UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
| x | Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
For the quarterly period ended July 31, 2004
OR
| ¨ | Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
Commission File Number: 0-25464
DOLLAR TREE STORES, INC.
(Exact name of registrant as specified in its charter)
| Virginia | 54-1387365 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
500 Volvo Parkway
Chesapeake, Virginia 23320
(Address of principal executive offices)
Telephone Number (757) 321-5000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of September 3, 2004, there were 113,033,175 shares of the Registrant’s Common Stock outstanding.
AND SUBSIDIARIES
INDEX
| PART I-FINANCIAL INFORMATION | ||
| Page | ||
| Item 1. Financial Statements: |
||
| Condensed Consolidated Balance Sheets as of July 31, 2004 and January 31, 2004 |
3 | |
| 4 | ||
| 5 | ||
| 6 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
10 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
15 | |
| Item 4. Controls and Procedures |
16 | |
| Item 1. Legal Proceedings |
17 | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
18 | |
| Item 3. Defaults Upon Senior Securities |
18 | |
| 18 | ||
| Item 5. Other Information |
18 | |
| Item 6. Exhibits |
19 | |
| 20 | ||
2
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| (In thousands, except share data) |
July 31, 2004 |
January 31, 2004 |
||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 84,513 | $ | 168,685 | ||||
| Short-term investments |
97,305 | — | ||||||
| Merchandise inventories |
648,680 | 525,643 | ||||||
| Deferred tax asset |
12,983 | 11,716 | ||||||
| Prepaid expenses and other current assets |
19,153 | 16,525 | ||||||
| Total current assets |
862,634 | 722,569 | ||||||
| Property, plant and equipment, net |
641,608 | 613,214 | ||||||
| Intangibles, net |
123,265 | 123,738 | ||||||
| Other assets, net |
21,763 | 20,785 | ||||||
| TOTAL ASSETS |
$ | 1,649,270 | $ | 1,480,306 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Current portion of long-term debt |
$ | 19,000 | $ | 25,000 | ||||
| Current installments of obligations under capital leases |
6,668 | 5,324 | ||||||
| Accounts payable |
158,065 | 114,972 | ||||||
| Other current liabilities |
83,638 | 82,771 | ||||||
| Income taxes payable |
5,450 | 37,035 | ||||||
| Total current liabilities |
272,821 | 265,102 | ||||||
| Long-term debt, excluding current portion |
250,000 | 142,568 | ||||||
| Obligations under capital leases, excluding current installments |
9,074 | 12,259 | ||||||
| Deferred tax liability |
39,768 | 29,717 | ||||||
| Other liabilities |
19,075 | 16,138 | ||||||
| Total liabilities |
590,738 | 465,784 | ||||||
| Shareholders’ equity: |
||||||||
| Common stock, par value $0.01. 300,000,000 shares authorized, 113,415,781 and 114,083,768 shares issued and outstanding at July 31, 2004 and January 31, 2004, respectively |
1,134 | 1,141 | ||||||
| Additional paid-in capital |
187,724 | 208,870 | ||||||
| Accumulated other comprehensive loss |
(574 | ) | (970 | ) | ||||
| Unearned compensation |
(37 | ) | (62 | ) | ||||
| Retained earnings |
870,285 | 805,543 | ||||||
| Total shareholders’ equity |
1,058,532 | 1,014,522 | ||||||
| Commitments and contingencies |
— | — | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 1,649,270 | $ | 1,480,306 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
| 13 Weeks Ended |
26 Weeks Ended |
|||||||||||||||
| (In thousands, except per share data) |
July 31, 2004 |
August 3, 2003 |
July 31, 2004 |
August 3, 2003 |
||||||||||||
| Net sales |
$ | 704,234 | $ | 626,028 | $ | 1,414,564 | $ | 1,241,596 | ||||||||
| Cost of sales |
455,756 | 404,921 | 914,945 | 802,701 | ||||||||||||
| Gross profit |
248,478 | 221,107 | 499,619 | 438,895 | ||||||||||||
| Selling, general and administrative expenses |
199,394 | 173,507 | 391,876 | 336,804 | ||||||||||||
| Operating income |
49,084 | 47,600 | 107,743 | 102,091 | ||||||||||||
| Interest income |
914 | 714 | 1,771 | 1,524 | ||||||||||||
| Interest expense |
(2,149 | ) | (2,153 | ) | (5,084 | ) | (4,211 | ) | ||||||||
| Changes in fair value of non-hedging interest rate swaps |
301 | 665 | 911 | 748 | ||||||||||||
| Income before income taxes |
48,150 | 46,826 | 105,341 | 100,152 | ||||||||||||
| Provision for income taxes |
18,558 | 18,027 | 40,599 | 38,558 | ||||||||||||
| Net income |
$ | 29,592 | $ | 28,799 | $ | 64,742 | $ | 61,594 | ||||||||
| Net income per share: |
||||||||||||||||
| Basic |
$ | 0.26 | $ | 0.25 | $ | 0.57 | $ | 0.54 | ||||||||
| Diluted |
$ | 0.26 | $ | 0.25 | $ | 0.57 | $ | 0.54 | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| 26 Weeks Ended |
||||||||
| (In thousands) |
July 31, 2004 |
August 3, 2004 |
||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 64,742 | $ | 61,594 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
59,028 | 47,938 | ||||||
| Loss on disposal of property and equipment |
