(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 26 Weeks Ended
August
4, 2007 and July 29, 2006
|
3
|
|
Condensed
Consolidated Balance Sheets as of August 4, 2007, February 3, 2007
and
July 29, 2006
|
4
|
|
Condensed
Consolidated Statements of Cash Flows for the 26 Weeks Ended August
4,
2007 and July 29, 2006
|
5
|
|
Notes
to Condensed Consolidated Financial Statements
|
6
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
10
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
16
|
Item
4.
|
Controls
and Procedures
|
16
|
Item
1.
|
Legal
Proceedings
|
16
|
Item
1A.
|
Risk
Factors
|
18
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
19
|
Item
3.
|
Defaults
Upon Senior Securities
|
19
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
19
|
Item
5.
|
Other
Information
|
19
|
Item
6.
|
Exhibits
|
20
|
Signatures
|
21
|
13
Weeks Ended
|
26
Weeks Ended
|
|||||||||||||||
August
4,
|
July
29,
|
August
4,
|
July
29,
|
|||||||||||||
(In
millions, except per share data)
|
2007
|
2006
|
2007
|
2006
|
||||||||||||
Net
sales
|
$ |
971.2
|
$ |
883.6
|
$ |
1,946.2
|
$ |
1,740.1
|
||||||||
Cost
of sales
|
644.6
|
590.3
|
1,294.3
|
1,160.7
|
||||||||||||
Gross
profit
|
326.6
|
293.3
|
651.9
|
579.4
|
||||||||||||
Selling,
general and administrative
|
||||||||||||||||
expenses
|
273.2
|
245.1
|
536.2
|
477.7
|
||||||||||||
Operating
income
|
53.4
|
48.2
|
115.7
|
101.7
|
||||||||||||
Interest
expense, net
|
1.6
|
1.9
|
3.2
|
2.8
|
||||||||||||
Income
before income taxes
|
51.8
|
46.3
|
112.5
|
98.9
|
||||||||||||
Provision
for income taxes
|
19.2
|
17.3
|
41.8
|
37.0
|
||||||||||||
Net
income
|
$ |
32.6
|
$ |
29.0
|
$ |
70.7
|
$ |
61.9
|
||||||||
Net
income per share:
|
||||||||||||||||
Basic
|
$ |
0.33
|
$ |
0.28
|
$ |
0.72
|
$ |
0.59
|
||||||||
Diluted
|
$ |
0.33
|
$ |
0.28
|
$ |
0.71
|
$ |
0.59
|
August
4,
|
February
3,
|
July
29,
|
||||||||||
(In
millions)
|
2007
|
2007
|
2006
|
|||||||||
ASSETS
|
||||||||||||
Current
assets:
|
||||||||||||
Cash
and cash equivalents
|
$ |
43.5
|
$ |
85.0
|
$ |
49.0
|
||||||
Short-term
investments
|
144.0
|
221.8
|
131.4
|
|||||||||
Merchandise
inventories
|
651.7
|
605.0
|
671.0
|
|||||||||
Other
current assets
|
53.6
|
56.1
|
23.5
|
|||||||||
Total
current assets
|
892.8
|
967.9
|
874.9
|
|||||||||
Property,
plant and equipment, net
|
725.4
|
715.3
|
710.5
|
|||||||||
Intangibles,
net
|
148.9
|
146.6
|
145.6
|
|||||||||
Other
assets, net
|
69.9
|
52.4
|
44.3
|
|||||||||
TOTAL
ASSETS
|
$ |
1,837.0
|
$ |
1,882.2
|
$ |
1,775.3
|
||||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||||||
Current
liabilities:
|
||||||||||||
Current
portion of long-term debt
|
$ |
18.5
|
$ |
18.8
|
$ |
18.8
|
||||||
Accounts
payable
|
230.7
|
198.1
|
211.8
|
|||||||||
Other
current liabilities
|
138.5
|
132.0
|
105.3
|
|||||||||
Income
taxes payable
|
0.7
|
43.3
|
5.0
|
|||||||||
Total
current liabilities
|
388.4
|
392.2
|
340.9
|
|||||||||
Long-term
debt, excluding current portion
|
250.0
|
250.0
|
250.0
|
|||||||||
Other
liabilities
|
95.3
|
72.3
|
70.6
|
|||||||||
Total
liabilities
|
733.7
|
714.5
|
661.5
|
|||||||||
Shareholders'
equity
|
1,103.3
|
1,167.7
|
1,113.8
|
|||||||||
Commitments
and contingencies
|
||||||||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ |
1,837.0
|
$ |
1,882.2
|
$ |
1,775.3
|
||||||
Common
shares outstanding
|
97.0
|
99.6
|
102.0
|
26
Weeks Ended
|
||||||||
August
4,
|
July
29,
|
|||||||
(In
millions)
|
2007
|
2006
|
||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ |
70.7
|
$ |
61.9
|
||||
Adjustments
to reconcile net income to net cash
|
||||||||
provided
by operating activities:
|
||||||||
Depreciation
and amortization
|
78.3
|
74.1
|
||||||
Other
non-cash adjustments to net income
|
4.1
|
(7.9 | ) | |||||
Changes
in working capital
