FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended August 28, 1999
Commission File No. 1-6807
FAMILY DOLLAR STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-0942963
(State of incorporation) (I.R.S. Employer Identification Number)
10401 Old Monroe Road, Matthews, North Carolina 28105
(Address of principal executive offices) (Zip Code)
P. O. Box 1017, Charlotte, North Carolina 28201-1017
(Mailing address)
Registrant's telephone number, including area code (704) 847-6961
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.10 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant based on the closing price of these shares
on the New York Stock Exchange on November 10, 1999, was approximately
$2,803,000,000.
The number of shares of the registrant's Common Stock outstanding as of
November 10, 1999, was 172,884,307.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated Documents
(To the extent indicated herein) Location in Form 10-K
Annual Report to Stockholders for the Part II (Items 5, 6, 7 and 8)
fiscal year ended August 28, 1999 Part IV (Item 14)
Proxy Statement dated November 24, 1999 Part III (Items 10, 11, 12 and 13)
for the Annual Meeting of Stockholders
<PAGE>
PART I
ITEM 1. BUSINESS
The original predecessor of Family Dollar Stores, Inc., was
organized in 1959 to operate a self-service retail store in Charlotte,
North Carolina. In subsequent years, additional stores were opened, and
separate corporations generally were organized to operate these stores.
Family Dollar Stores, Inc. (together with its direct and indirect
subsidiaries and related entities referred to herein as the "Company"), was
incorporated in Delaware in 1969, and all existing corporate entities
became wholly-owned subsidiaries. Additional stores continued to be opened
and operated in direct and indirect subsidiaries and related entities.
Four indirect subsidiaries organized as North Carolina corporations provide
distribution, trucking, operations, marketing and other services to the
Company.
The Company operates a chain of self-service retail discount stores.
As of November 1, 1999, there were 3,371 stores in 39 states and the
District of Columbia as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Texas 357 Indiana 114 New Mexico 27
North Carolina 232 Louisiana 103 Connecticut 24
Ohio 214 Illinois 95 Kansas 22
Georgia 204 West Virginia 93 Delaware 18
Florida 185 Mississippi 79 Iowa 17
Virginia 158 Arkansas 76 Rhode Island 13
Tennessee 156 Missouri 63 New Hampshire 13
Pennsylvania 150 Oklahoma 60 Minnesota 11
Michigan 131 Massachusetts 56 Nebraska 11
Kentucky 131 Wisconsin 51 Arizona 7
New York 131 Maryland 49 Maine 7
Alabama 124 New Jersey 29 Vermont 6
South Carolina 122 Colorado 28 South Dakota 3
District of Columbia 1
</TABLE>
The number of stores operated by the Company at the end of each of its
last five fiscal years is as follows: 2,416 stores on August 31, 1995;
2,581 stores on August 31, 1996; 2,767 stores on August 31, 1997; 3,017
stores on August 29, 1998; and 3,324 stores on August 28, 1999.
During the fiscal year ended August 28, 1999, 59 stores were
closed, 55 stores were relocated within the same shopping center or market
area, 52 stores were expanded in size and 350 stores were renovated. All
of the stores are occupied under leases, except 135 stores owned by the
Company. (See "Properties" herein.) The Company has announced plans to
open approximately 400 to 425 stores and close approximately 50 stores
during the current fiscal year. Such plans are continually reviewed and
subject to change. From August 29, 1999, through November 1, 1999, the
<PAGE>
Company opened 53 new stores, closed 6 stores, relocated 5 stores, expanded
12 stores and renovated 39 stores. All stores opening in the fiscal year
ending August 26,2000, will have the interior store layout that has been
utilized in all new stores opened since September 1, 1995. This layout
features increased emphasis on seasonal and promotional goods, improved
presentation of merchandise, lower fixtures and wider aisles for an
attractive, customer-friendly shopping environment.
As of November 1, 1999, the Company had in the aggregate
approximately 27,100,000 square feet of total store space (including
receiving rooms and other non-selling areas). The typical store has
approximately 6,000 to 8,000 square feet of total area. The stores are in
both rural and urban areas, and they are typically freestanding or located
in shopping centers with adequate parking available. As of November 1,
1999, there were approximately 1,700 stores located in communities with
populations of less than 15,000; approximately 680 stores in communities
with populations of 15,000 to 50,000; and approximately 991 stores in
communities with populations of over 50,000. All stores are similar in
appearance and display highly visible red and white "Family Dollar Stores"
or "Family Dollar" signs.
The Company's stores are operated on a self-service, cash-and-carry
basis, and low overhead permits the sale of merchandise at a relatively
moderate markup. During the fiscal year ended August 31, 1994, in the face
of increasing competition, the Company began to change its merchandising
strategy from promotional pricing to everyday low prices. Prices were
reduced on many items and everyday low pricing was implemented in all
stores in the fiscal year ended August 31, 1995. No single store accounted
for more than one-eighth of one percent of sales during the fiscal year
ended August 28, 1999. Most of the stores are open six evenings a week,
and many are open on Sunday afternoons.
