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 May 31, 1998
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 June 30, 1998
Common Stock, $.10 par value 172,184,836 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 -
May 31, 1998 and August 31, 1997 2
Consolidated Condensed Statements of Income -
Three Months Ended May 31, 1998 and 1997 3
Consolidated Condensed Statements of Income -
Nine Months Ended May 31, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended May 31, 1998 and 1997 5
Notes to Consolidated Condensed Financial
Statements 6-8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-11
Part II - Other Information and Signatures
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 12
<PAGE>
<TABLE>
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
May 31, August 31,
1998 1997
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 2) $140,601,087 $ 42,468,300
Merchandise inventories 449,004,655 467,945,483
Deferred income taxes 34,193,454 28,407,454
Prepayments and other current assets 5,253,140 5,881,520
Total current assets 629,052,336 544,702,757
Property and equipment, net 283,957,643 231,234,756
Other assets 2,411,456 4,356,339
$915,421,435 $780,293,852
<PAGE>
<CAPTION>
Liabilities and Shareholders' Equity
<S> <C> <C>
Current liabilities:
Accounts payable and accrued
liabilities $313,358,823 $250,107,926
Income taxes payable 16,795,260 11,118,803
Total current liabilities 330,154,083 261,226,729
Deferred income taxes 19,841,650 18,868,650
Shareholders' equity (Notes 4, 5 and 6):
Preferred stock, $1 par; authorized
and unissued 500,000 shares
Common stock, $.10 par;
authorized 300,000,000 shares;
issued 182,539,552 shares at
May 31, 1998 and 91,031,478 shares
at August 31, 1997 18,253,955 9,103,148
Capital in excess of par 16,334,248 21,157,973
Retained earnings 542,186,767 481,286,620
576,774,970 511,547,741
Less common stock held in treasury,
at cost 10,358,466 shares at
May 31, 1998 and 5,179,233 shares at
August 31, 1997 (Notes 4 and 6) 11,349,268 11,349,268
Total shareholders' equity 565,425,702 500,198,473
$915,421,435 $780,293,852
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
May 31, May 31,
1998 1997
<S> <C> <C>
Net sales $585,807,252 $498,404,002
Costs and expenses:
Cost of sales 385,691,171 330,671,792
Selling, general and
administrative expenses 149,972,791 130,317,446
535,663,962 460,989,238
Income before provision
for taxes on income 50,143,290 37,414,764
Provision for taxes on income 18,800,000 14,327,000
Net income $ 31,343,290 $ 23,087,764
Net income per common share - Basic
(Note 6)* $ 0.18 $ 0.13
Average shares - Basic (Note 6)* 172,167,573 171,447,742
Net income per common share - Diluted
(Note 6)* $ 0.18 $ 0.13
Average shares - Diluted (Note 6)* 173,453,740 172,078,857
Dividends per common share * $ 0.045 $ 0.04
* May 31, 1997, figures were adjusted to reflect the three-for-two
stock split distributed July 31, 1997 and the two-for-one stock split
distributed April 30, 1998.
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Nine Months Ended
May 31, May 31,
1998 1997
<S> <C> <C>
Net sales $1,764,431,725 $1,483,545,713
Costs and expenses
Cost of sales 1,178,809,392 997,067,508
Selling, general and
administrative expenses 451,775,511 388,208,905
1,630,584,903 1,385,276,413
Income before provision for
taxes on income 133,846,822 98,269,300
Provision for taxes on income 50,580,000 37,820,000
Net income $ 83,266,822 $ 60,449,300
Net income per common share - Basic
(Note 6)* $ .48 $0.35
Average shares - Basic (Note 6)* 171,947,548 171,051,051
Net income per common share - Diluted
(Note 6)* $ .48 $ .35
Average shares - Diluted (Note 6)* 173,148,589 171,482,061
Dividends per common share* $ .13 $0.115
* May 31, 1997, figures were adjusted to reflect the three-for-two
stock split distributed July 31, 1997 and the two-for-one stock split
distributed April 30, 1998.
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Ended
May 31, May 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $83,266,822 $60,449,300
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 25,189,032 21,824,339
Deferred income taxes (4,813,000) (1,455,000)
(Gain) Loss on disposition of property
and equipment 25,634 (12,504)
Changes in operating assets and liabilities:
Inventories 18,940,828 2,038,115
Prepayments and other current assets 628,380 (2,153,406)
Other assets 1,944,883 978,056
Accounts payable and accrued
liabilities 62,371,176 31,254,340
Income taxes payable 5,676,457 3,813,770
193,230,212 116,737,010
Cash flows from investing activities:
Capital expenditures (79,170,359) (50,013,047)
Proceeds from dispositions of
property and equipment 1,232,806 1,109,065
(77,937,553) (48,903,982)
Cash flows from financing activities:
Net notes payable repayments (4,400,000)
Exercise of employee stock options 4,327,082 5,916,302
Payment of dividends (21,486,954) (19,371,686)
(17,159,872) (17,855,384)
Net change in cash and cash equivalents 98,132,787 49,977,644
Cash and cash equivalents at beginning
of period 42,468,300 18,844,839
Cash and cash equivalents at end of period $140,601,087 $68,822,483
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 12,564 $ 301,374
Income taxes 48,364,022 30,869,321
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
May 31, 1998, and the results of operations for the three and
nine months ended May 31, 1998, and 1997, and the cash flows
for the nine months ended May 31, 1998, and 1997.
The results of operations for the nine month period ended
May 31, 1998, 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, 2000 and March 28, 1999,
respectively. 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, 2000 into either a five or seven
year term loan at the bank's variable prime rate.
4. The Board of Directors declared a 2 for 1 stock split in the
form of 100% stock distribution on March 24, 1998, pursuant
to which 91,263,654 common shares were issued on April 30,
1998, to holders of record of common stock on April 16, 1998.
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>
The following is a summary of transactions under the plan during
the nine months ended May 31, 1998, and 1997. May 31, 1997,
figures were adjusted to reflect the three-for-two stock split
distributed July 31, 1997 and the two-for-one stock split
distributed April 30, 1998.
<TABLE>
<CAPTION>
Nine Months Ended
May 31, 1998 May 31, 1997
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 3,142,008 $ 3.50-$10.88 3,006,900 $ 3.42-$ 7.09
Granted 1,133,800 $10.88-$18.50 1,657,200 $ 5.59-$ 8.75
Exercised (476,596) $ 3.50-$ 7.09 (988,170) $ 3.50-$ 7.09
Cancelled (90,160) (375,314)
Outstanding-ending 3,709,052 $ 3.50-$18.50 3,300,616 $ 3.42-$ 8.75
Exercisable options 638,656 $ 3.50-$ 6.25 918,522 $ 3.42-$ 7.09
</TABLE>
6. The Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share" (SFAS 128) during the quarter ended
February 28, 1998. All prior period net income per common share
amounts have been restated. Basic net income per common share is
computed by dividing net income by the weighted average number of
shares outstanding during each period. Diluted net income per
common share gives effect to all securities representing potential
common shares that were dilutive and outstanding during the period.
In the calculation of diluted net income per common share, the
denominator includes the number of additional common shares that
would have been outstanding if the Company's outstanding stock
options had been exercised.
