
|
$ |
44.3 |
|
See
accompanying Notes to Condensed Consolidated Financial Statements.
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
1. BASIS
OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements of Dollar
Tree, Inc. and its wholly-owned subsidiaries (the "Company") have been prepared
in accordance with U.S. generally accepted accounting principles for interim
financial information and are presented in accordance with the requirements of
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended January 31, 2009 contained in the Company’s Annual Report on Form
10-K filed March 26, 2009. The results of
operations for the 13 weeks ended May 2, 2009 are not necessarily indicative of
the results to be expected for the entire fiscal year ending January 30,
2010.
In the
Company’s opinion, the unaudited condensed consolidated financial statements
included herein contain all adjustments (consisting of those of a normal
recurring nature) considered necessary for a fair presentation of its financial
position as of May 2, 2009 and May 3, 2008 and the results of its operations and
cash flows for the periods presented. The January 31, 2009 balance
sheet information was derived from the audited consolidated financial statements
as of that date.
Certain
2008 amounts have been reclassified for comparability with the current period
presentation. Goodwill has been stated separately and other
intangible assets have been included in “Other Assets” in the accompanying
Condensed Consolidated Balance Sheets.
2.
INTEREST RATE SWAPS
On March
20, 2008, the Company entered into two $75.0 million interest rate swap
agreements. These interest rate swaps are used to manage the risk
associated with interest rate fluctuations on a portion of the Company’s
variable rate debt. Under these agreements, the Company pays interest
to financial institutions at a fixed rate of 2.8%. In exchange, the
financial institutions pay the Company at a variable rate, which equals the
variable rate on the debt, excluding the credit spread. These swaps
qualify for hedge accounting treatment pursuant to SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities and expire in March
2011. The fair value of these swaps as of May 2, 2009 is a liability
of $4.8 million and is included in “Other Liabilities” in the accompanying
Condensed Consolidated Balance Sheet as of May 2, 2009. The fair
value of these swaps as of May 3, 2008 was an asset of $2.3 million and is
included in “Other Assets” in the accompanying Condensed Consolidated Balance
Sheet as of May 3, 2008.
3.
FAIR VALUE MEASUREMENTS
The
Company adopted Statement of Financial Accounting Standard (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. In February 2008, the Financial Accounting
Standards Board (FASB) released FASB Staff Position (FSP) FAS 157-2, “Effective
Date of SFAS No. 157,” which delayed the effective date of SFAS 157 for all
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually).
SFAS 157 became effective for all non-financial assets and non-financial
liabilities on February 1, 2009. The adoption of SFAS 157 for
non-financial assets and non-financial liabilities did not have a significant
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 May 2, 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 $355.2 million and $58.5
million, respectively at May 2, 2009. These fair values were
determined using Level 1 measurements in the fair value
hierarchy. The fair value of the swaps as of May 2, 2009 was a
liability of $4.8 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.
4.
INCOME TAXES
During
the first quarter of 2009, the Company adjusted its balance of unrecognized tax
benefits primarily as a result of recording accrued interest on uncertain tax
liabilities. Accordingly, “income taxes payable long-term” was
increased by $0.3 million. The total amount of unrecognized tax
benefits at May 2, 2009, that, if recognized would affect the effective tax rate
was $10.0 million (net of the federal tax benefit).
During
the first quarter of 2008, the Company adjusted its balance of unrecognized tax
benefits as a result of the filing of accounting method changes for certain
temporary differences. Accordingly, “income taxes payable long-term”
was reduced by $34.4 million, of which $32.2 million reduced “deferred tax
assets” and $2.1 million primarily representing the before tax impact associated
with accrued interest on uncertain tax liabilities
5.