The stores offer a variety of merchandise including men's, women's,
boys', girls' and infants' clothing, shoes, domestics, household products,
health and beauty aids, toys, school supplies, candy, snack and other food,
electronics, housewares, giftware, paint, automotive supplies and seasonal
goods. During the fiscal year ended August 28, 1999, soft goods, including
wearing apparel, shoes, linens, blankets, bedspreads and curtains,
accounted for approximately 31 percent of the Company's sales. During the
fiscal year ended August 28, 1999, nationally advertised brand merchandise
accounted for approximately 27 percent of sales, Family Dollar label
merchandise accounted for approximately 5 percent of sales and merchandise
sold under other labels, or which was unlabeled, accounted for the balance
of sales. Irregular merchandise accounted for less than 1 percent of sales
during such period. The Company does not accept credit cards or extend
credit.
The Company has a policy of uniform pricing of most items in its
stores. A limited amount of merchandise in stores in the most competitive
markets carries lower prices and in stores in the least competitive markets
with higher operating costs carries higher prices. Most items of
merchandise are priced under $10.00. The Company advertises through
circulars which are inserted in newspapers or mailed directly to
<PAGE>
consumers' residences, and also advertises to a limited degree in
newspapers. As part of the Company's plan to reduce expenses to support
the program of price reductions on merchandise in its stores, in the fiscal
year ended August 31, 1995, the number of advertising circulars distributed
to consumers' homes or inserted in newspapers was cut from 22 to 15. In
the fiscal year ended August 31, 1996, the number of advertising circulars
distributed was reduced from 15 to 14. In the fiscal years ended
August 31, 1997, August 29, 1998, and August 28, 1999, 14, 9 and 5
advertising circulars, respectively, were distributed. Advertising
circulars that are passed out in the stores also continue to be utilized.
An increasing number of items in the circulars are being advertised at the
regular everyday low price. In the fiscal year ending August 26, 2000, the
current plan is to distribute 4 or 5 circulars.
The Company purchases its merchandise from approximately 1,825
suppliers and generally has not experienced difficulty in obtaining
adequate quantities of merchandise. Approximately 55 percent of the
merchandise is manufactured in the United States and substantially all such
merchandise is purchased directly from the manufacturer. Purchases of
imported merchandise are made directly from the manufacturer or from
importers. No single supplier accounted for more than 1.5 percent of the
merchandise sold by the Company in the fiscal year ended August 28, 1999.
Each of the Company's 20 buyers specializes in the purchase of specific
categories of goods.
During the fiscal year ended August 28, 1999, approximately
2 percent of the merchandise purchased by the Company was shipped directly
to its stores by the manufacturer or importer. Most of the balance of the
merchandise was received at the Company's Distribution Centers in Matthews,
North Carolina, West Memphis, Arkansas, Warren County, Virginia, and
Duncan, Oklahoma. Merchandise is delivered to the stores from the
Company's Distribution Centers by Company-owned trucks and by common and
contract carriers. During the last fiscal year, approximately 78 percent
of the merchandise delivered was by common or contract carriers. As of
August 28, 1999, the average distance between the Distribution Center in
Matthews and the approximately 980 stores served by that facility was
approximately 294 miles; the average distance between the Distribution
Center in West Memphis and the approximately 1,024 stores served by that
facility was approximately 390 miles; the average distance between the
Distribution Center in Warren County and the approximately 922 stores
served by that facility was approximately 341 miles; and the average
distance between the Distribution Center in Duncan and the approximately
398 stores served by that facility was approximately 353 miles.
During all or a portion of the fiscal year ended August 28, 1999,
the Company also operated satellite distribution buildings in Memphis,
Tennessee, and Salisbury, North Carolina. High volume, bulk items of
merchandise are shipped by vendors directly to these facilities and then
delivered to the stores by contract carriers.
The business in which the Company is engaged is highly competitive.
The principal competitive factors include location of stores, price and
quality of merchandise, in-stock consistency, merchandise assortment and
presentation, and customer service. The Company competes for sales and
<PAGE>
store locations in varying degrees with national, regional and local
retailing establishments, including department stores, discount stores,
variety stores, dollar stores, discount clothing stores, drug stores,
grocery stores, convenience stores, outlet stores, warehouse stores and
other stores. Many of the largest retail merchandising companies in the
nation have stores in areas in which the Company operates. The relatively
small size of the Company's stores permits the Company to open new units in
rural areas and small towns, as well as in large urban centers, in
locations convenient to the Company's low and low-middle income customer
base. As the Company's sales are focused on low priced, basic merchandise,
the stores offer customers a reasonable selection of competitively priced
merchandise within a relatively narrow range of price points.
Generally, in a typical store the highest monthly volume of sales
occurs in December, and the lowest monthly volume of sales occurs in
January and February.
The Company maintains a substantial variety and depth of basic and
seasonal merchandise inventory in stock in its stores (and in distribution
centers for weekly store replenishment) to attract customers and meet their
shopping needs. Vendors' trade payment terms are negotiated to help
finance the cost of carrying this inventory. The Company must balance the
value of maintaining high inventory levels to meet customers' demands with
the potential cost of having inventories at levels that exceed such demands
and that may be marked down in price in order to sell.
The Company has registered with the U. S. Patent and Trademark Office
the name "Family Dollar Stores" as a service mark.
On August 28, 1999, the Company had approximately 14,900 full-time
employees and approximately 13,400 part-time employees. Approximately 850
additional employees were hired on a temporary basis for the 1998 Christmas
season. None of the Company's employees are covered by collective bargain-
ing agreements. The Company considers its employee relations to be good.