The following table sets forth the computation of basic and diluted
net income per common share:
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
May 31, 1998 May 31, 1997
<S> <C> <C>
Basic Net Income Per Share:
Net Income $31,343,290 $23,087,764
Weighted Average Number of Shares
Outstanding 172,167,573 171,447,742
Net Income Per Common Share - Basic $.18 $ .13
Diluted Net Income Per Share:
Net Income $31,343,290 $23,087,764
Weighted Average Number of Shares
Outstanding 172,167,573 171,447,742
Effect of Dilutive Securities -
Stock Options 1,286,167 631,115
Average Shares - Diluted 173,453,740 172,078,857
Net Income Per Common Share - Diluted $.18 $ .13
Nine Months Ended
May 31, 1998 May 31, 1997
Basic Net Income Per Share:
Net Income $83,266,822 $60,449,300
Weighted Average Number of Shares
Outstanding 171,947,548 171,051,051
Net Income Per Common Share - Basic $ .48 $ .35
Diluted Net Income Per Share:
Net Income $83,266,822 $60,449,300
Weighted Average Number of Shares
Outstanding 171,947,548 171,051,051
Effect of Dilutive Securities -
Stock Options 1,201,041 431,010
Average Shares - Diluted 173,148,589 171,482,061
Net Income Per Common Share - Diluted $ .48 $ .35
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At May 31, 1998, the Company had working capital of $298.9
million with cash and cash equivalents of approximately $140.6
million and no outstanding borrowings. During the nine months
ended May 31, 1998, the increase in earnings, coupled with
improved inventory turnover compared with the nine months ended
May 31, 1997, produced $193.2 million cash flow from operating
activities compared with $116.7 million cash flow from operating
activities in the nine months ended May 31, 1997. Improved
system-wide inventory flows continue to offset merchandise
inventory increases for new stores and a new distribution center.
Capital expenditures for the nine months ended May 31, 1998,
were approximately $79.2 million, and are currently expected to
be approximately $90 to $95 million for fiscal 1998. The
majority of capital expenditures for fiscal 1998 is related to
the Company's new store expansion, existing store expansion,
relocation and renovation and to the completion in January 1998
of the new full-service distribution center in Warren County,
Virginia. In fiscal 1998, the Company currently expects to open
approximately 315 stores and close approximately 65 stores for a
net addition of approximately 250 stores, compared with the
opening of 236 stores and closing of 50 stores for a net addition
of 186 stores in fiscal 1997. The Company also currently plans
to expand or relocate approximately 100 stores and renovate
approximately 200 stores in fiscal 1998, compared with the
expansion or relocation of 94 stores and renovation of 380 stores
in fiscal 1997. In the first nine months of fiscal 1998, the
Company opened 247 stores, closed 47 stores, and expanded or
relocated 44 stores. The Company occupies most of its stores
under operating leases. Store opening, closing, expansion,
relocation, and renovation plans, as well as overall capital
expenditure plans, are continuously reviewed and are subject
to change.
RESULTS OF OPERATIONS
NET SALES
Net sales increased 17.5% in the quarter ended May 31, 1998,
as compared with the quarter ended May 31, 1997, and increased
18.9% in the nine month period ended May 31, 1998, as compared
with the nine month period ended May 31, 1997. The increases were
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 8.0% in the quarter
ended May 31, 1998, as compared with the same period ended May 31,
1997, with the sales of hardlines merchandise increasing
approximately 9.7% and the sales of softlines merchandise
increasing approximately 4.7%. Sales in existing stores increased
9.4% in the nine month period ended May 31, 1998, as compared to
<PAGE>
the nine month period ended May 31, 1997, with sales of hardlines
merchandise increasing approximately 12.2% and sales of softlines
merchandise increasing approximately 4.2%. Hardlines as a
percentage of total sales increased to approximately 66% in the
third quarter of fiscal 1998 compared to approximately 65% in the
third quarter of fiscal 1997, and increased to approximately 67%
in the first nine months of fiscal 1998 compared to approximately
66% in the first nine months of fiscal 1997. Hardlines
merchandise includes primarily household chemical and paper
products, health and beauty aids, candy, snack and other 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. Customers continue to
respond favorably to the Company's everyday low price strategy.
The sales increases were achieved in the third quarter and the
first nine months of fiscal 1998 despite the elimination of two
advertising circulars in each of the first and second quarters,
and the elimination of a third circular that adversely impacted
sales during the last week of the third quarter.
The average number of stores open during the first nine
months of fiscal 1998 was 9.2% more than during the first nine
months of fiscal 1997. The Company had 2,967 stores in operation
at May 31, 1998, as compared with 2,704 stores in operation at
May 31, 1997, representing an increase of approximately 9.7%.
COST OF SALES
Cost of sales increased 16.6% in the quarter ended May 31,
1998, as compared with the quarter ended May 31, 1997, and
increased 18.2% in the nine months ended May 31, 1998, as compared
to the nine months ended May 31, 1997. These increases primarily
reflected the additional sales volume between years. Cost of
sales, as a percentage of net sales, was 65.8% in the quarter
ended May 31, 1998, compared to 66.3% in the quarter ended May 31,
1997, and was 66.8% in the nine months ended May 31, 1998,
compared with 67.2% in the nine months ended May 31, 1997. The
decrease in the cost of sales percentage for the quarter and the
first nine months of fiscal 1998 was due in part to decreases in
advertising markdowns related to the elimination of an advertising
circular in the last week of the third quarter and two advertising
circulars in each of the first and second quarters and to the
inclusion of more items at the everyday low price in the remaining
circulars. Merchandise shrinkage losses also decreased slightly
as a percentage of sales in the quarter and nine months ended
May 31, 1998, compared with the same periods last year. The cost
of sales percentages also were affected by improvements in the
effectiveness of the merchandise purchasing programs and by
changes in the product mix.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 15.1%
in the quarter ended May 31, 1998, as compared with the quarter
ended May 31, 1997, and increased 16.4% in the nine months ended
May 31, 1998, as compared with the nine months ended May 31, 1997.
The increases in these expenses were due primarily to additional
costs arising from the continued growth in the number of stores
in operation and to the increase in hourly wage rates resulting
from the increase in the federal minimum wage rate on September 1,
1997. Selling, general and administrative expenses, as a
percentage of net sales, were 25.6% in the quarter ended May 31,
1998, as compared with 26.1% in the quarter ended May 31, 1997,
and were 25.6% in the nine months ended May 31, 1998, as compared
with 26.2% in the nine months ended May 31, 1997. The decreases
in percentages for the quarter and nine months ended May 31,1998
were due in part to a decrease in store labor costs and occupancy
costs as a percentage of net sales due to more efficient
utilization of store labor hours and to the leverage provided by
the increases in existing store sales. Additionally, advertising
expenses decreased as a percentage of sales during the quarter and
the first nine months of fiscal 1998 due to the elimination of an
advertising circular in the last week of the third quarter and to
the elimination of two advertising circulars in each of the first
and second quarters.
PROVISION FOR TAXES ON INCOME
The effective tax rate was 37.5% for the quarter ended
May 31, 1998, as compared to 38.3% for the quarter ended May 31,
1997, and was 37.8% for nine months ended May 31, 1998, as
compared to 38.5% for the nine months ended May 31, 1997. The
decreases in the effective tax rate for the quarter and nine
months ended May 31, 1998 resulted from changes in effective state
income tax rates and from increases in federal Work Opportunity
Tax Credits.
YEAR 2000 COMPLIANCE
The Company has evaluated its information systems for Year
2000 compliance, which refers to information systems that will
accurately process date and time data for the Year 2000 and
beyond. The Company currently expects to replace certain software
programs and modify other software programs and complete testing
of all programs prior to July 1999 in order to achieve Year 2000
compliance, and does not currently expect these costs to have a
material adverse impact on the Company's financial condition,
results of operations or liquidity. The Company is also
communicating with suppliers in order to assess the extent of
those companies Year 2000 compliance.
<PAGE>
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, renovations,
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 factors and pricing pressures, general
economic conditions, changes in consumer demand, inflation,
merchandise supply constraints, general transportation delays or
interruptions, changes in currency exchange rates, tariffs, quotas
and freight rates, availability of real estate, the impact of the
Year 2000 on information systems and the Company's operations,
costs and delays associated with building, opening and operating
new distribution facilities, 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:
* 10 Trust Agreement between Merrill Lynch Trust Company of
North Carolina, as Trustee, and Family Dollar Stores,
Inc. and Family Dollar, Inc., as Employer, with respect
to Family Dollar Employee Savings and Retirement Plan and
Trust.
11 Statements Re: Computations of Per Share Earnings
27 Financial Data Schedule
* Exhibit represents a management contract or compensatory
plan.
