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, 1995
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, 1995
Common Stock, $.10 par value 56,797,522 shares
<PAGE>
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information
Item I - Consolidated Condensed Financial Statements:
Consolidated Condensed Balance Sheets -
November 30, 1995 and August 31, 1995 2
Consolidated Condensed Statements of Income -
Three Months Ended November 30, 1995 and 1994 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended November 30, 1995 and 1994 4
Notes to Consolidated Condensed Financial
Statements 5-6
Computation of Net Income per Common Share -
Note 7 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,
1995 1995
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 2) $ 9,995,721 $ 8,852,631
Merchandise inventories 477,722,751 443,445,448
Deferred income taxes 16,698,749 16,415,749
Prepayments and other current assets 10,535,776 6,315,880
Total current assets 514,952,997 475,029,708
Property and equipment, net 161,524,925 156,640,224
Other assets 4,314,193 4,563,835
$680,792,115 $636,233,767
<PAGE>
<CAPTION>
Liabilities and Shareholders' Equity
<S> <C> <C>
Current liabilities:
Notes payable (Note 3) $ 32,300,000 $ -
Accounts payable and accrued
liabilities 203,726,099 207,970,292
Income taxes payable 9,483,341 2,387,562
Total current liabilities 245,509,440 210,357,854
Deferred income taxes 18,125,325 18,125,325
Contingencies (Note 4)
Shareholders' equity (Notes 5 and 7):
Preferred stock, $1 par; authorized
and unissued 500,000 shares
Common stock, $.10 par;
authorized 120,000,000 shares;
issued 60,240,104 shares at
November 30, 1995 and 60,196,664
shares at August 31, 1995 6,024,010 6,019,666
Capital in excess of par 16,348,787 15,774,431
Retained earnings 406,133,821 397,305,759
428,506,618 419,099,856
Less common stock held in treasury,
at cost (3,452,822 shares at
November 30, 1995 and August 31, 1995 -
Note 7) 11,349,268 11,349,268
Total shareholders' equity 417,157,350 407,750,588
$680,792,115 $636,233,767
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,
1995 1994
<S> <C> <C>
Net sales $396,164,559 $356,292,199
Costs and expenses:
Cost of sales 258,953,488 228,941,174
Selling, general and
administrative expenses
(Note 6) 113,506,302 101,884,637
372,459,790 330,825,811
Income before provision
for taxes on income 23,704,769 25,466,388
Provision for taxes on income 9,197,000 9,880,000
Net income $ 14,507,769 $ 15,586,388
Net income per common share
(Note 7) $0.26 $0.28
Dividends per common share $0.10 $0.085
Weighted average number of
common shares outstanding (Note 7) 56,766,702 56,599,125
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,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $14,507,769 $15,586,388
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 5,862,288 5,377,728
Deferred income taxes (283,000) (321,000)
Gain on disposition of property
and equipment (93,805) (3,546)
Changes in operating assets and liabilities:
Inventories (34,277,303) (10,031,816)
Income tax refund receivable - 4,569,686
Prepayments and other current assets (4,219,896) (4,770,804)
Other assets 249,642 (67,915)
Accounts payable and accrued
liabilities (4,249,323) (4,686,594)
Income taxes payable 7,095,779 4,389,677
(15,407,849) 10,041,804
Cash flows from investing activities:
Capital expenditures (11,315,129) (6,296,523)
Proceeds from dispositions of
property and equipment 661,945 307,979
(10,653,184) (5,988,544)
Cash flows from financing activities:
Net notes payable borrowings 32,300,000 2,000,000
Exercise of employee stock options 578,700 284,934
Payment of dividends (5,674,577) (4,809,944)
27,204,123 (2,525,010)
Net change in cash and cash equivalents 1,143,090 1,528,250
Cash and cash equivalents at beginning
of period 8,852,631 9,882,533
Cash and cash equivalents at end of period $ 9,995,721 $11,410,783
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 397,235 $ 508,873
Income taxes 2,261,307 1,155,627
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,
1995, and the results of operations and the cash flows for the
three months ended November 30, 1995, and 1994.