ITEM 2. PROPERTIES
As of November 1, 1999, the Company operated 3,371 stores in 39
states and the District of Columbia. See "Business" herein. With the
exception of 135 stores owned by the Company, all of the Company's stores
were occupied under lease. Most of the leases are for fixed rentals. A
large majority of the leases contain provisions which may require
additional payments based upon a percentage of sales or property taxes,
insurance premiums or common area maintenance charges.
Of the Company's 3,236 leased stores at November 1, 1999, all but
185 leases contain options to renew for additional terms; in most cases for
a number of successive five-year periods. The following table sets forth
certain data, as of November 1, 1999, concerning the expiration dates of
all leases with renewal options:
<PAGE>
<TABLE>
<CAPTION>
Approximate Number of Approximate Number of
Leases Expiring Leases Expiring
Assuming No Exercise Assuming Full Exercise
Fiscal Years of Renewal Options of Renewal Options
<S> <C> <C>
2000 418 0
2001-2003 1,776 11
2004-2006 685 121
2007-2009 169 274
2010 and thereafter 3 2,645
</TABLE>
Of the 135 Company-owned stores, 18 are located in Texas, 16 in North
Carolina, 13 in Georgia, 12 in Indiana, 11 in Virginia, 9 in Illinois, 7 in
Tennessee, 6 in Ohio, 5 each in Arkansas and Michigan, 4 each in Alabama,
South Carolina, West Virginia, Florida, Kentucky and Louisiana, 2 each in
Iowa, Mississippi and Oklahoma, and one each in New Jersey, Missouri and
Kansas. In these owned stores, there are approximately 1,065,000 total
square feet of space.
The Company also owns its Executive Offices and Distribution Center
located on a 64.5 acre tract of land in Matthews, North Carolina, just
outside of Charlotte, in a building containing approximately 810,000
square feet of which approximately 740,000 square feet are used for
the Distribution Center which includes receiving, warehousing and
shipping facilities, and approximately 70,000 square feet are used for
Executive Offices.
The Company owns a second full-service distribution center located on
a 75-acre tract of land in West Memphis, Arkansas, in a building containing
approximately 850,000 square feet. This facility became operational in the
spring of 1994 with 550,000 square feet of space, and a 300,000 square foot
addition was substantially completed by the end of the Company's fiscal year
on August 31, 1996.
The Company owns a third full-service distribution center located on
a 75-acre tract of land in Warren County, Virginia, in a building
containing approximately 907,000 square feet. This facility became
operational in January 1998.
The Company leases a fourth full-service distribution center located
on a 85-acre tract of land in Duncan, Oklahoma, in a building containing
approximately 907,000 square feet. Under the lease, the Company has the
option to purchase the land and the distribution facility. Construction of
the facility began in November 1998 and it became operational in July 1999.
The estimated cost for the land, building, equipment and related
<PAGE>
services was $50 million. The aggregate of the lease payments and the
purchase price is approximately $50 million, substantially all of which has
been paid. The Company expects to exercise the purchase option during the
current fiscal year.
Construction began in August 1999 on a fifth full-service
distribution center on a 93.5 acre tract of land owned by the Company in
Rowan County, Kentucky. This facility will be owned by the Company and
will contain approximately 907,000 square feet. The plan is to begin
shipping merchandise from this facility to stores in the summer of 2000.
The estimated cost for the land, building, equipment and related services
is $53 million. This project is expected to be financed with cash flow
from current operations and, if necessary, short-term borrowing under the
Company's bank lines of credit.
During all or a portion of the fiscal year ended August 28, 1999, the
Company leased buildings in Memphis, Tennessee (approximately 270,000
square feet) and Salisbury, North Carolina (approximately 300,000 square
feet) to serve as satellite distribution facilities. The Company also
leased another building in Charlotte (approximately 78,000 square feet) for
storage. During all or a portion of the current fiscal year, the Company
is leasing the 270,000 square foot space in Memphis and the 300,000 square
foot space in Salisbury. The 78,000 square foot space in Charlotte also
currently is being leased for storage.
In November 1999, the Company purchased a 43.5 acre tract of land and
the improvements thereon in Matthews, North Carolina, adjacent to the
Company's existing Executive Offices and Distribution Center. The
improvements include a building with approximately 95,000 square feet of
office space and approximately 190,000 square feet of distribution space.
The majority of the office space and the entire distribution space are
leased back to the seller for approximately one year from the date of
purchase.
The Company owns and operates a fleet of tractor-trailers and trucks
to distribute merchandise to some of its stores.
ITEM 3. LEGAL PROCEEDINGS
The Company knows of no material pending legal proceedings, other
than ordinary routine litigation incidental to the business, to which the
Company is a party or of which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the
fiscal year ended August 28, 1999, to a vote of security holders through
the solicitation of proxies or otherwise.