|
(58.0 | ) | (22.7 | ) | ||||
Net
cash provided by operating activities
|
95.1
|
105.4
|
||||||
Cash
flows from investing activities:
|
||||||||
Capital
expenditures
|
(88.9 | ) | (88.6 | ) | ||||
Purchase
of short-term investments
|
(790.5 | ) | (346.8 | ) | ||||
Proceeds
from sales of short-term investments
|
868.3
|
489.3
|
||||||
Purchase
of Deal$ assets, net of cash acquired of $0.3
|
-
|
(54.1 | ) | |||||
Acquisition
of favorable lease rights
|
(4.8 | ) | (1.1 | ) | ||||
Net
cash used in investing activities
|
(15.9 | ) | (1.3 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Principal
payments under capital lease obligations
|
(0.4 | ) | (0.5 | ) | ||||
Payments
for share repurchases
|
(198.0 | ) | (136.4 | ) | ||||
Proceeds
from stock issued pursuant to stock-based
|
||||||||
compensation
plans
|
65.3
|
14.7
|
||||||
Tax
benefit of stock options exercised
|
12.4
|
1.3
|
||||||
Net
cash used in financing activities
|
(120.7 | ) | (120.9 | ) | ||||
Net
decrease in cash and cash equivalents
|
(41.5 | ) | (16.8 | ) | ||||
Cash
and cash equivalents at beginning of period
|
85.0
|
65.8
|
||||||
Cash
and cash equivalents at end of period
|
$ |
43.5
|
$ |
49.0
|
||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid for:
|
||||||||
Interest
|
$ |
9.3
|
$ |
5.9
|
||||
Income
taxes
|
$ |
66.3
|
$ |
86.5
|
13
Weeks Ended
|
26
Weeks Ended
|
|||||||||||||||
August
4,
|
July
29,
|
August
4,
|
July
29,
|
|||||||||||||
(In
millions, except per share data)
|
2007
|
2006
|
2007
|
2006
|
||||||||||||
Basic
net income per share:
|
||||||||||||||||
Net
income
|
$ |
32.6
|
$ |
29.0
|
$ |
70.7
|
$ |
61.9
|
||||||||
Weighted
average number of
|
||||||||||||||||
shares
outstanding
|
98.2
|
103.7
|
98.7
|
105.0
|
||||||||||||
Basic
net income per share
|
$ |
0.33
|
$ |
0.28
|
$ |
0.72
|
$ |
0.59
|
||||||||
Diluted
net income per share:
|
||||||||||||||||
Net
income
|
$ |
32.6
|
$ |
29.0
|
$ |
70.7
|
$ |
61.9
|
||||||||
Weighted
average number of
|
||||||||||||||||
shares
outstanding
|
98.2
|
103.7
|
98.7
|
105.0
|
||||||||||||
Dilutive
effect of stock options and
|
||||||||||||||||
restricted
stock units (as determined
|
||||||||||||||||
by
applying the treasury stock method)
|
0.5
|
0.4
|
0.7
|
0.4
|
||||||||||||
Weighted
average number of shares and
|
||||||||||||||||
dilutive
potential shares outstanding
|
98.7
|
104.1
|
99.4
|
105.4
|
||||||||||||
Diluted
net income per share
|
$ |
0.33
|
$ |
0.28
|
$ |
0.71
|
$ |
0.59
|
Expected
term in years
|
6.0
|
|
Expected
volatility
|
28.4%
|
|
Annual
dividend yield
|
-
|
|
Risk
free interest rate
|
4.5%
|
Item
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
·
|
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
2007 and their
performance compared with other store
sizes;
|
·
|
the
effect of a slight shift in merchandise mix to consumables
and the
roll-out of frozen and refrigerated merchandise on gross profit
margin and
sales;
|
·
|
the
effect of the increase in import purchases in the current year
on profit
margin;
|
·
|
the
possible effect of inflation and other economic changes on
our future
costs and profitability, including future changes in minimum
wage rates,
shipping rates and fuel costs;
|
·
|
our
cash needs, including our ability to fund our future capital
expenditures
and working capital requirements;
|
·
|
the
impact, capacity, performance and cost of our existing distribution
centers;
|
·
|
the
future reliability of, and cost associated with, our sources
of supply,
particularly imported goods such as those sourced from China
and Hong
Kong;
|
·
|
costs
of pending and possible future legal and tax
claims.
|
·
|
Our
profitability is especially vulnerable to cost
increases.
|
·
|
Our
profitability is affected by the mix of products we
sell.