NET INCOME PER SHARE
The
following table sets forth the calculation of basic and diluted net income per
share:
|
|
13
Weeks Ended
|
|
|
|
May
2,
|
|
|
May
3,
|
|
(In millions, except per share
data)
|
|
2009
|
|
|
2008
|
|
Basic
net income per share:
|
|
|
|
|
|
|
Net
income
|
|
$ |
60.4 |
|
|
$ |
43.6 |
|
Weighted
average number of
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
90.5 |
|
|
|
89.9 |
|
Basic
net income per share
|
|
$ |
0.67 |
|
|
$ |
0.48 |
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
60.4 |
|
|
$ |
43.6 |
|
Weighted
average number of
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
90.5 |
|
|
|
89.9 |
|
Dilutive
effect of stock options and
|
|
|
|
|
|
|
|
|
restricted
stock units (as determined
|
|
|
|
|
|
|
|
|
by
applying the treasury stock method)
|
|
|
0.6 |
|
|
|
0.3 |
|
Weighted
average number of shares and
|
|
|
|
|
|
|
|
|
dilutive
potential shares outstanding
|
|
|
91.1 |
|
|
|
90.2 |
|
Diluted
net income per share
|
|
$ |
0.66 |
|
|
$ |
0.48 |
|
For the
13 weeks ended May 2, 2009 and May 3, 2008, approximately 0.1 million and 0.9
million stock options, respectively, were not included in the calculation of the
weighted average number of shares and dilutive potential shares outstanding
because their effect would be anti-dilutive.
6.
STOCK-BASED COMPENSATION
The
Company’s stock-based compensation expense includes the fair value of granted
stock options and restricted stock units (RSUs) and employees’ purchase rights
under the Company’s Employee Stock Purchase Plan. Stock-based
compensation expense was $5.4 million and $3.9 million, respectively, during the
13 weeks ended May 2, 2009 and May 3, 2008, respectively.
Stock
Options
During
the 13 weeks ended May 2, 2009 and May 3, 2008, the Company recognized $1.2
million and $1.0 million, respectively, of expense for stock
options. The fair value of stock options granted is estimated on the
date of grant using the Black-Scholes option-pricing model. The
Company granted less than 0.1 million stock options during the 13 weeks ended
May 2, 2009.
During
the 13 weeks ended May 2, 2009, approximately 0.3 million stock options were
exercised yielding $7.9 million of cash proceeds and $0.8 million of tax
benefits recognized as additional paid in capital. During the 13
weeks ended May 3, 2008, less than 0.1 million stock options were exercised
yielding $0.8 million of cash proceeds. The tax benefits recognized
as additional paid in capital on these exercises was less than $0.1 million
during the 13 weeks ended May 3, 2008. The intrinsic value of options
exercised during the 13 weeks ended May 2, 2009 and May 3, 2008, was
approximately $4.1 million and $0.2 million, respectively.
Restricted
Stock Units (RSUs)
The
Company granted approximately 0.4 million service-based RSUs from the Equity
Incentive Plan (EIP) and the Executive Officer Equity Incentive Plan (EOEP) to
employees and officers in the 13 weeks ended May 2, 2009. The estimated $17.6
million fair value of these RSUs is being expensed ratably over the three-year
vesting periods, or a shorter period based on the retirement eligibility of
certain grantees. The fair value was determined using the Company’s
closing stock price on the date of grant. The Company recognized $1.3
million of expense related to these RSUs for the 13 weeks ended May 2,
2009. The Company recognized $2.4 million of expense related to RSUs
granted prior to 2009 in the 13 weeks ended May 2, 2009. For the 13
weeks ended May 3, 2008, the Company recognized $2.7 million of expense related
to RSUs.
In 2009
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 2009. If the Company meets these performance targets in
fiscal 2009, then the RSUs will vest ratably over three years, ending April 1,
2012. The Company recognized $0.2 million of expense related to these RSUs in
the 13 weeks ended May 2, 2009.
In the 13
weeks ended May 2, 2009, approximately 0.3 million RSUs vested and approximately
0.2 million shares, net of taxes were issued. During the 13 weeks
ended May 3, 2008, approximately 0.2 million RSUs vested and approximately 0.1
million shares net of taxes were issued.
7.
SHAREHOLDERS’ EQUITY
Comprehensive
Income
The
Company's comprehensive income reflects the effect of recording the derivative
financial instrument entered into in March 2008, pursuant to SFAS No. 133,
“Accounting for Derivative
Instruments and Hedging Activities.” The following table
provides a reconciliation of net income to total comprehensive
income:
|
|
13
Weeks Ended
|
|
|
|
May
2,
|
|
|
May
3,
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
60.4 |
|
|
$ |
43.6 |
|
|
|
|
|
|
|
|
|
|
Fair
value adjustment-derivative
|
|
|
|
|
|
|
|
|
cash
flow hedging instrument
|
|
|
(0.4 |
) |
|
|
2.3 |
|
Income
tax benefit (expense)
|
|
|
0.1 |
|
|
|
(0.9 |
) |
Fair
value adjustment, net of tax
|
|
|
(0.3 |
) |
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
$ |
60.1 |
|
|
$ |
45.0 |
|
Share
Repurchase Program
The
Company repurchased approximately 1.1 million shares of common stock for
approximately $42.7 million during the 13 weeks ended May 2,
2009. Approximately 0.1 million of these shares totaling $3.1 million
had not settled as of May 2, 2009, therefore these amounts have been accrued in
the accompanying Condensed Consolidated Balance Sheet as of May 2, 2009.
