Attached files
| file | filename |
|---|---|
| EX-32 - EXHIBIT 32 - FAMILY DOLLAR STORES INC | fdoex-32x20150530.htm |
| EX-31.1 - EXHIBIT 31.1 - FAMILY DOLLAR STORES INC | fdoex-311x20150530.htm |
| EX-31.2 - EXHIBIT 31.2 - FAMILY DOLLAR STORES INC | fdoex-312x20150530.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
ý | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended May 30, 2015
Or
¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 1-6807
FAMILY DOLLAR STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 56-0942963 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
10401 Monroe Road, Matthews, North Carolina | 28105 |
(Address of principal executive offices) | (Zip Code) |
P.O. Box 1017, Charlotte, North Carolina 28201-1017
(Mailing address)
Registrant's telephone number, including area code: (704) 847-6961
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 ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ý | Accelerated filer | ¨ | ||
Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | ¨ | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class | Shares Outstanding June 23, 2015 | |
Common Stock, $0.10 par value | 114,514,918 shares | |
1
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
INDEX
Page No. | |
2
PART I — FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except per share and share amounts) | May 30, 2015 | August 30, 2014 | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 215,993 | $ | 139,840 | ||||
Short-term investment securities | 4,003 | 8,800 | ||||||
Restricted cash and investments (Note 5) | 32,120 | 31,380 | ||||||
Merchandise inventories | 1,631,925 | 1,609,932 | ||||||
Deferred income taxes | 38,520 | 65,856 | ||||||
Income tax refund receivable | 72,649 | 64,458 | ||||||
Prepayments and other current assets | 176,026 | 181,780 | ||||||
Total current assets | 2,171,236 | 2,102,046 | ||||||
Property and equipment, net | 1,691,739 | 1,688,213 | ||||||
Other assets | 70,142 | 67,036 | ||||||
Total assets | $ | 3,933,117 | $ | 3,857,295 | ||||
Liabilities and Shareholders' Equity | ||||||||
Current liabilities: | ||||||||
Short-term borrowings (Note 4) | $ | — | $ | — | ||||
Current portion of long-term debt (Note 4) | 185,200 | 16,200 | ||||||
Accounts payable | 643,101 | 773,021 | ||||||
Accrued liabilities | 330,786 | 335,054 | ||||||
Income taxes | 4,755 | 4,755 | ||||||
Total current liabilities | 1,163,842 | 1,129,030 | ||||||
Long-term debt (Note 4) | 299,139 | 484,226 | ||||||
Other liabilities | 305,854 | 316,382 | ||||||
Deferred gain | 213,806 | 227,080 | ||||||
Deferred income taxes | 96,341 | 34,852 | ||||||
Commitments and contingencies (Note 9) | ||||||||
Shareholders' equity (Note 7): | ||||||||
Preferred stock, $1 par; authorized 500,000 shares; no shares issued and outstanding | — | — | ||||||
Common stock, $0.10 par; authorized 600,000,000 shares; issued 121,253,157 shares at May 30, 2015, and 120,749,980 shares at August 30, 2014, and outstanding 114,514,184 shares at May 30, 2015, and 113,986,257 shares at August 30, 2014 | 12,125 | 12,077 | ||||||
Capital in excess of par | 357,641 | 333,579 | ||||||
Retained earnings | 1,886,721 | 1,724,041 | ||||||
Accumulated other comprehensive loss | (334 | ) | (489 | ) | ||||
Common stock held in treasury, at cost (6,738,973 shares at May 30, 2015, and 6,763,723 shares at August 30, 2014) | (402,018 | ) | (403,483 | ) | ||||
Total shareholders' equity | 1,854,135 | 1,665,725 | ||||||
Total liabilities and shareholders' equity | $ | 3,933,117 | $ | 3,857,295 | ||||
See Notes to the Consolidated Condensed Financial Statements.
3
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
13 Weeks Ended | 13 Weeks Ended | |||||||
(in thousands, except per share amounts) | May 30, 2015 | May 31, 2014 | ||||||
Net sales | $ | 2,728,176 | $ | 2,658,964 | ||||
Costs and expenses: | ||||||||
Cost of sales | 1,785,011 | 1,746,625 | ||||||
Cost of sales - restructuring | — | 1,486 | ||||||
Selling, general and administrative | 812,190 | 767,049 | ||||||
Restructuring | — | 22,996 | ||||||
Merger fees | 4,690 | — | ||||||
Cost of sales and operating expenses | 2,601,891 | 2,538,156 | ||||||
Operating profit | 126,285 | 120,808 | ||||||
Investment income | 43 | 58 | ||||||
Interest expense | 6,795 | 7,959 | ||||||
Other income | 8,470 | 8,400 | ||||||
Income before income taxes | 128,003 | 121,307 | ||||||
Income taxes | 48,060 | 40,160 | ||||||
Net income | $ | 79,943 | $ | 81,147 | ||||
Net income per common share — basic | $ | 0.70 | $ | 0.71 | ||||
Weighted average shares — basic | 114,511 | 113,829 | ||||||
Net income per common share — diluted | $ | 0.70 | $ | 0.71 | ||||
Weighted average shares — diluted | 114,755 | 114,150 | ||||||
Dividends declared per common share | $ | — | $ | 0.31 | ||||
See Notes to the Consolidated Condensed Financial Statements.
4
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
39 Weeks Ended | 39 Weeks Ended | |||||||
(in thousands, except per share amounts) | May 30, 2015 | May 31, 2014 | ||||||
Net sales | $ | 8,082,866 | $ | 7,875,276 | ||||
Costs and expenses: | ||||||||
Cost of sales | 5,355,667 | 5,203,802 | ||||||
Cost of sales - restructuring | — | 1,486 | ||||||
Selling, general and administrative | 2,390,926 | 2,265,608 | ||||||
Restructuring | — | 22,996 | ||||||
Merger fees | 21,781 | — | ||||||
Cost of sales and operating expenses | 7,768,374 | 7,493,892 | ||||||
Operating profit | 314,492 | 381,384 | ||||||
Investment income | 143 | 162 | ||||||
Interest expense | 21,812 | 22,256 | ||||||
Other income | 24,409 | 23,334 | ||||||
Income before income taxes | 317,232 | 382,624 | ||||||
Income taxes | 119,206 | 132,581 | ||||||
Net income | $ | 198,026 | $ | 250,043 | ||||
Net income per common share — basic | $ | 1.73 | $ | 2.19 | ||||
Weighted average shares — basic | 114,378 | 114,066 | ||||||
Net income per common share — diluted | $ | 1.73 | $ | 2.18 | ||||
Weighted average shares — diluted | 114,636 | 114,458 | ||||||
Dividends declared per common share | $ | 0.31 | $ | 0.83 | ||||
See Notes to the Consolidated Condensed Financial Statements.
5
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
13 Weeks Ended | 13 Weeks Ended | |||||||
(in thousands) | May 30, 2015 | May 31, 2014 | ||||||
Net income | $ | 79,943 | $ | 81,147 | ||||
Other comprehensive income: | ||||||||
Unrealized net gains/(losses) on investment securities (net of taxes) | (33 | ) | 65 | |||||
Other | 19 | 31 | ||||||
Other comprehensive income | (14 | ) | 96 | |||||
Comprehensive income | $ | 79,929 | $ | 81,243 | ||||
39 Weeks Ended | 39 Weeks Ended | |||||||
(in thousands) | May 30, 2015 | May 31, 2014 | ||||||
Net income | $ | 198,026 | $ | 250,043 | ||||
Other comprehensive income: | ||||||||
Unrealized net gains on investment securities (net of taxes) | 68 | 640 | ||||||
Other | 87 | 40 | ||||||
Other comprehensive income | 155 | 680 | ||||||
Comprehensive income | $ | 198,181 | $ | 250,723 | ||||
There were no material reclassifications from Accumulated other comprehensive loss into Net income.
See Notes to the Consolidated Condensed Financial Statements.
6
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
39 Weeks Ended | 39 Weeks Ended | |||||||
(in thousands) | May 30, 2015 | May 31, 2014 | ||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 198,026 | $ | 250,043 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 214,198 | 195,671 | ||||||
Amortization of deferred gain | (14,244 | ) | (12,642 | ) | ||||
Impairment on property and equipment - restructuring | — | 19,041 | ||||||
Lease obligations on closed stores due to restructuring initiatives | (13,613 | ) | — | |||||
Merger fees | (15,249 | ) | — | |||||
Deferred income taxes | 92,673 | 9,190 | ||||||
Excess tax benefits from stock-based compensation | (3,722 | ) | (5,510 | ) | ||||
Stock-based compensation | 8,165 | 12,639 | ||||||
Loss on disposition of property and equipment | 4,593 | 8,335 | ||||||
Changes in operating assets and liabilities: | ||||||||
Merchandise inventories | (21,993 | ) | (124,546 | ) | ||||
Prepayments and other current assets | 5,809 | (50,768 | ) | |||||
Other assets | (2,508 | ) | 9,385 | |||||
Accounts payable and accrued liabilities | (102,855 | ) | (33,042 | ) | ||||
Income taxes | (8,191 | ) | (24,728 | ) | ||||
Other liabilities | 1,549 | (67 | ) | |||||
Net cash provided by operating activities | 342,638 | 253,001 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of restricted and unrestricted investment securities | (15,015 | ) | (50,422 | ) | ||||
Sales of restricted and unrestricted investment securities | 18,347 | 63,715 | ||||||
Net change in restricted cash | 27 | 390 | ||||||
Capital expenditures | (253,778 | ) | (307,183 | ) | ||||
Net proceeds from sale-leaseback | 27,111 | 32,538 | ||||||
Proceeds from dispositions of property and equipment | 2,402 | 563 | ||||||
Net cash used in investing activities | (220,906 | ) | (260,399 | ) | ||||
Cash flows from financing activities: | ||||||||
Short-term borrowings | 1,120,000 | 1,916,000 | ||||||
Repayment of short-term borrowings | (1,120,000 | ) | (1,640,000 | ) | ||||
Repayment of long-term debt | (16,200 | ) | (16,200 | ) | ||||
Repurchases of common stock | — | (125,038 | ) | |||||
Change in cash overdrafts | (16,950 | ) | (29,138 | ) | ||||
Proceeds from exercise of employee stock options | 19,185 | 13,794 | ||||||
Excess tax benefits from stock-based compensation | 3,722 | 5,510 | ||||||
Payment of dividends | (35,336 | ) | (94,795 | ) | ||||
Net cash (used in) / provided by financing activities | (45,579 | ) | 30,133 | |||||
Net change in cash and cash equivalents | 76,153 | 22,735 | ||||||
Cash and cash equivalents at beginning of period | 139,840 | 140,999 | ||||||
Cash and cash equivalents at end of period | $ | 215,993 | $ | 163,734 | ||||
See Notes to the Consolidated Condensed Financial Statements.
7
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. General Information
In the opinion of management, the accompanying unaudited Consolidated Condensed Financial Statements contain all adjustments (consisting of only normal recurring accruals, except as indicated in the Notes of this Report) necessary to present fairly the following:
• | The financial position as of May 30, 2015. |
• | The results of operations for the 13 and 39 weeks ended May 30, 2015 ("third quarter" and "first three quarters" of fiscal 2015, respectively), and the 13 and 39 weeks ended May 31, 2014 ("third quarter" and "first three quarters" of fiscal 2014, respectively). |
• | Comprehensive income for the third quarter and first three quarters of fiscal 2015 and the third quarter and first three quarters of fiscal 2014. |
• | The cash flows for the first three quarters of fiscal 2015 and the first three quarters of fiscal 2014. |
The unaudited Consolidated Condensed Financial Statements have been prepared for Family Dollar Stores, Inc., and its subsidiaries ("Family Dollar") as a standalone company and should be read in conjunction with the Consolidated Financial Statements and Footnotes included in the Company's Annual Report on Form 10-K for the fiscal year ended August 30, 2014 ("fiscal 2014").