(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: July 9, 1998 /s/ R. JAMES KELLY
R. JAMES KELLY
Vice Chairman
Date: July 9, 1998 /s/ C. MARTIN SOWERS
C. MARTIN SOWERS
Senior Vice President-Finance
Principal Financial Officer
<TABLE>
<CAPTION>
EXHIBIT 11
Page 1 of 2
FAMILY DOLLAR STORES, INC.
STATEMENT RE COMPUTATIONS OF PER SHARE EARNINGS
THREE MONTHS ENDED THREE MONTHS ENDED
AS PRESENTED MAY 31, 1998 MAY 31, 1997
BASIC DILUTED BASIC DILUTED
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING 172,167,573 172,167,573 171,447,742 171,447,742
NET INCOME $31,343,290 $31,343,290 $23,087,764 $23,087,764
NET INCOME PER SHARE $ .18 $ .18 $ .13 $ .13
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 3,703,960 3,156,705
WEIGHTED AVERAGE SHARES ASSUMED REPURCHASED FROM
ASSUMED PROCEEDS OF EXERCISES USING TREASURY STOCK
METHOD (AVERAGE MARKET PRICE) (2,417,793) (2,525,590)
NET PRO FORMA COMMON STOCK EQUIVALENT INCREMENTAL SHARES 1,286,167 631,115
PERCENTAGE DILUTION FROM PRO FORMA COMMON
STOCK EQUIVALENT INCREMENTAL SHARES .75% .37%
TOTAL COMMON STOCK AND COMMON STOCK EQUIVALENTS 173,453,740 172,078,857
NET INCOME $31,343,290 $23,087,764
PRO FORMA NET INCOME PER SHARE (INCLUDING DILUTIVE
COMMON STOCK EQUIVALENTS) $ .18 $ .13
* All figures have been adjusted for the three-for-two stock split distributed July 31, 1997,
and for the two-for-one stock split distributed April 30, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
Page 2 of 2
FAMILY DOLLAR STORES, INC.
STATEMENT RE COMPUTATIONS OF PER SHARE EARNINGS
NINE MONTHS ENDED NINE MONTHS ENDED
AS PRESENTED MAY 31, 1998 MAY 31, 1997
BASIC DILUTED BASIC DILUTED
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING 171,947,548 171,947,548 171,051,051 171,051,051
NET INCOME $83,266,822 $83,266,822 $60,449,300 $60,449,300
NET INCOME PER SHARE $ .48 $ .48 $ .35 $ .35
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 3,742,170 3,315,525
WEIGHTED AVERAGE SHARES ASSUMED REPURCHASED FROM
ASSUMED PROCEEDS OF EXERCISES USING TREASURY STOCK
METHOD (AVERAGE MARKET PRICE) (2,541,129) (2,884,515)
NET PRO FORMA COMMON STOCK EQUIVALENT INCREMENTAL SHARES 1,201,041 431,010
PERCENTAGE DILUTION FROM PRO FORMA COMMON
STOCK EQUIVALENT INCREMENTAL SHARES .70% .25%
TOTAL COMMON STOCK AND COMMON STOCK EQUIVALENTS 173,148,589 171,482,061
NET INCOME $83,266,822 $60,449,300
PRO FORMA NET INCOME PER SHARE (INCLUDING DILUTIVE
COMMON STOCK EQUIVALENTS) $ .48 $ .35
* All figures have been adjusted for the three-for-two stock split distributed July 31, 1997,
and for the two-for-one stock split distributed April 30, 1998.
</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 MAY 31, 1998, 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> 9-MOS
<FISCAL-YEAR-END> AUG-29-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> MAY-31-1998
<EXCHANGE-RATE> 1
<CASH> 140,601,087
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 449,004,655
<CURRENT-ASSETS> 629,052,336
<PP&E> 425,837,754
<DEPRECIATION> 141,880,111
<TOTAL-ASSETS> 915,421,435
<CURRENT-LIABILITIES> 330,154,083
<BONDS> 0
0
0
<COMMON> 18,253,955
<OTHER-SE> 547,171,747
<TOTAL-LIABILITY-AND-EQUITY> 915,421,435
<SALES> 1,764,431,725
<TOTAL-REVENUES> 1,764,431,725
<CGS> 1,178,809,392
<TOTAL-COSTS> 1,630,584,903
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 133,846,822
<INCOME-TAX> 50,580,000
<INCOME-CONTINUING> 83,266,822
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83,266,822
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
Exhibit 10
TRUST AGREEMENT
between
MERRILL LYNCH TRUST COMPANY OF NORTH CAROLINA,
as the Trustee (the "Trustee" or "Trust Company")
and
FAMILY DOLLAR STORES, INC. AND FAMILY DOLLAR, INC.,
collectively as the Employer.
Trust Agreement entered into as of May 1, 1998, by and between
the above-named employers (the "Employer") MERRILL LYNCH TRUST COMPANY
OF NORTH CAROLINA (the "Trustee"), with respect to a trust ("Trust")
forming part of the FAMILY DOLLAR EMPLOYEE SAVINGS AND RETIREMENT PLAN
AND TRUST, amended and restated as of January 1, 1987 (the "Plan").
The Employer and the Trustee agree as follows:
ARTICLE I
STATUS OF TRUST AND APPOINTMENT
AND ACCEPTANCE OF TRUSTEE
1.01 STATUS OF TRUST. The Trust is intended to be a qualified
trust under section 401(a) of the Internal Revenue Code of 1986, as
amended from time to time (the "Code"), and exempt from taxation
pursuant to section 501(a) of the Code.
1.02 APPOINTMENT OF TRUSTEE. The Employer represents that all
necessary action has been taken for the appointment of Merrill Lynch
Trust Company of North Carolina (the "Trust Company") as trustee of
the Trust and that the Trust Agreement constitutes a legal, valid and
binding obligation of the Employer.
1.03 ACCEPTANCE OF APPOINTMENT. The Trustee accepts its
appointment as trustee of the Trust.
1.04 TITLE OF TRUST. The Trust shall be known as the TRUST FOR
THE FAMILY DOLLAR EMPLOYEE SAVINGS AND RETIREMENT PLAN.
1.05 EFFECTIVENESS. This Trust Agreement shall not become
effective until executed and delivered by both the Employer and the
Trustee.
<PAGE>
ARTICLE II
ADMINISTRATIVE AND INVESTMENT FIDUCIARIES
2.01 NAMED ADMINISTRATIVE AND INVESTMENT FIDUCIARIES. For
purposes of this Trust Agreement, the term "Named Administrative
Fiduciary" refers to the person named or provided for in the Plan as
responsible for the administration and operation of the Plan, and the
term "Named Investment Fiduciary" refers to the person provided for in
the Plan as responsible for the investment and management of Plan
assets to the extent provided for in this Trust Agreement. The Named
Administrative Fiduciary and the Named Investment Fiduciary may be the
same person. If any such person is not named or provided for in the
Plan, or if so named or provided for, is not then serving, the
Employer shall be the Named Administrative Fiduciary or the Named
Investment Fiduciary or both, as the case may be.
2.02 IDENTIFICATION OF NAMED FIDUCIARIES AND DESIGNEES. The
Named Administrative Fiduciary and the Named Investment Fiduciary
under the Plan shall each be identified to the Trustee in writing by
the Employer, and specimen signatures of each, or of each member
thereof, as appropriate, shall be provided to the Trustee by the
Employer. The Employer shall promptly give written notice to the
Trustee of a change in the identity either of the Named Administrative
Fiduciary or the Named Investment Fiduciary, or any member thereof, as
appropriate, and until such notice is received by the Trustee, the
Trustee shall be fully protected in assuming that the identity of the
Named Administrative Fiduciary or Named Investment Fiduciary, and the
members thereof, as appropriate, is unchanged. Each person authorized
in accordance with the Plan to give a direction to the Trustee on
behalf of the Named Administrative Fiduciary or the Named Investment
Fiduciary shall be identified to the Trustees by written notice from
the Employer or the Named Administrative Fiduciary or the Named
Investment Fiduciary, as the case may be, and such notice shall
contain a specimen of the signature. The Trustee shall be entitled to
rely upon each such written notice as evidence of the identity and
authority of the persons appointed until a written cancellation of the
appointment, or the written appointment of a successor, is received by
the Trustee from the Employer, the Named Administrative Fiduciary or
the Named Investment Fiduciary, as the case may be. If your Named
Administrative Fiduciary is a third party administrator, then by
signing this agreement you are authorizing the Trustee to take all
investment and disbursement directions from the third party
administrator.
