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accompanying Notes to Condensed Consolidated Financial Statements.
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DOLLAR
TREE STORES, INC.
AND
SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
1. BASIS
OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements
of Dollar
Tree Stores, Inc. and its wholly-owned subsidiaries (the "Company")
have been
prepared in accordance with U.S. generally accepted accounting
principles for
interim financial information
and are presented in accordance with the requirements of Form 10-Q
and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information
and footnotes required by generally accepted accounting principles
for complete
financial statements. The condensed consolidated financial statements
should be
read in conjunction with the consolidated financial statements
and notes thereto
and management's discussion and analysis of financial condition
and results of
operations for the year ended January 28, 2006 contained in the
Company’s Annual
Report on Form 10-K (Form 10-K) filed April 12, 2006.
The
results of operations for the 13 and 39 weeks ended October 28,
2006 are not
necessarily indicative of the results to be expected for the entire
fiscal year
ending February 3, 2007.
In
the
Company’s opinion, the unaudited condensed consolidated financial statements
included herein contain all adjustments (consisting of those of
a normal
recurring nature) considered necessary for a fair presentation
of its financial
position as of October 28, 2006 and October 29, 2005 and the results
of its
operations and cash flows for the periods presented. The January
28, 2006
balance sheet information was derived from the audited consolidated
financial
statements as of that date.
2.
NET INCOME PER SHARE
The
following table sets forth the calculation of basic and diluted
net income per
share:
|
|
13
Weeks Ended
|
|
39
Weeks Ended
|
|
|
|
October
28,
|
|
October
29,
|
|
October
28,
|
|
October
29,
|
|
(In
millions, except per share data)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Basic
net income per share:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
32.5
|
|
$
|
31.1
|
|
$
|
94.4
|
|
$
|
87.4
|
|
Weighted
average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
102.2
|
|
|
107.3
|
|
|
104.0
|
|
|
108.9
|
|
Basic
net income per share
|
|
$
|
0.32
|
|
$
|
0.29
|
|
$
|
0.91
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
32.5
|
|
$
|
31.1
|
|
$
|
94.4
|
|
$
|
87.4
|
|
Weighted
average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
outstanding
|
|
|
102.2
|
|
|
107.3
|
|
|
104.0
|
|
|
108.9
|
|
Dilutive
effect of stock options and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted
stock units (as determined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
by
applying the treasury stock method)
|
|
|
0.6
|
|
|
0.3
|
|
|
0.5
|
|
|
0.5
|
|
Weighted
average number of shares and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dilutive
potential shares outstanding
|
|
|
102.8
|
|
|
107.6
|
|
|
104.5
|
|
|
109.4
|
|
Diluted
net income per share
|
|
$
|
0.32
|
|
$
|
0.29
|
|
$
|
0.90
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the
13 weeks ended October 28, 2006 and October 29, 2005, approximately
1.2 million
and 4.3 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. For the
39 weeks ended
October 28, 2006 and October 29, 2005, approximately 1.6 million
and 3.3 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.
3.
STOCK-BASED COMPENSATION
Effective,
January 29, 2006, the Company adopted Statement of Financial Accounting
Standards, No. 123(R), “Share-Based Payment,” (SFAS 123R). This statement is a
revision of SFAS 123 and supersedes Accounting Principle Board
Opinion No. 25,
“Accounting for Stock Issued to Employees,” (APB Opinion 25). SFAS 123R requires
all share-based payments to employees, including grants of employee
stock
options, to be recognized in the financial statements based on
their fair
values. The Company adopted SFAS 123R using the modified prospective
method,
which requires application of the standard to all awards granted,
modified,
repurchased or cancelled on or after January 29, 2006, and to all
awards granted
to employees that were unvested as of January 29, 2006. In accordance
with the
modified prospective method of implementation, prior period financial
statements
have not been restated to reflect the impact of SFAS 123R. During
the 13 and 39
weeks ended October 28, 2006, the Company recognized $0.5 million
and $1.5
million, respectively, of stock-based compensation expense as a
result of the
adoption of SFAS 123R. Total stock-based compensation expense for
the 13 and 39
weeks ended October 28, 2006 was $1.8 million and $5.3 million,
respectively.
Through January 28, 2006, the Company applied the intrinsic value
recognition
and measurement principles of APB Opinion 25 and related Interpretations
in
accounting for its stock-based employee compensation plans. Prior
to the
adoption of SFAS 123R, the Company reported all tax benefits resulting
from the
exercise of stock options as operating cash flows in the Condensed
Consolidated
Statements of Cash Flows. SFAS 123R requires cash flows resulting
from the tax
deductions in excess of the tax benefits of the related compensation
cost
recognized in the financial statements (excess tax benefits) to
be classified as
financing cash flows. Thus, the Company has classified the $3.6
million of
excess tax benefits recognized in the 39 weeks ended October 28,
2006 as
financing cash flows. In the 39 weeks ended October 29, 2005, excess
tax
benefits of $0.7 million recognized prior to the adoption of SFAS
123R are
classified as operating cash flows.
If
the
accounting provisions of SFAS 123R had been applied in the 13 and
39 weeks ended
October 29, 2005, the Company's net income and net income per share
would have
been reduced to the pro forma amounts indicated in the following
table:
|
|
13
Weeks
|
|
39
Weeks
|
|
|
|
Ended
|
|
Ended
|
|
|
|
October
29,
|
|
October
29,
|
|
(In
millions, except per share data)
|
|
2005
|
|
2005
|
|
|
|
|
|
|
|
Net
income, as reported
|
|
$
|
31.1
|
|
$
|
87.4
|
|
Add:
Total stock-based employee compensation expense
|
|
|
|
|
|
|
|
included
in net income, net of related tax effects
|
|
|
0.5
|
|
|
0.9
|
|
Deduct:
Total stock-based employee compensation determined
|
|
|
|
|
|
|
|
under
fair value-based method, net of related tax effects
|
|
|
(2.4
|
)
|
|
(7.0
|
)
|
Pro
forma net income
|
|
$
|
29.2
|
|
$
|
81.3
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
Basic,
as reported
|
|
$
|
0.29
|
|
$
|
0.80
|
|
Basic,
pro forma
|
|
$
|
0.27
|
|
$
|
0.75
|
|
|
|
|
|
|
|
|
|
Diluted,
as reported
|
|
$
|
0.29
|
|
$
|
0.80
|
|
Diluted,
pro forma
|
|
$
|
0.27
|
|
$
|
0.74
|
|
|
|
|
|
|
|
|
|
On
December 15, 2005, the Compensation Committee of the Board of Directors
of the
Company approved the acceleration of the vesting date of all previously
issued,
outstanding and unvested options under all current stock option
plans, including
the 1995 Stock Incentive Plan, the 2003 Equity Incentive Plan and
the 2004
Executive Officer Equity Plan, effective as of December 15, 2005.