The results of operations for the third quarter and first three quarters of fiscal 2015 are not necessarily indicative of the results to be expected for the full year.
The preparation of the Company's Consolidated Condensed Financial Statements, in conformity with generally accepted accounting principles in the United States of America ("GAAP"), requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-03 Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). ASU 2015 requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, however does not impact the recognition and measurement of debt issuance costs. The ASU is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, and early adoption is permitted. The Company does not expect the ASU to have a material impact on the Consolidated Condensed Financial Statements.
In August 2014, the FASB issued ASU 2014-15 Presentation of Financial Statements - Going Concern ("ASU 2014-15"). ASU 2014-15 provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The ASU is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter, and early adoption is permitted. The Company does not expect the ASU to have a material impact on the Consolidated Condensed Financial Statements.
In May 2014, the FASB issued ASU 2014-09 Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). The ASU is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption is not permitted. The Company is still assessing the impact of this ASU on the Consolidated Condensed Financial Statements.
In July 2013, the FASB issued Accounting Standards Update 2013-11 Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"). The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15,
8
2013. The ASU was effective for the Company beginning in the first quarter of fiscal 2015 and did not have a material impact on the Company's Consolidated Condensed Financial Statements.
2. Restructuring and Related Activities
Dollar Tree Merger
On January 22, 2015, at the special meeting of the Company's stockholders, the Company's stockholders adopted the Agreement and Plan of Merger, dated as of July 27, 2014, as amended by Amendment No. 1 on September 4, 2014, and as it may be further amended from time to time, by and among the Company, Dollar Tree, Inc. ("Dollar Tree"), and Dime Merger Sub, Inc., a wholly-owned subsidiary of Dollar Tree ("merger agreement"). Upon the terms and subject to the conditions of the merger agreement, a subsidiary of Dollar Tree will be merged with and into Family Dollar, with Family Dollar continuing as the surviving entity and a wholly-owned subsidiary of Dollar Tree after consummation of the merger.
The completion of the merger remains subject to Federal Trade Commission ("FTC") clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and other customary closing conditions. Dollar Tree, with support from Family Dollar, is continuing to work with the Federal Trade Commission on obtaining FTC clearance under the HSR Act, and on May 29, 2015, Dollar Tree announced that it entered into a definitive agreement with Sycamore Partners to sell a divestiture package of 330 Family Dollar stores, contingent on completion of the merger, in order to address FTC concerns.
On June 16, 2015, Dollar Tree and Family Dollar also announced they signed an Agreement Containing Consent Orders proposed by the FTC staff. The agreement includes a draft Decision and Order, which remains subject to acceptance and final approval by the FTC Commissioners, and would permit Dollar Tree to acquire Family Dollar subject to an obligation to complete the divestiture within a specified period following the closing of the acquisition of Family Dollar. Dollar Tree has informed Family Dollar that Dollar Tree intends to close the merger in early July 2015, shortly after the FTC accepts the Decision and Order for public comment.
In conjunction with the pending merger, the Company incurred expenses of $4.7 million in the third quarter of fiscal 2015 and $21.8 million in the first three quarters of fiscal 2015, consisting primarily of legal fees. The Company did not consider these expenses deductible for income taxes.
As of May 30, 2015, the Company's accrual for fees associated with the pending merger was $6.5 million, included within Accrued liabilities in the Consolidated Condensed Balance Sheet.
Fiscal 2014 Strategic Initiatives
During the second half of fiscal 2014, the Company completed a series of restructuring initiatives which included closing 377 underperforming stores and reducing expenses through workforce optimization. As a result of these initiatives, the Company's restructuring accrual as of August 30, 2014, was $48.7 million, consisting of lease obligations, termination benefits, and other charges related to the store closures. As of May 30, 2015, the Company has paid all termination benefits and other charges associated with these restructuring initiatives.
The Company will continue to incur payments for lease obligations on each closed store until either the lease term ends or a termination agreement is reached with the landlord. The Company's lease obligations on closed stores due to restructuring decreased $13.6 million during the first three quarters of fiscal 2015, which resulted in a remaining accrual balance of $30.1 million as of May 30, 2015. The decrease was primarily due to cash paid for recurring lease obligations and negotiated lease termination agreements. The balance due in the next 12 months was included in Accrued liabilities, and the remaining balance was included in Other liabilities in the Consolidated Condensed Balance Sheet.
3. Fair Value Measurements
Fair value accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes the inputs used to measure fair value into three levels, giving the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.
9
• | Level 1—Quoted prices in active markets for identical assets or liabilities. |
• | Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
• | Level 3—Inputs that are unobservable for the asset or liability. |
The unobservable inputs in Level 3 can only be used to measure fair value to the extent that observable inputs in Level 1 and Level 2 are not available. The following table represents the Company's fair value hierarchy as of May 30, 2015, and August 30, 2014, for items required to be measured at fair value on a recurring basis:
May 30, 2015 | ||||||||||||||||
(in thousands) | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 47,227 | $ | 47,227 | $ | — | $ | — | ||||||||
Investment securities: | ||||||||||||||||
Short-term bond mutual fund | 4,003 | 4,003 | — | — | ||||||||||||
Restricted cash and investments: (1) | ||||||||||||||||
Money market funds | 19 | 19 | — | — | ||||||||||||
Municipal debt securities | 34,867 | — | 34,867 | — | ||||||||||||
Other assets: | ||||||||||||||||
Mutual funds (2) | 18,821 | 18,821 | — | — | ||||||||||||
August 30, 2014 | ||||||||||||||||
(in thousands) | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 2,502 | $ | 2,502 | $ | — | $ | — | ||||||||
Investment securities: | ||||||||||||||||
Auction rate securities | 4,800 | — | — | 4,800 | ||||||||||||
Short-term bond mutual fund | 4,000 | 4,000 | — | — | ||||||||||||
Restricted cash and investments: (1) | ||||||||||||||||
Money market funds | 46 | 46 | — | — | ||||||||||||
Municipal debt securities | 34,398 | — | 34,398 | — | ||||||||||||
Other assets: | ||||||||||||||||
Mutual funds (2) | 19,689 | 19,689 | — | — | ||||||||||||
(1) | As of May 30, 2015, restricted cash and investments of $32.1 million and $2.8 million were included in Restricted cash and investments and Other assets, respectively, in the Consolidated Condensed Balance Sheet. As of August 30, 2014, restricted cash and investments of $31.4 million and $3.0 million were included in Restricted cash and investments and Other assets, respectively, in the Consolidated Balance Sheet. |
(2) | Represents assets held pursuant to a deferred compensation plan for certain key management employees. The Company recorded a corresponding liability related to the deferred compensation plan in an amount equivalent to the assets above. The liability for the deferred compensation plan was recorded in Other liabilities on the Consolidated Balance Sheets. |
On a non-recurring basis, the Company adjusts certain Property and equipment to fair value through impairment charges. Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. The fair value of the Property and equipment is determined based on a discounted cash flow analysis using Level 3 inputs. The Company estimates future cash flows based on historical experience and its expectations of future performance. Impairment charges were not material during the first three quarters of fiscal 2015.
10
Impairment charges were $19.0 million during the first three quarters of fiscal 2014 as a result of charges incurred to close 377 underperforming stores in the second half of fiscal 2014, as discussed in Note 2.
Level 2 Inputs
All assets classified as Level 2 are valued using matrix pricing. The Company believes that while the assets valued using Level 2 inputs currently trade in active markets and prices could be obtained for identical assets, the classification of these investments as Level 2 is more appropriate when matrix pricing is used.
Auction Rate Securities
During the first quarter of fiscal 2015, the Company settled its remaining $4.8 million auction rate securities ("ARS") portfolio, which included tax-exempt bonds collateralized by federally guaranteed student loans, at par. There was no further ARS activity, including impairment or unrealized loss, during the third quarter of fiscal 2015.
The ARS portfolio was valued using Level 3 inputs due to continued issues in the global credit and capital markets causing sustained failed auctions and uncertainty surrounding the timing of future liquidity. For the past several years, the Company was able to liquidate its ARS portfolio, at or close to par value, when any of the following events occurred: a buyer was found outside the auction process, the securities were called or refinanced by the issuer, or the underlying securities matured.
The fair value of each security was determined through the use of a discounted cash flow analysis using Level 3 inputs because there was no active market for the Company's ARS portfolio. The two most significant unobservable inputs used in the analysis were as follows:
• | The weighted-average expected term to liquidate the securities. The assumption used in the analysis was based on the Company's estimate of the timing of future liquidity, which assumed the securities would be called or refinanced by the issuer or repurchased by the broker dealers prior to maturity. |
• | The illiquidity factor applied to the discount rate. The assumption used in the analysis was based on market rates for similar liquid tax-exempt securities with comparable ratings and maturities. Due to the uncertainty surrounding the timing of future liquidity, a factor was applied to the discount rates to reflect the illiquidity of the investments. |
The following tables summarize the change in the fair value of the Company's ARS portfolio measured using Level 3 inputs during the third quarter and first three quarters of fiscal 2015 and the third quarter and first three quarters of fiscal 2014:
13 Weeks Ended | ||||||||
(in thousands) | May 30, 2015 | May 31, 2014 | ||||||
Beginning Balance - Level 3 inputs | $ | — | $ | 16,557 | ||||
Net unrealized gain included in other comprehensive income | — | 89 | ||||||
Ending Balance - Level 3 inputs | $ | — | $ | 16,646 | ||||
39 Weeks Ended | ||||||||
(in thousands) | May 30, 2015 | May 31, 2014 | ||||||
Beginning Balance - Level 3 inputs | $ | 4,800 | $ | 22,977 | ||||
Sales | (4,800 | ) | (6,946 | ) | ||||
Realized loss on sale of investments | — | (254 | ) | |||||
Net unrealized gain included in other comprehensive income | — | 869 | ||||||
Ending Balance - Level 3 inputs | $ | — | $ | 16,646 | ||||
Additional Fair Value Disclosures
The Company has both public notes and private placement notes. The fair value for the public notes is determined using Level 1 inputs as quoted prices in active markets for identical assets or liabilities are available. The fair value for the private placement notes is determined through the use of a discounted cash flow analysis using Level 3 inputs as there are no quoted prices in active markets for these notes. The discount rate used in the analysis was based on borrowing rates available to the Company for debt of the same remaining maturities, issued in the same private placement debt market. A summary of the
11
estimated fair value of the Company's current and long-term debt, including the excess fair value over carrying value is as follows:
(in thousands) | May 30, 2015 | August 30, 2014 | ||||||
Carrying value of current and long-term debt | $ | 484,339 | $ | 500,426 | ||||
Excess fair value over carrying value | 26,173 | 30,019 | ||||||
Estimated fair value of current and long-term debt | $ | 510,512 | $ | 530,445 | ||||
4. Current and Long-Term Debt
Short-term Borrowings
On November 13, 2013, the Company entered into two new unsecured revolving credit facilities to replace its prior two unsecured revolving credit facilities. The unsecured revolving credit facilities provide the Company the capacity to borrow up to $900 million, less standby letters of credit needed for collateral for its insurance program of $16.4 million as of May 30, 2015.
