(X)
|
Quarterly
report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of
1934
|
(
)
|
Transition
report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of
1934
|
Virginia
|
54-1387365
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
Yes
(X)
|
No
( )
|
Large
accelerated filer (X)
|
Accelerated
filer ( )
|
Non
accelerated filer ( )
|
Yes
( )
|
No
(X)
|
Page
|
||
Item
1.
|
Financial
Statements:
|
|
Condensed
Consolidated Income Statements for the 13
Weeks and 39 Weeks Ended October 28, 2006 and October 29,
2005
|
3
|
|
Condensed
Consolidated Balance Sheets as of October
28, 2006, January 28, 2006 and October 29, 2005
|
4
|
|
Condensed
Consolidated Statements of Cash Flows for the
39 Weeks Ended October 28, 2006 and October 29, 2005
|
5
|
|
6
|
||
Item
2.
|
13
|
|
Item
3.
|
19
|
|
Item
4.
|
19
|
Item
1.
|
20
|
|
Item
1A.
|
21
|
|
Item
2.
|
21
|
|
Item
3.
|
21
|
|
Item
4.
|
21
|
|
Item
5.
|
21
|
|
Item
6.
|
21
|
|
Signatures
|
22
|
13
Weeks Ended
|
39
Weeks Ended
|
||||||||||||
October
28,
|
October
29,
|
October
28,
|
October
29,
|
||||||||||
(In
millions, except per share data)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Net
sales
|
$
|
910.4
|
$
|
796.8
|
$
|
2,650.5
|
$
|
2,314.9
|
|||||
Cost
of sales
|
602.9
|
520.5
|
1,763.6
|
1,522.9
|
|||||||||
Gross
profit
|
307.5
|
276.3
|
886.9
|
792.0
|
|||||||||
Selling,
general and administrative
|
|||||||||||||
expenses
|
254.2
|
224.1
|
732.2
|
645.2
|
|||||||||
Operating
income
|
53.3
|
52.2
|
154.7
|
146.8
|
|||||||||
Interest
expense, net
|
2.7
|
2.2
|
5.2
|
6.3
|
|||||||||
Income
before income taxes
|
50.6
|
50.0
|
149.5
|
140.5
|
|||||||||
Provision
for income taxes
|
18.1
|
18.9
|
55.1
|
53.1
|
|||||||||
Net
income
|
$
|
32.5
|
$
|
31.1
|
$
|
94.4
|
$
|
87.4
|
|||||
Net
income per share:
|
|||||||||||||
Basic
|
$
|
0.32
|
$
|
0.29
|
$
|
0.91
|
$
|
0.80
|
|||||
Diluted
|
$
|
0.32
|
$
|
0.29
|
$
|
0.90
|
$
|
0.80
|
|||||
October
28,
|
January
28,
|
October
29,
|
||||||||
(In
millions)
|
2006
|
2006
|
2005
|
|||||||
ASSETS
|
||||||||||
Current
assets:
|
||||||||||
Cash
and cash equivalents
|
$
|
58.1
|
$
|
65.8
|
$
|
95.2
|
||||
Short-term
investments
|
60.8
|
274.0
|
34.6
|
|||||||
Merchandise
inventories
|
793.8
|
576.5
|
750.4
|
|||||||
Other
current assets
|
24.6
|
27.4
|
36.2
|
|||||||
Total
current assets
|
937.3
|
943.7
|
916.4
|
|||||||
Property,
leaseholds and equipment, net
|
721.5
|
681.8
|
694.0
|
|||||||
Intangibles,
net
|
147.7
|
129.3
|
130.8
|
|||||||
Other
assets, net
|
44.5
|
43.6
|
28.0
|
|||||||
TOTAL
ASSETS
|
$
|
1,851.0
|
$
|
1,798.4
|
$
|
1,769.2
|
||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||||
Current
liabilities:
|
||||||||||
Current
portion of long-term debt
|
$
|
18.8
|
$
|
19.0
|
$
|
19.0
|
||||
Accounts
payable
|
230.0
|
135.6
|
211.4
|
|||||||
Other
current liabilities
|
112.7
|
99.2
|
107.6
|
|||||||
Income
taxes payable
|
11.3
|
41.7
|
16.0
|
|||||||
Total
current liabilities
|
372.8
|
295.5
|
354.0
|
|||||||
Long-term
debt, excluding current portion
|
250.0
|
250.0
|
250.0
|
|||||||
Other
liabilities
|
69.6
|
80.6
|
84.4
|
|||||||
Total
liabilities
|
692.4
|
626.1
|
688.4
|
|||||||
Shareholders'
equity
|
1,158.6
|
1,172.3
|
1,080.8
|
|||||||
Commitments
and contingencies
|
||||||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$
