Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1994
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 (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 1017, 10401 Old Monroe Road
Charlotte, North Carolina 28201-1017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 704-847-6961
Indicate by check mark whether the registrant (1) has filed all re-
ports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at December 31, 1994
Common Stock, $.10 par value 56,694,422 shares
<PAGE>
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information
Item I - Financial Statements:
Consolidated Condensed Balance Sheets -
November 30, 1994 and August 31, 1994 2
Consolidated Condensed Statements of Income -
Three Months Ended November 30, 1994 and 1993 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended November 30, 1994 and 1993 4
Notes to Consolidated Condensed Financial
Statements 5-6
Computation of Earnings per Common Share -
Note 8 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-9
Part II - Other Information and Signatures
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 10
<PAGE>
<TABLE>
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
November 30, August 31,
1994 1994
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 2) $ 11,410,783 $ 9,882,533
Merchandise inventories 413,602,549 403,570,733
Deferred income taxes (Note 3) 13,312,213 12,991,213
Income tax refund receivable - 4,569,686
Prepayments and other current assets 9,624,220 4,853,416
Total current assets 447,949,765 435,867,581
Property and equipment, net 152,560,685 151,946,323
Other assets 5,075,882 5,007,967
$605,586,332 $592,821,871
<PAGE>
<CAPTION>
Liabilities and Shareholders' Equity
<S> <C> <C>
Current liabilities:
Notes payable (Note 4) $ 14,300,000 $ 12,300,000
Accounts payable and accrued
liabilities 188,655,385 193,332,807
Income taxes 4,389,677 -
Total current liabilities 207,345,062 205,632,807
Deferred income taxes (Note 3) 17,016,789 17,016,789
Contingencies (Note 5)
Shareholders' equity (Notes 6 and 8):
Preferred stock, $1 par; authorized
and unissued 500,000 shares
Common stock, $.10 par;
authorized 120,000,000 shares;
issued 60,077,044 shares at
November 30, 1994 and 60,039,074
shares at August 31, 1994 6,007,704 6,003,907
Capital in excess of par 14,765,290 14,484,153
Retained earnings 371,800,755 361,033,483
392,573,749 381,521,543
Less common stock held in treasury,
at cost (3,452,822 shares at
November 30, 1994 and August 31, 1994-
Note 8) 11,349,268 11,349,268
Total shareholders' equity 381,224,481 370,172,275
$605,586,332 $592,821,871
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended
November 30, November 30,
1994 1993
<S> <C> <C>
Net sales $356,292,199 $335,091,748
Costs and expenses:
Cost of sales 228,941,174 209,143,825
Selling, general and
administrative expenses (Note 7) 101,884,637 101,659,204
330,825,811 310,803,029
Income before income taxes and
cumulative effect of accounting
change 25,466,388 24,288,719
Income taxes 9,880,000 9,339,000
Income before cumulative effect
of accounting change 15,586,388 14,949,719
Cumulative effect of change in method
of accounting for income taxes (Note 3) - 1,139,153
Net income $ 15,586,388 $ 16,088,872
Earnings per common share (Note 8):
Income before cumulative effect
of accounting change $0.28 $0.27
Cumulative effect of change in method
of accounting for income taxes - .02
Net income $0.28 $0.29
Dividends per common share $0.085 $0.075
Weighted average number of
common shares outstanding (Note 8) 56,599,125 56,370,147
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
November 30, November 30,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income $15,586,388 $16,088,872
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization 5,377,728 4,609,462
Deferred income taxes (321,000) (1,439,153)
Gain on disposition of property
and equipment (3,546) (132,460)
Changes in operating assets and liabilities:
Inventories (10,031,816) (44,307,827)
Income tax refund receivable 4,569,686 -
Prepayments and other current assets (4,770,804) (1,080,717)
Other assets (67,915) (279,751)
Accounts payable and accrued
liabilities (4,686,594) 9,213,835
Income taxes payable 4,389,677 8,536,364
Noncurrent income taxes payable - (336,013)
10,041,804 (9,127,388)
Cash flows from investing activities:
Capital expenditures (6,296,523) (10,641,252)
Proceeds from dispositions of
property and equipment 307,979 700,310
(5,988,544) (9,940,942)
Cash flows from financing activities:
Net notes payable borrowings 2,000,000 22,970,000
Exercise of employee stock options 284,934 1,054,746
Payment of dividends (4,809,944) (4,226,520)
(2,525,010) 19,798,226
Net increase in cash and cash equivalents 1,528,250 729,896
Cash and cash equivalents at beginning
of period 9,882,533 5,684,034
Cash and cash equivalents at end of period $11,410,783 $ 6,413,930
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 508,873 $ 247,654
Income taxes 1,155,627 1,040,929
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited con-
solidated condensed financial statements contain all adjust-
ments (consisting of only normal recurring accruals) necessary
to present fairly the financial position as of November 30,
1994, and the results of operations and the cash flows for the
three months ended November 30, 1994, and 1993.