As of May 30, 2015 and August 30, 2014, the Company had no short-term borrowings outstanding under its unsecured revolving credit facilities. During the first three quarters of fiscal 2015, the Company had no net borrowings, with $1.12 billion borrowed and repaid, and an average daily outstanding balance of $108.8 million at a weighted-average interest rate of 1.4% under its unsecured revolving credit facilities.
The Company's unsecured revolving credit facilities contain certain restrictive financial covenants, which include a consolidated debt to consolidated capitalization ratio, a fixed charge coverage ratio, and a priority debt to consolidated net worth ratio. As of May 30, 2015, the Company was in compliance with all such covenants.
Current Portion of Long-term Debt
On September 27, 2005, the Company obtained $250 million through a private placement of unsecured senior notes due September 27, 2015. The first tranche has an aggregate principal amount of $169 million payable in a single installment on September 27, 2015.
The second tranche has an aggregate principal balance of $81 million, with a required annual principal payment of $16.2 million each September 27 from September 27, 2011, through September 27, 2015. During the first quarter of fiscal 2015, the Company made its scheduled principal payment in the amount of $16.2 million. The next and final principal payment of $16.2 million is due on September 27, 2015.
On June 19, 2015, the Company entered into an amendment to the note purchase agreement governing the unsecured senior notes due September 27, 2015, to amend the notice periods for certain optional prepayments of the notes in connection with the pending merger.
Long-term Debt
On January 28, 2011, the Company issued $300 million of 5.00% unsecured senior notes due February 1, 2021 (the "2021 Notes"), through a public offering. The Company's proceeds were approximately $298.5 million, net of an issuance discount of $1.5 million. In addition, the Company incurred issuance costs of approximately $3.3 million. Both the discount and issuance costs are being amortized to Interest expense over the term of the 2021 Notes.
5. Restricted Cash and Investments
The Company has restricted a portion of cash and investments to serve as collateral for certain of the Company's insurance obligations held at its wholly-owned captive insurance subsidiary. These restricted funds cannot be withdrawn from the Company's account without secured third-party consent. As of May 30, 2015, the Company held $34.9 million in this restricted account, of which $32.1 million was included in Restricted cash and investments and $2.8 million was included in Other assets in the Consolidated Condensed Balance Sheet. As of August 30, 2014, the Company held $34.4 million in this restricted account, of which $31.4 million was included in Restricted cash and investments and $3.0 million was included in Other assets in the Consolidated Balance Sheet. The classification between current and non-current is based on the timing of expected payments of the secured insurance obligations.
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6. Build-to-Suit and Sale-Leaseback Transactions
The Company uses build-to-suit and sale-leaseback transactions to construct and lease new stores. In a build-to-suit transaction, an unrelated third-party funds store construction and owns the property throughout and upon completion of construction. In a sale-leaseback transaction, the Company provides funding for store construction and owns the property upon completion of construction. Upon completion of the stores' construction in build-to-suit transactions and concurrent with the sale of stores in sale-leaseback transactions, the Company enters into agreements to lease the properties over an initial term of 15 years, with four, 5-year fixed renewal options. The Company evaluates each store individually upon certain events during the life of the lease, including individual renewal options. The Company classifies these leases as operating leases, actively uses the leased properties, and considers the leases normal leasebacks.
During the first three quarters of fiscal 2015, the Company completed 210 build-to-suit transactions to support new store growth. Additionally, the Company completed sale-leaseback transactions under which it sold 15 stores to unrelated third-parties for net proceeds of approximately $27.1 million. Upon closing of the transactions, the Company deferred a gain of approximately $1.0 million realized on the sale of the assets and will amortize the gain over the initial lease term.
During the first three quarters of fiscal 2014, the Company completed 230 build-to-suit transactions to support new store growth. Additionally, the Company completed sale-leaseback transactions under which it sold 23 stores to unrelated third-parties for net proceeds of approximately $32.5 million. Upon closing of the transactions, the Company deferred a gain of approximately $0.8 million realized on the sale of the assets and continues to amortize the gain over the initial lease term.
7. Shareholders' Equity
Stock Repurchases
During the first three quarters of fiscal 2015, the Company did not repurchase shares of its common stock, and under the terms of the Dollar Tree merger agreement, the Company will not repurchase any shares of its common stock. During the first three quarters of fiscal 2014, the Company purchased a total of 1.8 million shares of its common stock at a cost of $125.0 million. All shares were purchased pursuant to share repurchase authorizations approved by the Board of Directors of the Company. Shares purchased under the share repurchase authorizations are generally held in treasury or are canceled and returned to the status of authorized but unissued shares.
As of May 30, 2015, the Company had $245.8 million remaining under the January 17, 2013, share repurchase authorization. The authorization does not have an expiration date, however is subject to the terms of the Dollar Tree merger agreement.
Option Exercises
During the first three quarters of fiscal 2015, a total of 0.4 million stock options with a weighted average exercise price of $51.37 were exercised. The total intrinsic value of the options exercised during the period was $9.8 million. During the first three quarters of fiscal 2014, a total of 0.4 million stock options, with a weighted average exercise price of $35.03, were exercised. The total intrinsic value of the options exercised during the period was $13.2 million.
Dividends
The Company paid no cash dividends during the second or third quarters of fiscal 2015, and under the terms of the Dollar Tree merger agreement, the Company will not pay any further dividends. The Company paid cash dividends of $0.31 per share for a total of $35.3 million during the first quarter of fiscal 2015. During the first three quarters of fiscal 2014, the Company paid cash dividends of $0.83 per share for a total of $94.8 million.
Stockholders' Rights Plan
On June 8, 2014, the Company adopted a stockholders' rights plan whereby the Board of Directors authorized and declared a dividend distribution of one right for each outstanding share of common stock of the Company to the stockholders of record at the close of business on June 19, 2014. The rights expired on June 8, 2015, and the Board of Directors did not extend the expiration date.
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Stock-Based Compensation
The Company's practice is to make a single annual grant to all key employees participating in stock-based compensation programs and to generally make other grants only in connection with employment or promotions. Following is a summary of the Company's stock-based compensation programs.
Stock Options
The Company awards stock options at prices not less than the fair market value of the Company's common stock on the grant date, as estimated by the Black-Scholes option-pricing model. Stock options granted prior to October 2014 expire five years from the grant date, and stock options granted during and after October 2014 expire ten years from the grant date. All stock options are exercisable to the extent of 40% after the second anniversary of the grant and an additional 30% at each of the following two anniversary dates on a cumulative basis. Compensation cost is recognized on a straight-line basis, net of estimated forfeitures, over the requisite service period.
Performance Share Rights ("PSR")
During the first quarter of fiscal 2015, the Company discontinued the PSR program as a method for granting new awards. Currently, there are two active tranches of PSRs for plan years 2013 - 2015 and 2014 - 2016.
The Company's PSRs give employees the right to receive shares of the Company's common stock at a future date and have both a service condition and a performance condition. The service condition is an explicit requisite service period determined at the grant date and is generally three years. The performance condition is measured based on pre-tax return on equity and pre-tax income growth against a peer group determined by the Leadership Development and Compensation Committee of the Board of Directors. The actual number of shares issued can range from 0% to 200% of the employee's target award depending on the Company's performance relative to the peer group.
The Company values the PSRs at the grant date and re-evaluates the value each reporting period based on the most probable outcome of payout. Therefore, the compensation cost is adjusted throughout the term of the award to reflect the estimate of the most probable payout of shares. Upon vesting, the appropriate number of shares are issued, and the compensation cost reflects the total grant date fair value of those shares.
Restricted Stock Units ("RSU")
During the first quarter of fiscal 2015, the Company implemented an RSU program, which replaces the PSR plan for new award issuances. Currently, there is one active tranche of RSUs for the plan year 2015 - 2017.
The Company's RSUs give employees the right to receive shares of the Company's common stock at a future date and have only a service condition. The service condition is an explicit requisite service period determined at the grant date and is generally three years. The Company recognizes expense related to the fair value of RSUs over the requisite service period on a straight-line basis. The fair value is determined using the closing price of the Company's common stock on the grant date.
Employee Stock Purchase Program ("ESPP")
During fiscal 2014, the Company instituted an ESPP which allows employees to purchase Company shares at a discount. Shares were purchased on a semi-annual basis with the Company's expense equal to 15% of the closing price on the date of purchase. The stock-based payment expense was recognized on a straight-line basis over the six-month offering period. The final share purchase under the ESPP was executed during the second quarter of fiscal 2015, and the program has been discontinued.
8. Net Income Per Common Share
Basic net income per common share is computed by dividing net income by the weighted average number of shares outstanding during each period. Shares purchased through the ESPP are included in basic net income per common share.
Diluted net income per common share gives effect to all securities representing potential common shares that were dilutive and outstanding during the period. In the calculation of diluted net income per common share, the denominator includes the number of additional common shares that would have been outstanding if the Company's outstanding dilutive stock options, PSRs, and RSUs had been exercised, as determined by the treasury stock method. Additionally, the incremental potential
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shares that would have been issuable through the ESPP at each reporting date were included in diluted net income per common share.
Certain stock options, PSRs, and RSUs, which have been summarized in the table below, were excluded from the calculation of diluted net income per common share because their effects were antidilutive.
13 Weeks Ended | 39 Weeks Ended | |||||||||||
(in thousands) | May 30, 2015 | May 31, 2014 | May 30, 2015 | May 31, 2014 | ||||||||
Antidilutive shares | 397 | 1,053 | 342 | 970 | ||||||||
The following table sets forth the computation of basic and diluted net income per common share:
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(in thousands, except per share amounts) | May 30, 2015 | May 31, 2014 | May 30, 2015 | May 31, 2014 | ||||||||||||
Basic Net Income Per Common Share: | ||||||||||||||||
Net income | $ | 79,943 | $ | 81,147 | $ | 198,026 | $ | 250,043 | ||||||||
Weighted average number of shares outstanding | 114,511 | 113,829 | 114,378 | 114,066 | ||||||||||||
Net income per common share — basic | $ | 0.70 | $ | 0.71 | $ | 1.73 | $ | 2.19 | ||||||||
Diluted Net Income Per Common Share: | ||||||||||||||||
Net income | $ | 79,943 | $ | 81,147 | $ | 198,026 | $ | 250,043 | ||||||||
Weighted average number of shares outstanding | 114,511 | 113,829 | 114,378 | 114,066 | ||||||||||||
Effect of dilutive securities | 244 | 321 | 258 | 392 | ||||||||||||
Weighted average shares — diluted | 114,755 | 114,150 | 114,636 | 114,458 | ||||||||||||
Net income per common share — diluted | $ | 0.70 | $ | 0.71 | $ | 1.73 | $ | 2.18 | ||||||||
9. Litigation
The Company is engaged in a number of legal proceedings. The matters or groups of related matters discussed below, if decided adversely to the Company, or settled by the Company, individually or in the aggregate, may result in liability material to the Company's Consolidated Condensed Financial Statements.
North Carolina Multi-District Misclassification Litigation
Since 2001, the Company has been involved in a series of cases in which certain store managers ("Store Managers") have alleged they were improperly classified as exempt employees under the Fair Labor Standards Act ("FLSA"). Current and former Store Managers have filed lawsuits alleging the Company violated the FLSA and/or similar state laws, by classifying them as "exempt" employees who are not entitled to overtime compensation. The majority of the complaints also request recovery of overtime pay, liquidated damages, attorneys' fees, and court costs.