The results of operations for the three month period ended
November 30, 1995, 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. 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 13, 1996,
respectively, and the Company expects that both lines of
credit will be renewed. 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.
4. During October 1995, the Company reached a final settlement
with the Internal Revenue Service (IRS) for assessments
resulting from examination of the Company's consolidated 1991
and 1992 federal income tax returns, and the Company incurred
no material adverse impact on its financial statements. The
IRS is currently examining the Company's consolidated 1993 and
1994 federal income tax returns but has not rendered a final
report of their findings.
5. 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, 1995, were
issuable under the current plan which expires in November
1998, covering a maximum of 2,200,000 shares.
<PAGE>
<TABLE>
The following is a summary of transactions under the plans
during the three months ended November 30, 1995 and 1994.
<CAPTION>
Three Months Ended
November 30, 1995 November 30, 1994
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 1,114,960 $ 5.88-$21.25 951,290 $ 5.13-$21.25
Granted 6,000 $15.25-$18.75 74,200 $10.25-$11.50
Exercised (43,440) $ 5.88-$17.25 (37,970) $ 5.13-$ 5.88
Cancelled (26,900) (9,540)
Outstanding-ending 1,050,620 $ 5.88-$21.25 977,980 $ 5.13-$21.25
At November 30, 1995, options to purchase 320,125 shares were
exercisable at prices ranging from $5.88 to $21.25 per share,
and at November 30, 1994, options to purchase 295,680 shares were
exercisable at prices ranging from $5.13 to $20.50 per share.
</TABLE>
6. Interest expense for the three months ended November 30, 1995,
was $407,503 and for the three months ended November 30, 1994,
was $461,285.
7. Net income 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 net income 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 $4,771,703, from
$264,671,854 at August 31, 1995 to $269,443,557 at November 30, 1995.
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 1996
and 1995 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 1996 was greater than the increase during the first quarter of
fiscal 1995. The increase in the first quarter of fiscal 1995 was
unusually small due to the purchase of less apparel merchandise in
anticipation of apparel sales weakness, as well as the purchase of lower
price point apparel as part of an overall price reduction program that
began in the second quarter of fiscal 1994 as the Company moved toward
an everyday low price strategy.
Capital expenditures for the quarter ended November 30, 1995, were
approximately $11,315,000, and are currently planned to be approximately
$45 million for fiscal 1996. The majority of capital expenditures for
fiscal 1996 is related to the Company's retail store expansion program
and to the expansion of the West Memphis, Arkansas distribution center
which is planned to be completed in the fourth quarter of fiscal 1996.
In fiscal 1996, the Company plans to open approximately 235 stores and
close approximately 35 stores for a net addition of approximately 200
stores, compared with the opening of 213 stores and closing of 12 stores
for a net addition of 201 stores in fiscal 1995. All stores opening in
fiscal 1996 have a new interior layout featuring wider aisles, lower
fixtures and updated signage. The Company expects to remodel selected
existing stores to the new prototype in the second half of fiscal 1996,
and will evaluate the results to determine longer-term remodeling
plans. The Company occupies most of its stores under operating leases.
New store opening, closing and remodeling 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 11.2% in the quarter ended November 30, 1995,
as compared with the quarter ended November 30, 1994. The increase was
attributable to increased sales in existing stores and sales from new
stores opened as part of the Company's store expansion program. Sales
in existing stores increased 3.3% in the quarter ended November 30,
1995, as compared with the same period ended November 30, 1994. Sales
increases in hardlines departments more than offset sales decreases in
softlines in existing stores. The hardlines increases reflect positive
customer response to the Company's price reduction program. The
Company's lower price point apparel has not generated planned unit
movement increases, contributing to the sales decline in softlines
departments.
The average number of stores open during the first quarter of
fiscal 1996 was 8.8% more than during the first quarter of fiscal 1995.
The Company had 2,469 stores in operation at November 30, 1995, as
compared with 2,275 stores in operation at November 30, 1994,
representing an increase of approximately 8.5%.
COST OF SALES
Cost of sales increased 13.1% in the quarter ended November 30,
1995, as compared with the quarter ended November 30, 1994. This
increase primarily reflected the additional sales volume between years.