The results of operations for the three month period ended
November 30, 1994, are not necessarily indicative of the
results to be expected for the full year.
2. The Company considers all highly liquid investments with a
maturity of three months or less to be "cash equivalents."
3. Effective September 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, Accounting for Income
Taxes ("SFAS 109"). The cumulative effect as of September 1,
1993, of adopting SFAS 109 increased net income for the three
month period ended November 30, 1993, by approximately $1.1
million or $.02 per share.
Under SFAS 109, deferred income taxes arise principally from
the tax effect of temporary differences between financial
reporting and tax bases of property and equipment, merchandise
inventories, and accrued liabilities such as accrued insurance
costs and deferred incentive compensation.
4. The Company has two unsecured bank lines of credit for
short-term revolving borrowings of up to $50,000,000 each, or
$100,000,000 of total borrowing capacity. The lines of credit
expire on February 28, 1996 and February 18, 1995,
respectively, and the Company expects that the line expiring
on February 18, 1995 will be extended. Borrowings under these
lines of credit are at a variable interest rate equal to the
lower of the bank's prime interest rate minus one-half percent
or a rate based on short-term market interest rates. The
Company may convert up to $50,000,000 of the line of credit
expiring February 28, 1996, into either a five, seven, or nine
year term loan, at the bank's variable prime rate.
5. The Internal Revenue Service has examined the Company's
consolidated 1991 and 1992 federal income tax returns and has
rendered an initial report and assessment as a result of the
examination. The Company has appealed the findings of the
report. Although the ultimate outcome of this matter cannot
presently be determined, the Company believes that any impact
on its financial statements will not be material.
<PAGE>
6. The Company's non-qualified stock option plans provide for the
granting of options to key employees to purchase shares of
common stock at prices not less than the fair market value on
the date of grant. Options expire five years from the date of
grant and 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.
All shares available for option as of November 30, 1994, were
issuable under the current plan which expires in November
1998, covering a maximum of 2,200,000 shares.
<TABLE>
The following is a summary of transactions under the plans
during the three months ended November 30, 1994 and 1993.
<CAPTION>
Three Months Ended
November 30, 1994 November 30, 1993
Number of Number of
shares Option price shares Option price
under option per share under option per share
<S> <C> <C> <C> <C>
Outstanding-beginning 951,290 $ 5.13-$21.25 1,120,510 $ 5.13-$21.25
Granted 74,200 $10.25-$11.50 4,500 $16.25-$16.75
Exercised (37,970) $ 5.13-$ 5.88 (98,760) $ 5.13-$11.88
Cancelled (9,540) (7,210)
Outstanding-ending 977,980 $ 5.13-$21.25 1,019,040 $ 5.13-$21.25
At November 30, 1994, options to purchase 295,680 shares were
exercisable at prices ranging from $5.13 to $20.50 per share, and at
November 30, 1993, options to purchase 174,160 shares were
exercisable at prices ranging from $5.13 to $13.00 per share.
</TABLE>
7. Interest expense for the three months ended November 30, 1994,
was $461,285 and for the three months ended November 30, 1993,
was $250,258.
8. Earnings per common share is based on the weighted average
number of shares outstanding during each reporting period.
Exercise of outstanding stock options would have no material
dilutive effect on earnings per common share.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company's working capital increased by $10,369,929, from
$230,234,774 at August 31, 1994 to $240,604,703 at November 30, 1994.