The Company did not repurchase any shares in the 13 weeks ended May 3,
2008. As of May 2, 2009, the Company had approximately $411.0 million
remaining under Board approved repurchase authorizations.
8.
LITIGATION MATTERS
In 2006,
a former store manager filed a collective action against the Company in Alabama
federal court. She claims that she and other store managers should have been
classified as non-exempt employees under the Fair Labor Standards Act and
received overtime compensation. The Court preliminarily allowed
nationwide (except California) notice to be sent to all store managers employed
for the three years immediately preceding the filing of the
suit. Approximately 760 individuals have opted in to the collective
action. The Company expects the Court to decide whether to decertify
the collective action late this summer. The Company is vigorously defending
itself in this matter.
In 2007,
two store managers filed a class action against the Company in
California federal court, claiming they and other California store managers
should have been classified as non-exempt employees under California and federal
law. The Court
has allowed notice to be sent to all California store managers employed
since December 12, 2004. The plaintiffs estimate the class to be
approximately 655 individuals. No trial date has been
scheduled.
In 2008,
the Company was sued under the Equal Pay Act in Alabama federal court by two
female store managers alleging that they and other female store managers were
paid less than male store managers. Among other things, they seek
monetary damages and back pay. The Court ordered that notice be sent
to potential plaintiffs and 354 individuals opted in. The Company
expects that the Court will consider a motion to decertify the collective action
at a future date. Subsequent to the filing of the original action, plaintiffs
sought to amend the case to include the Title VII charges as a class
action. The Court presently has the amendment under consideration and
is expected to issue a ruling in June 2009 or soon thereafter. The Company is
vigorously defending itself in this matter.
The
Company does not believe that any of these matters will, individually or in the
aggregate, have a material adverse effect on its business or financial
condition. The Company cannot give assurance, however, that one or
more of these lawsuits will not have a material adverse effect on its results of
operations for the period in which they are resolved.
INTRODUCTORY
NOTE: Unless otherwise stated, references to "we," "our" and
"us" generally refer to Dollar Tree, Inc. and its direct and indirect
subsidiaries on a consolidated basis.
A WARNING ABOUT FORWARD-LOOKING
STATEMENTS: This document contains "forward-looking
statements" as that term is used in the Private Securities Litigation Reform Act
of 1995. Forward-looking statements address future events,
developments or results and typically use words such as "believe," "anticipate,"
"expect," "intend," "plan," “view,” “target” or "estimate." For
example, our forward-looking statements include statements
regarding:
·
|
our
anticipated sales, including comparable store net sales, net sales growth,
earnings growth and new store
growth;
|
·
|
costs
of pending and possible future legal
claims;
|
·
|
the
average size of our stores to be added for the remainder of
2009 and their performance compared with other store
sizes;
|
·
|
the
effect of a shift in merchandise mix to consumables and the continued
roll-out of frozen and refrigerated merchandise on gross profit margin and
sales;
|
·
|
the
possible effect of the current economic downturn, inflation and other
economic changes on our costs and profitability, including future changes
in minimum wage rates, shipping rates, domestic and foreign freight costs,
fuel costs and wage and benefit
costs;
|
·
|
our
cash needs, including our ability to fund our future capital expenditures
and working capital requirements;
and,
|
·
|
the
future reliability of, and cost associated with, our sources of supply,
particularly imported goods such as those sourced from China and Hong
Kong.
|
For a
discussion of the risks, uncertainties and assumptions that could affect our
future events, developments or results, you should carefully review the risk
factors summarized below and the more detailed discussions in the "Risk Factors”
and “Business” sections in our Annual Report on Form 10-K filed March 26,
2009. Also see section 1A. “Risk Factors” in Part II of this
Quarterly Report on Form 10-Q.