Cost of sales, as a percentage of net sales, was 65.4% in the quarter
ended November 30, 1995, compared with 64.3% in the quarter ended
November 30, 1994. The increase in the cost of sales percentage for the
quarter ended November 30, 1995, was due primarily to the continuing
effect of 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. The ongoing weakness in the sales of
higher margin apparel also contributed to the increase. The Company
expects that the effect of the price reduction program on the
comparability of the cost of sales percentages will be less in the
second half of fiscal 1996 as by the second half of fiscal 1996 the
Company will have passed the one-year anniversary of the substantial
implementation of the program. 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.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 11.4% in the
quarter ended November 30, 1995, as compared with the quarter ended
November 30, 1994. The increase in these expenses was due primarily to
additional costs arising from the continued growth in the number of
stores in operation. Selling, general and administrative expenses, as a
percentage of net sales, were 28.7% in the quarter ended November 30,
1995, as compared with 28.6% in the quarter ended November 30, 1994.
The increase in the percentage for the quarter ended November 30, 1995,
was due primarily to an increase in distribution facility expenses as
the increased item sales movement resulting from the merchandise price
reduction program required the Company to handle additional units of
lower priced merchandise.
PROVISION FOR TAXES ON INCOME
The provision for taxes on income for the quarter ended November 30,
1995, decreased 6.9% as compared with the quarter ended November 30,
1994. The variance between the periods is primarily due to the decrease
in income before the provision for income taxes. The effective tax rate
was 38.8% for both the quarters ended November 30, 1995, and November 30,
1994.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Documents filed as exhibits to this Form 10-Q:
11 Statement Re: Computations of Per Share Earnings
27 Financial Data Schedule
(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 8, 1996 JOHN D. REIER
JOHN D. REIER
(President)
Date: January 8, 1996 C. MARTIN SOWERS
C. MARTIN SOWERS
(Senior Vice President-Finance)
Date: January 8, 1996 KENNETH T. SMITH
KENNETH T. SMITH
(Vice President-Controller
Principal Accounting Officer)
<TABLE>
<CAPTION>
FAMILY DOLLAR STORES, INC. EXHIBIT 11
STATEMENT RE COMPUTATIONS OF PER SHARE EARNINGS
THREE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1994
AS PRESENTED PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING FOR
THE THREE MONTHS ENDED 56,766,702 56,766,702 56,599,125 56,599,125
NET INCOME $14,507,769 $14,507,769 $15,586,388 $15,586,388
EARNINGS PER SHARE $ .26 $ .26 $ .28 $ .28
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 460,796 460,796 231,437 234,603
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) (368,245) (368,245) (163,175) (165,051)
NET PRO FORMA COMMON STOCK
EQUIVALENT INCREMENTAL SHARES 92,551 92,551 68,262 69,552
PERCENTAGE DILUTION FROM PRO FORMA
COMMON STOCK EQUIVALENT
INCREMENTAL SHARES 0.16% 0.16% 0.12% 0.12%
TOTAL COMMON STOCK AND COMMON
STOCK EQUIVALENTS 56,859,253 56,859,253 56,667,387 56,668,677
NET INCOME $14,507,769 $14,507,769 $15,586,388 $15,586,388
PRO FORMA EARNINGS PER SHARE (INCLUDING
DILUTIVE COMMON STOCK EQUIVALENTS) $ .26 $ .26 $ .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, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> NOV-30-1995
<EXCHANGE-RATE> 1
<CASH> 9,995,721
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 477,722,751
<CURRENT-ASSETS> 514,952,997
<PP&E> 269,300,139
<DEPRECIATION> 107,775,214
<TOTAL-ASSETS> 680,792,115
<CURRENT-LIABILITIES> 245,509,440
<BONDS> 0
<COMMON> 6,024,010
0
0
<OTHER-SE> 411,133,340
<TOTAL-LIABILITY-AND-EQUITY> 680,792,115
<SALES> 396,164,559
<TOTAL-REVENUES> 396,164,559
<CGS> 258,953,488
<TOTAL-COSTS> 372,459,790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23,704,769
<INCOME-TAX> 9,197,000
<INCOME-CONTINUING> 14,507,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,507,769
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
