|
|
Years
Ended
|
|
|
|
January
30,
|
|
|
January
31,
|
|
|
February
2,
|
|
|
February
3,
|
|
|
January
28,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Income
Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
5,231.2 |
|
|
$ |
4,644.9 |
|
|
$ |
4,242.6 |
|
|
$ |
3,969.4 |
|
|
$ |
3,393.9 |
|
Gross
profit
|
|
|
1,856.8 |
|
|
|
1,592.2 |
|
|
|
1,461.1 |
|
|
|
1,357.2 |
|
|
|
1,172.4 |
|
Selling,
general and administrative expenses
|
|
|
1,344.0 |
|
|
|
1,226.4 |
|
|
|
1,130.8 |
|
|
|
1,046.4 |
|
|
|
888.5 |
|
Operating
income
|
|
|
512.8 |
|
|
|
365.8 |
|
|
|
330.3 |
|
|
|
310.8 |
|
|
|
283.9 |
|
Net
income
|
|
|
320.5 |
|
|
|
229.5 |
|
|
|
201.3 |
|
|
|
192.0 |
|
|
|
173.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin
Data (as a percentage of net sales):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
35.5 |
% |
|
|
34.3 |
% |
|
|
34.4 |
% |
|
|
34.2 |
% |
|
|
34.5 |
% |
Selling,
general and administrative expenses
|
|
|
25.7 |
% |
|
|
26.4 |
% |
|
|
26.6 |
% |
|
|
26.4 |
% |
|
|
26.2 |
% |
Operating
income
|
|
|
9.8 |
% |
|
|
7.9 |
% |
|
|
7.8 |
% |
|
|
7.8 |
% |
|
|
8.4 |
% |
Net
income
|
|
|
6.1 |
% |
|
|
4.9 |
% |
|
|
4.7 |
% |
|
|
4.8 |
% |
|
|
5.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$ |
3.56 |
|
|
$ |
2.53 |
|
|
$ |
2.09 |
|
|
$ |
1.85 |
|
|
$ |
1.60 |
|
Diluted
net income per share increase
|
|
|
40.7 |
% |
|
|
21.1 |
% |
|
|
13.0 |
% |
|
|
15.6 |
% |
|
|
1.3 |
% |
|
|
As
of
|
|
|
|
January
30,
|
|
January
31,
|
|
February
2,
|
|
February
3,
|
|
January
28,
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
short-term investments
|
|
$ |
599.4 |
|
|
$ |
364.4 |
|
|
$ |
81.1 |
|
|
$ |
306.8 |
|
|
$ |
339.8 |
|
Working
capital
|
|
|
829.7 |
|
|
|
663.3 |
|
|
|
382.9 |
|
|
|
575.7 |
|
|
|
648.2 |
|
Total
assets
|
|
|
2,289.7 |
|
|
|
2,035.7 |
|
|
|
1,787.7 |
|
|
|
1,882.2 |
|
|
|
1,798.4 |
|
Total
debt, including capital lease obligations
|
|
|
267.8 |
|
|
|
268.2 |
|
|
|
269.4 |
|
|
|
269.5 |
|
|
|
269.9 |
|
Shareholders'
equity
|
|
|
1,429.2 |
|
|
|
1,253.2 |
|
|
|
988.4 |
|
|
|
1,167.7 |
|
|
|
1,172.3 |
|
|
|
|
|
|
|
Years
Ended
|
|
|
|
January
30,
|
|
January
31,
|
|
February
2,
|
|
February
3,
|
|
January
28,
|
|
|
|
2010 |
|
|
|
2009 |
|
|
|
2008 |
|
|
|
2007 |
|
|
|
2006 |
|
Selected
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of stores open at end of period
|
|
|
3,806 |
|
|
|
3,591 |
|
|
|
3,411 |
|
|
|
3,219 |
|
|
|
2,914 |
|
Gross
square footage at end of period
|
|
|
41.1 |
|
|
|
38.5 |
|
|
|
36.1 |
|
|
|
33.3 |
|
|
|
29.2 |
|
Selling
square footage at end of period
|
|
|
32.3 |
|
|
|
30.3 |
|
|
|
28.4 |
|
|
|
26.3 |
|
|
|
23.0 |
|
Selling
square footage annual growth
|
|
|
6.6 |
% |
|
|
6.7 |
% |
|
|
8.0 |
% |
|
|
14.3 |
% |
|
|
12.6 |
% |
Net
sales annual growth
|
|
|
12.6 |
% |
|
|
9.5 |
% |
|
|
6.9 |
% |
|
|
16.9 |
% |
|
|
8.6 |
% |
Comparable
store net sales increase (decrease)
|
|
|
7.2 |
% |
|
|
4.1 |
% |
|
|
2.7 |
% |
|
|
4.6 |
% |
|
|
(0.8 |
%) |
Net
sales per selling square foot
|
|
$ |
167 |
|
|
$ |
158 |
|
|
$ |
155 |
|
|
$ |
161 |
|
|
$ |
156 |
|
Net
sales per store
|
|
$ |
1.4 |
|
|
$ |
1.3 |
|
|
$ |
1.3 |
|
|
$ |
1.3 |
|
|
$ |
1.2 |
|
Selected
Financial Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on assets
|
|
|
14.8 |
% |
|
|
12.0 |
% |
|
|
11.0 |
% |
|
|
10.4 |
% |
|
|
9.7 |
% |
Return
on equity
|
|
|
23.9 |
% |
|
|
20.5 |
% |
|
|
18.7 |
% |
|
|
16.4 |
% |
|
|
14.9 |
% |
Inventory
turns
|
|
|
4.1 |
|
|
|
3.8 |
|
|
|
3.7 |
|
|
|
3.5 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2009, 2008 and
2007;
|
|
|
·
|
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 2009 and 2008 and what we
expect them to be in 2010; 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 30,
2010, January 31, 2009 and February 2, 2008. 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
2009 compared to the comparable fiscal year 2008 and the fiscal year 2008
compared to the comparable fiscal year 2007.
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:
·
|
We
assign cost to store inventories using the retail inventory method,
determined on a weighted average cost basis. Since inception through
fiscal 2009, we have used one inventory pool for this
calculation. Over the years, we have invested in our retail
technology systems, which has allowed us to refine our estimate of
inventory cost under the retail method. On January, 31, 2010,
the first day of fiscal 2010, we will use approximately 30 inventory pools
in our retail inventory calculation. As a result of this
change, we will record a non-cash charge to gross profit and a
corresponding reduction in inventory, at cost, of approximately $26
million in the first quarter of 2010. This is a prospective change and
will not have any effect on prior periods.
|
·
|
On
November 2, 2009, we purchased a new distribution center in San
Bernardino, California. We have spent approximately $31.0
million in capital expenditures for this new distribution center through
fiscal 2009. We plan to spend an additional $6.0 million in the
first quarter of 2010 to finish the project before the building starts
receiving merchandise. This new distribution center will
replace our Salt Lake City, Utah leased facility when its lease ends in
April 2010.
|
·
|
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 is based, at our
option, on a LIBOR rate, plus a margin, or an alternate base rate, plus a
margin.
|
·
|
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.
|
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 30, 2010, we operated 3,806 stores in 48 states and the District of
Columbia, with 32.3 million selling square feet compared to 3,591 stores with
30.3 million selling square feet at January 31, 2009. During fiscal
2009, we opened 240 stores, expanded 75 stores and closed 25 stores, compared to
231 new stores opened, 86 stores expanded and 51 stores closed during fiscal
2008. In the current year we increased our selling square footage by
6.6%. Of the 2.0 million selling square foot increase in 2009, 0.3
million was added by expanding existing stores. The average size of
our stores opened in 2009 was approximately 8,500 selling square feet (or about
10,800 gross square feet). For 2010, 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.
In fiscal
2009, comparable store net sales increased by 7.2%. The comparable
store net sales increase was primarily the result of an increase in the number
of transactions. We believe comparable store net sales continued to
be positively affected by a number of our initiatives, as debit and credit card
penetration continued to increase in 2009, and we continued the roll-out of
frozen and refrigerated merchandise to more of our stores. At January
30, 2010 we had frozen and refrigerated merchandise in approximately 1,400
stores compared to approximately 1,200 stores at January 31, 2009. We
believe that the addition of frozen and refrigerated product enables us to
increase sales and earnings by increasing the number of shopping trips made by
our customers. In addition, we accept food stamps (under the
Supplemental Nutrition Assistance Program (“SNAP”)) in approximately 2,900
qualified stores compared to 2,200 at the end of 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 impacted our merchandise costs
we were able to offset that impact in the current year with decreased costs for
merchandise in many of our categories.
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 five
years. Inventory turnover improved by approximately 25 basis points
in 2009 to over 4 turns for the year. Inventory per selling square foot also
decreased 5.6% at January 30, 2010 compared to January 31, 2009.