At the
effective date, almost all of these options had exercise prices
higher than the
then current market price for the Company’s stock. The Company made the decision
to accelerate vesting of these options to give employees increased
performance
incentives and to enhance current retention. This decision also
eliminated
non-cash compensation expense that would have been recorded in
future periods
following the Company’s adoption of SFAS 123R on January 29, 2006. Future
compensation expense has been reduced by approximately $14.9 million,
over a
period of four years during which the options would have vested,
as a result of
the option acceleration program, including approximately $2.2 million
and $6.5
million that would have been recognized in the 13 and 39 weeks
ended October 28,
2006, respectively.
The
Company grants stock based compensation awards from the plans described
below.
Under
the
Company’s 2003 Equity Incentive Plan (EIP), the Company may grant up to
6.0
million shares of its Common Stock, plus any shares available for
future awards
under the Company’s Stock Incentive Plan, 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.
Any
restricted stock or restricted stock units (RSUs) awarded are subject
to certain
general restrictions. The restricted stock shares may not be sold,
transferred,
pledged or disposed of until the restrictions on the shares have
lapsed or have
been removed under the provisions of the plan. In addition, if
a holder of the
restricted shares ceases to be employed by the Company, any shares
in which the
restrictions have not lapsed will be forfeited, unless the holder
meets certain
retirement criteria.
The
2004
Executive Officer Equity 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.
The
2003
Director Deferred Compensation Plan (DDCP) permits any of the Company's
directors who receive a retainer or other fees for Board or 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 to
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 at the beginning of each calendar quarter.
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
was issued. The options are fully vested when issued and have a
term of 10
years.
Stock
Options
In
the 39
weeks ended October 28, 2006, the Company granted a total of 339,900
stock
options from the EIP, EOEP and the DDCP. The fair value of the
2006 options was
estimated on the date of grant using the Black-Scholes option-pricing
model with
the following weighted average assumptions:
Expected
term in years
|
|
|
6.0
|
|
Expected
volatility
|
|
|
30.2
|
%
|
Annual
dividend yield
|
|
|
-
|
|
Risk
free interest rate
|
|
|
4.8
|
%
|
The
fair
value of these stock options granted of $3.4 million, net of
expected
forfeitures, is being recognized over the three-year vesting
period of these
options, or a shorter period based on the retirement eligibility
of the grantee.
During the 13 and 39 weeks ended October 28, 2006, the Company
recognized $0.4
million and $1.0 million, respectively, of expense related
to these option
grants. 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
following tables summarize the Company's various option plans
as of October 28,
2006 and information about fixed options outstanding at October
28, 2006.
|
|
October
28, 2006
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
Aggregate
|
|
|
|
|
|
Per
Share
|
|
Average
|
|
Intrinsic
|
|
|
|
|
|
Exercise
|
|
Remaining
|
|
Value
(in
|
|
|
|
Shares
|
|
Price
|
|
Term
|
|
millions)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 29, 2006
|
|
|
5,990,757
|
|
$
|
24.71
|
|
|
|
|
|
|
|
Granted
|
|
|
339,900
|
|
|
27.65
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,368,409
|
)
|
|
21.84
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(121,052
|
)
|
|
29.22
|
|
|
|
|
|
|
|
Outstanding
at October 28, 2006
|
|
|
4,841,196
|
|
|
25.62
|
|
|
5.8
|
|
$
|
24.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
vested and expected
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
vest at October 28, 2006
|
|
|
4,807,133
|
|
|
25.60
|
|
|
5.8
|
|
|
24.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at end of period
|
|
|
4,498,696
|
|
|
25.47
|
|
|
5.5
|
|
|
23.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
granted
during the period
|
|
|
|
|
$
|
10.93
|
|
|
|
|
|
|
|
|
|
Options
Outstanding |
|
Options
Exercisable
|
|
|
|
Options
|
|
|
|
|
|
Options
|
|
|
|
Range
of
|
|
Outstanding
|
|
Weighted
Avg.
|
|
Weighted
Avg.
|
|
Exercisable
|
|
Weighted
Avg.
|
|
Exercise
|
|
at
October 28,
|
|
Remaining
|
|
Exercise
|
|
at
October 28,
|
|
Exercise
|
|
Prices
|
|
2006
|
|
Contractual
Life
|
|
Price
|
|
2006
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.86
|
|
|
7,264
|
|
|
N/A
|
|
|
0.86
|
|
|
7,264
|
|
|
0.86
|
|
$2.95
to $10.98
|
|
|
12,700
|
|
|
0.8
|
|
|
10.13
|
|
|
12,700
|
|
|
10.13
|
|
$10.99
to $21.28
|
|
|
1,017,314
|
|
|
5.5
|
|
|
19.23
|
|
|
1,017,314
|
|
|
19.23
|
|
$21.29
to $29.79
|
|
|
2,621,100
|
|
|
6.1
|
|
|
25.24
|
|
|
2,278,600
|
|
|
24.89
|
|
$29.80
to $42.56
|
|
|
1,182,818
|
|
|
5.2
|
|
|
32.27
|
|
|
1,182,818
|
|
|
32.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.86
to $42.56
|
|
|
4,841,196
|
|
|
|
|
|
|
|
|
4,498,696
|
|
|
|
|
The
intrinsic
value of options exercised during the 39 weeks ended October
28, 2006 was
approximately $8.0 million.
