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, 1996
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 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 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, 1996
Common Stock, $.10 par value 56,962,482 shares
<PAGE>
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information
Item 1 - Consolidated Condensed Financial Statements:
Consolidated Condensed Balance Sheets -
November 30, 1996 and August 31, 1996 2
Consolidated Condensed Statements of Income -
Three Months Ended November 30, 1996 and 1995 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended November 30, 1996 and 1995 4
Notes to Consolidated Condensed Financial
Statements 5-6
Computation of Net Income per Common Share -
Note 6 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,
1996 1996
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 2) $ 27,319,283 $ 18,844,839
Merchandise inventories 510,581,920 462,840,051
Deferred income taxes 20,517,130 20,372,129
Prepayments and other current assets 9,979,753 5,842,953
Total current assets 568,398,086 507,899,972
Property and equipment, net 192,512,412 184,607,229
Other assets 4,267,774 4,301,090
$765,178,272 $696,808,291
<PAGE>
<CAPTION>
Liabilities and Shareholders' Equity
<S> <C> <C>
Current liabilities:
Notes payable (Note 3) $ 31,000,000 $ 4,400,000
Accounts payable and accrued
liabilities 243,554,451 222,983,656
Income taxes payable 15,833,786 6,822,191
Total current liabilities 290,388,237 234,205,847
Deferred income taxes 17,645,325 17,645,325
Contingencies (Note 4)
Shareholders' equity (Notes 5 and 6):
Preferred stock, $1 par; authorized
and unissued 500,000 shares
Common stock, $.10 par;
authorized 120,000,000 shares;
issued 60,355,584 shares at
November 30, 1996 and 60,290,684
shares at August 31, 1996 6,035,558 6,029,068
Capital in excess of par 17,903,564 16,818,916
Retained earnings 444,554,856 433,458,403
468,493,978 456,306,387
Less common stock held in treasury,
at cost (3,452,822 shares at
November 30, 1996 and August 31, 1996 -
Note 6) 11,349,268 11,349,268
Total shareholders' equity 457,144,710 444,957,119
$765,178,272 $696,808,291
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,
1996 1995
<S> <C> <C>
Net sales $454,882,647 $396,164,559
Costs and expenses:
Cost of sales 300,301,913 258,953,488
Selling, general and
administrative expenses 126,232,912 113,506,302
426,534,825 372,459,790
Income before provision
for taxes on income 28,347,822 23,704,769
Provision for taxes on income 10,988,000 9,197,000
Net income $ 17,359,822 $ 14,507,769
Net income per common share
(Note 6) $0.31 $0.26
Dividends per common share $0.11 $0.10
Weighted average number of
common shares outstanding (Note 6) 56,858,263 56,766,702
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,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $17,359,822 $14,507,769
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 6,963,224 5,862,288
Deferred income taxes (145,001) (283,000)
Gain on disposition of property
and equipment (91,187) (93,805)
Changes in operating assets and liabilities:
Inventories (47,741,869) (34,277,303)
Prepayments and other current assets (4,136,800) (4,219,896)
Other assets 33,316 249,642
Accounts payable and accrued
liabilities 20,570,795 (4,249,323)
Income taxes payable 9,011,595 7,095,779
1,823,895 (15,407,849)
Cash flows from investing activities:
Capital expenditures (15,678,739) (11,315,129)
Proceeds from dispositions of
property and equipment 901,519 661,945
(14,777,220) (10,653,184)
Cash flows from financing activities:
Net notes payable borrowings 26,600,000 32,300,000
Exercise of employee stock options 1,091,138 578,700
Payment of dividends (6,263,369) (5,674,577)
21,427,769 27,204,123
Net change in cash and cash equivalents 8,474,444 1,143,090
Cash and cash equivalents at beginning
of period 18,844,839 8,852,631
Cash and cash equivalents at end of period $27,319,283 $ 9,995,721
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 87,970 $ 397,235
Income taxes 2,092,909 2,261,307
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
consolidated condensed financial statements contain all
adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position as of
November 30, 1996, and the results of operations and the cash
flows for the three months ended November 30, 1996, and 1995.
The results of operations for the three month period ended
November 30, 1996, 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 March 31,
1999 and March 30, 1997, respectively, and the Company expects that
the line expiring on March 30, 1997, will be extended. Borrowings
under these lines of credit are at a variable interest rate based
on short-term market interest rates. The Company may convert up
to $50,000,000 of the line of credit expiring March 31, 1999,
into either a five or seven year term loan, at the bank's variable
prime rate.
4. The Internal Revenue Service has examined the Company's
consolidated 1993 and 1994 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. Substantially all of the components of the assessment
involve the timing of deductions, not the disallowance of
deductions. These components, which involve the timing of
deductions for depreciation, inventory shrinkage, medical
expenses and costs capitalized into inventory under the Uniform
Capitalization rules, will therefore have no effect on recorded
financial statement tax expense. 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, and no loss contingencies have been recorded.