<PAGE>
ARTICLE II
RECEIPTS AND TRUST FUND
3.01 RECEIPT BY TRUSTEES. The Trustee shall receive in cash or
other assets acceptable to the Trustee all contributions paid or
delivered to it which are allocable under the Plan and to the Trust
and all transfers paid or delivered under the Plan to the Trust from a
predecessor trustee or another trust (including a trust forming part
of another plan qualified under section 401(a) of the Code), provided
that the Trustee shall not be obligated to receive any such
contribution or transfer unless prior thereto or coincident therewith,
as the Trustee may specify, the Trustee has received such
reconciliation, allocation, investment or other information
concerning, or such direction, instruction or representation with
respect to, the contribution or transfer or the source thereof as the
Trustee may require. The Trustee shall have no duty or authority to
(a) require any contributions or transfers to be made under the Plan
or to the Trustee, (b) compute any account to be contributed or
transferred under the Plan to the Trustee, or (c) determine whether
amounts received by the Trustee comply with the Plan.
3.02 TRUST FUND. For purposes of this Trust Agreement, the
"Trust Fund" consists of all money and other property received by the
Trustee pursuant to Section 3.01 hereof, increased by any income or
gains on or increment in such assets and decreased by any investment
loss or expense, benefit or disbursement paid pursuant to this Trust
Agreement. The Trustee shall hold the Trust Fund, without distinction
between principal and income, as a nondiscretionary trustee pursuant
to the terms of this Trust Agreement.
3.03 SECOND TRUST FUND. If the Employer so elects, and the
Trust Company consents, the Employer may appoint a second trustee
under the Plan with respect to assets which the Employer desires to
contribute or have transferred to the Trust Company Trustee, but which
the Trust Company does not choose to accept. The appointment of a
second trustee shall be deemed a representation by the Employer that
the Plan contains all appropriate provisions relating to the second
trustee. In the event and upon the effectiveness of the acceptance of
the second trustee's appointment, the Employer shall be deemed to have
created two trust funds under the Plan each governed separately by
this Trust Agreement except that with respect to the second trust,
this Trust Agreement shall apply as if the second trustee were
referred to by name in the introductory paragraph and in Section 1.02
hereof. Each Trustee under such an arrangement shall, however,
discharge its duties and responsibilities solely with respect to those
assets of the Trust delivered into its possession and, except pursuant
to the Employee Retirement Income Security Act of 1974, as amended
<PAGE>
from time to time ("ERISA"), shall have no duties, responsibilities or
obligations with respect to property of the other Trust nor any
liability for the acts or omissions of the other Trustee. As a
condition to its consent to the appointment of a second trustee, the
Trust Company shall assure that recordkeeping, distribution and
reporting procedures are established on a coordinated basis for those
assets over which the Trust Company acts as trustee, between it and
the second trustee, as the Trust Company considers necessary or
appropriate with respect to the Trust. The second trustee will be
responsible for its reporting and other obligations, independent of
the Merrill Lynch Trust Company.
ARTICLE IV
PAYMENTS, ADMINISTRATIVE DIRECTIONS AND EXPENSES
4.01 PAYMENTS BY TRUSTEE. Payments of money or property from
the Trust Fund shall be made by the Trustee upon direction from the
Named Administrative Fiduciary or its designee. Payments by the
Trustee shall be transmitted to the Named Administrative Fiduciary or
its designee for delivery to the proper payees or to payee addresses
supplied by the Named Administrative Fiduciary or its designee, and
the Trustee's obligation to make such payments shall be satisfied upon
such transmittal. The Trustee shall have no obligation to determine
the identity of persons entitled to payments under the Plan or their
addresses.
4.02 NAMED ADMINISTRATIVE FIDUCIARY'S DIRECTIONS. Directions
from or on behalf of the Named Administrative Fiduciary or its
designee shall be communicated to the Trustee or the Trustee's
designee for the purpose only in a manner and in accordance with
procedures acceptable to the Trustee. The Trustee's designee shall
not, however, be empowered to implement any such directions except in
accordance with procedures acceptable to the Trustee. The Trustee
shall have no liability for following any such directions or failing
to act in the absence of any such directions. Except to the extent
required by ERISA, the Trustee shall have no liability, for the acts
or omissions of any person making or failing to make any directions
under the Plan or this Trust Agreement nor any duty or obligation to
review any such direction, act or omission.
4.03 DISPUTED PAYMENTS. If a dispute arises over the propriety
of the Trustee making any payment from the Trust Fund, the Trustee may
withhold the payment until the dispute has been resolved by a court of
competent jurisdiction or settled by the parties to the dispute. The
Trustee may consult legal counsel and shall be fully protected in
acting upon the advice of counsel.
<PAGE>
4.04 TRUSTEE'S COMPENSATION AND EXPENSES. If the Employer so
elects on the Client Authorization Form submitted to the Trust Company
with respect to the Plan (the "Client Authorization Form") or
otherwise, the Employer shall (a) pay the Trustee compensation for its
services under this Trust Agreement in accordance with the Trustee's
fee schedule in effect and applicable at the time such compensation
becomes payable and previously agreed to in writing by the Employer,
and (b) reimburse the Trustee for all actual and reasonable expenses
incurred by the Trustee in connection with or relating to the
performance of its duties under this Trust Agreement or its status as
Trustee, including reasonable attorneys' fees, and previously agreed
to in writing by the Employer. If the Employer does not so elect,
such compensation and expenses shall be charged against and withdrawn
from the Trust Fund as provided below.
Until paid by the Employer or charged against or withdrawn from
the Trust Fund, as the case may be, the Trustee's compensation and
expenses payable to the Trustee pursuant to this Section 4.04 shall be
a lien upon the Trust Fund. The Trustee is authorized to charge the
Trust Fund for and withdraw from the Trust Fund without direction from
the Named Administrative Fiduciary or any other person the amount of
any such fees or expenses which the Employer has not elected to pay
and is not contesting in good faith, and the amount of any such fees
or expenses which the Employer has so elected to pay under the Client
Authorization Form but which remain unpaid for a period of 60 days
after presentation of a statement for such amount to the Employer and
the Employer is not contesting in good faith; provided that the
Trustee shall reimburse the Employer for any expenses paid or
reimbursed by the Employer relating to any action, lawsuit or
proceeding if (i) the Trustee is determined by a no longer appealable
final judgment entered in such action, lawsuit or proceeding to have
been negligent or to have engaged in willful misconduct, or (ii) the
Trustee commences such action, lawsuit or proceeding against the
Employer, and the Employer is determined by a no longer appealable
final judgment entered in such action, lawsuit or proceeding not to
have been negligent or to have engaged in willful misconduct. Trust
Fund assets shall be applied to pay such fees and expenses in the
following priority by asset category to the extent thereof held at the
time of withdrawal in the Trust Fund subfund or account to which the
fee or expense is allocated: (i) uninvested cash balances;
(ii) shares of any money market fund or funds held in the Trust Fund;
and (iii) any other Trust Fund assets. The Trustee is authorized to
allocate its fees and expenses among these subfunds or accounts to
which the fees or expenses pertain in such manner as the Trustee deems
appropriate under the circumstances unless prior to such allocation
the Employer or the Named Administrative Fiduciary specifies the
manner in which the allocation is to be made. The Trustee is also
<PAGE>
authorized but not required to sell any shares or other assets
referred to above to the extent necessary for the purpose.