Restricted
Stock
The
Company granted 281,047 RSUs, net of forfeitures in the 39
weeks ended October
28, 2006. In fiscal 2005, the Company granted 252,936 RSUs,
net of forfeitures.
These were granted from the EIP and the EOEP to the Company’s employees and
officers. The fair value of all of these RSUs of $14.0 million
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
$1.2
million and $3.7 million, respectively, of expense related
to the RSUs for the
13 and 39 weeks ended October 28, 2006. As of October 28,
2006 there was
approximately $9.1 million of total unrecognized compensation
expense related to
these RSUs which is expected to be recognized over a weighted
average period of
26 months. For the 13 and 39 weeks ended October 29, 2005,
the Company
recognized approximately $0.6 million and $0.9 million, respectively,
of expense
for the RSUs granted in 2005.
In
2005,
the Company granted 40,000 RSUs from the 2004 EOEP to certain
officers of the
Company, contingent on the Company meeting certain performance
targets in 2005
and future service of these officers through various points
through July 2007.
The Company met these performance targets in fiscal 2005;
therefore, the fair
value of these RSUs of $1.0 million is being expensed over
the service period.
The fair value of these RSUs was determined using the Company’s closing stock
price January 28, 2006 (the last day of fiscal 2005), when
the performance
targets were satisfied. The Company has recognized $0.1 million
and $0.2
million, respectively, of expense related to these RSUs in
the 13 and 39 weeks
ended October 28, 2006. The remaining $0.1 million will be
recognized over the
vesting periods through 2007. For the 13 and 39 weeks ended
October 29, 2005,
the Company recognized $0.2 million and $0.5 million, respectively,
for these
RSUs.
The
following table summarizes the status of RSUs as of October
28, 2006, and
changes during the 39 weeks then ended.
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant
|
|
|
|
|
|
Date
Fair
|
|
|
|
Shares
|
|
Value
|
|
|
|
|
|
|
|
Nonvested
at January 28, 2006
|
|
|
295,507
|
|
$
|
25.00
|
|
Granted
|
|
|
291,697
|
|
|
27.67
|
|
Vested
|
|
|
(101,482
|
)
|
|
25.02
|
|
Forfeited
|
|
|
(17,578
|
)
|
|
26.63
|
|
Nonvested
at October 28, 2006
|
|
|
468,144
|
|
|
26.57
|
|
Employee
Stock Purchase Plan
Under
the
Dollar Tree Stores, Inc. Employee Stock Purchase Plan (ESPP),
the Company is
authorized to issue up to 1,040,780 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 up to an annual maximum of $25,000 of
the Company’s
common stock measured using the common stock price at the beginning
of each
quarter. 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. The fair
value of the
employees' purchase rights granted in the 13 weeks ended April
29, 2006, July
29, 2006 and October 28, 2006 was estimated on the date of grant
using the
Black-Scholes option-pricing model with the following weighted
average
assumptions:
|
13
weeks
|
|
13
weeks
|
|
13
weeks
|
|
ended
|
|
ended
|
|
ended
|
|
October
28, 2006
|
|
July
29, 2006
|
|
April
29, 2006
|
Expected
term
|
3
months
|
|
3
months
|
|
3
months
|
Expected
volatility
|
16.1%
|
|
12.9%
|
|
14.3%
|
Annual
dividend yield
|
-
|
|
-
|
|
-
|
Risk
free interest rate
|
5.2%
|
|
5.2%
|
|
4.4%
|
The
weighted average per share fair value of those purchase rights
granted in the 13
weeks ended October 28, 2006, July 30, 2006 and April 29, 2006
was $4.73, $4.59
and $4.20, respectively. The Company recognized $0.1 million
and $0.4 million of
compensation expense in the 13 and 39 weeks ended October 28,
2006,
respectively, for the purchase rights granted during 2006.
4. DEAL$
ACQUISITION
On
March
25, 2006, the Company completed its acquisition of 138 Deal$
stores. These
stores are located primarily in the Midwest part of the United
States and the
Company has existing logistics capacity to service these stores.
This
acquisition also includes a few “combo” stores that offer an expanded assortment
of merchandise including items that sell for more than $1.
Substantially all
Deal$ stores acquired will continue to operate under the Deal$
banner while
providing the Company an opportunity to leverage its Dollar
Tree infrastructure
in the testing of new merchandise concepts, including higher
price points,
without disrupting the single-price point model in its Dollar
Tree
stores.
The
Company paid approximately $32.0 million for store-related
and other assets and
$22.1 million for store and distribution center inventory.
This amount includes
approximately $0.6 million of direct costs associated with
the acquisition. The
results of Deal$ store operations are included in the Company’s financial
statements since the acquisition date and did not have a significant
impact on
the Company’s operating results through October 28, 2006. This acquisition
is
immaterial to the Company’s operations as a whole and therefore no proforma
disclosure of financial information has been presented. The
following table
summarizes the allocation of the purchase price to the fair
value of the assets
acquired.
(In
millions)
|
|
|
|
Inventory
|
|
$
|
22.1
|
|
Other
current assets
|
|
|
0.1
|
|
Property
and equipment
|
|
|
15.1
|
|
Goodwill
|
|
|
14.7
|
|
Other
intangibles
|
|
|
2.1
|
|
|
|
$
|
54.1
|
|
The
goodwill resulting from this acquisition will not be amortized
but will be
tested annually for impairment. Included in other intangibles
is approximately
$2.1 million related to net favorable lease rights for operating
leases for
retail locations. This amount is being amortized on a straight-line
basis to
rent expense over 35 months, the weighted average remaining
initial lease term
of the locations purchased.
5.