|
1,851.0
|
$
|
1,798.4
|
$
|
1,769.2
|
||||
Common
shares outstanding
|
102.4
|
106.5
|
106.4
|
39
Weeks Ended
|
|||||||
October
28,
|
October
29,
|
||||||
(In
millions)
|
2006
|
2005
|
|||||
Cash
flows from operating activities:
|
|||||||
Net
income
|
$
|
94.4
|
$
|
87.4
|
|||
Adjustments
to reconcile net income to net cash
|
|||||||
provided
by operating activities:
|
|||||||
Depreciation
and amortization
|
113.7
|
104.0
|
|||||
Other
non-cash adjustments to net income
|
(12.4
|
)
|
(15.1
|
)
|
|||
Changes
in working capital
|
(105.0
|
)
|
(52.3
|
)
|
|||
Net
cash provided by operating activities
|
90.7
|
124.0
|
|||||
Cash
flows from investing activities:
|
|||||||
Capital
expenditures
|
(139.9
|
)
|
(114.2
|
)
|
|||
Purchase
of short-term investments
|
(535.9
|
)
|
(449.0
|
)
|
|||
Proceeds
from maturities of short-term investments
|
749.1
|
625.7
|
|||||
Purchase
of Deal$ assets, net of cash aquired of $0.3
|
(54.1
|
)
|
-
|
||||
Purchase
of restricted investments
|
-
|
(15.2
|
)
|
||||
Acquisition
of favorable lease rights
|
(4.7
|
)
|
(4.0
|
)
|
|||
Net
cash provided by investing activities
|
14.5
|
43.3
|
|||||
Cash
flows from financing activities:
|
|||||||
Principal
payments under long-term debt
|
|||||||
and
capital lease obligations
|
(0.5
|
)
|
(5.3
|
)
|
|||
Payments
for share repurchases
|
(148.2
|
)
|
(180.4
|
)
|
|||
Proceeds
from stock issued pursuant to stock-based
|
|||||||
compensation
plans
|
32.2
|
7.1
|
|||||
Tax
benefit of stock options exercised
|
3.6
|
-
|
|||||
Net
cash used in financing activities
|
(112.9
|
)
|
(178.6
|
)
|
|||
Net
decrease in cash and cash equivalents
|
(7.7
|
)
|
(11.3
|
)
|
|||
Cash
and cash equivalents at beginning of period
|
65.8
|
106.5
|
|||||
Cash
and cash equivalents at end of period
|
58.1
|
$
|
95.2
|
||||
Supplemental
disclosure of cash flow information:
|
|||||||
Cash
paid for:
|
|||||||
Interest,
net of amount capitalized
|
$
|
9.9
|
$
|
8.5
|
|||
Income
taxes
|
$
|
103.4
|
$
|
91.1
|
13
Weeks Ended
|
39
Weeks Ended
|
||||||||||||
October
28,
|
October
29,
|
October
28,
|
October
29,
|
||||||||||
(In
millions, except per share data)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Basic
net income per share:
|
|||||||||||||
Net
income
|
$
|
32.5
|
$
|
31.1
|
$
|
94.4
|
$
|
87.4
|
|||||
Weighted
average number of
|
|||||||||||||
shares
outstanding
|
102.2
|
107.3
|
104.0
|
108.9
|
|||||||||
Basic
net income per share
|
$
|
0.32
|
$
|
0.29
|
$
|
0.91
|
$
|
0.80
|
|||||
Diluted
net income per share:
|
|||||||||||||
Net
income
|
$
|
32.5
|
$
|
31.1
|
$
|
94.4
|
$
|
87.4
|
|||||
Weighted
average number of
|
|||||||||||||
shares
outstanding
|
102.2
|
107.3
|
104.0
|
108.9
|
|||||||||
Dilutive
effect of stock options and
|
|||||||||||||
restricted
stock units (as determined
|
|||||||||||||
by
applying the treasury stock method)
|
0.6
|
0.3
|
0.5
|
0.5
|
|||||||||
Weighted
average number of shares and
|
|||||||||||||
dilutive
potential shares outstanding
|
102.8
|
107.6
|
104.5
|
109.4
|
|||||||||
Diluted
net income per share
|
$
|
0.32
|
$
|
0.29
|
$
|
0.90
|
$
|
0.80
|
|||||
13
Weeks
|
|
39
Weeks
|
|||||
Ended
|
|
Ended
|
|||||
October
29,
|
|
October
29,
|
|||||
(In
millions, except per share data)
|
2005
|
|
2005
|
||||
Net
income, as reported
|
$
|
31.1
|
$
|
87.4
|
|||