In May
2007, legislation was enacted that increased the Federal Minimum
Wage. The last increase to $7.25 an hour was effective in July
2009. As a result, our wages have increased in the third quarter of
2009 and wages will continue to increase through the first half of 2010;
however, we believe that we can offset the increase in payroll costs through
increased 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.
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
30,
|
|
|
January
31,
|
|
|
February
2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost
of sales
|
|
|
64.5 |
% |
|
|
65.7 |
% |
|
|
65.6 |
% |
Gross
profit
|
|
|
35.5 |
% |
|
|
34.3 |
% |
|
|
34.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
|
|
|
25.7 |
% |
|
|
26.4 |
% |
|
|
26.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
9.8 |
% |
|
|
7.9 |
% |
|
|
7.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.1 |
% |
Interest
expense
|
|
|
(0.1 |
%) |
|
|
(0.2 |
%) |
|
|
(0.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
9.7 |
% |
|
|
7.7 |
% |
|
|
7.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
(3.6 |
%) |
|
|
(2.8 |
%) |
|
|
(2.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
6.1 |
% |
|
|
4.9 |
% |
|
|
4.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended January 30, 2010 compared to fiscal year ended January 31,
2009
Net Sales. Net
sales increased 12.6%, or $586.3 million, in 2009 compared to 2008, resulting
from a 7.2% 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, 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 30, 2010 and January 31, 2009.
|
|
January 30, 2010
|
|
|
January 31, 2009
|
|
|
|
|
|
|
|
|
New
stores
|
|
|
240 |
|
|
|
227 |
|
Acquired
leases
|
|
|
- |
|
|
|
4 |
|
Expanded
or relocated stores
|
|
|
75 |
|
|
|
86 |
|
Closed
stores
|
|
|
(25 |
) |
|
|
(51 |
) |
Of the
2.0 million selling square foot increase in 2009 approximately 0.3 million was
added by expanding existing stores.
Gross
profit margin increased to 35.5% in 2009 compared to 34.3% in
2008. The increase was due to the following:
·
|
Merchandise
costs, including inbound freight, decreased 80 basis points due primarily
to lower fuel costs and lower ocean freight rates compared to the prior
year. Improved initial mark-up in many categories during the
year was partially offset by an increase in the mix of higher cost
consumer product merchandise during fiscal 2009 compared to fiscal
2008.
|
·
|
Outbound
freight costs decreased 20 basis points in the current year due primarily
to decreased fuel costs.
|
·
|
Occupancy
and distribution costs decreased 30 basis points in the current year
resulting from the leveraging of the comparable store sales
increase.
|
Selling, General and Administrative
Expenses. Selling, general and administrative expenses, as a
percentage of net sales, decreased to 25.7% for 2009 compared to 26.4% for
2008. The decrease is primarily due to the following:
·
|
Depreciation
decreased 40 basis points primarily due to the leveraging associated with
the increase in comparable store net sales in the current
year.
|
·
|
Store
operating costs decreased 30 basis points primarily as a result of lower
utility costs as a percentage of sales, due to lower rates in the current
year and the leveraging from the comparable store net sales increase in
2009.
|
Operating
Income. Due to the reasons discussed above, operating income
margin was 9.8% in 2009 compared to 7.9% in 2008.
Income Taxes. Our
effective tax rate was 36.9% in 2009 compared to 36.1% in 2008. The
higher rate in the current year was the result of the favorable settlement of
several state tax audits in 2008 and a higher blended state tax rate in
2009.
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 2008 reflects the recognition of certain tax benefits and a
lower blended state tax rate resulting from the settlement of state tax audits
in 2008 which allowed us to release income tax reserves and accrue less interest
expense on tax uncertainties. These benefits to the tax rate were partially
offset by a reduction in tax-exempt interest income in 2008.
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-flow related information for the years ended
January 30, 2010, January 31, 2009, and February 2, 2008:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
January
30,
|
|
|
January
31,
|
|
|
February
2,
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Net
cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$ |
581.0 |
|
|
$ |
403.1 |
|
|
$ |
367.3 |
|
Investing
activities
|
|
|
(212.5 |
) |
|
|
(102.0 |
) |
|
|
(22.7 |
) |
Financing
activities
|
|
|
(161.3 |
) |
|
|
22.7 |
|
|
|
(389.0 |
) |
Net cash
provided by operating activities increased $177.9 million in 2009 compared to
2008 due to increased earnings before income taxes, depreciation and
amortization in the current year. Also providing more cash at January 30, 2010
was better inventory management resulting in lower inventory balances per store
and higher accounts payable balances due to the timing of payments and increased
incentive compensation accruals.
Net cash
provided by operating activities increased $35.8 million in 2008 compared to
2007 due to increased earnings before income taxes, depreciation and
amortization in 2008 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
used in investing activities increased $110.5 million in the current year
primarily due to short-term investment activity and increased capital
expenditures in 2009. In 2008 we liquidated our short-term
investments due to market conditions. The net proceeds from this
liquidation of $40.5 million were put into cash equivalent money market
accounts. In 2009 we also purchased $27.8 million of short-term
investments late in the year. Capital expenditures increased $33.5
million in 2009 primarily due to the purchase of our new distribution center in
San Bernardino, CA. We have spent approximately $31.0 million on this
project through the end of fiscal 2009 and expect to spend approximately $6.0
million in the first quarter of 2010 to complete the project.
Net cash
used in investing activities increased $79.3 million in fiscal 2008 compared to
fiscal 2007. Net proceeds from the sale of short-term investments were higher in
2007 in order to fund share repurchases. Overall, short-term
investment activity decreased in 2008 resulting from the liquidation of our
short-term investments early in 2008 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 2007 due to the expansions of the Briar Creek distribution center and
corporate headquarters.
In 2009,
net cash used in financing activities was $161.3 million as a result of share
repurchases of $190.7 million partially offset by stock option exercises and
employee stock plan purchases. In the prior year, net cash provided
by financing activities was $22.7 million. This was the result of
stock option exercises and employee stock plan purchases.
In fiscal
2008, financing activities provided cash of $22.7 million as a result of stock
option exercises and employee stock plan purchases. In 2007, 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 in 2008 being
higher than it had been in the prior several years.
At
January 30, 2010, our long-term borrowings were $267.5 million and our capital
lease commitments were $0.3 million. We also have $121.5 million and
$50.0 million Letter of Credit Reimbursement and Security Agreements, under
which approximately $101.8 million were committed to letters of credit issued
for routine purchases of imported merchandise at January 30, 2010.
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. As of January 30, 2010,
the $250.0 million term loan is outstanding under the Agreement and there were
no amounts outstanding under the $300.0 million revolving line of
credit.
We
repurchased approximately 4.3 million shares for approximately $193.1 million in
fiscal 2009. Less than 0.1 million of these shares totaling $2.4 million had not
settled as of January 30, 2010 and these amounts have been accrued in the
accompanying consolidated balance sheet as of January 30, 2010. We
repurchased 12.8 million shares for approximately $473.0 million in fiscal
2007. We had no share repurchases in fiscal 2008. At
January 30, 2010, we have approximately $260.6 million remaining under Board
authorization.
Funding
Requirements
Overview
We expect
our cash needs for opening new stores and expanding existing stores in fiscal
2010 to total approximately $136.0 million, which includes
capital expenditures, initial inventory and pre-opening costs. Our
estimated capital expenditures for fiscal 2010 are between $155.0 and $165.0
million, including planned expenditures for our new and expanded stores and the
addition of freezers and coolers to approximately 225 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 30,
2010, including both on- and off-balance sheet arrangements, and our
commitments, including interest on long-term borrowings (in
millions):
Contractual
Obligations
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
Lease
Financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease obligations
|
|
$ |
1,518.7 |
|
|
$ |
372.8 |
|
|
$ |
326.9 |
|
|
$ |
269.3 |
|
|
$ |
202.7 |
|
|
$ |
140.2 |
|
|
$ |
206.8 |
|
Capital
lease obligations
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Agreement
|
|
|
250.0 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
250.0 |
|
|
|
-- |
|
|
|
-- |
|
Revenue
bond financing
|
|
|
17.5 |
|
|
|
17.5 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Interest
on long-term borrowings
|
|
|
10.2 |
|
|
|
5.6 |
|
|
|
2.5 |
|
|
|
1.9 |
|
|
|
0.2 |
|
|
|
-- |
|
|
|
-- |
|
Total
obligations
|
|
$ |
1,796.7 |
|
|
$ |
396.0 |
|
|
$ |
329.5 |
|
|
$ |
271.3 |
|
|
$ |
452.9 |
|
|
$ |
140.2 |
|
|
$ |
206.8 |
|
Commitments
|
|
Total
|
|
|
Expiring
in 2010
|
|
|
Expiring
in 2011
|
|
|
Expiring
in 2012
|
|
|
Expiring
in 2013
|
|
|
Expiring
in 2014
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters
of credit and surety bonds
|
|
$ |
119.2 |
|
|
$ |
119.0 |
|
|
$ |
0.2 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
Freight
contracts
|
|
|
296.2 |
|
|
|
99.2 |
|
|
|
85.8 |
|
|
|
84.3 |
|
|
|
26.9 |
|
|
|
-- |
|
|
|
-- |
|
Technology
assets
|
|
|
2.4 |
|
|
|
2.4 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Total
commitments
|
|
$ |
417.8 |
|
|
$ |
220.6 |
|
|
$ |
86.0 |
|
|
$ |
84.3 |
|
|
$ |
26.9 |
|
|
$ |
-- |
|
|
$ |
-- |
|
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 30, 2010 for stores that
were not yet open on January 30, 2010.