<PAGE>
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is furnished with respect to each of the
executive officers of the Company as of November 1, 1999:
<TABLE>
<CAPTION>
Name Position and Office Age
<S> <C> <C>
Leon Levine (1) Chairman of the Board 62
Howard R. Levine (2) President and 40
Chief Executive Officer
R. James Kelly (3) Vice Chairman 52
George R. Mahoney, Jr. (4) Executive Vice President- 57
General Counsel and Secretary
R. David Alexander, Jr. (5) Executive Vice President- 42
Supply Chain and
Real Estate
Charles S. Gibson, Jr. (6) Senior Vice President- 38
Distribution and Logistics
Samuel N. McPherson (7) Senior Vice President- 54
Human Resources
Albert S. Rorie (8) Senior Vice President- 49
Information Technology
John J. Scanlon (9) Senior Vice President- 50
Merchandising and Advertising
C. Martin Sowers (10) Senior Vice President- 41
Finance
Phillip W. Thompson (11) Senior Vice President- 50
Store Operations
Gilbert A. LaFare (12) Vice President- 53
Real Estate
</TABLE>
(1) Mr. Leon Levine founded the Company's business in 1959
and was its President, Chief Executive Officer and
Treasurer from 1959 until September 1977 when he was
elected Chairman of the Board, Chief Executive Officer
and Treasurer. He served in these positions until
August 1998 when he resigned as Chief Executive
<PAGE>
Officer and Treasurer. Leon Levine retains the
position of Chairman of the Board. He is the father
of Howard R. Levine.
(2) Mr. Howard R. Levine was employed by the Company in
various capacities in the Merchandising Department
from 1981 to 1987, including employment as Senior Vice
President-Merchandising and Advertising. From 1988 to
1992, Mr. Levine was President of Best Price Clothing
Stores, Inc., a chain of ladies' apparel stores. From
1992 to April 1996, he was self-employed as an
investment manager. He rejoined the Company in April
1996, and was elected Vice President-General
Merchandise Manager: Softlines in April 1996, Senior
Vice President-Merchandising and Advertising in
September 1996, President and Chief Operating Officer
in April 1997, and Chief Executive Officer in August
1998. He is the son of Leon Levine.
(3) Mr. R. James Kelly was employed by the Company as Vice
Chairman-Chief Financial and Administrative Officer in
January 1997. For more than five years prior to his
employment by the Company, he was a partner with
PricewaterhouseCoopers LLP.
(4) Mr. George R. Mahoney, Jr. was employed by the Company
as General Counsel in October 1976. He was elected
Vice President-General Counsel and Secretary in April
1977, Senior Vice President-General Counsel and
Secretary in January 1984 and Executive Vice
President-General Counsel and Secretary in
October 1991.
(5) Mr. R. David Alexander, Jr. was employed by the
Company as Senior Vice President-Distribution and
Transportation in August 1995, and was promoted to
Senior Vice President-Distribution and Logistics in
September 1997, and to Executive Vice President-Supply
Chain and Real Estate in October 1999. Prior to his
employment by the Company, he was employed by Northern
Automotive Co., Inc., a chain of discount automotive
supply stores, from June 1993 to August 1995, where he
was Senior Vice President-Distribution and
Transportation.
(6) Mr. Charles S. Gibson, Jr. was employed by the Company
as Vice President-Logistics in September 1997, and was
promoted to Senior Vice President-Distribution and
Logistics in October 1999. Prior to his employment by
the Company, he was employed by Campo Electronics,
Appliances and Computers, Inc. ("Campo"), a regional
<PAGE>
chain of electronics stores, from November 1994 to
August 1997, where his last position was Chief
Operating Officer and his previous position was Vice
President-Logistics and Operations. Campo filed a
petition under Chapter 11 of the Federal bankruptcy
laws in June 1997. Prior to his employment by Campo, he
was employed by Big B, Inc., a drug store chain, from
August 1991 to November 1994 where he was Vice
President-Logistics.
(7) Mr. Samuel N. McPherson was employed by the Company as
Senior Vice President-Human Resources in August 1999.
Prior to his employment by the Company, he was employed
by Raley's, a supermarket and pharmacy retailer, from
1990 to August 1999, when his last position was
Executive Vice President and Chief Human Resources
Officer.
(8) Mr. Albert S. Rorie was employed by the Company in
various capacities in the Data Processing area from
March 1973 through January 1981, including employment
as Director of Data Processing. Mr. Rorie was
self-employed as a data processing consultant from
January 1981 through May 1982, when he rejoined the
Company and was elected Vice President-Data Processing.
He was elected Senior Vice President-Data Processing in
January 1988 and Senior Vice President-Information
Technology in September 1997.
(9) Mr. John J. Scanlon was employed by the Company as
Divisional Vice President in March 1992. Mr. Scanlon
was elected Vice President-General Merchandise Manager:
Hardlines in April 1996, and was elected Senior Vice
President-Merchandising and Advertising in June 1998.
(10) Mr. C. Martin Sowers was employed by the Company as an
Accountant in October 1984 and was promoted to Assistant
Controller in January 1985. He was elected Controller in
January 1986, Vice President-Controller in July 1989 and
Senior Vice President-Finance in December 1991.
(11) Mr. Phillip W. Thompson was employed by the Company in
January 1984 in the Store Operations Department. He was
elected Vice President-Store Operations in January 1985, and
Senior Vice President-Store Operations in January 1992.
(12) Mr. Gilbert A. LaFare was employed by the Company in August
1992 as Vice President-Real Estate.
