x
|
Quarterly
report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of
1934
|
o
|
Transition
report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of
1934
|
Virginia
|
54-1387365
|
|||
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
Yes
x
|
No
o
|
Yes
x
|
No
o
|
Yes
o
|
No
x
|
PART
I-FINANCIAL INFORMATION
|
||
Page
|
||
Item
1.
|
Financial
Statements:
|
|
3
|
||
4
|
||
|
||
5
|
||
6
|
||
|
|
|
Item
2.
|
9
|
|
Item
3.
|
15
|
|
Item
4.
|
15
|
|
|
||
PART
II-OTHER INFORMATION
|
||
Item
1.
|
15
|
|
Item
2.
|
16
|
|
Item
3.
|
16
|
|
Item
4.
|
17
|
|
Item
5.
|
17
|
|
|
||
Item
6.
|
17
|
|
18
|
13
Weeks Ended
|
26
Weeks Ended
|
||||||||||||
(In
thousands, except per share data)
|
July
30, 2005
|
July
31, 2004
|
July
30, 2005
|
July
31, 2004
|
|||||||||
Net
sales
|
$
|
769,027
|
$
|
704,234
|
$
|
1,518,120
|
$
|
1,414,564
|
|||||
Cost
of sales
|
507,541
|
453,861
|
1,002,390
|
911,155
|
|||||||||
Gross
profit
|
261,486
|
250,373
|
515,730
|
503,409
|
|||||||||
Selling,
general and administrative expenses
|
214,902
|
201,289
|
421,072
|
395,666
|
|||||||||
Operating
income
|
46,584
|
49,084
|
94,658
|
107,743
|
|||||||||
Interest
expense, net
|
2,855
|
934
|
4,136
|
2,402
|
|||||||||
Income
before income taxes
|
43,729
|
48,150
|
90,522
|
105,341
|
|||||||||
Provision
for income taxes
|
16,419
|
18,558
|
34,200
|
40,599
|
|||||||||
Net
income
|
$
|
27,310
|
$
|
29,592
|
$
|
56,322
|
$
|
64,742
|
|||||
Net
income per share:
|
|||||||||||||
Basic
|
$
|
0.25
|
$
|
0.26
|
$
|
0.51
|
$
|
0.57
|
|||||
Diluted
|
$
|
0.25
|
$
|
0.26
|
$
|
0.51
|
$
|
0.57
|
(In
thousands, except share data)
|
July
30, 2005
|
January
29, 2005
|
|||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
14,533
|
$
|
106,532
|
|||
Short-term
investments
|
151,015
|
211,275
|
|||||
Merchandise
inventories
|
629,833
|
615,483
|
|||||
Other
current assets
|
33,821
|
36,597
|
|||||
Total
current assets
|
829,202
|
969,887
|
|||||
Property,
leaseholds and equipment, net
|
691,628
|
685,386
|
|||||
Intangibles,
net
|
130,935
|
129,032
|
|||||
Other
assets, net
|
28,047
|
8,367
|
|||||
TOTAL
ASSETS
|
$
|
1,679,812
|
$
|
1,792,672
|
|||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Current
portion of long-term debt
|
$
|
19,000
|
$
|
19,000
|
|||
Accounts
payable
|
120,374
|
124,195
|
|||||
Other
current liabilities
|
103,123
|
117,491
|
|||||
Income
taxes payable
|
5,308
|
33,669
|
|||||
Total
current liabilities
|
247,805
|
294,355
|
|||||
Long-term
debt, excluding current portion
|
250,000
|
250,000
|
|||||
Other
liabilities
|
84,812
|
84,105
|
|||||
Total
liabilities
|
582,617
|
628,460
|
|||||
Shareholders'
equity:
|
|||||||
Common
stock, par value $0.01. 300,000,000 shares authorized, 108,468,308
and
113,020,941 shares issued and outstanding at July 30, 2005 and
January 29,
2005, respectively
|
1,085
|
1,130
|
|||||
Additional
paid-in capital
|
54,055
|
177,684
|
|||||
Accumulated
other comprehensive loss
|
(60
|
)
|
(294
|
)
|
|||
Unearned
compensation
|
-
|
(101
|
)
|
||||
Retained
earnings
|
1,042,115
|
985,793
|
|||||
Total
shareholders' equity
|
1,097,195
|
1,164,212
|
|||||
Commitments