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. The interest rate on the facility
was 0.74% at January 30, 2010. 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 30, 2010, we had the $250.0 million term
loan outstanding under the Agreement and no amounts outstanding under the $300.0
million revolving line of credit.
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 30, 2010, the balance outstanding on
the bonds was $17.5 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 0.25% at January 30, 2010.
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 30,
2010.
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 $101.8 million
of purchases committed under these letters of credit at January 30,
2010.
We also
have approximately $17.4 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 fiscal 2013. The
total amount of these commitments is approximately $296.2 million.
Technology
Assets. We have commitments totaling approximately $2.4
million to primarily purchase store technology assets for our stores during
2010.
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 and expire
in March 2011.
In the
fourth quarter of 2009, we entered into fuel derivative contracts with a third
party. As a result of these contracts, we have fixed the fuel price
on 2.4 million gallons of diesel fuel, or approximately 25% of our fuel needs
from May 2010 through January 2011. These derivative contracts do not
qualify for hedge accounting and therefore all changes in fair value for these
derivatives will be included directly in earnings.
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. Since our inception through fiscal 2009, we have used
one inventory pool for this calculation. Over the years, we have invested in our
retail technology systems, which has allowed us to refine our estimate of
inventory cost under the retail method. On January, 31, 2010, the first day of
fiscal 2010, we began using approximately 30 inventory pools in our retail
inventory calculation. As a result of this change, we expect to
record a non-cash charge to gross profit and a corresponding reduction in
inventory, at cost, of approximately $26 million in the first quarter of 2010.
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 30, 2010 is based on estimated shrink for most of 2009, 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 costs, store-level operating expenses,
such as property taxes and utilities, and certain other expenses, such as legal
reserves. 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. Our legal
proceedings are described in Item 3 “Legal Proceedings”
beginning on page 14 of this Form 10-K. The outcome of litigation,
particularly class or collective action lawsuits, is difficult to assess,
quantify or predict.
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
2009, see Item 8 “Financial Statements and Supplementary Data - Note 3 to the Consolidated Financial Statements” beginning on
page 39 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 March 23, 2008, April 12, 2009, and will be observed on April 4,
2010. We believe that the earlier Easter in 2010 could result in a
$10.0 million decrease in sales in the first quarter of 2010 as compared to the
first quarter of 2009. 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 11 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 2010, 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 in July 2009. As a result, our wages
increased in 2009 and will continue to increase through the first half of 2010;
however, we believe that we can partially offset the increase in payroll costs
through increased productivity and continued efficiencies in product flow to our
stores.
We are
exposed to various types of market risk in the normal course of our business,
including the impact of interest rate changes and diesel fuel cost changes. We
may enter into interest rate or diesel fuel swaps to manage exposure to interest
rate and diesel fuel price changes. We do not enter into derivative
instruments for any purpose other than cash flow hedging and we do not hold
derivative instruments for trading purposes.
Interest
Rate Risk
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. 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.
The
following table summarizes the financial terms of our interest rate swap
agreements and the fair value of the interest rate swaps at January 30,
2010:
Hedging
Instrument
|
Receive
Variable
|
Pay
Fixed
|
Knock-out
Rate
|
Expiration
|
Fair
Value
(Liability)
|
Two
$75.0 million interest rate swaps
|
LIBOR
|
2.80%
|
N/A
|
3/31/11
|
($4.1
million)
|
Hypothetically,
a 1% change in interest rates results in an approximate $1.5 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.
Diesel
Fuel Cost Risk
In order
to manage fluctuations in cash flows resulting from changes in diesel fuel
costs, we entered into fuel derivative contracts with a third party in the
fourth quarter of 2009 for 2.4 million gallons of diesel fuel, or approximately
25% of our fuel needs from May 2010 through January 2011. Under these
contracts, we pay the third party a fixed price for diesel fuel and receive
variable diesel fuel prices at amounts approximating current diesel fuel costs,
thereby creating the economic equivalent of a fixed-rate obligation. These
derivative contracts do not qualify for hedge accounting and therefore all
changes in fair value for this derivative will be included directly in earnings.
The fair value of these contracts at January 30, 2010 was a liability of $0.2
million.
Index
to Consolidated Financial Statements
|
Page
|
|
|
|
29
|
|
|
|
|
January
30, 2010, January 31, 2009 and February 2, 2008
|
30
|
|
|
|
|
January
31, 2009
|
31
|
|
|
|
|
for
the years ended January 30, 2010, January 31, 2009 and
|
|
February
2, 2008
|
32
|
|
|
|
|
January
30, 2010, January 31, 2009 and February 2, 2008
|
33
|
|
|
|
34
|
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 30, 2010 and January 31,
2009, 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 30, 2010. 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
30, 2010 and January 31, 2009, and the results of their operations and their
cash flows for each of the years in the three-year period ended January 30,
2010, in conformity with U.S. generally accepted accounting
principles.
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 30, 2010, 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 19, 2010 expressed
an unqualified opinion on the effectiveness of the Company’s internal control
over financial reporting.
/s/ KPMG
LLP
Norfolk,
Virginia
March 19,
2010
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
January
30,
|
|
|
January
31,
|
|
|
February
2,
|
|
(in
millions, except per share data)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Net
sales
|
|
$ |
5,231.2 |
|
|
$ |
4,644.9 |
|
|
$ |
4,242.6 |
|
|
|
|
3,374.4 |
|
|
|
3,052.7 |
|
|
|
2,781.5 |
|
Gross
profit
|
|
|
1,856.8 |
|
|
|
1,592.2 |
|
|
|
1,461.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses
(Notes 4, 8 and 9)
|
|
|
1,344.0 |
|
|
|
1,226.4 |
|
|
|
1,130.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
512.8 |
|
|
|
365.8 |
|
|
|
330.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1.9 |
|
|
|
2.6 |
|
|
|
6.7 |
|
Interest
expense (Notes 5 and 6)
|
|
|
(7.1 |
) |
|
|
(9.3 |
) |
|
|
(17.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
507.6 |
|
|
|
359.1 |
|
|
|
319.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes (Note 3)
|
|
|
187.1 |
|
|
|
129.6 |
|
|
|
118.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
320.5 |
|
|
$ |
229.5 |
|
|
$ |
201.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share (Note 7)
|
|
$ |
3.59 |
|
|
$ |
2.54 |
|
|
$ |
2.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share (Note 7)
|
|
$ |
3.56 |
|
|
$ |
2.53 |
|
|
$ |
2.09 |
|
See
accompanying Notes to Consolidated Financial Statements.
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
(in
millions, except share and per share data)
|
|
January
30, 2010
|
|
|
January
31, 2009
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
571.6 |
|
|
$ |
364.4 |
|
Short-term
investments
|
|
|
27.8 |
|
|
|
- |
|
Merchandise
inventories
|
|
|
679.8 |
|
|
|
675.8 |
|
Deferred
tax assets (Note 3)
|
|
|
6.2 |
|
|
|
7.7 |
|
Prepaid
expenses and other current assets
|
|
|
20.2 |
|
|
|
25.3 |
|
Total
current assets
|
|
|
1,305.6 |
|
|
|
1,073.2 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net (Note 2)
|
|
|
714.3 |
|
|
|
710.3 |
|
Goodwill
|
|
|
133.3 |
|
|
|
133.3 |
|
Deferred
tax assets (Note 3)
|
|
|
35.0 |
|
|
|
33.0 |
|
Other
assets, net (Note 8)
|
|
|
101.5 |
|
|
|
85.9 |
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
2,289.7 |
|
|
$ |
2,035.7 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt (Note 5)
|
|
$ |
17.5 |
|
|
$ |
17.6 |
|
Accounts
payable
|
|
|
219.9 |
|
|
|
192.9 |
|
Other
current liabilities (Note 2)
|
|
|
189.9 |
|
|
|
152.5 |
|
Income
taxes payable (Note 3)
|
|
|
48.6 |
|
|
|
46.9 |
|
Total
current liabilities
|
|
|
475.9 |
|
|
|
409.9 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt, excluding current portion (Note 5)
|
|
|
250.0 |
|
|
|
250.0 |
|
Income
taxes payable, long-term (Note 3)
|
|
|
14.4 |
|
|
|
14.7 |
|
Other
liabilities (Notes 2, 6 and 8)
|
|
|
120.2 |
|
|
|
107.9 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
860.5 |
|
|
|
782.5 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Notes 3 and 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity (Notes 6, 7 and 9):
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.01. 300,000,000 shares
|
|
|
|
|
|
|
|
|
authorized,
87,522,970 and 90,771,397 shares
|
|
|
|
|
|
|
|
|
issued
and outstanding at January 30, 2010
|
|
|
|
|
|
|
|
|
and
January 31, 2009, respectively
|
|
|
0.9 |
|
|
|
0.9 |
|
Additional
paid-in capital
|
|
|
- |
|
|
|
38.0 |
|
Accumulated
other comprehensive income (loss)
|
|
|
(2.4 |
) |
|
|
(2.6 |
) |
Retained
earnings
|
|
|
1,430.7 |
|
|
|
1,216.9 |
|
Total
shareholders' equity
|
|
|
1,429.2 |
|
|
|
1,253.2 |
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
$ |
2,289.7 |
|
|
$ |
2,035.7 |
|
See
accompanying Notes to Consolidated Financial Statements.