In April 2008, a Multi-District Litigation forum ("MDL") was created in the Western District of North Carolina, Charlotte Division ("NC Federal Court") to handle cases alleging FLSA violations against the Company. The first two of the MDL cases were Grace v. Family Dollar Stores, Inc. and Ward v. Family Dollar Stores, Inc., filed in May 2004 and June 2006, respectively. In each of these cases, the court entered orders finding the plaintiffs were not similarly situated and, therefore, neither nationwide notice nor collective treatment under the FLSA was appropriate. Since that time, the NC Federal Court has granted 60 summary judgments ruling Store Managers are properly classified as exempt from overtime.
Presently, there are a total of 10 named plaintiffs in the remaining cases in the MDL, for which the NC Federal Court has not decided the class certification or summary judgment issue. The Company cannot reasonably estimate the possible loss or range of loss that may result from these cases.
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Wage and Hour Class Action Litigation
The Company is currently a defendant in four additional class action lawsuits in four states alleging Store Managers should be classified as non-exempt employees under various state laws. The plaintiffs in these cases seek recovery of overtime pay, liquidated damages, attorneys' fees, and court costs.
• | Hegab v. Family Dollar Stores, Inc., was filed in the United States District Court for the District of New Jersey on March 3, 2011. The plaintiff is seeking unpaid overtime for himself and allegedly similarly situated current and former Store Managers under New Jersey law. The matter was administratively dismissed without prejudice. At the time of dismissal, no class had been certified. On January 14, 2014, the parties preliminarily agreed to resolve the litigation on a claims-made basis. On June 6, 2014, the parties filed a Joint Motion for Preliminary Approval of the settlement with the Court. The Court preliminarily approved the settlement on October 3, 2014. The Court granted final approval of the settlement on March 9, 2015, for an amount not material to the Consolidated Condensed Financial Statements. All class settlement payments have been made per the terms of the settlement agreement. |
• | Itterly v. Family Dollar Stores of Pennsylvania, Inc., which was formerly pending in the NC Federal Court, was remanded back to the United States District Court for the Eastern District of Pennsylvania on February 8, 2012. The plaintiffs are seeking unpaid overtime for a class of current and former Pennsylvania Store Managers whom the plaintiffs claim are not properly classified as exempt from overtime pay under Pennsylvania law. Discovery closed in June 2012. In August 2013, the Company filed summary judgment requesting the Court rule that Itterly was properly classified as exempt from overtime. The District Court granted the Company's motion on January 30, 2014, and the case is now dismissed. On February 1, 2014, the plaintiffs filed a Notice of Appeal with the Third Circuit Court of Appeals. On April 9, 2015, the Third Court affirmed the district court's decision granting summary judgment in favor of Family Dollar. As a result, this case is now dismissed. |
• | Premo v. Family Dollar Stores of Massachusetts, Inc., was filed in Worcester County Superior Court in the State of Massachusetts for alleged violations of the Massachusetts overtime law on April 26, 2013. The plaintiffs are seeking unpaid overtime for a class of current and former Massachusetts Store Managers whom plaintiffs claim are not properly classified as exempt from overtime under Massachusetts law. The Company removed the case to federal district court in Massachusetts on May 28, 2013. The plaintiffs challenged the removal to federal court. On March 28, 2014, the court remanded the claim back to state court. On April 7, 2014, the Company filed an interlocutory petition for appellate relief from the remand decision to the United States Court of Appeals for the First Circuit. In the interim, the Company filed its answer to the lawsuit on May 13, 2014. The Company currently awaits the Court's ruling on its motion. |
• | Steingruber v. Family Dollar Stores of Florida, Inc., was filed in the United States District Court for the Middle District of Florida on February 23, 2015. The lawsuit was brought as a collective action on behalf of the plaintiff and other similarly situated Family Dollar store managers alleging the store managers are misclassified as being exempt from overtime under the FLSA. On April 3, 2015, the Company filed a Motion to Dismiss, or in the alternative to Stay the Case, a Motion to Compel Arbitration, and a Motion to Strike the Collective Action Allegations. Briefing is completed on these motions and they are currently pending before the court. |
Considering, among other factors, the Company has obtained multiple decisions ruling its Store Managers are properly classified as exempt from overtime, the Company cannot reasonably estimate the possible loss or range of loss that may result from the Premo and Steingruber cases.
Gender Pay Litigation
Luanna Scott, et al. v. Family Dollar Stores, Inc.
On October 14, 2008, a complaint was filed in the U.S. District Court in Birmingham, Alabama captioned Scott, et al. v. Family Dollar Stores, Inc., alleging discriminatory pay practices with respect to the Company's female Store Managers. This case was pled as a putative class action or collective action under applicable statutes on behalf of all Family Dollar female Store Managers. The plaintiffs seek recovery of back pay, compensatory and punitive money damages, recovery of attorneys' fees, and equitable relief. The case was transferred to the United States District Court for the Western District of North Carolina in November 2008.
Presently, there are 48 named plaintiffs in the Scott case. On January 13, 2012, the trial court granted the Company's Motion to Strike the class allegations asserted in the complaint based in part upon the United States Supreme Court's ruling in Dukes v.
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Wal-Mart. The plaintiffs filed an appeal of the Court's dismissal of the class allegations to the United States Court of Appeals for the Fourth Circuit. On October 16, 2013, the Fourth Circuit Court of Appeals partially reversed the trial court's ruling. While the Fourth Circuit agreed the original Complaint should not proceed as a class action, it remanded the case and instructed the trial court to allow the amendment of the complaint, and then consider, based upon the amended complaint, whether the case should proceed as a class action. On November 14, 2013, the Fourth Circuit denied further en banc review of the decision. On January 24, 2014, the Company filed a Petition for Writ of Certiorari to the United States Supreme Court. On June 30, 2014, the United States Supreme Court denied further review of the Fourth Circuit's decision. The case is now back with the district court. On September 8, 2014, the district court entered a new Pretrial Order and Scheduling Plan and the parties are proceeding with limited discovery pursuant to those Orders.
The Company has tendered the matter to its Employment Practices Liability Insurance ("EPLI") carrier for coverage under its EPLI policy. At this time, the Company expects the EPLI carrier will participate in any resolution of the case. The Company has exceeded its insurance retention and expects any additional legal fees and settlements will be paid by the EPLI carrier. No reserve is appropriate due to the status of the case.
Shareholder Litigation
Three putative class action lawsuits have been filed against Family Dollar, its directors, Dollar Tree and Dime Merger Sub, Inc., (subsidiary of Dollar Tree established for Family Dollar to merge into upon consummation of merger) in the Delaware Court of Chancery:
• | Shiva Y. Stein v. Family Dollar Stores, Inc., et al., C.A. No. 9985, filed on July 31, 2014, |
• | Darrell Wickert v. Family Dollar Stores, Inc., et al., C.A. No. 10025, filed on August 11, 2014, and |
• | Stuart Friedman v. Family Dollar Stores, Inc., et al., C.A. No. 10080, filed on September 3, 2014. |
On August 26, 2014, the Stein and Wickert actions were consolidated under the caption In re Family Dollar Stores, Inc. Stockholder, Litig., C.A. No. 9985-CB. On September 11, 2014, all three actions were consolidated under the caption In re Family Dollar Stores, Inc. Stockholder Litig., C.A. No. 9985-CB.
Each of the three actions has been brought on behalf of a putative class of Family Dollar's stockholders, and each alleges, generally, that the members of the Family Dollar Board of Directors breached their fiduciary duties in connection with the pending Dollar Tree merger by, among other things, carrying out a process that the plaintiffs allege did not ensure adequate and fair consideration to Family Dollar's stockholders. The plaintiffs further allege that Family Dollar and Dollar Tree aided and abetted the individual defendants' breaches of their fiduciary duties. The plaintiffs seek equitable relief to enjoin consummation of the merger, rescission of the merger and/or rescissory damages, and attorneys' fees and costs.
On August 28, 2014, the plaintiffs in the consolidated action filed motions for expedited proceedings and for a preliminary injunction enjoining the merger. On September 3, 2014, the plaintiffs in the consolidated action filed a motion for a temporary restraining order to require Family Dollar to terminate its rights agreement and to direct the Family Dollar Board of Directors to deem the terms of Dollar General's proposal sufficient to warrant entering into negotiations with Dollar General under the terms of the Dollar Tree merger agreement. At a hearing on September 10, 2014, the Delaware Court of Chancery concluded the temporary restraining order application did not merit scheduling a hearing to consider such relief, and declined to do so. A hearing on the plaintiffs' motion for a preliminary injunction was held on December 5, 2014, and on December 19, 2014, the Delaware Court of Chancery denied, in its entirety, the plaintiffs' motion for preliminary injunctive relief. On December 24, 2014, the plaintiffs filed an application in the Delaware Court of Chancery to certify an appeal from the denial of preliminary injunctive relief to the Delaware Supreme Court, which application the Delaware Court of Chancery denied on January 2, 2015. The Company believes these lawsuits are without merit and intends to vigorously defend the claims in these actions. Due to the preliminary status, the Company cannot reasonably estimate the possible loss or range of loss that may result from these lawsuits.
Other Litigation
Winn-Dixie Stores, Inc., et al. v. Family Dollar Stores of Florida, Inc.
On March 5, 2014, the Company was served with a lawsuit entitled Winn-Dixie Stores, Inc., et al. v. Family Dollar Stores of Florida, Inc., in the Circuit Court for the Eleventh Judicial Circuit, in and for Miami-Dade County, Florida (the "Circuit Court"). In this lawsuit, Winn-Dixie Stores, Inc. ("Winn-Dixie") alleges that 57 Family Dollar stores are currently, or have previously been, co-located in a shopping center with a Winn-Dixie store and are violating, or have violated, certain restrictive
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covenants Winn-Dixie contends are binding on the occupants of the shopping centers. Winn-Dixie seeks damages and injunctive relief limiting the sale of food and other items sold in the Company's stores at issue in the lawsuit.
This case follows similar actions brought by Winn-Dixie against Dollar General Corporation, Dollar Tree, Inc., and Big Lots, Inc. The case against the Company is in the discovery stage of litigation and the Company continues to evaluate Winn-Dixie's claims. The Company previously filed and prevailed on a Motion to Dismiss Winn-Dixie's Amended Complaint. Thereafter, Winn-Dixie filed a Second Amended Complaint. Winn-Dixie has also filed a Motion for Temporary Injunction seeking to limit the Company's sale of food and other items in the stores at issue pending final outcome of the suit. The Circuit Court has not set a hearing date for the Motion for Temporary Injunction.
This case has been assigned a trial date of January 4, 2016. Due to the preliminary status of the case, the Company cannot reasonably estimate the possible loss or range of loss that may result from this case.
Reginald Moore, et al. v. Family Dollar Stores, Inc.
On August 13, 2014, the Company was served with a putative class action petition entitled Reginald Moore, et al. v. Family Dollar Stores, Inc., in the Circuit Court of the City of St. Louis, Missouri. Mr. Moore contends that he, and others similarly situated, received Short Message Service ("SMS") text message advertisements from the Company, without providing express written consent in violation of the Telephone Consumer Protection Act ("TCPA"). Mr. Moore has requested the court enter an order certifying the action as a class action, and appointing him as representative of the class. Mr. Moore further seeks judgment in favor of himself, and the proposed class, for all damages available under the TCPA, including statutory damages of $500 -$1,500 per willful violation.