SHAREHOLDERS’ EQUITY
Comprehensive
Income
The
Company's comprehensive income reflects the effect of recording
derivative
financial instruments pursuant to SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities.” The following table provides a
reconciliation of net income to total comprehensive income:
|
|
13
Weeks Ended
|
|
39
Weeks Ended
|
|
|
October
28,
|
|
October
29,
|
|
October
28,
|
|
October
29,
|
|
(In
millions)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
32.5
|
|
$
|
31.1
|
|
$
|
94.4
|
|
$
|
87.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value adjustment-derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
flow hedging instrument
|
|
|
-
|
|
|
0.1
|
|
|
-
|
|
|
0.5
|
|
Income
tax expense
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(0.2
|
)
|
Fair
value adjustment, net of tax
|
|
|
-
|
|
|
0.1
|
|
|
-
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
for amounts included
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
net income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Income
tax benefit
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Reclassification
for amounts included
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
net income, net of tax
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
$
|
32.5
|
|
$
|
31.2
|
|
$
|
94.4
|
|
$
|
87.7
|
|
The
transition adjustment resulting from the adoption of
SFAS No. 133 was recorded
in "accumulated other comprehensive income" and is being
amortized to expense
over the remaining life of the related interest rate
swap.
Share
Repurchase Program
In
March
2005, the Company’s Board of Directors authorized the repurchase of up
to $300.0
million of the Company’s stock through March 2008. During the 13 and 39 weeks
ended October 28, 2006, the Company repurchased approximately
0.3 million shares
and 5.7 million shares for approximately $9.3 million
and $148.2 million,
respectively under the March 2005 authorization. As of
October 28, 2006,
approximately $26.7 million remains under this authorization.
In
November 2006, the Company’s Board of Directors authorized the repurchase of up
to $500.0 million of the Company’s stock. This
authorization is in addition to the March 2005 authorization.
6.
LITIGATION MATTERS
In
2003,
the Company was served with a lawsuit in California state
court by a former
employee who alleged that employees did not properly
receive sufficient meal
breaks and paid rest periods along with other alleged
wage and hourly
violations. The suit requested that the California state
court certify the case
as a class action. This suit was dismissed with prejudice
in May 2005, and the
dismissal has been appealed. A California appeals court
granted the appeal and
now the Company is seeking a rehearing from that Court;
should that fail, the
Company will appeal to the California Supreme Court.
In
2005,
the Company was served with a lawsuit by former employees in Oregon
who allege
that they did not properly receive sufficient meal breaks and paid
rest periods.
They also allege other wage and hour violations. The plantiffs
requested the
court to certify classes for their various claims and the presiding
judge
recently did so with respect to two classes, one alleging that
Dollar Tree's
Oregon employees, in violation of that state's labor laws, were
not paid for
rest breaks and the other that upon termination of employment,
employees were
not tendered their final pay in a timely manner. Other claims of the
plaintiffs were dismissed by an earlier Order of the Court and
are being
appealed by the plaintiffs.
In
2006,
the Company was served with a lawsuit by a former employee in a
California state
court alleging that she was paid for wages with a check drawn on
a bank which
did not have any branches in the state, an alleged violation of
the state's
labor code; that she was paid less for her work than other similar
employees
with the same job title based on her gender; and that the Company
did not pay
her final wages in a timely manner, also an alleged violation of
the labor code.
The plaintiff requested the court to certify the case as a class
action. The
Company has been successful in removing the case from the state
to the federal
court level.
In
2006,
the Company was served with a lawsuit filed in federal court in
the state of
Alabama by a former store manager. She claims that she should have
been
classified as a non-exempt employee under the Fair Labor Standards
Act and,
therefore should have received overtime compensation and other
benefits. She
filed the case as a collective action on behalf of herself and
all other
employees (store managers) similarly situated. The Company is preparing
to file
a motion requesting that the case be transferred from Alabama to
Virginia.
The
Company will vigorously defend itself in these lawsuits. The Company
does not
believe that any of these matters will, individually or in the
aggregate, have a
material adverse effect on its business or financial condition.
The Company
cannot give assurance, however, that one or more of these lawsuits
will not have
a material adverse effect on its results of operations for the
period in which
they are resolved.
INTRODUCTORY
NOTE: Unless
otherwise stated, references to "we," "our" and "us" generally
refer to Dollar
Tree Stores, Inc. and its direct and indirect subsidiaries on a
consolidated
basis.
A
WARNING ABOUT FORWARD-LOOKING STATEMENTS:
This
document contains "forward-looking statements" as that term is
used in the
Private Securities Litigation Reform Act of 1995. Forward-looking
statements
address future events, developments or results and typically use
words such as
"believe," "anticipate," "expect," "intend," "plan," “view,” “target” or
"estimate." For example, our forward-looking statements include
statements
regarding:
· |
our
anticipated sales, including comparable store net sales,
net sales growth,
earnings growth and new store
growth;
|
· |
the
average size of our stores to be added for the remainder
of 2006 and 2007
and their performance compared with other store
sizes;
|
· |
the
effect of a slight shift in merchandise mix to consumables
and of the
roll-out of freezers and coolers on gross profit margin
and
sales;
|
· |
the
possible effect of inflation and other economic changes
on our future
costs and profitability, including the possible effect
of future
changes
in shipping rates, fuel costs and federal and state minimum
wage
laws;
|
· |
our
cash needs, including our ability to fund our future
capital expenditures
and working capital requirements;
|
· |
the
impact, capacity, performance and cost of our existing
distribution
centers;
|
· |
our
integration and future operations of the recently acquired
Deal$
stores;
|
· |
the
future reliability of, and cost associated with, our
sources of supply,
particularly imported goods such as those sourced from
China and
Hong Kong;
|
· |
costs
of pending and possible future legal
claims;
|
· |
the
adequacy of our internal controls over financial
reporting;
|
For
a
discussion of the risks, uncertainties and assumptions that could
affect our
future events, developments or results, you should carefully
review the risk
factors summarized below and the more detailed discussions in
the "Risk Factors”
and “Business” sections in our Annual Report on Form 10-K filed April 12, 2006.
Also see section 1A. “Risk Factors” in Part II of this Quarterly Report on Form
10-Q.