4.05 TAXES. The Trustee is authorized, with or without
direction from the Named Administrative Fiduciary or any other person,
to withdraw from the Trust Fund and pay any federal, state or local
taxes, charges or assessments of any kind levied or assessed against
the Trust or assets thereof. Until paid, such taxes shall be a lien
against the Trust Fund. The Trustee shall give notice to the Named
Administrative Fiduciary of its receipt of a demand for any such
taxes, charges or assessments. The Trustee shall not be personally
liable for any such taxes, charges or assessments.
4.06 EXPENSES OF ADMINISTRATION. Actual and reasonable expenses
incurred by the Employer, the Named Administrative Fiduciary, the
Named Investment Fiduciary, any Investment Manager designated pursuant
to Section 5.02 or any other persons designated to act on behalf of
the Employer, the Named Administrative Fiduciary or the Named
Investment Fiduciary, including reimbursement for expenses incurred in
the performance of their respective duties, shall be the obligation of
the Employer or other person specified in the Plan. Such expenses,
however, may be paid from the Trust Fund upon the written direction of
the Trustee or the Named Administrative Fiduciary.
4.07 RESTRICTION ON ALIENATION. Except as provided in
Section 4.08 or under section 401(a)(13) of the Code, the interest of
any Plan participant or beneficiary in the Trust Fund shall not be
subject to the claims of such person's creditors and may not be
assigned, sold, transferred, alienated or encumbered. Any attempt to
do so shall be void; and the Trustee shall disregard any attempt.
Trust assets shall not in any manner be liable for or subject to
debts, contracts, liabilities, engagement or torts of any Plan
participant or beneficiary, and benefits shall not be considered an
asset of any such person in the event of the person's insolvency or
bankruptcy.
4.08 PAYMENT ON COURT ORDER. The Trustee is authorized to make
any payments directed by court order in any action in which the
Trustee is a party or pursuant to a "qualified domestic relations
order" under section 414(p) of the Code; provided that the Trustee
shall not make such payment if the Trustee is indemnified and held
harmless by the Employer in a manner satisfactory to the Trustee
against all consequences of such failure to pay. The Trustee is not
obligated to defend actions in which the Trustee is named but shall
notify the Employer or Named Administrative Fiduciary of any such
action and may tender defense of the action to the Employer, the Named
Administrative Fiduciary or the participant or beneficiary whose
interest is affected. The Trustee may in its discretion defend any
<PAGE>
action in which the Trustee is named and any actual and reasonable
expenses, including reasonable attorneys' fees, incurred by the
Trustee in that connection shall be paid or reimbursed in accordance
with Section 4.04 hereof.
ARTICLE V
INVESTMENTS
5.01 INVESTMENT MANAGEMENT. The Named Investment Fiduciary
shall manage the investment of the Trust Fund except insofar as (a) a
person (an "Investment Manager") who meets the requirements of
section 3(38) of ERISA, has authority to manage Trust assets as
referred to in Section 5.02 hereof or (b) the Plan provides for
participant or beneficiary direction of the investment of assets
allocable under the Plan to the accounts of such participants and
beneficiaries and the Trustee notifies the Employer that such
directions will be acceptable. In the latter situation, a list of the
participants and beneficiaries and such information concerning them as
the Trustee may specify shall be provided by the Employer or the Named
Administrative Fiduciary to the Trustee and/or such person(s) as are
necessary for the implementation of the directions in accordance with
the procedure acceptable to the Trustee. Except as required by ERISA,
the Trustee shall invest the Trust Fund as directed by the Named
Investment Fiduciary, an Investment Manager or a Plan participant or
beneficiary, as the case may be, and the Trustee shall have no
discretionary control over, nor any other discretion regarding, the
investment or reinvestment of any asset of the Trust. The Trustee may
limit the categories of assets in which the Trust Fund may be
invested.
It is understood that the Trustee may, from time to time, have on
hand funds which are received as contributions or transfers to the
Trust which are awaiting investment or funds from the sale of Trust
assets which are awaiting reinvestment or disbursement. Absent
receipt by the Trustee of a direction from the proper person for the
investment or reinvestment of such funds or otherwise prior to the
application of funds in implementation of such a direction, the
Trustee shall in accordance with the applicable CMA Account
procedures cause such funds to be invested in shares of the money
market fund specified by the Employer on the Client Information Form
or such other money market fund acceptable to the Trust Company that
the Employer or Named Investment Fiduciary may in writing to the Trust
Company specify for this purpose from time to time. Any such fund may
be sponsored, managed or distributed by an affiliate of the Trust
Company. The Employer or the Named Investment Fiduciary, as the case
may be, hereby acknowledges that prior to any such specification it
<PAGE>
has read or will have read the then current prospectus for the
specified fund.
5.02 INVESTMENT MANAGERS. Notwithstanding any provision of the
Plan to the contrary, the Employer or the Named Investment Fiduciary
may appoint one or more Investment Managers, who may be an affiliate
of the Trust Company, to direct the Trustee in the investment of all
the specified portion of the assets of the Trust. Any such Investment
Manager shall be directed by the Employer or the Named Investment
Fiduciary, as the case may be, to act in accordance with the
procedures referred to in Section 5.04. The Named Investment
Fiduciary shall notify the Trustee in writing before the effectiveness
of the appointment or removal of any Investment Manager. If there is
more than one Investment Manager whose appointment is effective under
the Plan at any one time, the Trustee shall, upon written instructions
from the Employer or the Named Investment Fiduciary, establish
separate funds for control by each such Investment Manager. The funds
shall consist of those Trust assets designated by the Employer or the
Named Investment Fiduciary.
5.03 DIRECTION OF VOTING AND OTHER RIGHTS. The voting and other
rights in securities or other assets held in the Trust shall be
exercised by the Trustee as directed by the Named Investment Fiduciary
or other person who at the time has the right as referred to in
Section 5.01 hereof to direct the investment or reinvestment of the
security or other asset involved provided that, notwithstanding any
provision of the Plan to the contrary, (a) except as provided in
clause (b) of this Section, such voting and other rights in any such
security or other asset selected by the Employer or the Named
Investment Fiduciary shall be exercised by the Named Investment
Fiduciary and (b) such voting and other rights in any "employer
security" with respect to the Plan within the meaning of
Section 407(d)(1) of ERISA which is held in an account under the Plan
over which a Plan participant or beneficiary has control as to
specific assets to be held therein or which is held in an account
which consists solely or primarily of "employer securities" shall be
exercised by the participants or beneficiaries having interests in
that account. Notwithstanding any provision hereof or of the Plan to
the contrary, (i) in the event a Plan participant or beneficiary or an
Investment Manager with the right to direct voting or other decision
with respect to any security or other asset held in the Trust does not
communicate any decision on the matter to the Trustee or the Trustee's
designee by the time prescribed by the Trustee or the Trustee's
designee for that purpose or if the Trustee notifies the Named
Investment Fiduciary either that it does not have precise information
as to the securities or other assets involved allocated on the
applicable record date to the accounts of all participants and
beneficiaries as the time constraints make it unlikely that
<PAGE>
participant, beneficiary or Investment Manager direction, as the case
may be, can be received on a timely basis, the decision shall be the
responsibility of the Named Investment Fiduciary and shall be
communicated to the Trustee on a timely basis, and (ii) in the event
the Named Investment Fiduciary with any right under the Plan or
hereunder to direct a voting or other decision with respect to any
security or other asset held in the Trust, including any such right
under clause (a) or clause (i) of this Section, does not communicate
any decision on the matter to the Trustee or the Trustee's designee by
the time prescribed by the Trustee for that purpose, the Trustee may,
at the cost of the Employer, retain an Investment Manager (selected
upon agreement with the Employer) with full discretion to make the
decision. Except as required by ERISA, the Trustee shall (a) follow
all directions above referred to in this Section and (b) shall have no
duty to exercise voting or other rights relating to any such security
or other asset.