|
·
|
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 directly and indirectly imported
merchandise
which may increase in cost, become unavailable, or not meet
U.S. product
safety standards.
|
·
|
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, including competition for merchandise, may
reduce our
sales and profits.
|
·
|
The
resolution of certain legal and tax matters could have a material
adverse
effect on our results of operations, accrued liabilities and
cash.
|
·
|
Certain
provisions in our articles of incorporation and bylaws could
delay or
discourage a takeover attempt that may be in shareholders’ best
interests.
|
·
|
Merchandise
costs, including inbound freight, decreased 50 basis points
due to higher
initial mark-up in many categories in the current year. Import
purchases are up approximately 10% compared to last year, which
has helped
to increase merchandise margin in the current
year.
|
·
|
Buying
and distribution costs decreased 10 basis points as a result
of the
leverage associated with the positive comparable store net
sales during
the quarter.
|
·
|
The
aforementioned improvement was partially offset by a 20 basis
point
increase in markdown expense due to markdowns accrued in the
current
quarter for the planned promotion of slower moving inventory
items.
|
·
|
A
30 basis point increase resulting from a $2.5 million charge
incurred to
settle certain employment related litigation, accompanied by
related
attorney fees.
|
·
|
A
10 basis point increase in debit and credit fees due to increased
debit
transactions per store in the current
year.
|
·
|
A
10 basis point increase in advertising in the current year
quarter due to
reaching more markets with greater frequency using printed
media.
|
·
|
A
15 basis point increase in the selling, general and administrative
component of occupancy costs due to higher utility costs resulting
form
higher rates and consumption in the current
year.
|
·
|
A
15 basis point decrease in the selling, general and administrative
component of depreciation expense resulting from the leverage
associated
with the increase in comparable store net sales in the current
quarter.
|
·
|
Merchandise
costs, including inbound freight, decreased 30 basis points
due to higher
initial mark-up in many categories in the current year. Import
purchases
are up approximately 10% compared to last year, which has helped
to
increase merchandise margin in the current
year.
|
·
|
Buying
and distribution costs decreased 10 basis points as a result
of the
leverage associated with the positive comparable store net
sales in the
current year.
|
·
|
The
aforementioned improvement was offset by a 15 basis point increase
in
markdown expense due to markdowns accrued in the current year
for the
planned promotion of slower moving inventory
items.
|
·
|
A
20 basis point increase resulting from a $3.0 million charge
incurred to
settle certain employment related litigation, accompanied by
related
attorney fees.
|
·
|
A
10 basis point increase in debit and credit fees due to increased
debit
transactions in the current year.
|
·
|
A
10 basis point increase in the selling, general and administrative
component of occupancy costs due to higher utility costs resulting
from
higher rates and consumption in the current
year.
|
·
|
A
10 basis point decrease in the selling, general and administrative
component of depreciation expense resulting from the leverage
associated
with the increase in comparable store net sales in the current
quarter.
|
·
|
A
10 basis point decrease in store supplies expense due to lower
material
costs in the current year.
|
·
|
A
10 basis point decrease in advertising costs due to the increased
use of
lower cost print advertising and less high cost radio and television
advertising in the current year.
|
26
Weeks ended
|
||||||||
August
4,
|
July
29,
|
|||||||
(In
millions)
|
2007
|
2006
|
||||||
Net
cash provided by (used in):
|
||||||||
Operating
activities
|
$ |
95.1
|
$ |
105.4
|
||||
Investing
activities
|
(15.9 | ) | (1.3 | ) | ||||
Financing
activities
|
(120.7 | ) | (120.9 | ) |
·
|
employment
related matters;
|
·
|
infringement
of intellectual property rights;
|
·
|
product
safety matters, which may include product recalls in cooperation
with the
Consumer Products Safety Commission or other
jurisdictions;
|
·
|
personal
injury/wrongful death 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)
|
||||||||||||
May
6, 2007 to June 2, 2007
|
-
|
$ |
-
|
-
|
$ |
273.4
|
||||||||||
June
3, 2007 to July 7, 2007
|
-
|
-
|
-
|
273.4
|
||||||||||||
July
8, 2007 to August 4, 2007
|
1,694,503
|
39.25
|
1,694,503
|
211.4
|
||||||||||||
Total
|
1,694,503
|
$ |
39.25
|
1,694,503
|
$ |
211.4
|
Votes
For
|
Votes
Withheld
|
||
H.
Ray Compton
|
87,326,823
|
2,744,778
|
|
Bob
Sasser
|
87,396,142
|
2,675,459
|
|
Alan
L. Wurtzel
|
87,055,372
|
3,016,229
|
|
|
|
|
|
|
|
DOLLAR
TREE STORES, INC.
|
|
|
|
|
Date:
September 12, 2007
|
By:
|
/s/ Kent
A. Kleeberger
|
|
Kent
A. Kleeberger
|
|
|
Chief
Financial Officer
(principal
financial and accounting
officer)
|