· |
Our
profitability is affected by the mix of products we
sell.
|
· |
Our
profitability is especially vulnerable to cost
increases.
|
· |
We
may be unable to expand our square footage as profitably
as
planned.
|
· |
A
downturn in economic conditions could adversely affect
our
sales.
|
· |
Our
sales and profits rely on imported merchandise, which
may increase in cost
or become unavailable.
|
· |
We
could encounter disruptions or additional costs in
receiving and
distributing merchandise.
|
· |
Sales
below our expectations during peak seasons may cause
our operating results
to suffer materially.
|
· |
Pressure
from competitors may reduce our sales and
profits.
|
Our
forward-looking statements could be wrong in light of these and
other risks,
uncertainties and assumptions. The future events, developments
or results
described in this report could turn out to be materially different.
We have no
obligation to publicly update or revise our forward-looking statements
after the
date of this quarterly report and you should not expect us to
do
so.
Investors
should also be aware that while we do, from time to time, communicate
with
securities analysts and others, it is against our policy to selectively
disclose
to them any material nonpublic information or other confidential
commercial
information. Accordingly, shareholders should not assume that
we agree with any
statement or report issued by any analyst regardless of the content
of the
statement or report, as we have a policy against confirming information
issued
by others. Thus, to the extent that reports issued by securities
analysts
contain any financial projections, forecasts or opinions, such
reports are not
our responsibility.
Overview
Our
net
sales are
derived from the sale of merchandise. Two major factors tend
to affect our net
sales trends. First is our success at opening new stores or
adding new stores
through mergers or acquisitions. Second is the performance
of stores once they
are open. Sales vary at our existing stores from one year to
the next. We refer
to this change as a change in comparable store net sales, because
we include
only those stores that are open throughout both of the periods
being compared
beginning after the first fifteen months of operation. We include
sales from
stores expanded during the period in the calculation of comparable
store net
sales, which has the effect of increasing our comparable store
net sales. The
term ‘expanded’ also includes stores that are relocated.
At
October 28, 2006 we operated 3,192 stores in 48 states, with
25.9 million
selling square feet compared to 2,899 stores with 22.7 million
selling square
feet at October 29, 2005. During the 39 weeks ended October
28, 2006, we opened
171 stores, expanded 76 stores and closed 31 stores, compared
to 203 stores
opened, 78 stores expanded and 39 stores closed during the
39 weeks ended
October 29, 2005. In addition, we acquired 138 Deal$ stores
on March 25, 2006.
As of the end of the third quarter, we are behind our internal
plans for new
store openings for the year, however we expect to make up
this deficit in the
fourth quarter and are still expecting to achieve our 12%-14%
square footage
growth target for fiscal 2006. In the 13 and 39 weeks ended
October 28, 2006, we
added approximately 0.5 million and 2.9 million selling square
feet,
respectively, of which approximately 0.1 million and 0.4
million, respectively,
was added through expanding existing stores. Included in
the 2.9 million selling
square feet added in the 39 weeks ended October 28, 2006
is 1.2 million
resulting from the acquisition of the Deal$ stores. The average
size of stores
opened during the 13 and 39 weeks ended October 28, 2006
was approximately 9,000
selling square feet (or about 11,000 gross square feet).
For the remainder of
2006 and 2007, we continue to plan to open stores around
9,300 selling square
feet (or about 11,400 gross square feet). We believe that
the 11,000-12,500
square foot size store is our optimal size operationally
and that this size also
gives the customer an improved shopping environment that
invites them to shop
longer and buy more.
For
the
13 and 39 weeks ended October 28, 2006, we experienced an
increase in comparable
store net sales of 4.0% and 4.2%, respectively. For the 13
weeks ended October
28, 2006, the comparable store net sales increase was the
result of increases of
2.3% in the number of transactions and 1.7% in transaction
size, compared to the
13 weeks ended October 29, 2005. The number of transactions
and transaction size
increased 1.2% and 2.9%, respectively, in the 39 weeks ended
October 28, 2006 as
compared to the same period last year. We believe comparable
store net sales
were positively affected by the initiatives we began putting
in place in 2005,
which we believe are also helping to mitigate the effect
that higher fuel costs
have had on our customers in 2006 and 2005. These initiatives
include expansion
of forms of payment accepted by our stores and the roll-out
of freezers and
coolers to more of our stores. During the second quarter
of 2006 we completed
the roll-out of debit card acceptance to virtually all of
our stores, and we
believe this has helped increase the average size of transactions
in our stores.
In
2006,
we continued to experience a slight shift in the mix of merchandise
sold to more
consumables which we believe increases the traffic and the
efficiency in our
stores but have a lower margin. The planned shift in mix
to more consumables is
the result of the roll-out of freezers and coolers to more
stores in 2005 and
2006. At October 28, 2006 we had freezers and coolers in
approximately 530
stores compared to approximately 225 at October 29, 2005.
We plan to add
freezers and coolers to 100 additional stores during the
fourth quarter of 2006,
which will continue to pressure margins, as a percentage
of sales, for the
remainder of the year. However, we believe that this will
enable us to increase
sales and earnings in the future by increasing the number
of shopping trips made
by our customers.
Our
point-of-sale technology is now in all of our stores, and
this technology
provides us with valuable sales and inventory information
to assist our buyers
and improve merchandise allocation to the stores. We believe
that it has enabled
us to better control our inventory, resulting in more efficient
distribution and
store operations and increased inventory turnover. Using
the data captured at
the point of sale has enabled us to better plan our inventory
purchases and
helped us reduce our inventory investment per store by approximately
4% at
October 28, 2006 compared to October 29, 2005.
We
estimate that sales for the fourth quarter of 2006 will be
in the range of $1.28
billion to $1.31 billion and earnings per diluted share will
be in the range of
$0.87 to $0.93. For fiscal 2006, we estimate sales will be
in the range of $3.93
billion to $3.96 billion and diluted earnings per share will
be in the range of
$1.77 to $1.83. Guidance for the fourth quarter of 2006 and
full year fiscal
2006 is based on low single digit comparable store net sales
growth. The
guidance for earnings per share for the fourth quarter of
2006 and full year
fiscal 2006 reflects the impact of our share repurchase program
through October
28, 2006.
On
March
25, 2006, we completed our acquisition of 138 Deal$ stores.