The principal source of new working capital continued to be the reinvest-
ment of a significant portion of the earnings of the Company. Changes
in working capital components during the first quarter of fiscal 1995
and 1994 were primarily the result of seasonal increases in merchandise
inventories, which were financed primarily by reinvestment of earnings
(net of dividends) and by increases in short-term notes payable. The
seasonal increase in merchandise inventories during the first quarter of
fiscal 1995 was less than the increase during the first quarter of
fiscal 1994, in part because the Company purchased less apparel
merchandise in anticipation of continued weakness in the sales of
apparel. The Company also purchased lower price point apparel as part
of an overall price reduction program that began in fiscal 1994 as the
Company began to move toward an everyday low price strategy. This
program, which began in the second quarter of fiscal 1994, was expanded
at the start of fiscal 1995 from approximately 1,000 stores to
approximately 1,800 stores, and the number of stockkeeping units with
price reductions increased from approximately 500 to approximately
2,500. A lesser number of price reductions were taken in the balance of
the stores in less competitive markets.
Capital expenditures for the quarter ended November 30, 1994, were
approximately $6,300,000, and are currently planned to be approximately
$25 million for fiscal 1995. The majority of capital expenditures for
fiscal 1995 is directly related to the Company's retail store expansion
program. In fiscal 1995, the Company plans to open at least 205 stores
and close approximately 25 stores for a net addition of at least 180
stores, compared with the opening of 202 stores and closing of 22 stores
for a net addition of 180 stores in fiscal 1994.
In December 1994, subsidiaries of the Company entered into an
agreement with Winn's Stores, Incorporated to purchase 12 stores, to
acquire the leases on 15 stores and to lease 2 stores from Winn's.
Pursuant to agreements with Winn's Stores, Incorporated in July 1994 and
November 1994, subsidiaries of the Company acquired the leases on 23 and
6 stores, respectively, from Winn's. Fifty-six of the 58 stores are
located in Texas and 2 are located in New Mexico. The Company occupies
most of its stores under operating leases. New store opening and
closing plans, as well as overall capital expenditure plans, are
continuously reviewed and are subject to change depending on
developments in the economy and other factors.
<PAGE>
RESULTS OF OPERATIONS
NET SALES
Net sales increased 6.3% in the quarter ended November 30, 1994,
as compared with the quarter ended November 30, 1993. The increase was
attributable to sales from new stores opened as part of the Company's
store expansion program. Sales in existing stores decreased 2.4% in
the quarter ended November 30, 1994, as compared with the same period
ended November 30, 1993. In connection with the Company's shift in its
merchandise strategy away from promotional pricing and toward everyday
low prices, the Company is reducing the number of advertising circulars
in fiscal 1995 from 22 to 16 and eliminating all 7 advertising coupon
booklets that were distributed in fiscal 1994. Three advertising
circulars and two coupon booklets were eliminated in the first quarter
of fiscal 1995, as compared to the first quarter of fiscal 1994. This
reduction in advertising negatively impacted the first quarter sales.
Sales in apparel departments continued to be weaker than sales in
hardlines departments.
The average number of stores open during the first quarter of
fiscal 1995 was 9.3% more than during the first quarter of fiscal
1994. The Company had 2,275 stores in operation at November 30, 1994,
as compared with 2,076 stores in operation at November 30, 1993,
representing an increase of approximately 9.6%.
COST OF SALES
Cost of sales increased 9.5% in the quarter ended November 30,
1994, as compared with the quarter ended November 30, 1993. This
increase primarily reflected the additional sales volume between
years. Cost of sales, as a percentage of net sales, was 64.3% in the
quarter ended November 30, 1994, compared with 62.4% in the quarter
ended November 30, 1993. The increase in the cost of sales percentage
for the quarter ended November 30, 1994, was due primarily to the
merchandise price reductions that were taken as part of the expansion
of the price reduction program and shift toward an everyday low price
strategy. These price reductions are expected to continue to increase
the cost of sales percentages for the second, third and fourth quarters
of fiscal 1995, as compared to the second, third and fourth quarters of
fiscal 1994. The cost of sales percentages also are affected by other
changes in the effectiveness of the merchandise procurement programs
and product mix, and also by merchandise shrinkage losses and freight
costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 0.2% in the
quarter ended November 30, 1994, as compared with the quarter ended
November 30, 1993. Selling, general and administrative expenses, as a
percentage of net sales, were 28.6% in the quarter ended November 30,
1994, as compared with 30.3% in the quarter ended November 30, 1993.
The decrease in the percentage for the quarter ended November 30, 1994,
was due to the reduction in advertising expense, as the Company
eliminated three advertising circulars and two coupon booklets, and the
<PAGE>
Company's efforts to tightly control store operating costs and
corporate overhead expenses. The increased item sales movement
resulting from the merchandise price reduction program is expected to
continue to increase distribution expenses as the Company handles
additional units of lower priced merchandise.