and contingencies
|
-
|
-
|
|||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$
|
1,679,812
|
$
|
1,792,672
|
26
Weeks Ended
|
|||||||
(In
thousands)
|
July
30, 2005
|
July
31, 2004
|
|||||
Cash
flows from operating activities:
|
|||||||
Net
income
|
$
|
56,322
|
$
|
64,742
|
|||
Adjustments
to reconcile net income to net cash
|
|||||||
provided
by operating activities:
|
|||||||
Depreciation
and amortization
|
68,105
|
62,818
|
|||||
Other
non-cash adjustments to net income
|
(8,411
|
)
|
11,774
|
||||
Changes
in merchandise inventories
|
(14,349
|
)
|
(123,037
|
)
|
|||
Other
changes in assets and liabilities
|
(32,629
|
)
|
13,450
|
||||
Net
cash provided by operating activities
|
69,038
|
29,747
|
|||||
Cash
flows from investing activities:
|
|||||||
Capital
expenditures
|
(74,477
|
)
|
(93,243
|
)
|
|||
Purchase
of short-term investments
|
(497,745
|
)
|
(112,500
|
)
|
|||
Proceeds
from maturities of short-term investments
|
558,005
|
74,690
|
|||||
Purchase
of restricted investments
|
(15,147
|
)
|
-
|
||||
Other
|
(3,331
|
)
|
(251
|
)
|
|||
Net
cash used in investing activities
|
(32,695
|
)
|
(131,304
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Proceeds
from long-term debt, net of facility fees of $1,094
|
-
|
248,906
|
|||||
Repayment
of long-term debt
|
-
|
(148,568
|
)
|
||||
Principal
payments under capital lease obligations
|
(3,521
|
)
|
(2,313
|
)
|
|||
Payments
for share repurchases
|
(130,370
|
)
|
(30,329
|
)
|
|||
Proceeds
from stock issued pursuant to stock-based compensation plans
|
5,549
|
9,184
|
|||||
Net
cash provided by (used in) financing activities
|
(128,342
|
)
|
76,880
|
||||
Net
decrease in cash and cash equivalents
|
(91,999
|
)
|
(24,677
|
)
|
|||
Cash
and cash equivalents at beginning of period
|
106,532
|
84,190
|
|||||
Cash
and cash equivalents at end of period
|
$
|
14,533
|
$
|
59,513
|
|||
Supplemental
disclosure of cash flow information:
|
|||||||
Cash
paid for:
|
|||||||
Interest,
net of amount capitalized
|
$
|
5,396
|
$
|
3,356
|
|||
Income
taxes
|
$
|
73,055
|
$
|
62,204
|
1.
|
BASIS
OF PRESENTATION
|
2.
|
NET
INCOME PER SHARE
|
13
Weeks Ended
|
26
Weeks Ended
|
||||||||||||
(In
thousands, except per share data)
|
July
30, 2005
|
July
31, 2004
|
July
30, 2005
|
July
31, 2004
|
|||||||||
Basic
net income per share:
|
|||||||||||||
Net
income
|
$
|
27,310
|
$
|
29,592
|
$
|
56,322
|
$
|
64,742
|
|||||
Weighted
average number of shares outstanding
|
108,386
|
113,527
|
109,823
|
113,671
|
|||||||||
Basic
net income per share
|
$
|
0.25
|
$
|
0.26
|
$
|
0.51
|
$
|
0.57
|
|||||
Diluted
net income per share:
|
|||||||||||||
Net
income
|
$
|
27,310
|
$
|
29,592
|
$
|
56,322
|
$
|
64,742
|
|||||
Weighted
average number of shares outstanding
|
108,386
|
113,527
|
109,823
|
113,671
|
|||||||||
Dilutive
effect of stock options (as determined by applying the treasury
stock
method)
|
437
|
622
|
487
|
771
|
|||||||||
Weighted
average number of shares and dilutive potential shares outstanding
|
108,823
|
114,149
|
110,310
|
114,442
|
|||||||||
Diluted
net income per share
|
$
|
0.25
|
$
|
0.26
|
$
|
0.51
|
$
|
0.57
|
3.