All executive officers of the Company are elected by and serve
at the pleasure of the Board of Directors.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The information required by this item is included in the Company's
Annual Report to Stockholders for the fiscal year ended August 28, 1999, on
page 16 under the captions "Market Price and Dividend Information" and "Market
Prices and Dividends" and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included in the Company's
Annual Report to Stockholders for the fiscal year ended August 28, 1999, on
pages 14 and 15 under the caption "Summary of Selected Financial Data" and is
incorporated herein by reference. The Company did not have any long-term debt
at the end of each of its last five fiscal years.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this item is included in the Company's
Annual Report to Stockholders for the fiscal year ended August 28, 1999, on
pages 14 through 16 under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and is incorporated herein
by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is subject to market risk from exposure to changes in
interest rates based on its financing, investing and cash management
activities. The Company maintains unsecured bank lines of credit at variable
interest rates to meet the short-term needs of its expansion program and
seasonal inventory increases. These bank lines were not utilized in
fiscal 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included in the Company's
Annual Report to Stockholders for the fiscal year ended August 28, 1999, on
pages 17 through 24 and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item as to the Company's directors
and compliance by the Company's directors, executive officers and certain
beneficial owners of the Company's Common Stock with Section 16(a) of the
Securities Exchange Act of 1934 is included in the Company's proxy statement
dated November 24, 1999, on pages 4 through 7 under the caption "Election of
Directors" and on page 15 under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" and is incorporated herein by reference. The
information required by this item as to executive officers is included in
Item 4A in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included in the Company's
proxy statement dated November 24, 1999, on pages 7 through 14 under the
caption "Executive Compensation" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included in the Company's
proxy statement dated November 24, 1999, on pages 3 and 4 under the caption
"Ownership of the Company's Securities" and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included in the Company's
proxy statement dated November 24, 1999, on page 14 under the caption "Related
Transactions" and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1 and 2. Financial Statements and Financial Statement Schedules:
The consolidated financial statements of Family Dollar Stores, Inc.,
and subsidiaries which are incorporated by reference to the Annual
Report to Stockholders for the fiscal year ended August 28, 1999,
are set forth in the index on page 18 of this report.
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions, are inapplicable or the
information is included in the consolidated financial statements,
and therefore, have been omitted.
The financial statements of Family Dollar Stores, Inc. (Parent
Company) are omitted because the registrant is primarily a
holding company and all subsidiaries included in the
consolidated financial statements being filed, in the aggregate,
do not have minority equity and/or indebtedness to any person
other than the registrant or its consolidated subsidiaries in
amounts which together exceed 5 percent of the total assets as
shown by the most recent year-end consolidated balance sheet.
<PAGE>
3. Exhibits:
Exhibits incorporated by reference:
3(a)(i) Certificate of Incorporation, dated November 24, 1969,
(filed as Exhibit 3(a) to the Company's Registration
Statement on Form S-1, No. 2-35468).
(ii) Certificate of Amendment, dated February 2, 1972, of
Certificate of Incorporation (filed as Exhibit 3(a)(ii)
to the Company's Form 10-K (File No. 1-6807) for the year
ended August 31, 1980).
(iii) Certificate of Amendment, dated January 23, 1979, of
Certificate of Incorporation (filed as Exhibit 2 to the
Company's Form 10-Q (File No. 1-6807) for the quarter
ended February 28, 1979).
(iv) Certificate of Amendment, dated January 20, 1983, of
Certificate of Incorporation (filed as Exhibit 4(iv) to
the Company's Registration Statement on Form S-3,
No. 2-85343).
(v) Certificate of Amendment, dated January 16, 1986, of
Certificate of Incorporation (filed as Exhibit 3(a)(v) to the
Company's Form 10-K (File No. 1-6807) for the year
ended August 31, 1986).
(vi) Certificate of Amendment, dated January 15, 1987, of
Certificate of Incorporation (filed as Exhibit 3(a)(vi)
to the Company's Form 10-K (File No. 1-6807) for the year ended
August 31, 1987).
(vii) Certificate of Amendment, dated January 15, 1998, of
Certificate of Incorporation (filed as Exhibit 3.1 to the
Company's Registration Statement on Form S-8, No. 333-48751).
(b) By-Laws, as amended on August 19, 1998 (filed as Exhibit 3(b)
to the Company's Form 10-K (File No. 1-6807) for the year ended
August 29, 1998).
* 10 (i) Incentive Profit Sharing Plan amended as of January 16, 1997
(filed as Exhibit 10(ii) to the Company's Form 10-Q (File No.
1-6807) for the quarter ended February 28, 1997).
* 10 (ii) 1989 Non-Qualified Stock Option Plan, amended as of
January 15, 1998 (filed as Exhibit 99.1 to the Company's
Registration Statement on Form S-8, No. 333-48751).
* 10 (iii) Family Dollar Employee Savings and Retirement Plan and Trust
amended and restated as of January 1, 1987 (filed as Exhibit 10
(viii) to the Company's Form 10-K (File No. 1-6807) for the
year ended August 31, 1995).
<PAGE>
* 10 (iv) Amendment No. One dated January 15, 1996, to Family Dollar
Employee Savings and Retirement Plan and Trust (filed as
Exhibit 10(v) to the Company's Form 10-K (File No. 1-6807) for
the year ended August 31, 1996).
* 10 (v) Amendment No. 2, dated January 15, 1998, to Family Dollar
Employee Savings and Retirement Plan and Trust (filed as
Exhibit 10(ii) to the Company's Form 10-Q (File No. 1-6807) for
the quarter ended February 28, 1998).