PROVISION FOR TAXES ON INCOME
The provision for taxes on income for the quarter ended November
30, 1994 increased 5.8% as compared with the quarter ended November 30,
1993, prior to the effect of adopting Statement of Financial Accounting
Standards (SFAS) No. 109 (described in Note 3 to the Consolidated
Condensed Financial Statements). The variance between the periods is
primarily due to the increase in income before the provision for income
taxes. The effective tax rate was 38.8% for the quarter ended November
30, 1994, and was 38.4% before the effect of the adoption of SFAS No.
109, for the three months ended November 30, 1993. The increase in the
effective rate resulted primarily from increases in state income tax
rates.
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed herewith:
11 Statement Re: Computations of Per Share Earnings
(b) Reports on Form 8-K - None
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: January 6, 1995 JOHN D. REIER
JOHN D. REIER
(President)
Date: January 6, 1995 C. MARTIN SOWERS
C. MARTIN SOWERS
(Senior Vice President-Finance)
Date: January 6, 1995 ROBYN W. CONNER
ROBYN W. CONNER
(Vice President-Controller
Principal Accounting Officer)
<TABLE>
<CAPTION>
FAMILY DOLLAR STORES, INC. STATEMENT RE COMPUTATIONS OF PER SHARE EARNINGS EXHIBIT 11
THREE MONTHS ENDED THREE MONTHS ENDED
AS PRESENTED NOVEMBER 30, 1994 NOVEMBER 30, 1993
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING FOR THE
THREE MONTHS ENDED 56,599,125 56,599,125 56,370,147 56,370,147
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $15,586,388 $15,586,388 $14,949,719 $14,949,719
NET INCOME $15,586,388 $15,586,388 $16,088,872 $16,088,872
EARNINGS PER SHARE:
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ .28 $ .28 $ .27 $ .27
NET INCOME $ .28 $ .28 $ .29 $ .29
PRO FORMA DILUTION IMPACT OF COMMON STOCK EQUIVALENTS
ADDITIONAL WEIGHTED AVERAGE SHARES FROM
ASSUMED EXERCISE AT THE BEGINNING
OF THE YEAR OF DILUTIVE STOCK OPTIONS 231,437 234,603 810,810 812,477
WEIGHTED AVERAGE SHARES ASSUMED REPURCHASED FROM
ASSUMED PROCEEDS OF EXERCISES USING TREASURY STOCK
METHOD (AVERAGE MARKET PRICE FOR PRIMARY AND, IF
GREATER, ENDING MARKET PRICE FOR FULLY DILUTED) (163,175) (165,051) (636,820) (636,847)
NET PRO FORMA COMMON STOCK
EQUIVALENT INCREMENTAL SHARES 68,262 69,552 173,990 175,630
PERCENTAGE DILUTION FROM PRO FORMA COMMON
STOCK EQUIVALENT INCREMENTAL SHARES 0.12% 0.12% 0.31% 0.31%
TOTAL COMMON STOCK AND COMMON
STOCK EQUIVALENTS 56,667,387 56,668,677 56,544,137 56,545,777
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $15,586,388 $15,586,388 $14,949,719 $14,949,719
NET INCOME $15,586,388 $15,586,388 $16,088,872 $16,088,872
PRO FORMA EARNINGS PER SHARE (INCLUDING DILUTIVE
COMMON STOCK EQUIVALENTS):
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ .28 $ .28 $ .26 $ .26
NET INCOME $ .28 $ .28 $ .28 $ .28
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF FAMILY DOLLAR STORES, INC.
AND SUBSIDIARIES FOR THE QUARTER ENDED NOVEMBER 30, 1994, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> NOV-30-1994
<EXCHANGE-RATE> 1
<CASH> 11,410,783
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 413,602,549
<CURRENT-ASSETS> 447,949,765
<PP&E> 264,877,955
<DEPRECIATION> 112,317,270
<TOTAL-ASSETS> 605,586,332
<CURRENT-LIABILITIES> 207,345,062
<BONDS> 0
<COMMON> 6,007,704
0
0
<OTHER-SE> 375,216,777
<TOTAL-LIABILITY-AND-EQUITY> 605,586,332
<SALES> 356,292,199
<TOTAL-REVENUES> 356,292,199
<CGS> 228,941,174
<TOTAL-COSTS> 330,825,811
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 25,466,388
<INCOME-TAX> 9,880,000
<INCOME-CONTINUING> 15,586,388
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,586,388
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