|
STOCK-BASED
COMPENSATION
|
13
Weeks Ended
|
26
Weeks Ended
|
||||||||||||
(In
thousands, except per share data)
|
July
30, 2005
|
July
31, 2004
|
July
30, 2005
|
July
31, 2004
|
|||||||||
Net
income, as reported
|
$
|
27,310
|
$
|
29,592
|
$
|
56,322
|
$
|
64,742
|
|||||
Deduct:
Total stock-based employee compensation determined under fairvalue
based
method, net of related tax effects
|
(2,313
|
)
|
(4,036
|
)
|
(4,629
|
)
|
(6,682
|
)
|
|||||
Proforma
net income for SFAS No. 123
|
$
|
24,997
|
$
|
25,556
|
$
|
51,693
|
$
|
58,060
|
|||||
Net
income per share:
|
|||||||||||||
Basic,
as reported
|
$
|
0.25
|
$
|
0.26
|
$
|
0.51
|
$
|
0.57
|
|||||
Basic,
pro forma for SFAS No. 123
|
$
|
0.23
|
$
|
0.23
|
$
|
0.47
|
$
|
0.51
|
|||||
Diluted,
as reported
|
$
|
0.25
|
$
|
0.26
|
$
|
0.51
|
$
|
0.57
|
|||||
Diluted,
pro forma for SFAS No. 123
|
$
|
0.23
|
$
|
0.22
|
$
|
0.47
|
$
|
0.51
|
4.
|
SHAREHOLDERS’
EQUITY
|
13
Weeks Ended
|
26
Weeks Ended
|
||||||||||||
(In
thousands)
|
July
30, 2005
|
July
31, 2004
|
July
30, 2005
|
July
31, 2004
|
|||||||||
Net
income
|
$
|
27,310
|
$
|
29,592
|
$
|
56,322
|
$
|
64,742
|
|||||
Fair
value adjustment-derivative cash
flow hedging instrument
|
180
|
296
|
400
|
636
|
|||||||||
Income
tax expense
|
(69
|
)
|
(114
|
)
|
(154
|
)
|
(245
|
)
|
|||||
Fair
value adjustment, net of tax
|
111
|
182
|
246
|
391
|
|||||||||
Amortization
of SFAS No. 133 cumulative effect
|
(10
|
)
|
2
|
(20
|
)
|
8
|
|||||||
Income
tax expense (benefit)
|
4
|
(1
|
)
|
8
|
(3
|
)
|
|||||||
Amortization
of SFAS No. 133 cumulative effect, net of tax
|
(6
|
)
|
1
|
(12
|
)
|
5
|
|||||||
Total
comprehensive income
|
$
|
27,415
|
$
|
29,775
|
$
|
56,556
|
$
|
65,138
|
5. |
Restricted
Investments
|
6.
|
Litigation
Matters
|
7.
|
Subsequent
Event
|
Item
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
·
|
the
impact of Hurricane Katrina;
|
·
|
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 in
2005;
|
·
|
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 and fuel costs;
|
·
|
the
impact that advertising and the acceptance of additional tender
types will
have on comparable store net sales;
|
·
|
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;
|
·
|
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;
|
·
|
the
possible effect on our financial results of changes in generally
accepted
accounting principles relating to accounting for stock-based
compensation.
|
·
|
Adverse
economic conditions, such as reduced spending due to lack of consumer
confidence, inflation, gasoline prices, or other factors (including
those
arising from Hurricane Katrina's aftermath), or bad weather, could
significantly reduce our sales. The outbreak of war and other national
and
international events, such as terrorism, could lead to disruptions
in our
supply chain or the economy.
|
·
|
Failure
to meet our goals for opening or expanding stores on a timely basis
could
cause our sales to suffer. We may not anticipate all the challenges
that
expanding our operations will impose and, as a result, we may not
meet our
targets for opening new stores and expanding profitably. In addition,
new
stores or expanded stores may cause sales at nearby stores to suffer,
and
we could have difficulties profitably renewing or replacing expiring
leases.
|
·
|
Our
profitability is vulnerable to future increases in operating and
merchandise costs including shipping rates, freight costs, fuel
costs,
wage levels, inflation, competition and other adverse economic
factors
because we sell goods at the fixed $1.00 price
point.
|
·
|
The
resolution of certain legal matters could have a material adverse
effect
on our results of operations, accrued liabilities and
cash.
|
·
|
Our
merchandise mix relies heavily on imported goods. An increase in
the cost
of these goods, because of inflation in the country of origin or
currency
revaluations, or disruption in the flow of these goods may significantly
decrease our sales and profits. Any transition to alternative sources
may
not occur in time to meet our demands. In addition, products from
alternative sources may be of lesser quality or more expensive
than those
we currently import.
|
·
|
Our
sales may be below expectations during the Christmas selling season,
which
may cause our operating results to suffer
materially.
|
·
|
The
performance of our distribution system is critical to our operations.