The Case has been removed from the Circuit Court of the City of St. Louis, Missouri, to the United States District Court for the Eastern District of Missouri, Eastern Division. The Company moved to bifurcate discovery, thus limiting initial discovery to the individual named plaintiff, Reginald Moore. After a hearing on the issue, the judge ruled in favor of the Company and issued an order limiting initial discovery to Mr. Moore's individual TCPA claim. The parties have conducted initial discovery related to Mr. Moore's TCPA claim only. Additionally, the Company has filed a Motion for Summary Judgment on Mr. Moore’s individual claim. No ruling has been made on the Company’s Motion for Summary Judgment.
The case against the Company is in the initial stages of litigation and the Company is working to evaluate the allegations contained in the class action petition. Due to the preliminary status, the Company cannot reasonably estimate the possible loss or range of loss that may result from this case.
Other Matters
The Company is involved in numerous other legal proceedings and claims incidental to its business, including litigation related to alleged failures to comply with various state and federal employment laws, some of which are, or may be pled as class or collective actions, and litigation related to alleged personal or property injury damage, as to which the Company carries insurance coverage and/or has established accrued liabilities as set forth in the Company's Consolidated Condensed Financial Statements. While the ultimate outcome cannot be determined, the Company currently believes these proceedings and claims, both individually and in the aggregate, are not expected to have a material impact on the Company's Consolidated Condensed Financial Statements. However, the outcome of any litigation is inherently uncertain and, if decided adversely to the Company, or, if the Company determines settlement of such actions is appropriate, the Company may be subject to liability material to the Company's Consolidated Condensed Financial Statements.
10. Segment Information
The Company operates a chain of more than 8,200 general merchandise retail discount stores in 46 states, serving the basic needs of customers primarily in the low- and middle-income brackets. The stores are supported by 11 distribution centers and one Store Support Center. All stores operate under the Family Dollar name and are substantially the same in terms of size, merchandise, customers, distribution, and operations. The Company has no franchised locations or other lines of business. All the Company's operations are located in the United States with the exception of certain sourcing entities located in Asia and Europe. The foreign operations solely support domestic operations and are not material. The Company manages the business on the basis of one operating segment and therefore, has only one reportable segment. The following table presents net sales by classes of similar products. The combination of Home Products, Apparel and Accessories, and Seasonal and Electronics are referred to as "Discretionary" categories.
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13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(in thousands) | May 30, 2015 | May 31, 2014 | May 30, 2015 | May 31, 2014 | ||||||||||||
Classes of similar products: | ||||||||||||||||
Consumables | $ | 2,022,992 | $ | 1,948,174 | $ | 5,982,901 | $ | 5,753,716 | ||||||||
Home Products | 251,379 | 260,129 | 754,642 | 782,404 | ||||||||||||
Apparel and Accessories | 214,981 | 210,860 | 564,810 | 565,992 | ||||||||||||
Seasonal and Electronics | 238,824 | 239,801 | 780,513 | 773,164 | ||||||||||||
Net sales | $ | 2,728,176 | $ | 2,658,964 | $ | 8,082,866 | $ | 7,875,276 | ||||||||
The following table describes the Company's product categories in more detail:
Consumables | Batteries |
Diapers | |
Food | |
Hardware and automotive supplies | |
Health and beauty aids | |
Household chemicals | |
Paper products | |
Pet food and supplies | |
Tobacco | |
Home Products | Domestics, including blankets, sheets and towels |
Giftware | |
Home décor | |
Housewares | |
Apparel and Accessories | Boys' and girls' clothing |
Fashion accessories | |
Infants' clothing | |
Men's clothing | |
Shoes | |
Women's clothing | |
Seasonal and Electronics | Personal electronics, including pre-paid cellular phones and services |
Seasonal goods | |
Stationery and school supplies | |
Toys | |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion summarizes the significant factors affecting our consolidated results of operations and financial condition for the 13-week periods ended May 30, 2015, and May 31, 2014 ("third quarter of fiscal 2015" and "third quarter of fiscal 2014," respectively), and the 39-week periods ended May 30, 2015, and May 31, 2014 ("first three quarters of fiscal 2015" and "first three quarters of fiscal 2014," respectively).
This discussion should be read in conjunction with, and is qualified by, the financial statements included in this Report, the financial statements for the fiscal year ended August 30, 2014 ("fiscal 2014"), and Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") contained in our Annual Report on Form 10-K for fiscal 2014. This discussion should also be read in conjunction with the "Cautionary Statement Regarding Forward-Looking Statements" and the "Risk Factors" set forth following this MD&A, and the "Risk Factors" set forth in Part I—Item 1A of our Annual Report on Form 10-K for fiscal 2014.
Executive Overview
We operate a chain of more than 8,200 general merchandise retail discount stores in 46 states, providing value-conscious consumers with a selection of competitively priced merchandise in convenient neighborhood stores. Our merchandise assortment includes Consumables, Home Products, Apparel and Accessories, and Seasonal and Electronics. We refer to the combination of Home Products, Apparel and Accessories, and Seasonal and Electronics as "Discretionary" categories. We sell merchandise at prices that generally range from less than $1 to $10.
In the third quarter of fiscal 2015, our industry remained highly competitive on the basis of store locations, convenience, price and quality of merchandise, in-stock consistency, merchandise assortment and presentation, and customer service. Although there have been some recent positive macro-economic factors, including lower gasoline prices and improved unemployment rates, we believe our customers have remained impacted by the inconsistency of these improvements and other factors and have continued to focus their spending on necessities.
During the third quarter of fiscal 2015, as compared to the third quarter of fiscal 2014, our net sales increased 2.6% to $2.73 billion. During the first three quarters of fiscal 2015, as compared to the first three quarters of fiscal 2014, our net sales increased 2.6% to $8.08 billion.
Consumables comprised 74.2% of our total sales in the third quarter of fiscal 2015, as compared to 73.3% of total sales in the third quarter of fiscal 2014. Within Consumables, increased sales of lower-margin products, such as tobacco and food, continued to pressure our profitability.
Comparable store sales for the third quarter and first three quarters of fiscal 2015 increased 0.7% and 0.3%, respectively, as compared to the third quarter and first three quarters of fiscal 2014, respectively. Comparable store sales increased as a result of an increase in the number of customer transactions, partially offset by a decrease in average customer transaction values. Reflecting the modest increase in comparable store sales, many expenses deleveraged in the third quarter and the first three quarters of fiscal 2015.
Comparable store sales growth describes the change in net sales in any period for stores considered comparable to the prior period. Comparable store sales include net sales at stores that have been open more than 13 months. A store becomes comparable the first calendar week it has sales after 13 months of being opened. Renovated, relocated, or expanded stores are included in the comparable store sales calculation to the extent they had sales during comparable weeks in each year. The method of calculating comparable store sales varies across the retail industry. As a result, our comparable store sales calculation may be different than similarly titled measures reported by other companies.
As a result of continued pressures on our merchandise margins, deleveraging of expenses, and professional fees incurred related to the pending merger with Dollar Tree, Inc. ("Dollar Tree"), our net income decreased to $79.9 million from $81.1 million, and our diluted net income per common share decreased to $0.70 from $0.71, in the third quarter of fiscal 2015, as compared to the third quarter of fiscal 2014. Excluding $4.7 million of merger-related costs in the third quarter of fiscal 2015 and $24.5 million of restructuring charges in the third quarter of fiscal 2014, as discussed below, our net income decreased to $84.6 million from $96.5 million and our diluted net income per common share decreased to $0.74 from $0.85.
In the first three quarters of fiscal 2015, our net income decreased to $198.0 million from $250.0 million, and our diluted net income per common share decreased to $1.73 from $2.18, as compared to the first three quarters of fiscal 2014. Excluding $21.8 million of merger-related costs in fiscal 2015 and $24.5 million of restructuring charges in fiscal 2014, as discussed
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below, our net income decreased to $219.8 million from $265.4 million and our diluted net income per common share decreased to $1.92 from $2.32.
During the first three quarters of fiscal 2015, we opened 245 stores and closed 26 stores, for a net increase of 219 stores. The Company also renovated, relocated, or expanded 433 stores during the first three quarters of fiscal 2015. This compares to a net increase of 330 stores and 585 renovated, relocated, or expanded stores during the first three quarters of fiscal 2014.
Dollar Tree Merger
On January 22, 2015, at the special meeting of the Company's stockholders, the Company's stockholders adopted the Agreement and Plan of Merger, dated as of July 27, 2014, as amended by Amendment No. 1 on September 4, 2014, and as it may be further amended from time to time, by and among the Company, Dollar Tree, and Dime Merger Sub, Inc., a wholly-owned subsidiary of Dollar Tree ("merger agreement"). Upon the terms and subject to the conditions of the merger agreement, a subsidiary of Dollar Tree will be merged with and into Family Dollar, with Family Dollar continuing as the surviving entity and a wholly-owned subsidiary of Dollar Tree after consummation of the merger.
The completion of the merger remains subject to Federal Trade Commission ("FTC") clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and other customary closing conditions. Dollar Tree, with support from Family Dollar, is continuing to work with the Federal Trade Commission on obtaining FTC clearance under the HSR Act, and on May 29, 2015, Dollar Tree announced that it entered into a definitive agreement with Sycamore Partners to sell a divestiture package of 330 Family Dollar stores, contingent on completion of the merger, in order to address FTC concerns.
On June 16, 2015, Dollar Tree and Family Dollar also announced they signed an Agreement Containing Consent Orders proposed by the FTC staff. The agreement includes a draft Decision and Order, which remains subject to acceptance and final approval by the FTC Commissioners, and would permit Dollar Tree to acquire Family Dollar subject to an obligation to complete the divestiture within a specified period following the closing of the acquisition of Family Dollar. Dollar Tree has informed Family Dollar that Dollar Tree intends to close the merger in early July 2015, shortly after the FTC accepts the Decision and Order for public comment.
Non-GAAP Measures
In our analysis of the results of operations, we utilized non-GAAP financial measures for operating profit, net income, and diluted net income per common share. We believe these non-GAAP financial measures better enable management and investors to understand and analyze our performance by providing meaningful information relevant to events that impact the comparability of underlying business results from period to period. In the measures presented, we have excluded the merger-related fees and restructuring charges as presented in Note 2 to the Consolidated Condensed Financial Statements because the exclusion of such amounts facilitates the comparison of the Company's financial results to its historical operating results. However, these supplemental measures should be considered in addition to, and not as a substitute for or superior to, the related measures determined in accordance with GAAP.
The following table reconciles operating profit, net income, and diluted net income per common share (GAAP financial measures) for the periods presented to adjusted operating profit, adjusted net income, and adjusted diluted net income per common share (non-GAAP financial measures) for the periods presented.