·
|
A
continued downturn in economic conditions could adversely affect our
sales.
|
·
|
Our
profitability is especially vulnerable to cost
increases.
|
·
|
Changes
in federal, state or local law, or our failure to comply with such laws,
could increase our expenses and expose us to legal
risks.
|
·
|
We
could encounter disruptions or additional costs in receiving and
distributing merchandise.
|
·
|
Sales
below our expectations during peak seasons may cause our operating results
to suffer materially.
|
·
|
Our
sales and profits rely on directly and indirectly imported merchandise
which may increase in cost or become
unavailable.
|
·
|
We
may be unable to expand our square footage as timely and profitably as
planned.
|
·
|
Our
profitability is affected by the mix of products we
sell.
|
·
|
Pressure
from competitors, including competition for merchandise, may reduce our
sales and profits.
|
·
|
Certain
provisions in our articles of incorporation and bylaws could delay or
discourage a takeover attempt that may be in shareholders’ best
interests.
|
Our
forward-looking statements could be wrong in light of these and other risks,
uncertainties and assumptions. The future events, developments or
results described in this report could turn out to be materially
different. We have no obligation to publicly update or revise our
forward-looking statements after the date of this quarterly report and you
should not expect us to do so.
Investors
should also be aware that while we do, from time to time, communicate with
securities analysts and others, it is against our policy to selectively disclose
to them any material nonpublic information or other confidential commercial
information. Accordingly, shareholders should not assume that we
agree with any statement or report issued by any analyst regardless of the
content of the statement or report, as we have a policy against confirming
information issued by others. Thus, to the extent that reports issued
by securities analysts contain any financial projections, forecasts or opinions,
such reports are not our responsibility.
Overview
Our net
sales are derived from the sale of merchandise. Two major factors
tend to affect our net sales trends. First is our success at opening
new stores or adding new stores through mergers or
acquisitions. Second is the performance of stores once they are
open. Sales vary at our existing stores from one year to the
next. We refer to this change as a change in comparable store net
sales, because we include only those stores that are open throughout both of the
periods being compared, beginning after the first fifteen months of
operation. We include sales from stores expanded during the period in
the calculation of comparable store net sales, which has the effect of
increasing our comparable store net sales. The term “expanded” also
includes stores that are relocated.
At May 2,
2009 we operated 3,667 stores in 48 states, with 31.0 million selling square
feet compared to 3,474 stores with 29.1 million selling square feet at May 3,
2008. During the 13 weeks ended May 2, 2009, we opened 79 stores,
expanded 25 stores and closed 3 stores, compared to 83 stores opened, 24 stores
expanded and 20 stores closed during the 13 weeks ended May 3,
2008. In the 13 weeks ended May 2, 2009, we added approximately 0.7
million selling square feet, of which approximately 0.1 million was added
through expanding existing stores. The average size of stores opened
during the 13 weeks ended May 2, 2009 was approximately 8,000 selling square
feet (or about 10,000 gross square feet). For the remainder of 2009,
we continue to plan to open stores that are approximately 8,000 - 9,000 selling
square feet (or about 10,000 – 12,000 gross square feet). We believe
that this size store is our optimal size operationally and that this size also
gives the customer a shopping environment which invites them to shop longer, buy
more and make return visits, which increases our customer traffic.
For the
13 weeks ended May 2, 2009, comparable store net sales increased 9.2% primarily
due to increased traffic. 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, as debit and credit card penetration
continued to increase in the first quarter of 2009, and the continued roll-out
of frozen and refrigerated merchandise to more of our stores. At May
2, 2009, we had frozen and refrigerated merchandise in approximately 1,320
stores compared to approximately 1,160 stores at May 3, 2008. We
believe that this has and will continue to enable us to increase sales and
earnings by increasing the number of shopping trips made by our
customers. In addition, we now accept food stamps in approximately
2,270 qualified stores compared to approximately 1,250 stores at May 3,
2008.
With the
pressures of the current economic environment, we have seen increases in the
demand for basic, consumable products in 2009. 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. While this shift in mix has lowered our merchandise margins
we were able to offset that impact in the first quarter of 2009 with decreased
costs for merchandise in many of our categories.
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.
Results
of Operations
13
Weeks Ended May 2, 2009 Compared to the 13 Weeks Ended May 3, 2008
Net
sales. Net sales
increased 14.2%, or $149.8 million, over last year’s first quarter resulting
from a 9.2% increase in comparable store net sales and sales in our new stores.