Unforeseen disruptions or costs in our receiving and distribution
systems
could harm our sales and
profitability.
|
·
|
Disruptions
in the availability of quality, low-cost merchandise in sufficient
quantities to maintain our growth may reduce sales and
profits.
|
·
|
Occupancy
costs increased 70 basis points due primarily to the deleveraging
associated with the comparable stores sales decrease in the quarter.
|
·
|
Merchandise
costs, including inbound freight, increased 60 basis points due
primarily
to a shift in mix to slightly more consumables, which have a lower
margin, and increased inbound freight costs. Inbound freight costs
have increased due to higher fuel costs and higher import rates.
The
higher import rates are the result of newly negotiated contracts
in May
2005.
|
·
|
Shrink
expense increased 50 basis points due to a $2.5 million adjustment
in the
prior year second quarter to adjust the shrink rate to reflect
the
improved rate based on completed physical inventories. The actual
shrink
rate based on completed physical inventories in 2005 is similar
to the
current year accrual and 2004 actual
rates.
|
·
|
Partially
offsetting these increased costs was a 30 basis point decrease
in
distribution costs due primarily to decreased payroll expenses
at our
distribution centers resulting from improved efficiency and lower
receipts
in the second quarter of 2005.
|
·
|
Payroll-related
costs decreased approximately 70 basis points due primarily to
lower
health care and workers compensation claims in the current
quarter.
|
·
|
Operating
and corporate expenses decreased approximately 40 basis points
primarily
due to decreased professional fees and the prior year accrual of $1.1
million of exit costs as a result of closing the Woodridge distribution
center and transitioning to the Joilet facility.
|
·
|
Partially
offsetting the aforementioned decreases was an approximate 30 basis
point
increase in store operating costs primarily due to the decreased
leverage
associated with the decrease in comparable store net sales and
higher
utility costs due to warmer weather in the current year. Depreciation
expense also increased approximately 20 basis points due to new
store
growth and store expansions.
|
·
|
Occupancy
costs increased 95 basis points due primarily to the deleveraging
associated with the comparable stores sales decrease in the period.
|
·
|
Shrink
expense increased 30 basis points due to an adjustment in the prior
year
period to adjust the shrink rate to reflect the improved rate based
on
completed physical inventories.
|
·
|
Markdown
expense increased approximately 20 basis points due to lower than
planned
Easter seasonal sell-through resulting in additional markdowns
in the
current year, primarily relating to Easter
candy.
|
·
|
Merchandise
costs, including inbound freight, increased 20 basis points due
primarily
to a shift in mix to slightly more consumables, which have a lower
margin, and increased inbound freight costs. Inbound freight costs
have increased due to higher fuel costs and higher import rates.
The
higher import rates are the result of newly negotiated contracts
in May
2005.
|
·
|
Operating
and corporate expenses decreased approximately 40 basis points
primarily
due to decreased professional fees and the prior year having an
accrual of
$1.1 million of exit costs as a result of closing the Woodridge
distribution center and transitioning to the Joilet facility.
|
·
|
Payroll-related
costs decreased approximately 20 basis points due primarily to
lower
health care and workers compensation claims in the current quarter.
|
·
|
Partially
offsetting the aforementioned decreases was an approximate 20 basis
point
increase in store operating costs primarily due to the decreased
leverage
associated with the decrease in comparable store net sales and
higher
utility costs due to warmer weather in the current year. Depreciation
expense also increased approximately 20 basis points primarily
due to new
store growth and store expansions.