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
YEARS
ENDED JANUARY 30, 2010, JANUARY 31, 2009, AND FEBRUARY 2, 2008
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Share-
|
|
|
|
Stock
|
|
|
Common
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
holders'
|
|
(in
millions)
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Income
(Loss)
|
|
|
Earnings
|
|
|
Equity
|
|
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 |
|
Adoption
of tax uncertainty standard
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(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 (Notes 3 and 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 (Notes 3 and 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
30, 2010
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
320.5 |
|
|
|
320.5 |
|
Other
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.2 |
|
|
|
- |
|
|
|
0.2 |
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
320.7 |
|
Issuance
of stock under Employee Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
1.4 |
|
|
|
|
|
|
|
3.1 |
|
|
|
4.5 |
|
Exercise
of stock options, including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax benefit of $2.0 (Notes 3 and 9)
|
|
|
0.7 |
|
|
|
- |
|
|
|
8.7 |
|
|
|
- |
|
|
|
14.8 |
|
|
|
23.5 |
|
Repurchase
and retirement of shares (Note 7)
|
|
|
(4.3 |
) |
|
|
- |
|
|
|
(48.9 |
) |
|
|
- |
|
|
|
(144.2 |
) |
|
|
(193.1 |
) |
Stock-based
compensation, net, including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax benefit of $1.9 (Notes 1, 3
and 9)
|
|
|
0.2 |
|
|
|
- |
|
|
|
0.8 |
|
|
|
- |
|
|
|
19.6 |
|
|
|
20.4 |
|
Balance
at January 30, 2010
|
|
|
87.5 |
|
|
$ |
0.9 |
|
|
$ |
- |
|
|
$ |
(2.4 |
) |
|
$ |
1,430.7 |
|
|
$ |
1,429.2 |
|
See
accompanying Notes to Consolidated Financial Statements.
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
January
30,
|
|
|
January
31,
|
|
|
February
2,
|
|
(In
millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
320.5 |
|
|
$ |
229.5 |
|
|
$ |
201.3 |
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
157.8 |
|
|
|
161.7 |
|
|
|
159.3 |
|
Provision
for deferred income taxes
|
|
|
(0.6 |
) |
|
|
17.0 |
|
|
|
(46.8 |
) |
Stock
based compensation expense
|
|
|
21.7 |
|
|
|
16.7 |
|
|
|
11.3 |
|
Other
non-cash adjustments to net income
|
|
|
6.8 |
|
|
|
7.9 |
|
|
|
8.0 |
|
Changes
in assets and liabilities increasing
|
|
|
|
|
|
|
|
|
|
|
|
|
(decreasing)
cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise
inventories
|
|
|
(4.0 |
) |
|
|
(34.6 |
) |
|
|
(36.2 |
) |
Other
assets
|
|
|
5.8 |
|
|
|
27.3 |
|
|
|
(4.4 |
) |
Accounts
payable
|
|
|
27.0 |
|
|
|
(7.5 |
) |
|
|
2.3 |
|
Income
taxes payable
|
|
|
2.0 |
|
|
|
(36.8 |
) |
|
|
46.9 |
|
Other
current liabilities
|
|
|
30.5 |
|
|
|
6.1 |
|
|
|
8.7 |
|
Other
liabilities
|
|
|
13.5 |
|
|
|
15.8 |
|
|
|
16.9 |
|
Net
cash provided by operating activities
|
|
|
581.0 |
|
|
|
403.1 |
|
|
|
367.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(164.8 |
) |
|
|
(131.3 |
) |
|
|
(189.0 |
) |
Purchase
of short-term investments
|
|
|
(27.8 |
) |
|
|
(34.7 |
) |
|
|
(1,119.2 |
) |
Proceeds
from sale of short-term investments
|
|
|
- |
|
|
|
75.2 |
|
|
|
1,300.5 |
|
Purchase
of restricted investments
|
|
|
(37.3 |
) |
|
|
(29.0 |
) |
|
|
(99.3 |
) |
Proceeds
from sale of restricted investments
|
|
|
17.4 |
|
|
|
18.2 |
|
|
|
90.9 |
|
Acquisition
of favorable lease rights
|
|
|
- |
|
|
|
(0.4 |
) |
|
|
(6.6 |
) |
Net
cash used in investing activities
|
|
|
(212.5 |
) |
|
|
(102.0 |
) |
|
|
(22.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
payments under long-term debt and capital lease
obligations
|
|
|
(0.4 |
) |
|
|
(1.2 |
) |
|
|
(0.6 |
) |
Borrowings
from revolving credit facility
|
|
|
- |
|
|
|
- |
|
|
|
362.4 |
|
Repayments
of revolving credit facility
|
|
|
- |
|
|
|
- |
|
|
|
(362.4 |
) |
Payments
for share repurchases
|
|
|
(190.7 |
) |
|
|
- |
|
|
|
(473.0 |
) |
Proceeds
from stock issued pursuant to stock-based
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
plans
|
|
|
25.9 |
|
|
|
21.6 |
|
|
|
71.6 |
|
Tax
benefit of exercises/vesting of equity based compensation
|
|
|
3.9 |
|
|
|
2.3 |
|
|
|
13.0 |
|
Net
cash provided by (used in) financing activities
|
|
|
(161.3 |
) |
|
|
22.7 |
|
|
|
(389.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
207.2 |
|
|
|
323.8 |
|
|
|
(44.4 |
) |
Cash
and cash equivalents at beginning of year
|
|
|
364.4 |
|
|
|
40.6 |
|
|
|
85.0 |
|
Cash
and cash equivalents at end of year
|
|
$ |
571.6 |
|
|
$ |
364.4 |
|
|
$ |
40.6 |
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
7.1 |
|
|
$ |
9.7 |
|
|
$ |
18.7 |
|
Income
taxes
|
|
$ |
183.5 |
|
|
$ |
140.4 |
|
|
$ |
109.5 |
|
Supplemental
disclosure of non-cash investing and financing activities:
The
Company had no purchases of equipment under capital lease obligations in the
year ended January 30, 2010. Equipment purchased under capital lease
obligations was less than $0.1 million and $0.5 million, respectively, in the
years ended January 31, 2009 and February 2, 2008.
See
accompanying Notes to Consolidated Financial Statements
DOLLAR
TREE, INC.
AND
SUBSIDIARIES
Description
of Business
At
January 30, 2010, Dollar Tree, Inc. (the Company) owned and operated 3,806
discount variety retail stores. Approximately 3,650 of these stores
sell substantially all items for $1.00 or less. Substantially all of
the remaining stores are Deal$ stores that sell items for $1.00 or less but also
sell items for more than $1.00. The Company's stores operate under
the names of Dollar Tree, Deal$ and Dollar Bills. The Company’s
stores average approximately 8,500 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 and the District of Columbia. 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.
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 “2009” or “Fiscal 2009,” “2008” or “Fiscal 2008,” and “2007”
or “Fiscal 2007,” relates to as of or for the years ended January 30, 2010,
January 31, 2009, and February 2, 2008, respectively.
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 30, 2010 and January 31, 2009 includes $506.8
million and $336.1 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’s short-term investments at January 30, 2010 were $27.8
million. These investments 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 can be
converted into cash on the dates that the interest rates for these bonds reset,
which is typically weekly or monthly, depending on terms of the underlying
agreement.
Merchandise
Inventories
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 $27.4 million and $26.9 million at
January 30, 2010 and January 31, 2009, 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" in the accompanying consolidated
statements of operations.