Comparable store net sales are positively affected by our expanded and relocated
stores, which we include in the calculation, and are negatively affected when we
open new stores or expand stores near existing stores.
Gross
Profit. For the 13 weeks
ended May 2, 2009, our gross profit margin was 34.6% compared to our gross
profit margin of 33.9% for the 13 weeks ended May 3, 2008. This
increase can be attributed to the following:
●
|
Occupancy
and distribution costs decreased 45 basis points in the quarter resulting
from the leveraging of the comparable store sales
increase.
|
●
|
Outbound
freight costs decreased 20 basis points in the current year quarter due
primarily to decreased fuel costs.
|
Selling, General
and Administrative Expenses. Selling,
general, and administrative expenses for the current quarter decreased to 26.5%,
as a percentage of net sales, compared to 27.3% for the same period last
year. This decrease was primarily due to the following:
·
|
Depreciation
decreased 70 basis points primarily due to the leveraging associated with
the increase in comparable store net sales in the current
quarter.
|
·
|
Store
operating costs decreased 25 basis points primarily due to lower utility
costs.
|
·
|
Payroll-related
expenses increased 20 basis points resulting
from:
|
o
|
increased
incentive compensation due to favorable sales and earnings results in
relation to their targets in the current quarter; partially offset
by,
|
o
|
lower
field payroll costs as a percentage of sales, due to the leveraging of the
comparable store sales increase.
|
·
|
Operating
and corporate expenses were flat, as a percentage of sales, in the current
quarter compared to the prior year quarter, as reductions in several
expenses and the leverageing associated with the increase in comparable
store net sales offset increased legal fees related to our class action
cases.
|
Operating
Income. Operating income for the
current quarter was 8.1% as a percentage of sales compared to 6.6% for the same
period last year as a result of the increased gross profit margin and decreased
selling, general and administrative expenses, as a percentage of sales, noted
above.
Income
Taxes. The income tax
rate for the 13 weeks ended May 2, 2009 was 37.6% compared to 36.0% for the 13
weeks ended May 3, 2008. The lower rate in the prior year
reflects the recognition of certain tax benefits in accordance with
Financial Accounting Standards Board
Interpretation
No. 48, “Accounting for
Uncertainty in Income Taxes.”
Liquidity
and Capital Resources
Our
business requires capital to open new stores, expand our distribution network
and operate our existing business. Our working capital requirements
for our existing business are seasonal in nature and typically reach their peak
in the months of September and October. Historically, we have
satisfied our seasonal working capital requirements, funded our store opening
and expansion programs and repurchased shares from internally generated funds
and borrowings under our credit facilities.
The
following table compares cash flow information for the 13 weeks ended May 2,
2009 and May 3, 2008:
|
|
13
Weeks ended
|
|
|
|
May
2,
|
|
|
May
3,
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
Net
cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$ |
54.6 |
|
|
$ |
34.5 |
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
(34.2 |
) |
|
|
7.4 |
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
(29.6 |
) |
|
|
1.7 |
|
Net cash
provided by operating activities increased $20.1 million due to increased
earnings before income taxes and depreciation and amortization in the current
year.
In the
current year, investing activities used cash of $34.2 million due to capital
expenditures, primarily for new stores and expansion or relocation of existing
stores. Investing activities provided cash of $7.4 million in the 13
weeks ended May 3, 2008 because, in the prior year quarter, we liquidated our
short-term investments due to market conditions. These amounts were
put into cash equivalent money market accounts. These cash proceeds
in the prior year quarter were partially offset by capital expenditures,
primarily for new stores and expansion or relocation of existing
stores.
In the
current year, financing activities used cash of $29.6 million. The
use of cash resulted from stock repurchases in the current quarter partially
offset by stock option exercises and employee stock plan
purchases. In the prior year, financing activities provided cash of
$1.7 million as a result of employee stock plan purchases and limited stock
option exercises. There were no share repurchases in the first
quarter of 2008.
At May 2,
2009, our long-term borrowings were $267.6 million, our capital lease
commitments were $0.5 million and we had $300.0 million available on the
revolving credit portion of our Unsecured Credit Agreement. We also
have $121.5 million and $50.0 million Letter of Credit Reimbursement and
Security Agreements, under which approximately $98.4 million
was committed to letters of credit issued for routine purchases of imported
merchandise as of May 2, 2009.