|
26
Weeks Ended
|
|||||||
July
30, 2005
|
July
31, 2004
|
||||||
Net
cash provided by (used in):
|
|||||||
Operating
activities
|
$
|
69.0
|
$
|
29.7
|
|||
Investing
activities
|
(32.7
|
)
|
(131.3
|
)
|
|||
Financing
activities
|
(128.3
|
)
|
76.9
|
Item
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
Receive
|
Pay
|
Knockout
|
Fair
Value
|
||
Hedging
Instrument
|
Variable
|
Fixed
|
Rate
|
Expiration
|
Asset
(Liability)
|
$19.0
million interest rate swap
|
LIBOR
|
4.88%
|
7.75%
|
4/1/2009
|
($421,409)
|
$25.0
million interest rate swap
|
LIBOR
|
5.43%
|
N/A
|
3/12/2006
|
($254,053)
|
Item
4.
|
CONTROLS
AND PROCEDURES.
|
PART
II.
|
OTHER
INFORMATION
|
Item 1. |
LEGAL
PROCEEDINGS.
|
·
|
employment-related
matters;
|
·
|
the
infringement of the intellectual property rights of
others.
|
·
|
product
safety matters, including product recalls by the Consumer Products
Safety
Commission; and
|
·
|
personal
injury claims.
|
Item
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
|
Period
|
Total
number of shares purchased
|
Average
price paid per share
|
Total
number of shares purchased as part of publicly announced
plans or
programs
|
Approximate
dollar value of shares that may yet be purchased
under the plans or
programs (in
thousands)
|
|||||||||
May
1, 2005 to May 28, 2005
|
82,500
|
$
|
24.68
|
82,500
|
$
|
224,900
|
|||||||
May
29, 2005 to July 2, 2005
|
-
|
-
|
-
|
-
|
|||||||||
July
3, 2005 to July 30, 2005
|
-
|
-
|
-
|
-
|
|||||||||
Total
|
82,500
|
$
|
24.68
|
82,500
|
$
|
224,900
|
(1)
|
In
November 2002, our Board of Directors authorized the repurchase
of up to
$200 million of our common stock. In March 2005, our Board of Directors
authorized the repurchase of up to $300 million of our common stock
through March 2008. At the time of the new authorization the previous
$200
million authorization was concurrently
terminated.
|
Item
3.
|
DEFAULTS
UPON SENIOR SECURITIES.
|
Item 4. |
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
|
Votes
|
Votes
|
Votes
|
Votes
|
||||||||||
For
|
Against
|
Abstain
|
Withheld
|
||||||||||
Amendment
to Bylaws
|
96,981,907
|
143,990
|
39,109
|
-
|
Macon
F. Brock, Jr.
|
93,881,714
|
-
|
-
|
3,283,292
|
|||||||||
Richard
G. Lesser
|
96,369,092
|
-
|
-
|
795,914
|
|||||||||
Thomas
E. Whiddon
|
95,457,305
|
-
|
-
|
1,707,701
|
2005
Employee Stock Purchase Plan
|
81,421,534
|
4,693,206
|
49,713
|
-
|
Item 5. |
OTHER
INFORMATION.
|
Item 6. |
EXHIBITS.
|
10. |
Material
Contracts
|
10.1
|
Dollar
Tree Stores, Inc. 2005 Employee Stock Purchase Plan (Appendix A
to the
Company’s 2005 Definitive Proxy Statement on Schedule 14-A, initially
filed with the Commission on May 9, 2005, which is incorporated
herein by
this reference)
|
31. |
Certifications
required under Section 302 of the Sarbanes-Oxley
Act
|
Certification
required under Section 302 of the Sarbanes-Oxley Act of Chief Executive
Officer
|
Certification
required under Section 302 of the Sarbanes-Oxley Act of Chief Financial
Officer
|
32. |
Certifications
required under Section 906 of the Sarbanes-Oxley
Act
|
Certification
required under Section 906 of the Sarbanes-Oxley Act of Chief Executive
Officer
|
Certification
required under Section 906 of the Sarbanes-Oxley Act of Chief Financial
Officer
|
DATE:
|
September 8, 2005 | ||||
DOLLAR
TREE STORES, INC.
|
|||||
By:
|
/s/
Kent A. Kleeberger
|
||||
Kent
A. Kleeberger
|
|||||
Chief
Financial Officer
|
|||||
(principal
financial and accounting officer)
|