* 10 (vi) Amendment No. 3, dated March 19, 1998, to Family Dollar
Employee Savings and Retirement Plan and Trust (filed as
Exhibit 10(iii) to the Company's Form 10-Q (File No. 1-6807)
for the quarter ended February 28, 1998).
* 10 (vii) Trust Agreement between Merrill Lynch Trust Company of North
Carolina, as Trustee, and the Company and Family Dollar, Inc.,
as Employer, with respect to Family Dollar Employee Savings and
Retirement Plan and Trust (filed as Exhibit 10
to the Company's Form 10-Q (File No. 1-6807) for the quarter
ended May 31, 1998.)
10 (viii) Credit Agreement, dated as of March 31, 1996, between the
Company and NationsBank, N.A.,(filed as Exhibit 10 to the
Company's Form 10-Q (File No. 1-6807) for the quarter ended
May 31, 1996).
10 (ix) Amendment No. 1, dated as of March 26, 1997, to the Credit
Agreement, dated as of March 31, 1996, between the Company and
NationsBank, N.A. (filed as Exhibit 10(i) to the Company's Form
10-Q (File No. 1-6807) for the quarter ended November 30,
1997).
10 (x) Amendment No. 2, dated as of December 31, 1997, to the Credit
Agreement, dated as of March 31, 1996, between the Company and
NationsBank, N.A. (filed as Exhibit 10(ii) to the Company's
Form 10-Q (File No. 1-6807) for the quarter ended November 30,
1997).
10 (xi) Amendment, dated as of November 19, 1998, to the Credit
Agreement, dated as of March 31, 1996, between the Company,
Family Dollar, Inc. and NationsBank, N.A. (filed as Exhibit
10(i) to the Company's Form 10-K (File No. 1-6807) for the year
ended August 29, 1998).
10 (xii) Letter Agreement dated March 25, 1999, among NationsBank, N.A.,
the Company and Family Dollar, Inc., amending Credit Agreement,
dated as of March 31, 1996, as amended, among NationsBank,
N.A., the Company and Family Dollar, Inc. (filed as Exhibit
10(i) to the Company's Form 10-Q (File No. 1-6807) for the
quarter ended February 27, 1999).
* 10 (xiii) Employment Agreement dated December 17, 1996, between the
Company and R. James Kelly (filed as Exhibit 10(i) to the
Company's Form 10-Q (File No. 1-6807) for the quarter ended
February 28, 1997).
<PAGE>
* 10 (xiv) Employment Agreement dated April 29, 1997, between the Company
and Howard R. Levine (filed as Exhibit 10(i) to the Company's
Form 10-Q (File No. 1-6807) for the quarter ended May 31,
1997).
* 10 (xv) Amendment dated August 28, 1997, to the Employment
Agreement dated April 29, 1997, between the Company
and Howard R. Levine (filed as Exhibit 10(i) to the
Company's Form 10-K (File No. 1-6807) for the year ended
August 31, 1997).
Exhibits filed herewith:
* 10 (i) Amendment dated August 29, 1999, to the Employment Agreement
dated April 29, 1997, as amended, between the Company and
Howard R. Levine.
* 10 (ii) Amendment dated June 21, 1999, to the Employment Agreement
dated December 17, 1996, between the Company and
R. James Kelly.
11 Statement Re: Computations of Per Share Earnings.
13 Annual Report to Stockholders for the fiscal year ended
August 28, 1999 (only those portions specifically incorporated
by reference herein shall be deemed filed).
21 Subsidiaries of the Company.
27 Financial Data Schedule
* Exhibit represents a management contract or compensatory plan.
(b) No reports on Form 8-K have been filed by the Company during
the last quarter of the period covered by this report.
<PAGE>
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
Index
The consolidated financial statements of Family Dollar Stores, Inc., and
subsidiaries together with the report of PricewaterhouseCoopers LLP
incorporated in this report appear on the following pages of the Annual Report
to Stockholders for the fiscal year ended August 28, 1999.
<TABLE>
<CAPTION>
Page of the
Annual Report
<S> <C>
Report of Independent Accountants 17
Consolidated Statements of Income 17
Consolidated Balance Sheets 18
Consolidated Statements of Shareholders'
Equity 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21-24
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 November 19, 1999 By HOWARD R. LEVINE
HOWARD R. LEVINE
President (Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the date indicated.
Signature Title Date
LEON LEVINE Chairman of the Board and November 19, 1999
LEON LEVINE Director
HOWARD R. LEVINE President and Director November 19, 1999
HOWARD R. LEVINE (Chief Executive Officer)
R. JAMES KELLY Vice Chairman-Chief November 19, 1999
R. JAMES KELLY Financial and Administrative
Officer and Director
(Principal Financial Officer)
GEORGE R. MAHONEY, JR. Executive Vice President November 19, 1999
GEORGE R. MAHONEY, JR. and Director
C. MARTIN SOWERS Senior Vice President- November 19, 1999
C. MARTIN SOWERS Finance (Principal
Accounting Officer)
MARK R. BERNSTEIN Director November 19, 1999
MARK R. BERNSTEIN
SHARON ALLRED DECKER Director November 19, 1999
SHARON ALLRED DECKER
JAMES H. HANCE, JR. Director November 19, 1999
JAMES H. HANCE, JR.