5.04 INVESTMENT DIRECTIONS. Directions for the investment or
reinvestment of Trust assets or of a type referred to in Section 5.03
from the Employer, the Named Investment Fiduciary, an Investment
Manager or a Plan participant or beneficiary, as the case may be,
shall, in a manner and in accordance with procedures acceptable to the
Trustee, be communicated to and implemented by, as the case may be,
the Trustee, the Trustee's designee or, with the Trustee's consent,
broker/dealer designated for the purpose by the Employer or the Named
Investment Fiduciary. Communication of any such direction to such a
designee or broker/dealer shall conclusively be deemed an
authorization to the designee or broker/dealer to implement the
direction even though coming from a person other than the Trustee.
Except for negligence or willful misconduct, the Trustee shall have no
liability for its or any other person's following such directions or
failing to act in the absence of any such directions. The Trustee
shall have no liability for the acts of omissions of any person
directing the investment of reinvestment of Trust Fund assets or
making or failing to make any direction referred to in Section 5.03.
Neither shall the Trustee have any duty or obligation to review any
such investment or other direction, act or omission or, except upon
receipt of a proper direction, to invest or otherwise manage any asset
of the Trust which is subject to the control of any such person or to
exercise any voting or other right referred to in Section 5.03.
5.05 COMMUNICATION OF PROXY AND OTHER MATERIALS. The Employer or
Named Administrative Fiduciary and Trustee shall establish a mutually
acceptable procedure for the timely dissemination to each person
entitled to direct the Trustee or its designee as to a voting or other
decision called for thereby or referred to therein of all proxy and
other materials bearing on the decision.
<PAGE>
5.06 COMMON AND COLLECTIVE TRUST FUNDS. Any person authorized
to direct the investment of Trust assets may, if the Trustee and the
Named Investment Fiduciary so permit, direct the Trustee to invest
such assets in a common or collective trust maintained by the Trustee
or its affiliate for the investment of assets of qualified trusts
under section 401(a) of the Code, individual retirement accounts under
section 408(a) of the Code and plans or governmental plans described
in section 818(a)(6) of the Code. The documents governing any such
common or collective trust fund maintained by the Trustee, and which
Trust assets have been invested, are hereby incorporated into this
Trust Agreement by reference.
ARTICLE VI
RESPONSIBILITIES AND INDEMNITY
6.01 RELATIONSHIP OF FIDUCIARIES. Each fiduciary of the Plan
and this Trust shall be solely responsible for its own acts or
omissions. The Trustee shall have no duty to question any other Plan
fiduciary's performance of fiduciary duties allocated to such other
fiduciary pursuant to the Plan. The Trustee shall not be responsible
for the breach of responsibility by any one Plan fiduciary except as
provided for in ERISA.
6.02 BENEFIT OF PARTICIPANTS. Each fiduciary shall, within the
meaning of the Code and ERISA, discharge its duties with respect to
the Trust solely in the interest of participants in the Plan and Plan
beneficiaries and for the exclusive purpose of providing benefits to
such participants and beneficiaries and defraying reasonable expenses
of administering the Plan.
6.03 STATUS OF TRUSTEE. The Trustee acknowledges its status as
a "fiduciary" of the Plan within the meaning of ERISA.
6.04 LOCATION OF INDICIA OF OWNERSHIP. Except as permitted by
ERISA, the Trustee shall not maintain the indicia of ownership of any
assets of the Trust outside the jurisdiction of the federal district
courts of the United States.
6.05 TRUSTEE'S RELIANCE. The Trustee shall have no duty to
inquire whether directions by the Employer, the Named Administrative
Fiduciary, the Named Investment Fiduciary or any other person conform
to the Plan, and the Trustee shall be fully protected in relying on
any such direction communicated in accordance with procedures
acceptable to the Trustee from any person who the Trustee reasonably
believes is a proper person to give the direction. The Trustee shall
have no liability to any participant, any beneficiary or any other
<PAGE>
person for payments made, any failure to make payments, or any
discontinuance of payments, on direction of the Named Administrative
Fiduciary, the Named Investment Fiduciary or any designee of either of
them or for any failure to make payments in the absence of directions
from the Named Administrative Fiduciary or any person responsible for
or purporting to be responsible for directing the investment of Trust
assets. The Trustee shall have no obligation to act without receipt
of proper directions from any person, but the Trustee will notify the
person giving such directions that the directions are not in
accordance with established procedures. The Trustee may request
instructions from the Named Administrative Fiduciary or the Named
Investment Fiduciary and shall have no duty to act or liability for
failure to act if such instructions are not forthcoming. The Trustee
shall have no responsibility to determine whether the Trust Fund is
sufficient to meet the liabilities under the Plan, and shall not be
liable for payments or Plan liabilities in excess of the Trust Fund.
6.06 INDEMNIFICATION. The Employer hereby indemnifies the
Trustee against, and shall hold the Trustee harmless from any and all
loss, claims, liability and expense, including actual and reasonable
attorneys' fees, imposed upon the Trustee or incurred by the Trustee
as a result of actions taken in accordance with, or any failure to act
in the absence of, direction from the Named Administrative Fiduciary,
Named Investment Fiduciary, Investment Manager or any other person
specified in Article IV or V hereof, or any designee of any such
person, by reason of the Trustee's good faith execution of its duties
with respect to the Trust including, but not limited to, its holding
of assets of the Trust as provided for in Section 3.02, the Employer's
obligations in the foregoing regard to be satisfied promptly on
request by the Trustee, provided that in the event that the loss,
claim, liability or expense involved is determined by a no longer
appealable final judgment entered in a lawsuit or proceeding to have
resulted from the negligence or willful misconduct of the Trustee, the
Trustee shall promptly thereafter return to the Employer any amount
previously received by the Trustee under this Section with respect so
such loss, claim, liability or expense. The Trustee will notify the
Employer in writing of any claims before the Trustee incurs expenses,
including attorneys' fees. Furthermore, if the Trustee determines
that the Employer's and the Trustee's interests in regard to a claim
are consistent and do not conflict with one another, the Employer may
retain qualified counsel that is approved by the Trustee to represent
both the Employer and the Trustee in regard to such claim, which
approval shall not be unreasonably delayed or withheld.
6.07 PROTECTION OF DESIGNEES. To the extent that any designee
of the Trustee is performing a function of the Trustee under this
Trust Agreement, the designee shall have the benefit of all of the
applicable limitations on the scope of the Trustee's duties and
<PAGE>
liabilities, all applicable rights of indemnification granted
hereunder to the Trustee and any other applicable protections of any
nature afforded to the Trustee.
ARTICLE VII
POWERS OF TRUSTEE
7.01 NONDISCRETIONARY INVESTMENT POWERS. At the direction
of the person authorized to direct such action as referred to in
Article V hereof, but limited to those assets or categories of assets
acceptable to the Trustee as referred to in Section 5.01, the Trustee,
or the Trustee's designee or a broker/dealer as referred to in
Section 5.04, is authorized and empowered:
(a) To invest and reinvest the Trust Fund, together with the
income therefrom, in common stock, preferred stock, convertible
preferred stock, bonds, debentures, convertible debentures and bonds,
mortgages, notes, commercial paper and other evidences of indebtedness
(including those issued by the Trustee), shares of mutual funds (which
funds may be sponsored, managed or offered by an affiliate of the
Trustee), guaranteed investment contracts, bank investment contracts,
other securities, policies of life insurance, annuity contracts,
options, options to buy or sell securities or other assets and all
other property of any type (personal, real or mixed, and tangible or
intangible);
(b) To deposit or invest all or any part of the assets of the
Trust in savings accounts or certificates of deposit or other deposits
in a bank or savings and loan association or other depository
institution, including the Trustee or any of its affiliates, provided
with respect to such deposits with the Trustee or an affiliate the
deposits bear a reasonable interest rate;
(c) To hold, manage, improve, repair and control all property,
real of personal, forming part of the Trust Fund; to sell, convey,
transfer, exchange, partition, lease for any term, even extending
beyond the duration of this Trust, and otherwise dispose of the same
from time to time;
(d) To have, respecting securities, all the rights, powers and
privileges of an owner, including the power to give proxies, pay
assessments and other sums deemed by the Trustee necessary for the
protection of the Trust Fund; to vote any corporate stock either in
person or by proxy, with or without power of substitution, for any
purpose; to participate in voting trusts, pooling agreements,
foreclosures, reorganizations, consolidations, mergers and
<PAGE>
liquidations, and in connection therewith to deposit securities with
or transfer title to any protective or other committee; to exercise or
sell stock subscriptions or conversion rights; and, regardless of any
limitation elsewhere in this instrument relative to investments by the
Trustee, to accept and retain as an investment any securities or other
property received through the exercise of any of the foregoing powers;
(e) Subject to Section 5.01 hereof, to hold in cash, without
liability for interest, such portion of the Trust Fund which it is
directed to so hold pending investments, or payment of expenses, or
the distribution of benefits;
(f) To take such actions as may be necessary or desirable to
protect the Trust from loss due to the default on mortgages held in
the Trust including the appointment of agents or trustees in such
other jurisdictions as may seem desirable, to transfer property, to
such agents or trustees, to grant to such agents such powers as are
necessary or desirable to protect the Trust Fund, to direct such agent
or trustee, or to delegate such power to direct, and to remove such
agent or trustee.