5. The Company's non-qualified stock option plan provides 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.
<PAGE>
<TABLE>
The following is a summary of transactions under the plan during the
three months ended November 30, 1996, and 1995.
<CAPTION>
Three Months Ended
November 30, 1996 November 30, 1995
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 1,002,300 $10.25-$21.25 1,114,960 $ 5.88-$21.25
Granted 294,900 $16.75-$17.75 6,000 $15.25-$18.75
Exercised (64,900) $10.50-$16.75 (43,440) $ 5.88-$17.25
Cancelled (10,750) (26,900)
Outstanding-ending 1,221,550 $10.25-$21.25 1,050,620 $ 5.88-$21.25
At November 30, 1996, options to purchase 389,985 shares were exercisable
at prices ranging from $10.25 to $21.25 per share, and at November 30,
1995, options to purchase 320,125 shares were exercisable at prices
ranging from $5.88 to $21.25 per share.
</TABLE>
6. 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 $4,315,724, from
$273,694,125 at August 31, 1996 to $278,009,849 at November 30, 1996. The
principal source of new working capital continued to be the reinvestment
of a significant portion of the earnings of the Company. Changes in
working capital components during the first quarter of fiscal 1997 and
1996 were primarily the result of seasonal increases in merchandise
inventories, which were financed primarily by reinvestment of earnings
(net of dividends), increases in short-term notes payable, and, in fiscal
1997, by an increase in trade accounts payable.
Capital expenditures for the quarter ended November 30, 1996, were
approximately $15,679,000, and are currently planned to be approximately
$70 million for fiscal 1997. The majority of planned capital expenditures
for fiscal 1997 is related to the Company's retail store expansion
program, existing store remodeling and refurbishing, and to the
construction and equipping of a new full-service distribution center. In
fiscal 1997, the Company currently plans to open approximately 235 stores
and close approximately 50 stores for a net addition of approximately 185
stores, compared with the opening of 223 stores and closing of 58 stores
for a net addition of 165 stores in fiscal 1996. The Company also
currently plans to expand or relocate approximately 100 stores in fiscal
1997, compared with the expansion or relocation of 34 stores in fiscal
1996. All stores opening in fiscal 1996 and 1997 have a new interior
layout featuring wider aisles, lower fixtures and updated signage. In
addition, approximately 265 stores were remodeled or refurbished during
fiscal 1996 with some or all of the features of this layout. In the first
quarter of fiscal 1997, the Company opened 49 stores, closed 11 stores,
expanded or relocated 26 stores, and refurbished approximately 225
additional stores. The Company will continue to evaluate the results of
the remodeling and refurbishing program to determine longer-term plans.
The Company occupies most of its stores under operating leases. Store
opening, closing, expansion, relocation, remodeling and refurbishing
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 14.8% in the quarter ended November 30, 1996, as
compared with the quarter ended November 30, 1995. 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 8.2% in the quarter ended November 30, 1996, as
compared with the same period ended November 30, 1995, with sales of
hardlines merchandise increasing approximately 12.6% and sales of
softlines merchandise increasing approximately 1.0%. Hardlines as a
percentage of total sales increased to approximately 65% in the first
quarter of fiscal 1997 compared to 63% in the first quarter of fiscal
1996. Customers continue to respond favorably to the Company's everyday
low price strategy in hardlines, and the Company is continuing its efforts
to improve sales of softlines by placing more emphasis on lower priced
basic apparel and on closeout and other opportunistic purchases of apparel
that offer good values to its low and low-middle income customer base.
Hardlines merchandise includes primarily household chemical and paper
products, health and beauty aids, candy and snack food, electronics,
housewares and giftware, toys, hardware and automotive supplies.
Softlines merchandise includes men's, women's, boy's, girl's and infant's
clothing, shoes, and domestic items such as blankets, sheets and towels.
The average number of stores open during the first quarter of fiscal
1997 was 6.4% more than during the first quarter of fiscal 1996. The
Company had 2,619 stores in operation at November 30, 1996, as compared
with 2,469 stores in operation at November 30, 1995, representing an
increase of approximately 6.1%.
COST OF SALES
Cost of sales increased 16.0% in the quarter ended November 30, 1996,
as compared with the quarter ended November 30, 1995. This increase
primarily reflected the additional sales volume between years. Cost of
sales, as a percentage of net sales, was 66.0% in the quarter ended
November 30, 1996, compared with 65.4% in the quarter ended November 30,
1995. The increase in the cost of sales percentage was due in part to
additional markdowns taken during the quarter ended November 30, 1996, as
compared to the same period last year, on selected electronics and
softlines merchandise that did not achieve expected levels of sales.