We
repurchased approximately 1.1 million shares of common stock for approximately
$42.7 million during the 13 weeks ended May 2, 2009. We did not
repurchase any shares during the 13 weeks ended May 3, 2008. As of
May 2, 2009, we had approximately $411.0 million remaining under the repurchase
authorizations.
We are
exposed to various types of market risk in the normal course of our business,
including the impact of interest rate changes and foreign currency rate
fluctuations. We may enter into interest rate swaps to manage our
exposure to interest rate changes, and we may employ other risk management
strategies, including the use of foreign currency forward
contracts. We do not enter into derivative instruments for any
purpose other than cash flow hedging purposes.
On March
20, 2008, we entered into two $75.0 million interest rate swap
agreements. These interest rate swaps are used to manage the risk
associated with interest rate fluctuations on a portion of our variable rate
debt. Under these agreements, we pay interest to financial
institutions at a fixed rate of 2.8%. In exchange, the financial
institutions pay us at a variable rate, which equals the variable rate on the
debt, excluding the credit spread. These swaps qualify for hedge
accounting treatment pursuant to SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities” and expire in March
2011. The fair value of these swaps as of May 2, 2009 is a liability
of $4.8 million. The fair value of these swaps as of May 3, 2008 was
an asset of $2.3 million.
As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in
Rule 13a-15(e) of the Exchange Act). Based on this evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective.
There
have been no changes in our internal control over financial reporting during the
quarter ended May 2, 2009 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
PART
II. OTHER INFORMATION
From time
to time, we are defendants in ordinary, routine litigation or proceedings
incidental to our business, including allegations regarding:
|
|
·
|
employment-related
matters;
|
|
|
·
|
infringement
of intellectual property rights;
|
|
|
·
|
product
safety matters, which may include product recalls in cooperation with the
Consumer Products Safety Commission or other
jurisdictions;
|
|
|
·
|
personal
injury/wrongful death claims; and
|
|
|
·
|
real
estate matters related to store
leases.
|
In
addition, we are defendants in several class or collective action
lawsuits. For a discussion of these lawsuits, please refer to “Note
8. Litigation Matters”, included in “Part I. Financial Information, Item 1.
Financial Statements” of this Form 10-Q.
We will
vigorously defend ourselves in these lawsuits. We do not believe that
any of these matters will, individually or in the aggregate, have a material
adverse effect on our business or financial condition. We cannot give
assurance, however, that one or more of these lawsuits will not have a material
adverse effect on our results of operations for the period in which they are
resolved.
There
have been no material changes to the risk factors described in Item 1A. “Risk
Factors” in the Company’s Annual Report on Form 10-K, filed with the SEC on
March 26, 2009.
The
following table presents our share repurchase activity for the 13 weeks ended
May 2, 2009:
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
Total
number
|
|
dollar
value of
|
|
|
|
|
|
|
of
shares
|
|
shares
that may
|
|
|
|
|
|
|
purchased
as
|
|
yet
be purchased
|
|
|
Total
number
|
|
Average
|
|
part
of publicly
|
|
under
the plans
|
|
|
of
shares
|
|
price
paid
|
|
announced
plans
|
|
or
programs
|
Period
|
|
purchased
|
|
per
share
|
|
or
programs
|
|
(in
millions)
|
February
1, 2009 to February 28, 2009
|
|
65,200
|
|
$ 37.41
|
|
65,200
|
|
$ 451.3
|
March
1, 2009 to April 4, 2009
|
|
709,312
|
|
39.88
|
|
709,312
|
|
423.0
|
April
5, 2009 to May 2, 2009
|
|
282,850
|
|
42.50
|
|
282,850
|
|
411.0
|
Total
|
|
1,057,362
|
|
$ 40.43
|
|
1,057,362
|
|
$ 411.0
|
Item 3.
DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
None.
Item 5.
OTHER INFORMATION.
None.
|
31.
Certifications required under Section 302 of the Sarbanes-Oxley
Act
|
32.
Certifications required under Section 906 of the Sarbanes-Oxley Act
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
|
|
DOLLAR
TREE, INC.
|
|
|
|
Date:
May 27, 2009
|
By:
|
/s/ Kevin S. Wampler
|
|
Kevin
S. Wampler
|
|
Chief
Financial Officer
(principal
financial and accounting
officer)
|