(g) To settle, compromise or abandon all claims and demands in
favor of or against the Trust Fund;
(h) To invest in any common or collective trust fund of the type
referred to in Section 5.06 hereof maintained by the Trustee or its
affiliates;
(i) To exercise all of the further rights, powers, options and
privileges granted, provided for, or vested in trustees generally
under the laws of the state as reflected in Section 11.07 hereof so
that the powers conferred upon the Trustee herein shall not be in
limitation of any authority conferred by law, but shall be in addition
thereto;
(j) To borrow money from any source and to execute promissory
notes, mortgages or other obligations and to pledge or mortgage any
trust assets as security, subject to applicable requirements of the
Code and ERISA; and
(k) To maintain accounts at, execute transactions through, and
lend on an adequately secured basis stocks, bonds or other securities
to any brokerage or other firm, including any firm which is an
affiliate of the Trustee.
<PAGE>
7.02 ADDITIONAL POWERS OF TRUSTEE. To the extent necessary or
which it deems appropriate to implement its powers under Section 7.01
or otherwise to fulfill any of its duties and responsibilities as
trustee of the Trust Fund, the Trustee shall have the following
additional powers and authority:
(a) to register securities or any other property, in its name or
in the name of any nominee, including the name of any affiliate or the
nominee name designated by any affiliate, with or without indication
of the capacity in which property shall be held, or to hold securities
in bearer form and to deposit any securities or other property in a
depository or clearing corporation;
(b) to designate and engage the services of, and to delegate
powers and responsibilities to, such agents, representatives,
advisers, counsel and accountants as the Trustee considers necessary
or appropriate, any of whom may be an affiliate of the Trustee or a
person who renders services to such an affiliate, and, as a part of
its expenses under this Trust Agreement and to the extent permissible
under ERISA, to pay their reasonable expenses and compensation;
(c) to make, execute and deliver, as Trustee, any and all deeds,
leases, mortgages, conveyances, waivers, releases or other instruments
in writing necessary or appropriate for the accomplishment of any of
the powers listed in this Trust Agreement; and
(d) generally to do all other acts which the Trustee deems
necessary or appropriate for the protection of the Trust Fund.
ARTICLE VIII
RECORDS, ACCOUNTINGS AND VALUATIONS
8.01 RECORDS. The Trustee shall maintain or cause to be
maintained accurate records and accounts of all Trust transactions and
assets. The records and accounts shall be available at reasonable
times during normal business hours for inspection or audit by the
Named Administrative Fiduciary and the Named Investment Fiduciary or
any person designated for the purpose by either of them.
8.02 ACCOUNTINGS. Within 90 days following the close of each
fiscal year of the Plan or the effective date of the removal or
resignation of the Trustee, the Trustee shall file with the Named
Administrative Fiduciary a written accounting setting forth all
transactions since the end of the period covered by the last previous
accounting. The accounting shall include a listing of the assets of
the Trust showing the value of such assets at the close of the period
<PAGE>
covered by the accounting. On direction of the Named Administrative
Fiduciary and, if previously agreed to by the Trustee, the Trustee
shall submit to the Named Administrative Fiduciary interim valuations,
reports or other information pertaining to the Trust.
The Named Administrative Fiduciary may approve the accounting by
written approval delivered to the Trustee or by failure to deliver
written objections to the Trustee within seven (7) calendar months
following the end of the "plan year" as that term is defined in the
Plan. Any such approval shall be binding on the Employer, the Named
Administrative Fiduciary, the Named Investment Fiduciary and, to the
extent permitted by ERISA, all other persons.
8.03 VALUATION. The assets of the Trust shall be valued as of
each valuation date under the Plan at fair market value as determined
by the Trustee based upon such sources of information as it may deem
reliable, including, but not limited to, stock market quotations,
statistical evaluation services, newspapers of general circulation,
financial publications, advice from investment counselors or brokerage
firms, or any combination of services. The actual and reasonable
costs incurred in establishing values of the Trust Fund shall be a
charge against the Trust Fund, unless paid by the Employer.
When the Trustee is unable to arrive at a value based upon
information from independent sources, it may rely upon information
from the Employer, Named Administrative Fiduciary, Named Investment
Fiduciary, appraisers, or other sources, and shall not incur any
liability for inaccurate valuation based in good faith upon such
information.
8.04 LOANS. In the event that participant loans are available
under the Plan, the Trustee shall reflect one aggregate balance for
participant loans under the Plan and shall reflect changes thereto
only as directed by the Employer or Named Administrative Fiduciary.
The Trustee has no responsibility with respect to maintenance of
promissory notes or monitoring of loan amortization schedules.
ARTICLE IX
RESIGNATION AND REMOVAL OF TRUSTEE
9.01 RESIGNATION. The Trustee may resign at any time upon at
least 30 days' advance written notice to Employer.
9.02 REMOVAL. The Employer may remove the Trustee upon at least
30 days' advance written notice to the Trustee.
<PAGE>
9.03 APPOINTMENT OF A SUCCESSOR. Upon resignation or removal of
the Trustee, the Employer shall appoint a successor trustee. Upon
failure of the Employer to appoint, or the failure of the
effectiveness of the appointment by the Employer of, a successor
trustee by the effective date of the resignation or removal, the
Trustee may apply to any court of competent jurisdiction for the
appointment of a successor.
Promptly after receipt by the Trustee or notice of the
effectiveness of the appointment of the successor trustee, the Trustee
shall deliver to the successor trustee such records as may be
reasonably requested to enable the successor trustee to properly
administer the Trust Fund and all property of the Trust after
deducting therefrom such amounts as the Trustee deems necessary to
provide for expenses, taxes, compensation or other amounts due to or
by the Trustee pursuant to Sections 4.04 or 5.03 hereof not paid by
the Employer prior to the delivery.
9.04 SETTLEMENT OF ACCOUNT. Upon resignation or removal of the
Trustee, the Trustee shall have the right to a settlement of its
account, which settlement shall be made, at the Trustee's option,
either by an agreement of settlement between the Trustee and the
Employer or by a judicial settlement in an action instituted by the
Trustee. The Employer shall bear the cost of any such judicial
settlement, including reasonable attorneys' fees.
9.05 EXPENSES AND COMPENSATION. The Trustee shall not be
obligated to transfer Trust assets until the Trustee is provided
assurance by the Employer satisfactory to the Trustee that all fees
and expenses reasonably anticipated will be paid.
9.06 TERMINATION OF RESPONSIBILITY AND LIABILITY. Upon
settlement of the account and transfer of the Trust Fund to the
successor trustee, all rights and privileges under this Trust
Agreement shall vest in the successor trustee and all responsibility
and liability of the Trustee with respect to the Trust and assets
thereof shall, except as otherwise required by ERISA, terminate
subject only to the requirement that the Trustee execute all necessary
documents to transfer the Trust assets to the successor trustee.