JAMES G. MARTIN Director November 19, 1999
JAMES G. MARTIN
<TABLE>
<CAPTION>
FAMILY DOLLAR STORES, INC. STATEMENT RE COMPUTATIONS OF PER SHARE EARNINGS
AS PRESENTED FY 1999 FY 1998
BASIC DILUTED BASIC DILUTED
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING FOR THE YEAR ENDED 172,511,199 172,511,199 172,008,335 172,008,335
NET INCOME $140,079,267 $140,079,267 $103,287,925 $103,287,925
EARNINGS PER SHARE:
NET INCOME $0.81 $0.81 $0.60 $0.60
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 3,981,238 3,710,285
WEIGHTED AVERAGE SHARES ASSUMED REPURCHASED FROM
ASSUMED PROCEEDS OF EXERCISES USING TREASURY STOCK
METHOD (AVERAGE MARKET PRICE) (2,658,087) (2,494,985)
NET PRO FORMA COMMON STOCK EQUIVALENT INCREMENTAL SHARES 1,323,151 1,215,300
PERCENTAGE DILUTION FROM PRO FORMA COMMON
STOCK EQUIVALENT INCREMENTAL SHARES 0.77% 0.71%
TOTAL COMMON STOCK AND COMMON STOCK EQUIVALENTS 173,834,350 173,223,635
NET INCOME $140,079,267 $103,287,925
PRO FORMA EARNINGS PER SHARE (INCLUDING DILUTIVE
COMMON STOCK EQUIVALENTS):
NET INCOME $0.81 $0.60
<PAGE>
<CAPTION>
FY 1997
BASIC DILUTED
<C> <C>
171,187,420 171,187,420
$74,676,737 $74,676,737
$0.44 $0.44
3,231,482
(2,700,950)
530,532
0.31%
171,717,952
$74,676,737
$0.44
</TABLE>
Market Price and Dividend Information
Family Dollar's Common Stock is traded on the New York Stock Exchange under
the ticker symbol FDO. At November 1, 1999, there were approximately 2,210
holders of record of the Common Stock. The accompanying tables give the high
and low sales prices of the Common Stock and the dividends declared per share
for each quarter of fiscal 1999 and 1998.
<TABLE>
Market Prices and Dividends
<CAPTION>
1999 High Low Dividend
<S> <C> <C> <C>
First Quarter.............. $20.50 $11.50 $ .04 1/2
Second Quarter............. 22.44 17.94 .05
Third Quarter.............. 26.75 19.00 .05
Fourth Quarter............. 25.94 19.50 .05
<CAPTION>
1998 High Low Dividend
<S> <C> <C> <C>
First Quarter.............. $15.00 $10.34 $ .04
Second Quarter............. 18.31 13.06 .04 1/2
Third Quarter.............. 19.56 15.31 .04 1/2
Fourth Quarter............. 21.88 13.38 .04 1/2
</TABLE>
<PAGE>
<TABLE>
SUMMARY OF SELECTED FINANCIAL DATA
<CAPTION>
August 28, August 29, August 31, August 31,
Years Ended 1999 1998 1997 1996
<S> <C> <C> <C> <C>
Net sales............................. $2,751,181,355 $2,361,930,395 $1,994,973,237 $1,714,627,092
Cost of sales and operating expenses.. 2,528,502,088 2,195,942,470 1,873,496,500 1,615,861,346
Income before income taxes and
cumulative effect of accounting
change.............................. 222,679,267 165,987,925 121,476,737 98,765,746
Income taxes.......................... 82,600,000 62,700,000 46,800,000 38,178,000
Income before cumulative effect
of accounting change................ 140,079,267 103,287,925 74,676,737 60,587,746
Cumulative effect of change in
method of accounting for income
taxes............................... - - - -
Net income............................ 140,079,267 103,287,925 74,676,737 60,587,746
Earnings per common share:
Income before cumulative effect of
accounting change................... $.81 $ .60 $ .44 $ .35
Net income(1)....................... $.81 $ .60 $ .44 $ .35
Dividends declared.................... $ 33,656,702 $ 30,116,216 $ 26,848,520 $ 24,435,102
Dividends declared per common share $.19.1/2 $.17 1/2 $.15 2/3 $.14 1/3
Total assets.......................... $ 1,095,251,636 $ 942,180,070 $780,293,852 $696,808,291
Working capital....................... $ 341,408,422 $ 303,354,419 $283,476,028 $273,694,125
Shareholders' equity.................. $ 690,651,058 $ 578,150,707 $500,198,473 $444,957,119
Stores opened......................... 366 315 236 223
Stores closed......................... (59) (65) (50) (58)
Number of stores - end of year........ 3,324 3,017 2,767 2,581
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA
<CAPTION>
August 31, August 31, August 31, August 31, August 31, August 31,
1995 1994 1993 1992 1991 1990
<C> <C> <C> <C> <C> <C>
$1,546,894,565 $1,428,440,427 $1,297,430,787 $1,158,703,861 $989,345,265 $874,395,095
1,452,519,040 1,328,323,366 1,194,510,816 1,069,764,555 925,619,376 826,764,773
94,375,525 100,117,061 102,919,971 88,939,306 63,725,889 47,630,322
36,266,000 38,157,175 38,491,288 33,267,370 23,484,031 18,897,177
58,109,525 61,959,886 64,428,683 55,671,936 40,241,858 28,733,145
- 1,139,153 - - - -
58,109,525 63,099,039 64,428,683 55,671,936 40,241,858 28,733,145
$ .34 $ .36 $ .39 $ .34 $ .24 $ .18
$ .34 $ .37 $ .39 $ .34 $ .24 $ .18
$ 21,837,249 $ 18,656,163 $ 16,325,918 $ 13,988,516 $ 11,960,851 $10,819,248
$.12 2/3 $ .11 $.09 2/3 $ .08 1/3 $ .07 $.06 1/2
$636,233,767 $592,821,871 $537,445,610 $478,027,178 $399,271,302 $355,096,527
$264,671,854 $230,234,774 $205,863,199 $170,288,208 $136,207,278 $107,879,235
$407,750,588 $370,172,275 $323,281,504 $271,772,441 $227,319,970 $197,076,663
213 202 174 160 122 122
(12) (22) (24) (34) (43) (22)
2,416 2,215 2,035 1,885 1,759 1,680
(1) Figures represent both basic and diluted earnings per common share.