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13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(in thousands, except per share amounts) | May 30, 2015 | May 31, 2014 | May 30, 2015 | May 31, 2014 | ||||||||||||
Operating profit | $ | 126,285 | $ | 120,808 | $ | 314,492 | $ | 381,384 | ||||||||
Restructuring charges - Cost of sales | — | 1,486 | — | 1,486 | ||||||||||||
Restructuring charges - SG&A | — | 22,996 | — | 22,996 | ||||||||||||
Merger fees | 4,690 | — | 21,781 | — | ||||||||||||
Adjusted operating profit | $ | 130,975 | $ | 145,290 | $ | 336,273 | $ | 405,866 | ||||||||
Net income | $ | 79,943 | $ | 81,147 | $ | 198,026 | $ | 250,043 | ||||||||
After-tax impact of restructuring charges - Cost of sales | — | 932 | — | 932 | ||||||||||||
After-tax impact of restructuring charges - SG&A | — | 14,423 | — | 14,423 | ||||||||||||
Merger fees | 4,690 | — | 21,781 | — | ||||||||||||
Adjusted net income | $ | 84,633 | $ | 96,502 | $ | 219,807 | $ | 265,398 | ||||||||
Diluted net income per common share | $ | 0.70 | $ | 0.71 | $ | 1.73 | $ | 2.18 | ||||||||
Per share impact of restructuring charges - Cost of sales | — | 0.01 | — | 0.01 | ||||||||||||
Per share impact of restructuring charges - SG&A | — | 0.13 | — | 0.13 | ||||||||||||
Per share impact of merger fees | 0.04 | — | 0.19 | — | ||||||||||||
Adjusted diluted net income per common share | $ | 0.74 | $ | 0.85 | $ | 1.92 | $ | 2.32 | ||||||||
Results of Operations
Third Quarter Results
Our results of operations for the third quarter of fiscal 2015 and the third quarter of fiscal 2014 are highlighted in the table below and discussed in the following paragraphs:
13 Weeks Ended | 13 Weeks Ended | |||||||||||
(in thousands) | May 30, 2015 | % of Net Sales* | May 31, 2014 | % of Net Sales* | ||||||||
Net sales | $ | 2,728,176 | $ | 2,658,964 | ||||||||
Costs and expenses: | ||||||||||||
Cost of sales | 1,785,011 | 65.4 | % | 1,746,625 | 65.7 | % | ||||||
Cost of sales - restructuring | — | — | % | 1,486 | 0.1 | % | ||||||
Selling, general and administrative | 812,190 | 29.8 | % | 767,049 | 28.8 | % | ||||||
Restructuring | — | — | % | 22,996 | 0.9 | % | ||||||
Merger fees | 4,690 | 0.2 | % | — | — | % | ||||||
Cost of sales and operating expenses | 2,601,891 | 95.4 | % | 2,538,156 | 95.5 | % | ||||||
Operating profit | 126,285 | 4.6 | % | 120,808 | 4.5 | % | ||||||
Investment income | 43 | — | % | 58 | — | % | ||||||
Interest expense | 6,795 | 0.2 | % | 7,959 | 0.3 | % | ||||||
Other income | 8,470 | 0.3 | % | 8,400 | 0.3 | % | ||||||
Income before income taxes | 128,003 | 4.7 | % | 121,307 | 4.6 | % | ||||||
Income taxes | 48,060 | 1.8 | % | 40,160 | 1.5 | % | ||||||
Net income | $ | 79,943 | 2.9 | % | $ | 81,147 | 3.1 | % | ||||
*Percentages are rounded | ||||||||||||
Net Sales
Net sales increased 2.6% in the third quarter of fiscal 2015, as compared to the third quarter of fiscal 2014. The net sales increase in the third quarter of fiscal 2015 was primarily due to sales from a modest increase in comparable store sales and new stores opened.
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Comparable store sales increased 0.7% in the third quarter of fiscal 2015, as compared to the third quarter of fiscal 2014, as a result of an increase in customer transactions, partially offset by a decrease in average customer transaction values in comparable stores. Sales during the third quarter of fiscal 2015, on a comparable store basis, were strongest in the Consumables category.
We had 8,261 stores in operation at the end of the third quarter of fiscal 2015, as compared to 8,246 stores in operation at the end of the third quarter of fiscal 2014. As of May 30, 2015, we had, in the aggregate, approximately 59.8 million square feet of selling space compared to 59.5 million square feet as of May 31, 2014, a 0.5% increase.
Cost of Sales
Cost of sales increased 2.2% in the third quarter of fiscal 2015, as compared to the third quarter of fiscal 2014. Cost of sales, as a percentage of net sales, was 65.4% in the third quarter of fiscal 2015 and 65.7% in the third quarter of fiscal 2014. The improvement in Cost of sales, as a percentage of net sales, was driven primarily by the following:
• | A decrease in markdowns. As we continued to focus on improving profitability, we reduced merchandise markdowns. |
• | An increase in markups on merchandise sales. We continued to refine our pricing strategy and focused on improving our initial purchase markup through lower costs of merchandise. |
These favorable items were partially offset by the following:
• | A continued shift in sales mix to lower-margin consumable merchandise. An increase in sales of lower-margin Consumables, including a mix shift within Consumables to lower-margin products, including tobacco and food, has continued to pressure cost of sales as a percentage of net sales. |
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased 5.9% in the third quarter of fiscal 2015, as compared to the third quarter of fiscal 2014. SG&A expenses, as a percentage of net sales, were 29.8% in the third quarter of fiscal 2015, as compared to 28.8% in the third quarter of fiscal 2014. SG&A expenses, as a percentage of net sales, deleveraged primarily as a result of a modest increase in comparable store sales, as compared to the third quarter of fiscal 2014. Negatively impacted categories, as a percentage of net sales, include:
• | Store occupancy costs (approximately 0.8% of net sales). The increase in fixed store occupancy costs was primarily driven by increased rent, property taxes, utilities, repairs, and depreciation. |
• | Insurance expense (approximately 0.4% of net sales). We experienced unfavorable trends in the overall costs of our medical insurance program in the third quarter of fiscal 2015. We experienced positive trends in the overall costs of our workers' compensation and general liability programs in the third quarter of fiscal 2015. However, the rate of improvement was lower as compared to the third quarter of fiscal 2014, resulting in increased insurance expense, as a percentage of net sales. |
• | Store payroll costs (approximately 0.2% of net sales). |
These unfavorable items were partially offset by the following:
• | Store support payroll expense (approximately 0.3% of net sales). Elevated turnover at the Store Support Center has resulted in lower payroll expense. |
• | Advertising expense (approximately 0.2% of net sales). We continued to focus on improving the efficiency and effectiveness of our advertising through changes in the timing, number of pages, and type of merchandise included in our promotional materials, which resulted in a decrease in overall advertising spending, as a percentage of net sales. |
Merger Fees
On July 27, 2014, we entered into the Dollar Tree merger agreement, upon the terms and subject to the conditions of which a subsidiary of Dollar Tree will be merged with and into Family Dollar, with Family Dollar continuing as the surviving entity and a wholly-owned subsidiary of Dollar Tree after consummation of the merger. In executing the Dollar Tree merger agreement, the Company incurred $4.7 million of professional fees during the third quarter of fiscal 2015, consisting primarily of legal fees.
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Investment Income, Interest Expense, and Other Income
The changes in investment income, interest expense and other income in the third quarter of fiscal 2015, as compared to the third quarter of fiscal 2014 were not material.
Income Taxes
The effective tax rate was 37.5% for the third quarter of fiscal 2015, as compared to 33.1% for the third quarter of fiscal 2014. The effective tax rate was higher primarily due to changes in foreign transfer pricing legislation impacting our global sourcing operations, non-deductible costs associated with the pending merger with Dollar Tree, and a decrease in federal jobs tax credits.
Year-to-date Results
Our results of operations for the first three quarters of fiscal 2015 and the first three quarters of fiscal 2014 are highlighted in the table below and discussed in the following paragraphs:
39 Weeks Ended | 39 Weeks Ended | |||||||||||
(in thousands) | May 30, 2015 | % of Net Sales* | May 31, 2014 | % of Net Sales* | ||||||||
Net sales | $ | 8,082,866 | $ | 7,875,276 | ||||||||
Costs and expenses: | ||||||||||||
Cost of sales | 5,355,667 | 66.3 | % | 5,203,802 | 66.1 | % | ||||||
Cost of sales - restructuring | — | — | % | 1,486 | — | % | ||||||
Selling, general and administrative | 2,390,926 | 29.6 | % | 2,265,608 | 28.8 | % | ||||||
Restructuring | — | — | % | 22,996 | 0.3 | % | ||||||
Merger fees | 21,781 | 0.3 | % | — | — | % | ||||||
Cost of sales and operating expenses | 7,768,374 | 96.1 | % | 7,493,892 | 95.2 | % | ||||||
Operating profit | 314,492 | 3.9 | % | 381,384 | 4.8 | % | ||||||
Investment income | 143 | — | % | 162 | — | % | ||||||
Interest expense | 21,812 | 0.3 | % | 22,256 | 0.3 | % | ||||||
Other income | 24,409 | 0.3 | % | 23,334 | 0.3 | % | ||||||
Income before income taxes | 317,232 | 3.9 | % | 382,624 | 4.9 | % | ||||||
Income taxes | 119,206 | 1.5 | % | 132,581 | 1.7 | % | ||||||
Net income | $ | 198,026 | 2.4 | % | $ | 250,043 | 3.2 | % | ||||
*Percentages are rounded | ||||||||||||
Net Sales
Net sales increased 2.6% in the first three quarters of fiscal 2015, as compared to the first three quarters fiscal 2014. The net sales increase in the first three quarters of fiscal 2015 was primarily due to sales from new stores opened and a modest increase in comparable store sales.
We had an average of 8,164 stores in operation during the first three quarters of fiscal 2015, as compared to an average of 8,085 stores in operation during the first three quarters of fiscal 2014, an increase of 1.0%.
Comparable store sales increased 0.3% in the first three quarters of fiscal 2015, as compared to the first three quarters of fiscal 2014, as a result of an increase in customer transactions, partially offset by a decrease in average customer transaction values in comparable stores. Sales during the first three quarters of fiscal 2015, on a comparable store basis, were strongest in the Consumables category.
Cost of Sales
Cost of sales increased 2.9% in the first three quarters of fiscal 2015, as compared to the first three quarters of fiscal 2014. Cost of sales, as a percentage of net sales, was 66.3% in the first three quarters of fiscal 2015 and 66.1% in the first three quarters of fiscal 2014. Cost of sales, as a percentage of net sales, was negatively impacted by the following:
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• | A continued shift in sales mix to lower-margin consumable merchandise. An increase in sales of lower-margin Consumables, including a mix shift within Consumables to lower-margin products, including tobacco and food, has continued to pressure cost of sales as a percentage of net sales. |
This unfavorable item was partially offset by the following:
• | A decrease in markdowns. As we continued to focus on improving profitability, we reduced merchandise markdowns. |
Selling, General and Administrative Expenses
SG&A expenses increased 5.5% in the first three quarters of fiscal 2015, as compared to the first three quarters of fiscal 2014. SG&A expenses, as a percentage of net sales, were 29.6% in the first three quarters of fiscal 2015, as compared to 28.8% in the first three quarters of fiscal 2014. SG&A expenses, as a percentage of net sales, deleveraged primarily as a result of the modest increase in comparable store sales, as compared to the first three quarters of fiscal 2014. Negatively impacted categories, as a percentage of net sales, include:
• | Store occupancy costs (approximately 0.7% of net sales). The increase in fixed store occupancy costs was primarily driven by rent, property taxes, and depreciation. |
• | Insurance expense (approximately 0.2% of net sales). We experienced positive trends in the overall costs of our workers' compensation and general liability programs in the first three quarters of fiscal 2015. However, the rate of improvement was lower as compared to the first three quarters of fiscal 2014, resulting in increased insurance expense, as a percentage of net sales. |
• | Store payroll costs (approximately 0.1% of net sales). |
These unfavorable items were partially offset by the following:
• | Store support payroll expense (approximately 0.2% of net sales). Elevated turnover at the Store Support Center, as well as continued impact from the headcount reduction during the third quarter of fiscal 2014, has resulted in lower payroll expense. |
Merger Fees
In executing the Dollar Tree merger agreement, the Company incurred $21.8 million of professional fees during the first three quarters of fiscal 2015, consisting primarily of legal fees.
Investment Income, Interest Expense, and Other Income
The changes in investment income, interest expense and other income in the first three quarters of fiscal 2015, as compared to the first three quarters of fiscal 2014 were not material.