These stores are
located primarily in the Midwest part of the United States
and we have existing
logistics capacity to service these stores. This acquisition
also includes a few
“combo” stores that offer an expanded assortment of merchandise including
items
that sell for more than $1. Substantially all Deal$ stores
acquired will
continue to operate under the Deal$ banner while providing
us an opportunity to
leverage our Dollar Tree infrastructure in the testing of
new merchandise
concepts, including higher price points, without disrupting
the single-price
point model in our Dollar Tree stores. At October 28, 2006, 122 of these
stores were selling items priced at over $1.00.
We
paid
approximately $32.0 million for store-related and other
assets and $22.1 million
for store and distribution center inventory. This amount
includes approximately
$0.6 million of direct costs associated with the acquisition.
The results of
Deal$ store operations are included in our financial statements
since the
acquisition date and did not have a significant impact
on our operating results
through October 28, 2006. This acquisition is immaterial
to our operations as a
whole and therefore no proforma disclosure of financial
information has been
presented.
Results
of Operations
13
Weeks Ended October 28, 2006 Compared to the 13 Weeks Ended
October 29,
2005
Net
sales. Net
sales
increased 14.3%, or $113.6 million, over last year’s third quarter resulting
from sales in our new and expanded stores, including 138
Deal$ stores acquired
in March 2006. Our sales increase was also impacted by a
4.0% increase in
comparable store net sales in the current quarter. Comparable
store net sales
are positively affected by our expanded and relocated stores,
which we include
in the calculation, and, to a lesser extent, are negatively
affected when we
open new stores or expand stores near existing stores.
Gross
Profit. Gross
profit margin decreased to 33.8% in the current quarter compared
to 34.7% in the
prior year quarter. The decrease was primarily due to the
following:
· |
A
45 basis point increase in shrink expense due to
an increase in the shrink
rate to 2.05% at retail compared to 1.9% in the
prior year. The
shrink
rate was increased in the current quarter due to
the physical inventories
completed in the third quarter having higher shrink
rates than
those completed earlier in the
year.
|
· |
A
45 basis point increase in occupancy costs due
to a higher occupancy rate
for the Deal$ stores and higher rents, CAM and
real estate taxes
in the current quarter.
|
· |
Merchandise
costs, including inbound freight, increased 20
basis points due primarily
to a slight shift in mix to more consumables, which
have a lower margin, higher cost merchandise at
our Deal$ stores and
increased inbound domestic freight costs.
|
· |
A
small offset to the aforementioned rate increase
was a 10 basis point
improvement in markdowns, as the prior year third
quarter included
$1.6
million of markdowns as a result of
hurricanes.
|
Selling,
General and Administrative Expenses. Selling,
general, and administrative expenses for the current quarter
decreased to 27.9%,
as a percentage of net sales, compared to 28.1% for the same
period last year.
This decrease was primarily due to the leveraging associated
with positive
comparable store net sales in the period and the following:
· |
A
50 basis point decrease in operating and corporate
expenses due primarily
to payments received of approximately $4.1 million
in the quarter
for vacating two stores prior to the end of our
leases. The prior year
included $1.4 million of income resulting from
insurance proceeds
received as a result of a fire at one of our stores.
|
· |
The
aforementioned rate improvement was partially offset
by a 20 basis point
increase in payroll and benefit costs due to increased
incentive
compensation costs resulting from better overall
company performance in
the current period as compared to the prior year
period, and increased stock-based compensation
expense in the current
year.
|
· |
The
selling, general and administrative component of
store occupancy costs
also increased 20 basis points due to higher utility
costs and
higher personal property tax rates in the current
year.
|
Operating
Income.
Due to
the reasons discussed above, operating income decreased as
a percentage of net
sales to 5.9% in the third quarter of 2006 compared to 6.5%
in the same period
of 2005.
Income
Taxes.
Our
effective tax rate was 35.8% in the third quarter of 2006
compared to 37.8% for
the same period last year. The decreased tax rate for 2006
was the result of
benefits recorded for the resolution of various state income
tax issues related
to prior years.
39
Weeks Ended October 28, 2006 Compared to the 39 Weeks Ended
October 29,
2005
Net
sales. Net
sales
increased 14.5%, or $335.6 million, for the first three quarters
of fiscal 2006
resulting from sales in our new and expanded stores, including
138 Deal$ stores
acquired in March 2006. Our sales were also impacted by a
4.2% increase in
comparable store net sales in the current year. Comparable
store net sales are
positively affected by our expanded and relocated stores,
which we include in
the calculation, and, to a lesser extent, are negatively
affected when we open
new stores or expand stores near existing stores.
Gross
Profit. Gross
profit margin decreased to 33.5% in the current period compared
to 34.2% in the
prior year period. The decrease was primarily due to the
following:
· |
Merchandise
costs, including inbound freight, increased 50
basis points due primarily
to a slight shift in mix to more consumables, which
have
a lower margin, and increased inbound domestic
freight costs. Inbound
domestic freight costs have increased primarily
due to higher fuel
costs.
|
· |
A
25 basis point increase in occupancy costs due
to a higher occupancy rate
for the Deal$ stores and higher rents, CAM and
real estate taxes
in
the current year.
|
· |
A
20 basis point increase in shrink expense due to
an increase in the shrink
rate to 2.05% at retail compared to 1.9% in the
prior
year.
|
· |
Partially
offsetting these rate increases was a 15 basis
point improvement in
markdowns, as the prior year included hurricane
related
markdowns.
|
Selling,
General and Administrative Expenses. Selling,
general, and administrative expenses for the 39 weeks ended
October 28, 2006
decreased to 27.6%, as a percentage of net sales, compared
to 27.9% for the same
period last year. This decrease was primarily due to the
leverage associated
with positive comparative store net sales and the following:
· |
A
40 basis point decrease in operating and corporate
expenses due primarily
to payments received of approximately $4.1 million
in the current
year
for vacating two stores prior to the end of our
leases and decreased
advertising in the current year as a result of
more efficient and
targeted
spending. The prior year included $1.4 million
of income resulting from
insurance proceeds received as a result of a fire
at one of our stores.
|
· |
The
aforementioned rate improvement was partially offset
by a 20 basis point
increase in payroll and benefit costs due to increased
incentive
compensation
costs resulting from better overall company performance
in the current
year as compared to the prior year, and increased
stock-based compensation
expense in the current year.
|
Operating
Income.