Add:
Total stock-based employee compensation expense
|
|||||||
included
in net income, net of related tax effects
|
0.5
|
0.9
|
|||||
Deduct:
Total stock-based employee compensation determined
|
|||||||
under
fair value-based method, net of related tax effects
|
(2.4
|
)
|
(7.0
|
)
|
|||
Pro
forma net income
|
$
|
29.2
|
$
|
81.3
|
|||
Net
income per share:
|
|||||||
Basic,
as reported
|
$
|
0.29
|
$
|
0.80
|
|||
Basic,
pro forma
|
$
|
0.27
|
$
|
0.75
|
|||
Diluted,
as reported
|
$
|
0.29
|
$
|
0.80
|
|||
Diluted,
pro forma
|
$
|
0.27
|
$
|
0.74
|
|||
Expected
term in years
|
6.0
|
|||
Expected
volatility
|
30.2
|
%
|
||
Annual
dividend yield
|
-
|
|||
Risk
free interest rate
|
4.8
|
%
|
October
28, 2006
|
|||||||||||||
|
|
Weighted
|
|
|
|
|
|
||||||
|
|
|
|
Average
|
|
Weighted
|
|
Aggregate
|
|
||||
|
|
|
|
Per
Share
|
|
Average
|
|
Intrinsic
|
|
||||
|
|
|
|
Exercise
|
|
Remaining
|
|
Value
(in
|
|
||||
|
|
Shares
|
|
Price
|
|
Term
|
|
millions)
|
|||||
Outstanding
at January 29, 2006
|
5,990,757
|
$
|
24.71
|
||||||||||
Granted
|
339,900
|
27.65
|
|||||||||||
Exercised
|
(1,368,409
|
)
|
21.84
|
||||||||||
Forfeited
|
(121,052
|
)
|
29.22
|
||||||||||
Outstanding
at October 28, 2006
|
4,841,196
|
25.62
|
5.8
|
$
|
24.9
|
||||||||
Options
vested and expected
|
|||||||||||||
to
vest at October 28, 2006
|
4,807,133
|
25.60
|
5.8
|
24.9
|
|||||||||
Options
exercisable at end of period
|
4,498,696
|
25.47
|
5.5
|
23.8
|
|||||||||
Weighted
average fair value of options
|
|||||||||||||
granted
during the period
|
$
|
10.93
|
Options Outstanding |
Options
Exercisable
|
|||||||||||||||
|
|
Options
|
|
|
|
|
|
Options
|
|
|
|
|||||
Range
of
|
|
Outstanding
|
|
Weighted
Avg.
|
|
Weighted
Avg.
|
|
Exercisable
|
|
Weighted
Avg.
|
|
|||||
Exercise
|
|
at
October 28,
|
|
Remaining
|
|
Exercise
|
|
at
October 28,
|
|
Exercise
|
|
|||||
Prices
|
|
2006
|
|
Contractual
Life
|
|
Price
|
|
2006
|
|
Price
|
||||||
$0.86
|
7,264
|
N/A
|
0.86
|
|
7,264
|
0.86
|
||||||||||
$2.95
to $10.98
|
12,700
|
0.8
|
|
|
10.13
|
12,700
|
10.13
|
|||||||||
$10.99
to $21.28
|
1,017,314
|
5.5
|
|
|
19.23
|
1,017,314
|
19.23
|
|||||||||
$21.29
to $29.79
|
2,621,100
|
6.1
|
|
|
25.24
|
2,278,600
|
24.89
|
|||||||||
$29.80
to $42.56
|
1,182,818
|
5.2
|
|
|
32.27
|
1,182,818
|
32.27
|
|||||||||
$0.86
to $42.56
|
4,841,196
|
4,498,696
|
Weighted
|
|
||||||
|
|
|
|
Average
|
|
||
|
|
|
|
Grant
|
|
||
|
|
|
|
Date
Fair
|
|
||
|
|
Shares
|
|
Value
|
|||
Nonvested
at January 28, 2006
|
295,507
|
$
|
25.00
|
||||
Granted
|
291,697
|
27.67
|
|||||
Vested
|
(101,482
|
)
|
25.02
|
||||
Forfeited
|
(17,578
|
)
|
26.63
|
||||
Nonvested
at October 28, 2006
|
468,144
|
26.57
|
13
weeks
|
|
13
weeks
|
|
13
weeks
|
|
|
ended
|
|
ended
|
|
ended
|
|
October
28, 2006
|
|
July
29, 2006
|
|
April
29, 2006
|
Expected
term
|
3
months
|
|
3
months
|
|
3
months
|
Expected
volatility
|
16.1%
|
|
12.9%
|
|
14.3%
|
Annual
dividend yield
|
-
|
|
-
|
|
-
|
Risk
free interest rate
|
5.2%
|
|
5.2%
|
|
4.4%
|
(In
millions)
|
||||
Inventory
|
$
|
22.1
|
||
Other
current assets
|
0.1
|
|||
Property
and equipment
|
15.1
|
|||
Goodwill
|
14.7
|
|||
Other
intangibles
|
2.1
|
|||
$
|
54.1
|
13
Weeks Ended
|
|
39
Weeks Ended
|
|||||||||||
October
28,
|
|
October
29,
|
|
October
28,
|
|
October
29,
|
|||||||
(In