Income Taxes
The effective tax rate was 37.6% for the first three quarters of fiscal 2015, as compared to 34.7% for the first three quarters of fiscal 2014. The effective tax rate was higher primarily due to non-deductible costs associated with the pending merger with Dollar Tree and the changes in foreign transfer pricing, partially offset by the federal government's reinstatement of the Work Opportunity Tax Credit in December 2014.
Liquidity and Capital Resources
General
During the first three quarters of fiscal 2015, our cash and cash equivalents increased $76.2 million from the end of fiscal 2014, and our net cash provided by operating activities was $342.6 million. We believe our sources of cash flows, including credit facilities, are sufficient to fund our regular operating needs, capital expenditures, and principal and interest payments. We have availability under our two credit facilities to borrow up to $900 million, less standby letters of credit needed for collateral for our insurance programs of $16.4 million as of May 30, 2015, to supplement operating cash flows.
During the first three quarters of fiscal 2015, to help supplement our operating cash flows and to support our growth initiatives, we borrowed and repaid $1.12 billion under our unsecured revolving credit facilities and had an average daily outstanding
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balance of $108.8 million. Working capital at the end of the third quarter of fiscal 2015 was $1.01 billion, as compared to $789.4 million at the end of the third quarter of fiscal 2014. The increase in working capital was primarily due to the decrease in borrowings on our unsecured revolving credit facilities, as we required less funding for dividends, capital expenditures, and stock repurchases.
Cash and Investments - Wholly-Owned Captive Insurance Subsidiary
We have restricted a portion of cash and investments to serve as collateral for certain of our insurance obligations held at our wholly-owned captive insurance subsidiary. These restricted funds cannot be withdrawn from the Company's account without secured third-party consent. As of May 30, 2015, the Company held $34.9 million in this restricted account, of which $32.1 million was included in Restricted cash and investments and $2.8 million was included in Other assets in the Consolidated Condensed Balance Sheet. The classification between current and non-current is based on the timing of expected payments of the secured insurance obligations.
In addition to the Restricted cash and investments, our wholly-owned captive insurance subsidiary maintains unrestricted balances in cash and cash equivalents and investment securities used in connection with our retained workers' compensation, general liability, and automobile liability risks and are not designated for general corporate purposes. As of May 30, 2015, these unrestricted cash and cash equivalents and investment securities balances were $17.7 million and $4.0 million, respectively.
Build-to-Suit and Sale-Leaseback Transactions
The Company uses build-to-suit and sale-leaseback transactions to construct and lease new stores. In a build-to-suit transaction, an unrelated third-party funds store construction and owns the property throughout and upon completion of construction. In a sale-leaseback transaction, the Company provides funding for store construction and owns the property upon completion of construction. Upon completion of the stores' construction in build-to-suit transactions and concurrent with the sale of stores in sale-leaseback transactions, the Company enters into agreements to lease the properties over an initial term of 15 years, with four, 5-year fixed renewal options. The Company evaluates each store individually upon certain events during the life of the lease, including individual renewal options. The Company classifies these leases as operating leases, actively uses the leased properties, and considers the leases normal leasebacks.
During the first three quarters of fiscal 2015, the Company completed 210 build-to-suit transactions to support new store growth. Additionally, the Company completed sale-leaseback transactions under which it sold 15 stores to unrelated third-parties for net proceeds of approximately $27.1 million. Upon closing of the transactions, the Company deferred a gain of approximately $1.0 million realized on the sale of the assets and will amortize the gain over the initial lease term.
During the first three quarters of fiscal 2014, the Company completed 230 build-to-suit transactions. Additionally, the Company completed sale-leaseback transactions under which it sold 23 stores to unrelated third-parties for net proceeds of approximately $32.5 million. Upon closing of the transactions, the Company deferred a gain of approximately $0.8 million realized on the sale of the assets and continues to amortize the gain over the initial lease term.
Credit Facilities
On November 13, 2013, the Company entered into a five-year unsecured revolving credit facility with a syndicate of lenders for borrowings of up to $600 million. The credit facility matures on November 13, 2018, and provides for two, one-year extensions that require lender consent. Any borrowings under the credit facility accrue interest at a variable rate based on short-term market interest rates.
On November 13, 2013, the Company entered into a four-year unsecured revolving credit facility with a syndicate of lenders for borrowings of up to $300 million. The credit facility matures on November 13, 2017, and provides for two, one-year extensions that require lender consent. Any borrowings under the credit facility accrue interest at a variable rate based on short-term market interest rates.
The revolving credit facilities provide the Company the capacity to borrow up to $900 million, less standby letters of credit needed for collateral for its insurance program of $16.4 million as of May 30, 2015.
As of May 30, 2015, and August 30, 2014, the Company had no short-term borrowings outstanding under its unsecured revolving credit facilities. During the first three quarters of fiscal 2015, the Company had no net borrowings, with $1.12 billion
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borrowed and repaid, and an average daily outstanding balance of $108.8 million at a weighted-average interest rate of 1.4% under its unsecured revolving credit facilities.
The Company's unsecured revolving credit facilities contain certain restrictive financial covenants, which include a consolidated debt to consolidated capitalization ratio, a fixed charge coverage ratio, and a priority debt to consolidated net worth ratio. As of May 30, 2015, the Company was in compliance with all such covenants.
Long-Term Debt
On January 28, 2011, the Company issued $300 million of 5.00% unsecured senior notes due February 1, 2021 (the "2021 Notes"), through a public offering. The Company's proceeds were approximately $298.5 million, net of an issuance discount of $1.5 million. In addition, the Company incurred issuance costs of approximately $3.3 million. Both the discount and issuance costs are being amortized to Interest expense over the term of the 2021 Notes. Interest on the 2021 Notes is payable semiannually in arrears on February 1 and August 1 of each year, commencing on August 1, 2011. The 2021 Notes rank pari passu in right of payment with the Company's other unsecured senior indebtedness and will be senior in right of payment to any subordinated indebtedness. The Company may redeem the 2021 Notes in whole at any time or in part from time to time, at the option of the Company, subject to a make-whole premium. In addition, upon the occurrence of certain change of control triggering events, the Company may be required to repurchase the 2021 Notes, at a price equal to 101% of the principal amount, plus accrued and unpaid interest to the date of repurchase.
On September 27, 2005, the Company obtained $250 million through a private placement of unsecured senior notes due September 27, 2015 (the "2015 Notes"), to a group of institutional accredited investors. The 2015 Notes were issued in two tranches at par and rank pari passu in right of payment with the Company's other unsecured senior indebtedness. As of May 30, 2015, the 2015 Notes were included in the Current portion of long-term debt in the Consolidated Condensed Balance Sheet.
• | The first tranche has an aggregate principal amount of $169 million, is payable in a single installment on September 27, 2015, and bears interest at a rate of 5.41% per annum from the date of issuance. |
• | The second tranche has an aggregate principal amount of $81 million, matures on September 27, 2015, with amortization that began on September 27, 2011, and bears interest at a rate of 5.24% per annum from the date of issuance. The second tranche had a required principal payment of $16.2 million on September 27, 2011, and on each September 27 thereafter to and including September 27, 2015. The Company has made all required principal payments from September 2011 through September 2014. The next and final principal payment of $16.2 million is due in September 2015. |
Interest on the 2015 Notes is payable semiannually in arrears on March 27 and September 27 of each year. The 2015 Notes contain certain restrictive financial covenants, which include a consolidated debt to consolidated total capitalization ratio, a fixed charge coverage ratio, and a priority debt to consolidated net worth ratio. As of May 30, 2015, the Company was in compliance with all such covenants.
On June 19, 2015, the Company entered into an amendment to the note purchase agreement governing the 2015 Notes to amend the notice periods for certain optional prepayments of the notes in connection with the pending merger.
Other Considerations
In the fourth quarter of fiscal 2014, we entered into the Dollar Tree merger agreement, under which Dollar Tree will acquire Family Dollar in a cash and stock transaction. In conjunction with the Dollar Tree merger agreement, we incurred expenses of $21.8 million during the first three quarters of fiscal 2015, consisting primarily of legal fees. For the remainder of fiscal 2015, the Company estimates it will incur between $40 million and $50 million of additional expenses related to the pending Dollar Tree merger.
During the second half of fiscal 2014, we implemented a series of restructuring initiatives which included closing 377 underperforming stores. The Company will continue to incur payments for lease obligations on each closed store until either the lease term ends or a termination agreement is reached with the landlord. The Company's lease obligations on closed stores due to restructuring decreased $13.6 million during the first three quarters of fiscal 2015, which resulted in a remaining accrual balance of $30.1 million as of May 30, 2015. The decrease was primarily due to cash paid for recurring lease obligations and negotiated lease termination agreements. The balance due in the next 12 months was included in Accrued liabilities, and the remaining balance was included in Other liabilities in the Consolidated Condensed Balance Sheet.
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The lease obligations for the stores closed as part of the restructuring initiatives were included in the aggregate minimum annual rental under operating leases in the Commitments and Contingencies note within the Consolidated Financial Statements and Footnotes included in the Company's Annual Report on Form 10-K for fiscal year 2014.
Total Merchandise inventories at the end of the third quarter of fiscal 2015 increased 2.5%, as compared to the end of the third quarter of fiscal 2014. The increase was needed to maintain inventory levels in key Consumables categories in order to meet customer demand and to support new store growth. Inventory per store at the end of the third quarter of fiscal 2015 increased 2.3%, as compared to the end of the third quarter of fiscal 2014, driven primarily by the growth of key Consumables categories, including food and tobacco.
Capital expenditures for the first three quarters of fiscal 2015 were $253.8 million, as compared to $307.2 million in the first three quarters of fiscal 2014. The decrease in capital expenditures was primarily related to fewer new store openings and a continued use of build-to-suit as a real-estate strategy under which an unrelated third-party funds new store construction. The decrease was partially offset by investments in existing stores, which included additional security equipment and fixtures for tobacco products and adult beverages. A summary of spending in the first three quarters of fiscal 2015 and in the first three quarters of fiscal 2014 is as follows:
39 Weeks Ended | ||||||||
(in thousands) | May 30, 2015 | May 31, 2014 | ||||||
New stores | $ | 61,930 | $ | 106,527 | ||||
Store renovations | 74,743 | 92,896 | ||||||
Existing stores | 81,882 | 50,573 | ||||||
Supply chain | 9,362 | 20,200 | ||||||
Corporate and technology investments | 25,861 | 36,987 | ||||||
Total capital expenditures | $ | 253,778 | $ | 307,183 | ||||
The total number of stores open increased 0.2%, and the average store count increased 1.0% in the first three quarters of fiscal 2015, as compared to the first three quarters of fiscal 2014. The average store count is calculated as a rolling 13-month average using the ending store count per fiscal month. A summary of store information is as follows:
13 Weeks Ended | 39 Weeks Ended | |||||||||||
May 30, 2015 | May 31, 2014 | May 30, 2015 | May 31, 2014 | |||||||||
Beginning store count | 8,184 | 8,138 | 8,042 | 7,916 | ||||||||
New stores | 84 | 111 | 245 | 355 | ||||||||
Closed stores | 7 | 3 | 26 | 25 | ||||||||
Ending store count | 8,261 | 8,246 | 8,261 | 8,246 | ||||||||
Total relocated, expanded, and renovated stores | 142 | 266 | 433 | 585 | ||||||||
Total selling square feet (in thousands) | 59,782 | 59,488 | 59,782 | 59,488 | ||||||||
Average store count | 8,223 | 8,193 | 8,164 | 8,085 | ||||||||
During the first three quarters of fiscal 2015, the Company did not repurchase any shares of its common stock. As of May 30, 2015, the Company had $245.8 million remaining under its current share repurchase authorization. Under the terms of the Dollar Tree merger agreement, we will not repurchase any shares of its common stock.