Due to
the reasons discussed above, operating income decreased as
a percentage of net
sales to 5.8% in the 39 weeks ended October 28, 2006 compared
to 6.3% in the 39
weeks ended October 29, 2005.
Interest
expense, net.
Interest
expense, net, has decreased in the 39 weeks ended October
28, 2006 compared to
the same period last year due primarily to increased interest
income arising
from higher rates of return on higher investment balances.
Income
Taxes.
Our
effective tax rate was 36.9% for the 39 weeks ended October
28, 2006 compared to
37.8% for the same period last year. The decreased tax rate
for 2006 was the
result of benefits recorded for the resolution of various
state income tax
issues related to prior years.
Liquidity
and Capital Resources
Our
business requires capital to open new stores, expand our
distribution network
and operate existing stores. Our working capital requirements
for existing
stores are seasonal in nature and typically reach their peak
in the months of
September and October. Historically, we have satisfied our
seasonal working
capital requirements for existing stores and funded our store
opening and
expansion programs from internally generated funds and borrowings
under our
credit facilities.
The
following table compares cash flow information for the 39
weeks ended October
28, 2006 and October 29, 2005:
|
|
39
Weeks ended
|
|
|
|
October
28,
|
|
October
29,
|
|
(In
millions)
|
|
2006
|
|
2005
|
|
Net
cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
90.7
|
|
$
|
124.0
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
14.5
|
|
|
43.3
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
(112.9
|
)
|
|
(178.6
|
)
|
The
$33.3
million decrease in cash provided by operating activities
was primarily due to
increased working capital requirements due to increased
investment for Deal$ and
new Dollar Tree Stores including frozen and refrigerated
product, partially
offset by increased earnings before depreciation and amortization
in the current
year and better payment terms with our suppliers.
In
the
current year, cash provided by investing activities decreased
$28.8 million as
compared to the prior year. This decrease is due to the
payment of $54.1 million
for the Deal$ assets in the current year and an increase
of $25.7 million in
capital expenditures due primarily to new store growth
and the installation of
freezers and coolers at certain stores. These uses of cash
were partially offset
by a $36.5 million increase in net proceeds from investing
activities used to
help fund stock repurchases and the Deal$ acquisition.
Included in the prior
year net proceeds from investing activities is the purchase
of $15.2 million of
investments that are in a restricted account to collateralize
certain long-term
insurance obligations.
The
$65.7
million decline in cash used in financing activities resulted
primarily from
lower stock repurchases in the current year and increased
proceeds from stock
option exercises as compared to the prior year.
At
October 28, 2006, our long-term borrowings were $268.8
million and our capital
lease commitments were $0.8 million. As of October 28,
2006, we had $200.0
million available under our revolving credit facility.
We also have $125.0
million and $50.0 million Letter of Credit Reimbursement
and Security
Agreements, under which approximately $85.2 million was
committed to letters of
credit issued for routine purchases of imported merchandise
as of October 28,
2006.
In
March
2005, our Board of Directors authorized the repurchase
of up to $300.0 million
of our stock through March 2008. During the 13 and 39 weeks
ended October 28,
2006, we repurchased approximately 0.3 million shares and
5.7 million shares for
approximately $9.3 million and $148.2 million, respectively
under the March 2005
authorization. As of October 28, 2006, we have approximately
$26.7 million
remaining under this authorization.
In
November 2006, our Board of Directors authorized the repurchase
of up to $500.0
million of our stock. This
authorization is in addition to the March 2005 authorization.
New
Accounting Pronouncements
In
March
2006, the Emerging Issues Tax Force (EITF) issued EITF
06-03, “How Taxes
Collected from Customers and Remitted to Governmental
Authorities Should Be
Presented in the Income Statement (That is, Gross versus
Net Presentation).”
This EITF requires disclosure beginning in fiscal 2007
of our accounting
policies for any tax assessed by a governmental authority
that is directly
imposed on a revenue-producing transaction (i.e. sales
tax) on a gross (included
in revenues and costs) or net (excluded from revenues)
basis. We have
consistently reported these taxes on a net basis and
will include such
disclosure in our Annual Report on Form 10-K for the
year ending February 3,
2007.
In
June
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes.” This Interpretation clarifies accounting for uncertainty
in
income taxes recognized in a company’s financial statements in accordance with
FASB Statement No. 109, “Accounting for Income Taxes.” We will adopt this
standard in the first quarter of fiscal 2007 and we are
currently evaluating the
impact, if any, on our financial statements.
In
December 2004, the FASB issued SFAS No. 123 (revised 2004),
Share-Based
Payment
(SFAS
123R). This statement is a revision of SFAS No. 123, Accounting
for Stock-Based Compensation,
and
supersedes Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees.
SFAS
123R requires all share-based payments to employees, including
grants of
employee stock options, to be recognized in the financial
statements based on
their fair values. We adopted this standard as required in
the first quarter of
2006 (See Note 3 to the Condensed Consolidated Financial
Statements).
We
are
exposed to various types of market risk in the normal course
of our business,
including the impact of interest rate changes and foreign
currency rate
fluctuations. We may enter into interest rate swaps to
manage our exposure to
interest rate changes, and we may employ other risk management
strategies,
including the use of foreign currency forward contracts.
We do not enter into
derivative instruments for any purpose other than cash
flow hedging purposes.
Our $25.0 million interest rate swap that qualified for
hedge accounting
treatment under SFAS No. 133, as amended by SFAS No. 138,
expired during the
first quarter of fiscal 2006. Our remaining interest rate
swap does not qualify
for hedge accounting treatment under SFAS No. 133, as amended
by SFAS No. 138,
because it contains provisions that "knockout" the swap
when the variable
interest rate exceeds a predetermined rate.