Costs
incurred related to software developed for internal use are capitalized and
amortized generally over three years.
Goodwill
Goodwill
is not amortized, but rather tested for impairment at least annually. 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 2009 and determined that no impairment loss
existed.
Other
Assets, Net
Other
assets, net consists primarily of restricted investments and intangible
assets. Restricted investments were $78.4 million and $58.5 million
at January 30, 2010 and January 31, 2009, 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.
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. 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 2009, 2008 and 2007, the Company recorded
charges of $1.3 million, $1.2 million and $0.8 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 and diesel fuel costs. By
entering into receive-variable, pay-fixed interest rate and diesel fuel swaps,
the Company limits its exposure to changes in variable interest rates and diesel
fuel prices. The Company is exposed to credit-related losses in the
event of non-performance by the counterparty to these
instruments. However, these swaps are in a net liability position as
of January 30, 2010, therefore no credit risk exists as of that
date. Interest rate or diesel fuel cost differentials paid or
received on the swaps are recognized as adjustments to interest and freight
expense, respectively, 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. The 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 loss”, net
of tax, in the accompanying consolidated balance sheets. The Company
entered into diesel fuel swaps in the fourth quarter of 2009 that do not qualify
for hedge accounting. The fair value of this interest rate swap is
recorded in the accompanying consolidated balance sheets as a component of
“other liabilities” (note 6).
Fair
Value Measurements
In
February 2008, the Financial Accounting Standards Board (FASB) released new
guidance which delayed the effective date to value 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) until the first
quarter of 2009. The adoption of the new guidance did not have a
significant impact on the Consolidated Financial Statements.
Fair
value is defined as 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, a fair value hierarchy has been
established 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 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, short-term investments, restricted
investments and interest rate and diesel fuel swaps represent the financial
assets and liabilities that were accounted for at fair value on a recurring
basis as of January 30, 2010. As required, 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,
short-term investments and restricted investments was $571.6 million, $27.8
million and $78.4 million, respectively at January 30, 2010. These
fair values were determined using Level 1 measurements in the fair value
hierarchy. The fair value of the swaps as of January 30, 2010 was a
liability of $4.3 million. These fair values were estimated using
Level 2 measurements in the fair value hierarchy. These estimates
used discounted cash flow calculations based upon forward interest-rate yield
and diesel cost 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.
Certain
assets and liabilities are measured at fair value on a nonrecurring basis; that
is, the assets and liabilities are not measured at fair value on an ongoing
basis but are subject to fair value adjustments in certain circumstances (e.g.,
when there is evidence of impairment). The Company recorded an impairment charge
of $1.3 million in fiscal 2009 to reduce certain store assets to their estimated
fair value. The fair values were determined based on the income
approach, in which the Company utilized internal cash flow projections over the
life of the underlying lease agreements discounted based on a risk-free rate of
return. These measures of fair value, and related inputs, are
considered a level 3 approach under the fair value hierarchy. There
were no other changes related to level 3 assets.
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 $8.3
million, $6.6 million and $8.4 million for the years ended January 30, 2010,
January 31, 2009, and February 2, 2008, 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.
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 recognizes all share-based payments to employees, including grants of
employee stock options, in the financial statements based on their fair
values. Total stock-based compensation expense for 2009, 2008 and
2007 was $21.7 million, $16.7 million and $11.3 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 after applying the treasury stock
method.
Property,
Plant and Equipment, Net
Property,
plant and equipment, net, as of January 30, 2010 and January 31, 2009 consists
of the following:
|
|
January
30,
|
|
|
January
31,
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
29.4 |
|
|
$ |
29.4 |
|
Buildings
|
|
|
180.2 |
|
|
|
181.9 |
|
Leasehold
improvements
|
|
|
634.2 |
|
|
|
590.9 |
|
Furniture,
fixtures and equipment
|
|
|
895.5 |
|
|
|
856.0 |
|
Construction
in progress
|
|
|
55.5 |
|
|
|
22.4 |
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment
|
|
|
1,794.8 |
|
|
|
1,680.6 |
|
|
|
|
|
|
|
|
|
|
Less: accumulated
depreciation
|
|
|
1,080.5 |
|
|
|
970.3 |
|
|
|
|
|
|
|
|
|
|
Total
property, plant and equipment, net
|
|
$ |
714.3 |
|
|
$ |
710.3 |
|
Depreciation
expense was $157.8 million, $161.1 million and $158.5 million for the years
ended January 30, 2010, January 31, 2009, and February 2, 2008,
respectively.
Other
Current Liabilities
Other
current liabilities as of January 30, 2010 and January 31, 2009 consist of
accrued expenses for the following:
|
|
January
30,
|
|
|
January
31,
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
$ |
71.3 |
|
|
$ |
49.9 |
|
Taxes
(other than income taxes)
|
|
|
26.7 |
|
|
|
22.3 |
|
Insurance
|
|
|
27.4 |
|
|
|
30.3 |
|
Other
|
|
|
64.5 |
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
Total
other current liabilities
|
|
$ |
189.9 |
|
|
$ |
152.5 |
|
Other
Long-Term Liabilities
Other
long-term liabilities as of January 30, 2010 and January 31, 2009 consist of the
following:
|
|
January
30,
|
|
|
January
31,
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Deferred
rent
|
|
$ |
69.3 |
|
|
$ |
62.3 |
|
Insurance
|
|
|
38.5 |
|
|
|
31.1 |
|
Other
|
|
|
12.4 |
|
|
|
14.5 |
|
|
|
|
|
|
|
|
|
|
Total
other long-term liabilities
|
|
$ |
120.2 |
|
|
$ |
107.9 |
|
Total
income taxes were allocated as follows:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
January
30,
|
|
|
January
31,
|
|
|
February
2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
187.1 |
|
|
$ |
129.6 |
|
|
$ |
118.5 |
|
Accumulated
other comprehensive income(loss)
|
|
|
|
|
|
|
|
|
|
marking
derivative financial instruments
|
|
|
|
|
|
|
|
|
|
to
fair value
|
|
|
0.1 |
|
|
|
(1.7 |
) |
|
|
- |
|
Stockholders'
equity, tax benefit on
|
|
|
|
|
|
|
|
|
|
|
|
|
exercises/vesting
of equity based
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
|
|
|
(3.9 |
) |
|
|
(2.3 |
) |
|
|
(13.0 |
) |
|
|
$ |
183.3 |
|
|
$ |
125.6 |
|
|
$ |
105.5 |
|
The
provision for income taxes consists of the following:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
January
30,
|
|
|
January
31,
|
|
|
February
2,
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Federal
- current
|
|
$ |
160.2 |
|
|
$ |
91.9 |
|
|
$ |
147.5 |
|
State
- current
|
|
|
27.5 |
|
|
|
20.7 |
|
|
|
17.8 |
|
Total
current
|
|
|
187.7 |
|
|
|
112.6 |
|
|
|
165.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
- deferred
|
|
|
(0.4 |
) |
|
|
15.4 |
|
|
|
(39.4 |
) |
State
- deferred
|
|
|
(0.2 |
) |
|
|
1.6 |
|
|
|
(7.4 |
) |
Total
deferred
|
|
|
(0.6 |
) |
|
|
17.0 |
|
|
|
(46.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
$ |
187.1 |
|
|
$ |
129.6 |
|
|
$ |
118.5 |
|
Included
in current tax expense for the years ended January 30, 2010 and January 31,
2009, are amounts related to uncertain tax positions associated with temporary
differences.
A
reconciliation of the statutory federal income tax rate and the effective rate
follows:
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
|
January
30,
|
|
|
January
31,
|
|
|
February
2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
tax rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
Effect
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and local income taxes,
|
|
|
|
|
|
|
|
|
|
net
of federal income tax
|
|
|
|
|
|
|
|
|
|
benefit
|
|
|
3.3 |
|
|
|
3.0 |
|
|
|
2.9 |
|
Other,
net
|
|
|
(1.4 |
) |
|
|
(1.9 |
) |
|
|
(0.8 |
) |
Effective
tax rate
|
|
|
36.9 |
% |
|
|
36.1 |
% |
|
|
37.1 |
% |
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
30,
|
|
|
January
31,
|
|
|
|
2010
|
|
|
2009
|
|
(in
millions)
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Accrued
expenses
|
|
$ |
41.3 |
|
|
$ |
39.2 |
|
Property
and equipment
|
|
|
11.3 |
|
|
|
12.3 |
|
State
tax net operating losses and credit
|
|
|
|
|
|
|
|
|
carryforwards,
net of federal benefit
|
|
|
6.7 |
|
|
|
5.4 |
|
Accrued
compensation expense
|
|
|
22.1 |
|
|
|
14.9 |
|
Other
|
|
|
1.6 |
|
|
|
1.7 |
|
Total
deferred tax assets
|
|
|
83.0 |
|
|
|
73.5 |
|
Valuation
allowance
|
|
|
(6.1 |
) |
|
|
(4.9 |
) |
Deferred
tax assets, net
|
|
|
76.9 |
|
|
|
68.6 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(15.1 |
) |
|
|
(13.5 |
) |
Prepaid
expenses
|
|
|
(7.0 |
) |
|
|
(10.4 |
) |
Inventory
|
|
|
(13.6 |
) |
|
|
(4.0 |
) |
Total
deferred tax liabilities
|
|
|
(35.7 |
) |
|
|
(27.9 |
) |
|
|
|
|
|
|
|
|
|
Net
deferred tax asset
|
|
$ |
41.2 |
|
|
$ |
40.7 |
|
A
valuation allowance of $6.1 million, net of Federal tax benefits, has been
provided principally for certain state credit carryforwards and net operating
losses. 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
company is participating in the Internal Revenue Service (“IRS”) Compliance
Assurance Program (“CAP”) for the 2009 tax year and will participate for
2010. This program accelerates the examination of key transactions
with the goal of resolving any issues before the tax return is
filed. Our federal tax returns have been examined and all issues have
been settled through 2007. IRS is currently examining the 2008 tax
return. In addition, several states completed their examination
of fiscal years prior to 2005. In general, fiscal years 2006 and
forward are within the statute of limitations for state tax
purposes. The statute of limitations is still open prior to 2005 for
some states.