1,397 | 1,933 | ||||||
| Change in fair value of non-hedging interest rate swaps |
(911 | ) | (748 | ) | ||||
| Provision for deferred income taxes |
8,784 | 10,881 | ||||||
| Tax benefit of stock option exercises |
1,369 | 2,323 | ||||||
| Other non-cash adjustments to net income |
1,135 | 212 | ||||||
| Changes in assets and liabilities increasing (decreasing) cash and cash equivalents: |
||||||||
| Merchandise inventories |
(123,037 | ) | (49,386 | ) | ||||
| Prepaid expenses and other current assets |
(2,628 | ) | (4,712 | ) | ||||
| Other assets |
(768 | ) | (1,084 | ) | ||||
| Accounts payable and other current liabilities |
42,448 | (46,184 | ) | |||||
| Income taxes payable |
(31,585 | ) | (21,374 | ) | ||||
| Other liabilities |
4,485 | 1,711 | ||||||
| Net cash provided by operating activities |
24,459 | 3,104 | ||||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(87,955 | ) | (99,170 | ) | ||||
| Purchase of Greenbacks, Inc., net of cash acquired of $1,248 |
— | (99,560 | ) | |||||
| Purchase of short-term investments |
(102,500 | ) | (30,360 | ) | ||||
| Proceeds from maturities of short-term investments |
5,195 | 93,885 | ||||||
| Acquisition of favorable lease rights |
(251 | ) | — | |||||
| Proceeds from the sale of property and equipment |
— | 1 | ||||||
| Net cash used in investing activities |
(185,511 | ) | (135,204 | ) | ||||
| 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 | ) | (10,838 | ) | ||||
| Principal payments under capital lease obligations |
(2,313 | ) | (3,927 | ) | ||||
| Payments for share repurchases |
(30,329 | ) | — | |||||
| Proceeds from stock issued pursuant to stock-based compensation plans |
9,184 | 9,911 | ||||||
| Net cash provided by (used in) financing activities |
76,880 | (4,854 | ) | |||||
| Net decrease in cash and cash equivalents |
(84,172 | ) | (136,954 | ) | ||||
| Cash and cash equivalents at beginning of period |
168,685 | 237,302 | ||||||
| Cash and cash equivalents at end of period |
$ | 84,513 | $ | 100,348 | ||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid for: |
||||||||
| Interest, net of amount capitalized |
$ | 3,356 | $ | 3,712 | ||||
| Income taxes |
$ | 62,204 | $ | 55,501 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
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 accounting principles generally accepted in the United States of America for interim financial information and are presented in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended January 31, 2004 contained in the Company’s Annual Report on Form 10-K filed April 13, 2004. The results of operations for the 13 and 26 weeks ended July 31, 2004 are not necessarily indicative of the results to be expected for the entire fiscal year ending January 29, 2005.
In the Company’s opinion, the unaudited condensed consolidated financial statements included herein contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of its financial position as of July 31, 2004 and the results of its operations and cash flows for the periods presented. The January 31, 2004 balance sheet information was derived from the audited consolidated financial statements as of that date.
2. REVOLVING CREDIT FACILITY
In March 2004, the Company entered into a five-year Revolving Credit Facility (the Facility). The Facility provides for a $450.0 million revolving line of credit, including up to $50.0 million in available letters of credit, bearing interest at LIBOR, plus 0.475%. The Facility bears an annual facilities fee, calculated as a percentage, as defined, of the amount available under the line of credit and an annual administrative fee payable quarterly. The Facility, 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 July 31, 2004, there was $250.0 million outstanding under this Facility.
The Company used availability under the Facility to repay $142.6 million of variable-rate debt and to purchase short-term, government-sponsored municipal bonds. The Company’s existing $150.0 million revolving credit facility (Old Facility) was terminated concurrent with entering into the Facility. The net debt issuance costs related to the Old Facility and the variable-rate debt totaled $0.7 million and are included in “other assets, net” on the January 31, 2004 condensed consolidated balance sheet. These costs were charged to interest expense during the 26 weeks ended July 31, 2004. As a result of the repayment of the variable-rate debt, the $25.0 million, $10.0 million and $5.0 million interest rate swaps previously designated to the variable-rate debt were redesignated to new borrowings under the Facility. This redesignation does not affect the accounting methods used for the individual interest rate swaps.
6
3. NET INCOME PER SHARE
The following table sets forth the calculation of basic and diluted net income per share:
| 13 Weeks Ended |
26 Weeks Ended | |||||||||||
| (In thousands, except per share data) | ||||||||||||