As of May 30, 2015, we had $64.0 million of Cash and cash equivalents in our foreign entities. We are not dependent on dividends from our foreign entities to fund our domestic operations. Unremitted earnings from foreign entities, which are considered to be invested indefinitely, would become subject to U.S. income taxes if they were remitted as dividends or were lent to a domestic entity.
Cash Flows From Operating Activities
During the first three quarters of fiscal 2015, we had net cash provided by operating activities of $342.6 million, as compared to net cash provided by operating activities of $253.0 million in the first three quarters of fiscal 2014. The change was due primarily to changes in merchandise inventories, accounts payable and accrued liabilities, and prepayments and other current assets, all in the ordinary course of business. Additionally, there was an increase in deferred income taxes as a result of
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implementation of the Deduction and Capitalization of Expenditures Related to Tangible Property tax regulations, which are further discussed below.
Cash Flows From Investing Activities
During the first three quarters of fiscal 2015, we had net cash used in investing activities of $220.9 million, as compared to net cash used in investing activities of $260.4 million in the first three quarters of fiscal 2014. The change was due primarily to a decrease in capital expenditures, which is included in the Other Considerations discussion above.
Cash Flows From Financing Activities
During the first three quarters of fiscal 2015, we had net cash used in financing activities of $45.6 million, as compared to net cash provided by financing activities of $30.1 million during the first three quarters of fiscal 2014. The decrease was primarily due to a decrease in net short-term borrowings, partially offset by no cash repurchases of common stock and only one quarter of dividend payments during the first three quarters of fiscal 2015, as compared to the first three quarters of fiscal 2014.
Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-03 Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). ASU 2015 requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, however does not impact the recognition and measurement of debt issuance costs. The ASU is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, and early adoption is permitted. The Company plans to adopt ASU 2015-03 during the first quarter of fiscal 2017 and does not expect the ASU to have a material impact on the Consolidated Condensed Financial Statements.
In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-15 Presentation of Financial Statements - Going Concern ("ASU 2014-15"). ASU 2014-15 provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The ASU is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter and early adoption is permitted. The Company does not expect the ASU to have a material impact on the Consolidated Condensed Financial Statements.
In May 2014, the FASB issued Accounting Standards Update ASU 2014-09 Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"). The ASU is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption is not permitted. The Company is still assessing the impact of this ASU on the Consolidated Condensed Financial Statements.
In September 2013, the Internal Revenue Service issued updated tax regulations for the Deduction and Capitalization of Expenditures Related to Tangible Property. These regulations provide additional guidance related to the capitalization and expensing of fixed assets, repairs, and other expenditure types related to the updated tax regulations. These regulations became effective for the Company in the first quarter of fiscal 2015 and the full impact of implementation was assessed with the filing of the Company's federal income tax return. The result was a $50.1 million increase to both the Income tax refund receivable and the Deferred income taxes liability line items in the Consolidated Condensed Balance Sheet as of May 30, 2015.
In July 2013, the FASB issued Accounting Standards Update 2013-11 Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"). The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The ASU was effective for the Company beginning in the first quarter of fiscal 2015 and did not have a material impact on the Company's Consolidated Condensed Financial Statements.
Critical Accounting Policies
Our financial statements have been prepared in accordance with accounting policies generally accepted in the United States of America. Our discussion and analysis of our financial condition and results of operations are based on these financial statements. The preparation of these financial statements requires the application of accounting policies in addition to certain
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estimates and judgments by our management. Our estimates and judgments are based on currently available information, historical results and other assumptions we believe are reasonable. Actual results could differ from these estimates.
There have been no material changes to the Critical Accounting Policies disclosed in our Annual Report on Form 10-K for fiscal 2014.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this Report, or in other public filings, press releases, or other written or oral communications made by Family Dollar or our representatives, which are not historical facts, are forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address, among other things, our plans, activities or events which we expect will or may occur in the future and may include express or implied projections of revenue or expenditures; statements of plans and objectives for future operations, growth or initiatives; statements of future economic performance, including, but not limited to, the state of the economy, our capital investment and financing plans, net sales, comparable store sales, store openings and closings, cost of sales, selling, general and administrative expenses, gross margin, income tax rates, earnings per diluted share, dividends and share repurchases; or statements regarding the outcome or impact of pending or threatened litigation.
The forward-looking statements also include assumptions about the pending business combination transaction involving Dollar Tree and Family Dollar; the financing of the pending transaction; the benefits, results, effects, timing and certainty of the pending transaction; future financial and operating results; expectations concerning the antitrust review process for the pending transaction; and the combined company's plans, objectives, expectations (financial or otherwise) and intentions.
Risks and uncertainties related to the pending merger include, among others: the risk that regulatory approvals required for the merger are not obtained on the proposed terms and schedule or are obtained subject to conditions that are not anticipated; the risk that the other conditions to the closing of the merger are not satisfied; the risk that the financing required to fund the merger is not obtained; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the merger; uncertainties as to the timing of the merger; competitive responses to the merger; response by activist stockholders to the merger; costs and difficulties related to the integration of Family Dollar's business and operations with Dollar Tree's business and operations; the inability to obtain, or delays in obtaining, the cost savings and synergies contemplated by the merger; uncertainty of the expected financial performance of the combined company following completion of the merger; the calculations of, and factors that may impact the calculations of, the acquisition price in connection with the merger and the allocation of such acquisition price to the net assets acquired in accordance with applicable accounting rules and methodologies; unexpected costs, charges or expenses resulting from the merger; litigation relating to the merger; the outcome of pending or potential litigation or governmental investigations; the inability to retain key personnel; and any changes in general economic and/or industry specific conditions. Consequently, all of the forward-looking statements made by Family Dollar, in this and in other documents or statements are qualified by factors, risks and uncertainties, including, but not limited to, those set forth under the headings titled "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" in Family Dollar's Annual Report on Form 10-K for the fiscal year ended August 30, 2014, within this Report, and other reports filed by Family Dollar with the SEC, which are available at the SEC's website http://www.sec.gov.
These forward-looking statements may be identified by the use of the words "believe," "plan," "estimate," "expect," "anticipate," "probably," "should," "project," "intend," "continue," and other similar terms and expressions. Various risks, uncertainties and other factors may cause our actual results to differ materially from those expressed or implied in any forward-looking statements. Factors, uncertainties and risks that may result in actual results differing from such forward-looking information include, but are not limited to, those listed in Part I - Item 1A of our Annual Report on Form 10-K for fiscal 2014, as well as other factors discussed throughout this Report, including, without limitation, the factors described under "Critical Accounting Policies" in Part I - Item 2 above, or in other filings or statements made by us. All of the forward-looking statements in this Report and other documents or statements are qualified by these and other factors, risks and uncertainties.
You should not place undue reliance on the forward-looking statements included in this Report. We assume no obligation to update any forward-looking statements, even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law. In evaluating forward-looking statements, you should consider these risks and uncertainties, together with the other risks described in the Form S-4 filed by Dollar Tree, Inc., and other reports and documents filed by Family Dollar with the Securities and Exchange Commission.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to market risk from exposure to changes in interest rates based on our financing, investing, and cash management activities. We maintain unsecured revolving credit facilities at variable rates of interest to meet the short-term needs of our store expansion program and seasonal inventory increases. We performed a sensitivity analysis assuming a hypothetical 100 basis point movement in interest rates applied to the average daily borrowings under our credit facility. As of August 30, 2014, the analysis indicated such a movement would not have a material impact on our financial position, results of operations, or cash flows. During the first three quarters of fiscal 2015 and the first three quarters of fiscal 2014, we incurred an immaterial amount of interest expense related to our credit facilities. Refer to Note 4 to the Consolidated Condensed Financial Statements in this Report for more information on our credit facilities.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our periodic reports to the SEC is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
We evaluated the design and operating effectiveness of our disclosure controls and procedures as of May 30, 2015. This evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were effective as of May 30, 2015.
There have been no material changes in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information in Note 9 to the Consolidated Condensed Financial Statements contained in Part I, Item 1 of the Form 10-Q is incorporated herein by this reference.
Item 1A. Risk Factors
The risk factors disclosed in our Annual Report on Form 10-K for fiscal 2014, including those related to the pending merger with Dollar Tree, remain relevant through the third quarter of fiscal 2015.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth information with respect to purchases of shares of our common stock made during the quarter ended May 30, 2015, by us, on our behalf, or by any "affiliated purchaser" as defined by Rule 10b-18(a)(3) of the Securities Exchange Act of 1934.
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1)(2) | |||||||||
March (3/1/2015 - 4/4/2015) | — | $ | — | — | 3,101,710 | ||||||||
April (4/5/2015 - 5/2/2015) | — | — | — | 3,129,753 | |||||||||
May (5/3/2015 - 5/30/2015) | — | — | — | 3,170,531 | |||||||||
Total | — | $ | — | — | 3,170,531 | ||||||||
(1) | On January 17, 2013, we announced the Board of Directors authorized the purchase of up to $300 million of the Company's outstanding common stock. As of May 30, 2015, the Company had $245.8 million remaining under its current share repurchase authorization. However, under the terms of the Dollar Tree merger agreement, the Company will not repurchase any shares of its common stock. |
(2) | Remaining dollar amounts are converted to shares using the closing stock price as of the end of the fiscal month. |
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Item 6. Exhibits
Exhibits incorporated by reference:
3.1 | Restated Certificate of Incorporation, dated November 8, 2006 (filed as Exhibit 3.1 to the Company's Report on Form 10-K for the fiscal year ended August 26, 2006). | ||
3.2 | Bylaws of Family Dollar Stores, Inc., as amended through March 2, 2011 (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed on March 3, 2011). | ||
4.1 | Indenture between Family Dollar Stores, Inc. and U.S. Bank National Association, as trustee, dated as of January 28, 2011 (filed as Exhibit 4.4 to the Company's Form 10-Q for the quarter ended February 26, 2011). | ||
4.2 | First Supplemental Indenture between the Company and U.S. Bank National Association, as Trustee, dated as of January 28, 2011 (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the SEC on January 28, 2011). | ||
10.1 | Second Amendment dated as of June 19, 2015, to the Note Purchase Agreement dated as of September 27, 2005 (as amended on November 17, 2010), between Family Dollar Stores, Inc. and the various noteholders named therein, relating to $169,000,000 5.41% Series 2005-A Senior Notes, Tranche A, due September 27, 2015 and $81,000,000 5.24% Series 2005-A Senior Notes, Tranche B, due September 27, 2015 (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 2015). | ||
Exhibits filed herewith:
31.1 | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2 | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32 | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
101 | Financial statements from the quarterly report on Form 10-Q of the Company for the quarter ended May 30, 2015, filed on July 1, 2015, formatted in XBRL: (i) the Consolidated Condensed Balance Sheets, (ii) the Consolidated Condensed Statements of Income, (iii) the Consolidated Condensed Statements of Comprehensive Income, (iv) the Consolidated Condensed Statements of Cash Flows and (iv) the Notes to Consolidated Condensed Financial Statements. | ||
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SIGNATURES
Pursuant to the requirements 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.
FAMILY DOLLAR STORES, INC. | |||
(Registrant) | |||
Date: | July 1, 2015 | /s/ Mary A. Winston | |
Mary A. Winston | |||
Executive Vice President – Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||
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