The
balance for unrecognized tax benefits at January 30, 2010, was $14.4
million. The total amount of unrecognized tax benefits at January 30,
2010, that, if recognized, would affect the effective tax rate was $9.6 million
(net of the federal tax benefit). The following is a reconciliation
of the Company’s total gross unrecognized tax benefits for the year ended
January 30, 2010:
|
|
(in
millions)
|
|
Balance
at January 31, 2009
|
|
$ |
14.7 |
|
Additions,
based on tax positions related to current year
|
|
|
0.2 |
|
Additions
for tax positions of prior years
|
|
|
1.4 |
|
Reductions
for tax positions of prior years
|
|
|
(1.0 |
) |
Settlements
|
|
|
(0.4 |
) |
Lapses
in statute of limitations
|
|
|
(0.5 |
) |
Balance
at January 30, 2010
|
|
$ |
14.4 |
|
During
fiscal 2009, the Company accrued potential interest of $0.8 million, related to
these unrecognized tax benefits. No potential penalties were accrued
during 2009 related to the unrecognized tax benefits. As of January
30, 2010, the Company has recorded a liability for potential penalties and
interest of $0.1 million and $3.0 million, respectively.
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)
|
|
2010
|
|
$ |
372.8 |
|
2011
|
|
|
326.9 |
|
2012
|
|
|
269.3 |
|
2013
|
|
|
202.7 |
|
2014
|
|
|
140.2 |
|
Thereafter
|
|
|
206.8 |
|
Total
minimum lease payments
|
|
$ |
1,518.7 |
|
The above
future minimum lease payments include amounts for leases that were signed prior
to January 30, 2010 for stores that were not open as of January 30,
2010.
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 $2.8 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
30,
|
|
|
January
31,
|
|
|
February
2,
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
rentals
|
|
$ |
349.9 |
|
|
$ |
323.9 |
|
|
$ |
295.4 |
|
Contingent
rentals
|
|
|
1.0 |
|
|
|
(0.3 |
) |
|
|
1.2 |
|
Non-Operating
Facilities
The
Company is responsible for payments under leases for certain closed stores. 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 $0.1 million, $0.6 million and $0.1 million in 2009, 2008
and 2007, respectively.
Related
Parties
The
Company 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 30, 2010, January 31, 2009
and February 2, 2008, respectively. Total future commitments under
related party leases are $2.5 million.
Freight
Services
The
Company has contracted outbound freight services from various contract carriers
with contracts expiring through fiscal 2013. The total amount of
these commitments is approximately $296.2 million, of which approximately $99.2
million is committed in 2010, $85.8 million is committed in 2011, $84.3 million
is committed in 2012 and $26.9 million is committed in 2013.
Technology
Assets
The
Company has commitments totaling approximately $2.4 million to purchase store
technology assets for its stores during 2010.
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 $101.8 million was committed to these letters of credit at
January 30, 2010. 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 30, 2010, there were no letters of credit
committed under the Agreement.
The
Company also has approximately $15.0 million in stand-by letters of credit that
serve as collateral for its self-insurance programs and expire in fiscal
2010.
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 $2.4 million, which is committed through various
dates through fiscal 2011.
Contingencies
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 500 individuals are included in the collective
action. The Court presently has before it the Company’s motion to
decertify the collective action together with the briefs of the
parties. If the motion is denied and the case proceeds as a
collective action, it is scheduled for trial in the summer of 2010. 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, and a class of approximately 720
individuals exists. Following discovery, which is on-going, the
Company anticipates it will seek to decertify the class. No trial
date has been scheduled. The Company is vigorously defending itself
in this matter.
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 there are now approximately 340 opt in
plaintiffs. The Company expects that the Court will consider a motion
by the Company to decertify the collective action later in 2010. In
October 2009, 34 plaintiffs, most of whom are opt-in plaintiffs in the Alabama
action, filed a new class action Complaint in a federal court in Virginia,
alleging gender pay and promotion discrimination under Title
VII. Subsequent to year end, the case was dismissed with
prejudice. At this date, the plaintiffs have a right of appeal to the U.S.
Court of Appeals for the Fourth Circuit.
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.
Long-term
debt at January 30, 2010 and January 31, 2009 consists of the
following:
|
|
January
30,
|
|
|
January
31,
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
$550.0
million Unsecured Credit Agreement,
|
|
|
|
|
|
|
interest
payable monthly at LIBOR,
|
|
|
|
|
|
|
plus
0.50%, which was 0.74% at
|
|
|
|
|
|
|
January
30, 2010, principal payable upon
|
|
|
|
|
|
|
expiration
of the facility in February 2013
|
|
$ |
250.0 |
|
|
$ |
250.0 |
|
|
|
|
|
|
|
|
|
|
Demand
Revenue Bonds, interest payable monthly
|
|
|
|
|
|
|
|
|
at
a variable rate which was 0.25% at
|
|
|
|
|
|
|
|
|
January
30, 2010, principal payable on
|
|
|
|
|
|
|
|
|
demand,
maturing June 2018
|
|
|
17.5 |
|
|
|
17.6 |
|
|
|
|
|
|
|
|
|
|
Total
long-term debt
|
|
$ |
267.5 |
|
|
$ |
267.6 |
|
|
|
|
|
|
|
|
|
|
Less
current portion
|
|
|
17.5 |
|
|
|
17.6 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt, excluding current portion
|
|
$ |
250.0 |
|
|
$ |
250.0 |
|
Maturities
of long-term debt are as follows: 2010 - $17.5 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. As of January 30, 2010, we had the $250.0
million term loan outstanding under the Agreement and no amounts outstanding
under the $300.0 million revolving line of credit.
Demand
Revenue Bonds
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 and expire in March 2011. The
fair value of these swaps as of January 30, 2010 was a liability of $4.1
million.
In order
to manage fluctuations in cash flows resulting from changes in diesel fuel
costs, we entered into fuel derivative contracts with a third party in the
fourth quarter of 2009 for 2.4 million gallons of diesel fuel, or approximately
25% of our fuel needs from May 2010 through January 2011. Under these
contracts, we pay the third party a fixed price for diesel fuel and receive
variable diesel fuel prices at amounts approximating current diesel fuel costs,
thereby creating the economic equivalent of a fixed-rate obligation. These
derivative contracts do not qualify for hedge accounting and therefore all
changes in fair value for these derivatives will be included directly into
earnings. The fair value of these contracts at January 30, 2010 was a
liability of $0.2 million.
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 30, 2010 and January 31, 2009.
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
30,
|
|
|
January
31,
|
|
|
February
2,
|
|
(in millions, except per share
data)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
320.5 |
|
|
$ |
229.5 |
|
|
$ |
201.3 |
|
Weighted
average number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
89.4 |
|
|
|
90.3 |
|
|
|
95.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$ |
3.59 |
|
|
$ |
2.54 |
|
|
$ |
2.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
320.5 |
|
|
$ |
229.5 |
|
|
$ |
201.3 |
|
Weighted
average number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
89.4 |
|
|
|
90.3 |
|
|
|
95.9 |
|
Dilutive
effect of stock options and
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted
stock (as determined by
|
|
|
|
|
|
|
|
|
|
|
|
|
applying
the treasury stock method)
|
|
|
0.6 |
|
|
|
0.5 |
|
|
|
0.5 |
|
Weighted
average number of shares and
|
|
|
|
|
|
|
|
|
|
|
|
|
dilutive
potential shares outstanding
|
|
|
90.0 |
|
|
|
90.8 |
|
|
|
96.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$ |
3.56 |
|
|
$ |
2.53 |
|
|
$ |
2.09 |
|
At
January 30, 2010, less than 0.1 million stock options 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. At
January 31, 2009 and February 2, 2008, 0.5 million, and 0.4 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
The
Company repurchased approximately 4.3 million shares for approximately $193.1
million in fiscal 2009. Less than 0.1 million shares totaling $2.4
million had not settled as of January 30, 2010 and these amounts have been
accrued in the accompanying consolidated balance sheets as of January 30,
2010. The Company repurchased approximately 12.8 million shares for
approximately $473.0 million in fiscal 2007. The Company had no share
repurchases in fiscal 2008. At January 30, 2010, the Company had
approximately $260.6 million remaining under Board authorization.