ARTICLE X
AMENDMENT AND TERMINATION
10.01 AMENDMENT. The Employer reserves the right to amend this
Trust Agreement, provided that no amendment of this Trust Agreement or
the Plan shall be effective which would (a) cause any assets of the
<PAGE>
Trust Fund to be used for, or diverted to, purposes other than the
exclusive benefit of Plan participants or their beneficiaries other
than an amendment permissible under the Code and ERISA, or (b) affect
the rights, duties, responsibilities, obligations or liabilities of
the Trustee without the Trustee's written consent which consent shall
not be unreasonably delayed or withheld. The Employer shall amend
this Trust Agreement as requested by the Trustee to reflect changes in
law which counsel for the Trustee advises the Trustee require such
changes. Amendments to the Trust Agreement or a certified copy of the
amendments shall be delivered to the Trustee promptly after adoption,
and if practicable under the circumstances, any proposed amendment
under consideration by the Employer shall be communicated to the
Trustee to permit the Trustee to review and comment thereon in due
course before the Employer acts on the proposed amendment.
10.02 TERMINATION. The Trust may be terminated by the Employer
upon at least 60 days' written notice to the Trustee. Upon such
termination, and subject to Section 11.01 hereof, the Trust Fund shall
be distributed as directed by the Named Administrative Fiduciary.
ARTICLE XI
MISCELLANEOUS
11.01 EXCLUSIVE BENEFIT RULE. Except as provided in
Section 11.02, or as otherwise permitted as required by ERISA or the
Code, no asset of this Trust shall be used for, or diverted to,
purposes other than the exclusive benefit of Plan participants or
their beneficiaries or for the actual and reasonable expenses of
administering the Plan and Trust until all liabilities for benefits
due Plan participants or their beneficiaries have been satisfied.
11.02 REFUNDS TO EMPLOYER. The Trustee shall, upon the written
direction of the Named Administrative Fiduciary which shall include a
certification that such action is proper under the Plan, ERISA and the
Code specifying any relevant sections thereof, return to the Employer
any amount referred to in section 403(c)(2) of ERISA.
11.03 AUTHORIZED ACTION. Any action to be taken under this
Trust Agreement by an Employer or other person which is: (a) a
corporation shall be taken by the board of directors of the
corporation or any person or persons duly empowered by the board of
directors to take the action involved, (b) a partnership shall be
taken by an authorized general partner of the partnership, and (c) a
sole proprietorship by the sole proprietor.
<PAGE>
11.04 TEXT OF PLAN. The Employer represents that prior to the
execution of this Trust Agreement by both parties it delivered to the
Trustee the text of the Plan as in effect as of the date of this Trust
Agreement. The Employer shall deliver to the Trustee promptly after
adoption thereof a certified copy of each other amendment of the Plan.
11.05 CONFLICT WITH PLAN. The rights, duties, responsibilities,
obligations and liabilities of the Trustee are as set forth in this
Trust Agreement, and no provision of the Plan or any other document
shall be deemed to affect such rights, duties, responsibilities,
obligations and liabilities. If there is a conflict between
provisions of the Plan and this Trust Agreement with respect to any
subject involving the Trustee, including but not limited to the
responsibility, authority or powers of the Trustee, the provisions of
this Trust Agreement shall be controlling.
11.06 FAILURE TO MAINTAIN QUALIFICATION. If the Trust fails to
qualify as a qualified trust under section 401(a) of the Code, or
loses its status as such a qualified trust, the Employer shall
immediately so notify the Trustee, and the Trustee shall, without
further notice or direction, remove the Trust assets from any common
or collective trust fund maintained by the Trustees or its affiliate
for investments by qualified trusts.
11.07 GOVERNING LAW AND CONSTRUCTION. This Trust Agreement and
the Trust shall be construed, administered and governed under ERISA
and other pertinent federal law, and to the extent that federal law is
inapplicable, under the laws of the state of incorporation of the
Trust Company. If any provision of this Trust Agreement is
susceptible to more than one interpretation, the interpretation to be
given is that which is consistent with the Trust being a qualified
trust under section 401(a) of the Code. If any provision of this
Trust Agreement is held by a court of competent jurisdiction to be
invalid or unenforceable, the remaining provisions shall continue to
be fully effective to the extent possible under the circumstances.
11.08 ARBITRATION. Arbitration is final and binding on the
parties. The parties are waiving their right to seek remedies in
court, including the right to jury trial. Pre-arbitration discovery
is generally more limited than, and different from court procedures.
The arbitrators' award is not required to include factual
findings or legal reasoning, and any party's right to appeal or to
seek modification of rulings by the arbitrators is strictly limited.
The panel of arbitrators will typically include a minority of
arbitrators who were or are affiliated with the securities industry.
<PAGE>
The Employer agrees that all controversies which may arise
between the Employer and either the Trustee or its affiliates,
including Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S"), in connection with this agreement, including but not
limited to those involving any transaction hereunder or the
construction, performance, or breach of this or any other agreement
between the Employer and the Trustee or its affiliates, whether
entered into prior, on or subsequent to the date hereof, shall be
determined by arbitration. Any arbitration under this agreement shall
be conducted only before the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. or arbitration facility provided by any
other exchange of which MLPF&S is member, or the National Association
of Securities Dealers, Inc., or the Municipal Securities Rulemaking
Board, and in accordance with its rules then in force. The Employer
may elect in the first instance whether arbitration shall be conducted
before the New York Stock Exchange, Inc., the American Stock Exchange,
Inc., another exchange of which MLPF&S is a member, the National
Association of Securities Dealers, Inc. or the Municipal Securities
Rulemaking Board, but if the Employer fails to make such election, by
registered letter or telegram addressed to the Trustee at:
The Merrill Lynch Trust Companies
Employee Benefit Trust Administration
300 Davidson Avenue - 2nd Floor West
Somerset, New Jersey 08873
before the expiration of ten days after receipt of a written request
from MLPF&S and/or the Trustee to make such election, then MLPF&S
and/or the Trustee may make such election. Judgment upon the award of
arbitrators may be entered in any court, state or federal, having
jurisdiction. No person shall bring a putative or certified class
action to arbitration, nor seek to enforce any pre-dispute arbitration
agreement against any person who has initiated in court a putative
class action, or who is a member of a putative class who has not opted
out of the class with respect to any claims encompassed by the
putative class action until:
(I) The class certification is denied;
(II) The class is decertified; or
(III) The Employer is excluded from the class by the court.
Such forbearance to enforce an agreement to arbitrate shall not
constitute a waiver of any rights under this Agreement except to the
extent stated herein.
11.09 SUCCESSORS AND ASSIGNS. This Trust Agreement shall inure
to the benefit of and be binding upon the parties hereto and their
respective successors and assigns.
<PAGE>
11.10 GENDER. As used in this Trust Agreement, the masculine
gender shall include the feminine and the neuter genders and the
singular shall include the plural and the plural the singular as the
context requires.
11.11 HEADINGS. Headings and subheadings in this Trust
Agreement are for convenience of reference only and are not to be
considered in the construction of the provisions of the Trust
Agreement.
11.12 COUNTERPARTS. This Trust Agreement may be executed in
several counterparts, each of which shall be deemed an original, and
these counterparts shall constitute one and the same instrument which
may be sufficiently evidenced by any one counterpart.
IN WITNESS WHEREOF, the Employer and the Trustee have executed
this Trust Agreement each by action of a duly authorized person.
By signing this Agreement, the undersigned Employer acknowledges
(1) that, in accordance with paragraph 11.08 of this Agreement, the
Employer is agreeing in advance to arbitration of any controversies
which may arise with either or both the Trust Company or Merrill
Lynch, Pierce, Fenner & Smith Incorporated, and (2) receipt of a copy
of this Agreement.
MERRILL LYNCH TRUST COMPANY FAMILY DOLLAR STORES, INC.
OF NORTH CAROLINA and FAMILY DOLLAR, INC.
By: /Melanie Madeira/ By: /C. Martin Sowers/
Name: MELANIE MADEIRA Name: C. MARTIN SOWERS
Title: New Account Trust Officer
Title: Sr. Vice President