Additionally, the strength of hardlines sales, which typically carry a
lower margin than softlines, also contributed to the increase. The cost
of sales percentages also are affected by other changes in the
effectiveness of the merchandise procurement programs and product mix, and
by merchandise shrinkage losses and freight costs.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 11.2% in the
quarter ended November 30, 1996, as compared with the quarter ended
November 30, 1995. 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 27.8% in the quarter ended November 30,
1996, as compared with 28.7% in the quarter ended November 30, 1995. The
decrease in the percentage for the quarter ended November 30, 1996, was
due in part to a decrease in advertising expenses, as the Company
distributed one less advertising circular during the first quarter of
fiscal 1997 as compared to the first quarter of fiscal 1996.
Additionally, the leverage provided by the 8.2% increase in existing store
sales contributed to the reduction in selling, general and administrative
expenses as a percentage of net sales. The increase in the federal
minimum wage rate on October 1, 1996, increased store labor costs during
the quarter ended November 30, 1996. The Company estimates that during
fiscal 1997 store labor costs will increase approximately $3,600,000 due
to this minimum wage increase.
<PAGE>
PROVISION FOR TAXES ON INCOME
The provision for taxes on income for the quarter ended November 30,
1996, increased 19.5% as compared with the quarter ended November 30,
1995. 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 both the quarters ended November 30, 1996, and November 30,
1995.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein and elsewhere in this Form 10-Q
which are not historical facts are forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements address
activities or events which the Company expects will or may occur in the
future, such as future capital expenditures, store openings, closings,
remodelings,refurbishing, expansions and relocations, additional
distribution facilities, and other aspects of the Company's future
business and operations. The Company cautions that a number of important
factors could cause actual results to differ materially from those
expressed in any forward-looking statements, whether written or oral, made
by or on behalf of the Company. Such factors include, but are not limited
to, competitive pricing pressures, general economic conditions, inflation,
merchandise supply constraints, availability of real estate, finalizing
plans for a new distribution center, and the effects of legislation on
wage levels and entitlement programs. Consequently, all of the forward-
looking statements made are qualified by these and other factors, risks
and uncertainties.
<PAGE>
PART II - OTHER INFORMATION
Item 6.
Exhibits and Reports on Form 8-K
(a) Exhibits filed herewith:
11 Statements Re: Computations of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K - None
<PAGE>
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, 1997 JOHN D. REIER
JOHN D. REIER
(President)
Date: January 8, 1997 C. MARTIN SOWERS
C. MARTIN SOWERS
(Senior Vice President-Finance)
Date: January 8, 1997 KENNETH T. SMITH
KENNETH T. SMITH
(Vice President-Controller
Principal Accounting Officer)
<TABLE>
FAMILY DOLLAR STORES, INC.
STATEMENT RE COMPUTATIONS OF PER SHARE EARNINGS
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
AS PRESENTED NOVEMBER 30, 1996 NOVEMBER 30, 1995
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING FOR THE
THREE MONTHS ENDED 56,858,263 56,858,263 56,766,702 56,766,702
NET INCOME $17,359,822 $17,359,822 $14,507,769 $14,507,769
EARNINGS PER SHARE
$ .31 $ .31 $ .26 $ .26
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 1,090,784 1,133,134 460,796 460,796
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) (1,008,374) (1,010,608) (368,245) (368,245)
NET PRO FORMA COMMON STOCK
EQUIVALENT INCREMENTAL SHARES 82,410 122,526 92,551 92,551
PERCENTAGE DILUTION FROM PRO FORMA COMMON
STOCK EQUIVALENT INCREMENTAL SHARES 0.15% 0.22% 0.16% 0.16%
TOTAL COMMON STOCK AND COMMON
STOCK EQUIVALENTS 56,940,673 56,980,789 56,859,253 56,859,253
NET INCOME $17,359,822 $17,359,822 $14,507,769 $14,507,769
PRO FORMA EARNINGS PER SHARE (INCLUDING DILUTIVE
COMMON STOCK EQUIVALENTS) $ .31 $ .31 $ .26 $ .26
</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 PERIOD ENDED NOVEMBER 30, 1996, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000034408
<NAME> FAMILY DOLLAR STORES, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<EXCHANGE-RATE> 1
<CASH> 27,319,283
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 510,581,920
<CURRENT-ASSETS> 568,398,086
<PP&E> 308,397,745
<DEPRECIATION> 115,885,333
<TOTAL-ASSETS> 765,178,272
<CURRENT-LIABILITIES> 290,388,237
<BONDS> 0
0
0
<COMMON> 6,035,558
<OTHER-SE> 451,109,152
<TOTAL-LIABILITY-AND-EQUITY> 765,178,272
<SALES> 454,882,647
<TOTAL-REVENUES> 454,882,647
<CGS> 300,301,913
<TOTAL-COSTS> 426,534,825
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 28,347,822
<INCOME-TAX> 10,988,000
<INCOME-CONTINUING> 17,359,822
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,359,822
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