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.
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 30, 2010
|
$30.4
million
|
Year
Ended January 31, 2009
|
21.6
million
|
Year
Ended February 2, 2008
|
19.0
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:
· 20%
after two years of service
|
· 40%
after three years of service
|
· 60%
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 $1.8
million and $1.5 million, respectively, at January 30, 2010 and January 31,
2009, 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 30, 2010,
January 31, 2009, or February 2, 2008.
At
January 30, 2010, 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 (EIP).
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
Executive Officer Equity Incentive Plan (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.
Stock
Options
In 2008
and 2007, the Company granted a total of 0.5 million and 0.4 million service
based stock options from the EIP, EOEP and the NEDP, respectively. In
2009, the Company granted less than 0.1 million service based stock options from
these plans. 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
2009, 2008 and 2007, the Company recognized $3.7 million, $4.7 million and $2.7
million, respectively of expense related to service based stock option
grants. As of January 30, 2010, there was approximately $3.3 million
of total unrecognized compensation expense related to these stock options which
is expected to be recognized over a weighted average period of 15
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 was expensed
over the service period. The Company recognized $0.5 million of
expense on these stock options in 2009 and in 2008. The fair value of
these stock options was determined using the Company’s closing stock price on
the grant date.
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 2009, 2008 and 2007 are as
follows:
|
|
Fiscal
2009
|
|
|
Fiscal
2008
|
|
|
Fiscal
2007
|
|
Expected
term in years
|
|
|
6.0 |
|
|
|
6.0 |
|
|
|
6.0 |
|
Expected
volatility
|
|
|
43.6 |
% |
|
|
45.7 |
% |
|
|
28.4 |
% |
Annual
dividend yield
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Risk
free interest rate
|
|
|
2.0 |
% |
|
|
2.8 |
% |
|
|
4.5 |
% |
Weighted
average fair value of options
|
|
|
|
|
|
|
|
|
|
granted
during the period
|
|
$ |
20.76 |
|
|
$ |
13.45 |
|
|
$ |
14.33 |
|
Options
granted
|
|
|
15,939 |
|
|
|
558,293 |
|
|
|
386,490 |
|
The
following tables summarize the Company's various option plans and information
about options outstanding at January 30, 2010 and changes during the year then
ended.
Stock
Option Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
Aggregate
|
|
|
|
|
|
|
Per
Share
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
|
|
Exercise
|
|
Remaining
|
|
Value
(in
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of period
|
|
|
1,942,616 |
|
|
$ |
29.41 |
|
|
|
|
|
|
|
Granted
|
|
|
15,939 |
|
|
|
43.97 |
|
|
|
|
|
|
|
Exercised
|
|
|
(700,803 |
) |
|
|
30.68 |
|
|
|
|
|
|
|
Forfeited
|
|
|
(30,913 |
) |
|
|
25.50 |
|
|
|
|
|
|
|
Outstanding,
end of period
|
|
|
1,226,839 |
|
|
$ |
29.00 |
|
|
|
5.6 |
|
|
$ |
25.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
vested and expected to vest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at
January 30, 2010
|
|
|
1,199,882 |
|
|
$ |
29.05 |
|
|
|
5.6 |
|
|
$ |
24.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at end of period
|
|
|
741,484 |
|
|
$ |
28.06 |
|
|
|
4.1 |
|
|
$ |
15.9 |
|
|
|
|
Options
Outstanding
|
Options
Exercisable
|
|
|
Options
|
|
|
|
Options
|
|
|
Range
of
|
|
Outstanding
|
Weighted
Avg.
|
Weighted
Avg.
|
Exercisable
|
Weighted
Avg.
|
Exercise
|
|
at
January 30,
|
Remaining
|
Exercise
|
at
January 30,
|
Exercise
|
Prices
|
|
2010
|
Contractual
Life
|
Price
|
|
2010
|
|
Price
|
|
|
|
|
|
|
|
|
|
$0.86
|
|
1,116
|
N/A
|
$ 0.86
|
|
1,116
|
|
$ 0.86
|
$10.99
to $21.28
|
150,568
|
2.8
|
19.57
|
|
150,568
|
|
19.57
|
$21.29
to $29.79
|
615,637
|
6.4
|
26.12
|
|
293,125
|
|
25.85
|
$29.80
to $43.56
|
445,677
|
5.2
|
35.67
|
|
290,991
|
|
34.43
|
$43.56
to $48.36
|
13,841
|
9.3
|
44.68
|
|
5,684
|
|
46.65
|
|
|
|
|
|
|
|
|
|
$0.86
to $48.36
|
1,226,839
|
6.4
|
$ 29.00
|
|
741,484
|
|
$ 28.06
|
The
intrinsic value of options exercised during 2009, 2008 and 2007 was
approximately $11.0 million, $7.2 million and $32.8 million,
respectively.
Restricted
Stock
The
Company granted 0.4 million, 0.4 million and 0.3 million service based RSUs, net
of forfeitures in 2009, 2008 and 2007, 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 $12.8
million, $9.5 million and $7.7 million of expense related to these RSUs during
2009, 2008 and 2007. As of January 30, 2010, there was approximately
$15.9 million of total unrecognized compensation expense related to these RSUs
which is expected to be recognized over a weighted average period of 20
months.
In 2009,
the Company granted 0.2 million RSUs from the EIP and the EOEP to certain
officers of the Company, contingent on the Company meeting certain performance
targets in 2009 and future service of these officers through fiscal
2010. The Company met these performance targets in fiscal 2009;
therefore, the fair value of these RSUs of $6.4 million is being expensed over
the service period. The Company recognized $2.7 million of expense on
these RSUs in 2009. The fair value of these RSUs was determined using
the Company’s closing stock price on the grant date.
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 was expensed over the
service period. The Company recognized $1.1 million and $1.2 million
of expense on these RSUs in 2009 and 2008, respectively. The fair
value of these RSUs was determined using the Company’s closing stock price on
the grant date.
The
following table summarizes the status of RSUs as of January 30, 2010, and
changes during the year then ended:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
Date
Fair
|
|
|
|
Shares
|
|
|
Value
|
|
|
|
|
|
|
|
|
Nonvested
at January 31, 2009
|
|
|
747,493 |
|
|
$ |
30.13 |
|
Granted
|
|
|
566,950 |
|
|
|
43.31 |
|
Vested
|
|
|
(308,744 |
) |
|
|
31.20 |
|
Forfeited
|
|
|
(42,251 |
) |
|
|
36.19 |
|
Nonvested
at January 30, 2010
|
|
|
963,448 |
|
|
$ |
37.29 |
|
In
connection with the vesting of RSUs in 2009, 2008 and 2007, certain employees
elected to receive shares net of minimum statutory tax withholding amounts which
totaled $4.8 million, $2.6 million and $2.9 million,
respectively. The total fair value of the restricted shares vested
during the years ended January 30, 2010, January 31, 2009 and February 2, 2008
was $9.6 million, $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 1,333,000 shares as of
January 30, 2010.
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
2009
|
Fiscal
2008
|
Fiscal
2007
|
|
|
|
|
|
Expected
term
|
|
3
months
|
3
months
|
3
months
|
Expected
volatility
|
17.4%
|
25.6%
|
16.3%
|
Annual
dividend yield
|
-
|
-
|
-
|
Risk
free interest rate
|
1.8%
|
3.8%
|
4.4%
|
The
weighted average per share fair value of those purchase rights granted in 2009,
2008 and 2007 was $7.78, $5.89 and $5.74, respectively. Total expense
recognized for these purchase rights was $0.9 million, $0.8 million and $0.9
million in 2009, 2008 and 2007, respectively.
As noted in footnote 1,
the Company assigns cost to store inventories using the retail inventory method,
determined on a weighted average cost basis. Since inception through fiscal
2009, the Company used one inventory pool for this calculation. Over the years,
we have invested in our retail technology systems, which has allowed us to
refine our estimate of inventory cost under the retail method. On January, 31,
2010, the first day of fiscal 2010, the Company began using approximately 30
inventory pools in its retail inventory calculation. As a result of
this change, the Company will record a non-cash charge to gross profit and a
corresponding reduction in inventory, at cost, of approximately $26 million in
the first quarter of 2010. This is a prospective change and will not
have any effect on prior periods.