Interest
Rate Risk
The
following table summarizes the financial terms and fair
values of our interest
rate swap agreement at October 28, 2006:
|
Receive
|
Pay
|
Knockout
|
|
Fair
Value
|
Hedging
Instrument
|
Variable
|
Fixed
|
Rate
|
Expiration
|
Asset
|
$18.8
million interest rate swap
|
LIBOR
|
4.88%
|
7.75%
|
4/1/2009
|
0.0
million
|
Due
to
the many variables involved in determining the fair value,
management is not
able to predict the changes in fair value of our interest
rate swap. The fair
value is the estimated amount we would pay or receive to
terminate the agreement
as of the reporting date. The fair value is obtained from
an outside financial
institution.
As
of the
end of the period covered by this report, we carried out
an evaluation, under
the supervision and with the participation of our management,
including our
Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the
design and operation of our disclosure controls and procedures
(as defined in
Rule 13a-15(e) of Exchange Act). Based on this evaluation,
the Chief Executive
Officer and Chief Financial Officer concluded that our
disclosure controls and
procedures are effective.
There
have been no material changes in our internal control over
financial reporting
during the quarter ended October 28, 2006 that have materially
affected, or are
reasonably likely to materially affect, our internal control
over financial
reporting.
PART
II. OTHER INFORMATION
In
2003,
we were served with a lawsuit in California state court
by a former employee who
alleged that employees did not properly receive sufficient
meal breaks and paid
rest periods, along with other alleged wage and hourly
violations. The suit
requested that the California state court certify the case
as a class action.
This suit was dismissed with prejudice in May 2005, and
the dismissal has been
appealed. A California appeals court granted the appeal
and now we are seeking a
rehearing from that Court; should that fail, we will appeal
to the California
Supreme Court.
In
2005,
we were served with a lawsuit by former employees in Oregon
who allege that they
did not properly receive sufficient meal breaks and paid
rest periods. They also
allege other wage and hour violations. The plaintiffs requested
the court to
certify classes for their various claims and the presiding
judge recently did so
with respect to two classes, one alleging that our Oregon
employees, in
violation of that state's labor laws, were not paid for
rest breaks and the
other that upon termination of employment, employees were
not tendered their
final pay in a timely manner. Other claims of the plaintiffs were
dismissed by an earlier Order of the Court and are being
appealed by the
plaintiffs.
In
2006,
we were served with a lawsuit by a former employee in a
California state court
alleging that she was paid for wages with a check drawn
on a bank which did not
have any branches in the state, an alleged violation of
the state's labor code;
that she was paid less for her work than other similar
employees with the same
job title based on her gender; and that we did not pay
her final wages in a
timely manner, also an alleged violation of the labor code.
The plaintiff
requested the court to certify the case as a class action.
We have been
successful in removing the case from state to the federal
court
level.
In
2006,
we were served with a lawsuit filed in federal court in
the state of Alabama by
a former store manager. She claims that she should have
been classified as a
non-exempt employee under the Fair Labor Standards Act
and, therefore, should
have received overtime compensation and other benefits.
She filed the case as a
collective action on behalf of herself and all other employees
(store managers)
similarly situated. We are preparing to file a motion requesting
that the case
be transferred from Alabama to Virginia.
From
time
to time we are defendants in ordinary, routine litigation
and proceedings
incidental to our business, including:
· |
employment-related
matters;
|
· |
the
infringement of the intellectual property rights
of
others;
|
· |
product
safety matters, including product recalls by
the Consumer Products Safety
Commission;
|
· |
personal
injury claims; and
|
· |
real
estate matters related to store
leases.
|
We
will
vigorously defend ourselves in these lawsuits. We do not
believe that any of
these matters will, individually or in the aggregate, have
a material adverse
effect on our business or financial condition. We cannot
give assurance,
however, that one or more of these lawsuits will not have
a material adverse
effect on our results of operations for the period in which
they are resolved.
There
have been no material changes to the risk factors described
in Item 1A. “Risk
Factors” in the Company’s Annual Report on Form 10-K, filed with the SEC on
April 12, 2006.
The
following table presents our share repurchase activity
for the 13 weeks ended
October 28, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dollar
value
|
|
|
|
|
|
|
|
|
|
|
|
Total
number
|
|
|
|
of
shares that
|
|
|
|
|
|
|
|
|
|
|
|
of
shares
|
|
|
|
may
yet be
|
|
|
|
|
|
|
|
|
|
|
|
purchased
as
|
|
|
|
purchased under
|
|
|
|
|
|
Total number
|
|
Average
|
|
|
|
part
of publicly
|
|
|
|
the
plans or
|
|
|
|
|
|
of shares
|
|
price
paid
|
|
|
|
announced
plans
|
|
|
|
programs
|
|
Period
|
|
|
|
purchased
|
|
per
share
|
|
|
|
or
programs
|
|
|
|
(in
millions)
|
|
July
30, 2006 to August 26, 2006
|
|
|
|
|
|
247,696
|
|
$
|
27.52
|
|
|
|
|
|
247,696
|
|
|
|
|
$
|
29.2
|
|
August
27, 2006 to September 30, 2006
|
|
|
|
|
|
86,100
|
|
|
28.71
|
|
|
|
|
|
86,100
|
|
|
|
|
|
26.7
|
|
October
1, 2006 to October 28, 2006
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
26.7
|
|
Total
|
|
|
|
|
|
333,796
|
|
$
|
27.82
|
|
|
|
|
|
333,796
|
|
|
|
|
$
|
26.7
|
|
In
November 2006, our Board of Directors authorized the
repurchase of up to $500.0
million of our stock. This
authorization is in addition to the $26.7 million remaining
on the March 2005
authorization in the table above.
None.
None.
None.
31.
Certifications required under Section 302 of the Sarbanes-Oxley
Act
32.
Certifications required under Section 906 of the Sarbanes-Oxley
Act
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of
1934, the Registrant has duly caused this report to
be signed on its behalf by
the undersigned, thereunto duly authorized.
|
|
|
|
DOLLAR
TREE STORES, INC. |
|
|
|
Date:
December 6, 2006 |
By: |
/s/ Kent
A. Kleeberger |
|
Kent
A. Kleeberger
|
|
Chief
Financial Officer
(principal financial
and accounting
officer)
|