millions)
|
2006
|
|
2005
|
|
2006
|
|
2005
|
||||||
Net
income
|
$
|
32.5
|
$
|
31.1
|
$
|
94.4
|
$
|
87.4
|
|||||
Fair
value adjustment-derivative
|
|||||||||||||
cash
flow hedging instrument
|
-
|
0.1
|
-
|
0.5
|
|||||||||
Income
tax expense
|
-
|
-
|
-
|
(0.2
|
)
|
||||||||
Fair
value adjustment, net of tax
|
-
|
0.1
|
-
|
0.3
|
|||||||||
Reclassification
for amounts included
|
|||||||||||||
in
net income
|
-
|
-
|
-
|
-
|
|||||||||
Income
tax benefit
|
-
|
-
|
-
|
-
|
|||||||||
Reclassification
for amounts included
|
|||||||||||||
in
net income, net of tax
|
-
|
-
|
-
|
-
|
|||||||||
Total
comprehensive income
|
$
|
32.5
|
$
|
31.2
|
$
|
94.4
|
$
|
87.7
|
· |
our
anticipated sales, including comparable store net sales,
net sales growth,
earnings growth and new store
growth;
|
· |
the
average size of our stores to be added for the remainder
of 2006 and 2007
and their performance compared with other store
sizes;
|
· |
the
effect of a slight shift in merchandise mix to consumables
and of the
roll-out of freezers and coolers on gross profit margin
and
sales;
|
· |
the
possible effect of inflation and other economic changes
on our future
costs and profitability, including the possible effect
of future
changes
in shipping rates, fuel costs and federal and state minimum
wage
laws;
|
· |
our
cash needs, including our ability to fund our future
capital expenditures
and working capital requirements;
|
· |
the
impact, capacity, performance and cost of our existing
distribution
centers;
|
· |
our
integration and future operations of the recently acquired
Deal$
stores;
|
· |
the
future reliability of, and cost associated with, our
sources of supply,
particularly imported goods such as those sourced from
China and
Hong Kong;
|
· |
costs
of pending and possible future legal
claims;
|
· |
the
adequacy of our internal controls over financial
reporting;
|
· |
Our
profitability is affected by the mix of products we
sell.
|
· |
Our
profitability is especially vulnerable to cost
increases.
|
· |
We
may be unable to expand our square footage as profitably
as
planned.
|
· |
A
downturn in economic conditions could adversely affect
our
sales.
|
· |
Our
sales and profits rely on imported merchandise, which
may increase in cost
or become unavailable.
|
· |
We
could encounter disruptions or additional costs in
receiving and
distributing merchandise.
|
· |
Sales
below our expectations during peak seasons may cause
our operating results
to suffer materially.
|
· |
Pressure
from competitors may reduce our sales and
profits.
|
· |
A
45 basis point increase in shrink expense due to
an increase in the shrink
rate to 2.05% at retail compared to 1.9% in the
prior year. The
shrink
rate was increased in the current quarter due to
the physical inventories
completed in the third quarter having higher shrink
rates than
those completed earlier in the
year.
|
· |
A
45 basis point increase in occupancy costs due
to a higher occupancy rate
for the Deal$ stores and higher rents, CAM and
real estate taxes
in the current quarter.
|
· |
Merchandise
costs, including inbound freight, increased 20
basis points due primarily
to a slight shift in mix to more consumables, which
have a lower margin, higher cost merchandise at
our Deal$ stores and
increased inbound domestic freight costs.