The
following table sets forth certain items from the Company's unaudited
consolidated statements of operations for each quarter of fiscal year 2009 and
2008. 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
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,201.1 |
|
|
$ |
1,222.8 |
|
|
$ |
1,248.7 |
|
|
$ |
1,558.6 |
|
Gross
profit
|
|
$ |
415.4 |
|
|
$ |
421.8 |
|
|
$ |
441.2 |
|
|
$ |
578.4 |
|
Operating
income
|
|
$ |
97.6 |
|
|
$ |
89.2 |
|
|
$ |
107.6 |
|
|
$ |
218.4 |
|
Net
income
|
|
$ |
60.4 |
|
|
$ |
56.9 |
|
|
$ |
68.2 |
|
|
$ |
135.0 |
|
Diluted
net income per share
|
|
$ |
0.66 |
|
|
$ |
0.63 |
|
|
$ |
0.76 |
|
|
$ |
1.52 |
|
Stores
open at end of quarter
|
|
|
3,667 |
|
|
|
3,717 |
|
|
|
3,803 |
|
|
|
3,806 |
|
Comparable
store net sales change
|
|
|
9.2 |
% |
|
|
6.8 |
% |
|
|
6.5 |
% |
|
|
6.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Easter was observed on April 12, 2009 and March 23, 2008
|
|
|
|
|
|
None.
Evaluation
of disclosure controls and procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports under the Securities
Exchange Act of 1934 (Exchange Act) is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and
procedures, we recognize that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily is required to apply our
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
Our
management has carried out, with the participation of the Company’s Chief
Executive Officer and Chief Financial Officer, an evaluation of the
effectiveness of the Company’s disclosure controls and procedures, as defined in
Rule 13a-15(e) under the Exchange Act. Based upon this evaluation,
our Chief Executive Officer and our Chief Financial Officer concluded that, as
of January 30, 2010, the Company’s disclosure controls and procedures are
effective to provide reasonable assurance that material information required to
be disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms.
Management’s
Report on Internal Control over Financial Reporting
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Exchange Act Rule
13a-15(f). The Company’s management conducted an assessment of the
Company’s internal control over financial reporting based on the framework
established by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal
Control-Integrated Framework. Based on this assessment, the
Company’s management has concluded that, as of January 30, 2010, the Company’s
internal control over financial reporting is effective. The Company’s
independent registered public accounting firm, KPMG LLP, has audited the
Company’s consolidated financial statements and has issued an attestation report
on the effectiveness of the Company’s internal control over financial
reporting. Their report appears below.
Changes
in internal controls
There
were no changes in our internal controls over financial reporting that occurred
during our most recently completed fiscal quarter that materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders
Dollar
Tree, Inc.:
We have
audited Dollar Tree, Inc.’s internal control over financial reporting as of
January 30, 2010, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Dollar Tree, Inc.’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our
audit.
We
conducted our audit 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 effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Dollar Tree, Inc. maintained, in all material respects, effective
internal control over financial reporting as of January 30, 2010, based on
criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Dollar Tree,
Inc. and subsidiaries as of January 30, 2010 and January 31, 2009, 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 30, 2010, and our report dated March 19, 2010
expressed an unqualified opinion on those consolidated financial
statements.
/s/ KPMG
LLP
Norfolk,
Virginia
March 19,
2010
None.
PART
III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
The
information concerning our Directors and Executive Officers required by this
Item is incorporated by reference in Dollar Tree, Inc.'s Proxy Statement
relating to our Annual Meeting of Shareholders to be held on June 17, 2010
(Proxy Statement), under the caption "Information concerning Nominees, Directors
and Executive Officers.”
Information
set forth in the Proxy Statement under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance," with respect to director and executive officer
compliance with Section 16(a), is incorporated herein by reference.
Information
set forth in the Proxy Statement under the caption “Committees of the Board of
Directors – Audit Committee” with respect to our audit committee financial
expert required by this Item is incorporated herein by reference.
The
information concerning our code of ethics required by this Item is incorporated
by reference to the Proxy Statement, under the caption "Code of
Ethics."
Information
set forth in the Proxy Statement under the caption "Compensation of Executive
Officers," with respect to executive compensation, is incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
information concerning our securities authorized for issuance under equity
compensation plans required by this Item is incorporated by reference to the
Proxy Statement under the caption “Equity Compensation Plan
Information.”
Information
set forth in the Proxy Statement under the caption "Ownership of Common Stock,"
with respect to security ownership of certain beneficial owners and management,
is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE
Information
set forth in the Proxy Statement under the caption "Certain Relationships and
Related Transactions," is incorporated herein by reference.
The
information concerning the independence of our directors required by this Item
is incorporated by reference to the Proxy Statement under the caption “Corporate
Governance and Director Independence - Independence.”
Information
set forth in the Proxy Statement under the caption "Our Principal Accountants,"
is incorporated herein by reference.
PART
IV
Documents filed
as part of this report:
1.
|
Financial
Statements. Reference is made to the Index to the Consolidated
Financial Statements set forth under Part II, Item 8, on Page 28 of this
Form 10-K.
|
|
|
2.
|
Financial
Statement Schedules. All schedules for which provision is made
in the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions, are not
applicable, or the information is included in the Consolidated Financial
Statements, and therefore have been omitted.
|
|
|
3.
|
Exhibits. The
exhibits listed on the accompanying Index to Exhibits, on page 55 of this
Form 10-K, are filed as part of, or incorporated by reference into, this
report.
|
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:
March 19, 2010
|
By: /s/ Bob
Sasser
|
|
Bob Sasser
|
|
President, Chief Executive
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature
|
Title
|
Date
|
|
|
|
|
|
|
/s/ Macon F. Brock,
Jr.
|
|
|
Macon
F. Brock, Jr.
|
Chairman;
Director
|
March
19, 2010
|
|
|
|
/s/ Bob
Sasser
|
|
|
Bob
Sasser
|
Director,
President and
|
March
19, 2010
|
|
Chief
Executive Officer
|
|
|
(principal
executive officer)
|
|
|
|
|
/s/ Thomas A. Saunders, III
|
|
|
Thomas
A. Saunders, III
|
Lead
Director
|
March
19, 2010
|
|
|
|
/s/ J. Douglas
Perry
|
|
|
J.
Douglas Perry
|
Chairman
Emeritus; Director
|
March
19, 2010
|
|
|
|
/s/ Arnold S.
Barron
|
|
|
Arnold
S. Barron
|
Director
|
March
19, 2010
|
|
|
|
/s/ Mary Anne
Citrino
|
|
|
Mary
Anne Citrino
|
Director
|
March
19, 2010
|
|
|
|
/s/ H. Ray
Compton
|
|
|
H.
Ray Compton
|
Director
|
March
19, 2010
|
|
|
|
/s/ Conrad M.
Hall
|
|
March
19, 2010
|
Conrad
M. Hall
|
Director
|
|
|
|
|
/s/ Richard G.
Lesser
|
|
|
Richard
G. Lesser
|
Director
|
March
19, 2010
|
|
|
|
/s/ Lemuel E. Lewis
|
|
|
Lemuel
E. Lewis
|
Director
|
March
19, 2010
|
|
|
|
/s/ Kevin S.
Wampler
|
Chief
Financial Officer
|
|
Kevin
S. Wampler
|
(principal
financial and
|
March
19, 2010
|
|
accounting
officer)
|
|
|
|
|
/s/ Thomas E.
Whiddon
|
|
|
Thomas
E. Whiddon
|
Director
|
March
19, 2010
|
|
|
|
/s/ Dr. Carl P.
Zeithaml
|
|
|
Dr.
Carl P. Zeithaml
|
Director
|
March
19, 2010
|
Index to
Exhibits
3. Articles and
Bylaws
3.1
|
Articles
of Incorporation of Dollar Tree, Inc. (as amended, effective June 23,
2008) (Exhibit 3.1 to the Company’s June 19, 2008 Current Report on Form
8-K, incorporated herein by this reference)
|
|
|
3.2
|
Bylaws
of Dollar Tree, Inc., as amended (Exhibit 3.1 to the Company’s January 14,
2010 Current Report on Form 8-K, incorporated herein by this
reference)
|
4.
Instruments Defining the Rights
of Security Holders
4.1
|
Form
of Common Stock Certificate (Exhibit 4.1 to the Company’s March 13, 2008
Current Report on Form 8-K, incorporated herein by this
reference)
|
21. Subsidiaries of the
Registrant
23. Consents of Experts and
Counsel
31.
Certifications required under
Section 302 of the Sarbanes-Oxley Act
32.
Statements under Section 906 of
the Sarbanes-Oxley Act
55