|
· |
A
small offset to the aforementioned rate increase
was a 10 basis point
improvement in markdowns, as the prior year third
quarter included
$1.6
million of markdowns as a result of
hurricanes.
|
· |
A
50 basis point decrease in operating and corporate
expenses due primarily
to payments received of approximately $4.1 million
in the quarter
for vacating two stores prior to the end of our
leases. The prior year
included $1.4 million of income resulting from
insurance proceeds
received as a result of a fire at one of our stores.
|
· |
The
aforementioned rate improvement was partially offset
by a 20 basis point
increase in payroll and benefit costs due to increased
incentive
compensation costs resulting from better overall
company performance in
the current period as compared to the prior year
period, and increased stock-based compensation
expense in the current
year.
|
· |
The
selling, general and administrative component of
store occupancy costs
also increased 20 basis points due to higher utility
costs and
higher personal property tax rates in the current
year.
|
· |
Merchandise
costs, including inbound freight, increased 50
basis points due primarily
to a slight shift in mix to more consumables, which
have
a lower margin, and increased inbound domestic
freight costs. Inbound
domestic freight costs have increased primarily
due to higher fuel
costs.
|
· |
A
25 basis point increase in occupancy costs due
to a higher occupancy rate
for the Deal$ stores and higher rents, CAM and
real estate taxes
in
the current year.
|
· |
A
20 basis point increase in shrink expense due to
an increase in the shrink
rate to 2.05% at retail compared to 1.9% in the
prior
year.
|
· |
Partially
offsetting these rate increases was a 15 basis
point improvement in
markdowns, as the prior year included hurricane
related
markdowns.
|
· |
A
40 basis point decrease in operating and corporate
expenses due primarily
to payments received of approximately $4.1 million
in the current
year
for vacating two stores prior to the end of our
leases and decreased
advertising in the current year as a result of
more efficient and
targeted
spending. The prior year included $1.4 million
of income resulting from
insurance proceeds received as a result of a fire
at one of our stores.
|
· |
The
aforementioned rate improvement was partially offset
by a 20 basis point
increase in payroll and benefit costs due to increased
incentive
compensation
costs resulting from better overall company performance
in the current
year as compared to the prior year, and increased
stock-based compensation
expense in the current year.
|
39
Weeks ended
|
|
||||||
|
|
October
28,
|
|
October
29,
|
|||
(In
millions)
|
2006
|
|
2005
|
||||
Net
cash provided by (used in):
|
|||||||
Operating
activities
|
$
|
90.7
|
$
|
124.0
|
|||
Investing
activities
|
14.5
|
43.3
|
|||||
Financing
activities
|
(112.9
|
)
|
(178.6
|
)
|
|
Receive
|
Pay
|
Knockout
|
|
Fair
Value
|
Hedging
Instrument
|
Variable
|
Fixed
|
Rate
|
Expiration
|
Asset
|
$18.8
million interest rate swap
|
LIBOR
|
4.88%
|
7.75%
|
4/1/2009
|
0.0
million
|
· |
employment-related
matters;
|
· |
the
infringement of the intellectual property rights
of
others;
|
· |
product
safety matters, including product recalls by
the Consumer Products Safety
Commission;
|
· |
personal
injury claims; and
|
· |
real
estate matters related to store
leases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
dollar
value
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
Total
number
|
|
|
of
shares that
|
|||||||||
|
|
of
shares
|
|
may
yet be
|
||||||||||||||||||
|
purchased
as
|
|
purchased under
|
|||||||||||||||||||
|
|
Total number
|
Average
|
|
part
of publicly
|
|
the
plans or
|
|||||||||||||||
|
|
of shares
|
price
paid
|
|
announced
plans
|
|
programs
|
|||||||||||||||
Period
|
purchased
|
per
share
|
|
or
programs
|
|
(in
millions)
|
||||||||||||||||
July
30, 2006 to August 26, 2006
|
247,696
|
$
|
27.52
|
247,696
|
$
|
29.2
|
||||||||||||||||
August
27, 2006 to September 30, 2006
|
86,100
|
28.71
|
86,100
|
26.7
|
||||||||||||||||||
October
1, 2006 to October 28, 2006
|
-
|
-
|
-
|
26.7
|
||||||||||||||||||
Total
|
333,796
|
$
|
27.82
|
333,796
|
$
|
26.7
|
DOLLAR TREE STORES, INC. | ||
|
|
|
Date: December 6, 2006 | By: | /s/ Kent A. Kleeberger |
Kent
A. Kleeberger
|
||
Chief
Financial Officer
(principal financial
and accounting
officer)
|