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Net Sales
Net sales increased approximately 16.5% ($389.3 million) in
fiscal 1999 compared with fiscal 1998, and approximately 18.4%
($367.0 million) in fiscal 1998 compared with fiscal 1997. The
sales increases in fiscal 1999 and fiscal 1998 were attributable
to increased sales in existing stores and sales from new stores
opened as part of the Company's store expansion program.
Comparable store sales increased approximately 7.8% in
fiscal 1999 and 9.4% in fiscal 1998, as compared with the
respective prior years, as customers continued to respond
favorably to the Company's everyday low pricing strategy.
Increased sales of hardlines merchandise have been the primary
contributor to the overall sales increases, with hardlines sales
increases in comparable stores of approximately 10.6% in fiscal
1999. Hardlines as a percentage of total sales increased to
69.2% in fiscal 1999 compared to 67.4% in fiscal 1998. The
Company has broadened its assortment of basic and seasonal
hardlines merchandise and dedicated more selling space in its
stores to hardlines over the past three fiscal years. The
Company has correspondingly reduced its assortment and selling
space for softlines merchandise during this time period, and has
also reduced the average price points for this merchandise.
Notwithstanding these changes, softlines sales in comparable
stores increased approximately 2.0% in fiscal 1999. The Company
expects the shift in merchandise mix to hardlines to continue in
fiscal 2000.
The Company reduced the number of advertising circulars
distributed in fiscal 1999 to five, which was four fewer
circulars than were distributed in fiscal 1998. The adverse
sales impact of discontinuing the circulars was more than offset
by the appeal of everyday low prices to our customers.
The comparable store sales increase of 9.4% in fiscal 1998
was also primarily attributable to the favorable customer
response to everyday low pricing and increased sales of
hardlines. In fiscal 1998, comparable store hardlines sales
increased approximately 12.5% and softlines sales increased
approximately 3.0%. The Company distributed nine advertising
circulars in fiscal 1998, which was five fewer circulars than
were distributed in 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, school
supplies, 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.
During fiscal 1999, the Company opened 366 stores and closed
59 stores for a net addition of 307 stores, compared with the
opening of 315 stores and closing of 65 stores for a net addition
<PAGE>
of 250 stores during fiscal 1998. The Company also expanded or
relocated 107 stores in fiscal 1999, compared with 90 stores that
were expanded or relocated in fiscal 1998. In addition,
approximately 350 stores in fiscal 1999 and approximately 170
stores in fiscal 1998 were renovated to the current store layout
design. The Company currently plans to open approximately 400 to
425 stores and close approximately 50 stores for a net addition
of 350 to 375 stores during fiscal 2000. The Company also
currently expects to renovate an additional 300 stores and expand
or relocate approximately 150 stores in fiscal 2000. Store
opening, closing, expansion, relocation, and renovation plans are
continuously reviewed and are subject to change.
Cost of Sales and Margin
Cost of sales increased approximately 15.4% ($244.8 million) in
fiscal 1999 compared with fiscal 1998, and approximately 17.7%
($238.5 million) in fiscal 1998 compared with fiscal 1997. These
increases primarily reflected the additional sales volume in each
of the years. Cost of sales, as a percentage of net sales, was
66.6% in fiscal 1999, 67.3% in fiscal 1998, and 67.7% in fiscal
1997. The decrease in the cost of sales percentage for fiscal
1999 was due in part to decreases in advertising markdowns
related to the elimination of four advertising circulars and to
reduced clearance markdowns. The decrease in the cost of sales
percentage for fiscal 1999 was mitigated by the increase in sales
of basic consumable merchandise, which typically carries a lower
margin. The cost of sales percentages also are impacted by the
effectiveness of merchandise purchasing programs and by changes
in merchandise shrinkage losses and freight costs. A reduction
in advertising markdowns due to the elimination of five
advertising circulars and a decrease in merchandise shrinkage
losses as a percentage of sales were the primary reasons for the
decrease in the cost of sales percentage for fiscal 1998 compared
with fiscal 1997.
For fiscal 2000, the Company's plan is for the cost of sales
percentage to decrease slightly with continued reductions in
markdowns.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased
approximately 14.5% ($87.77 million) in fiscal 1999 compared with
fiscal 1998, and approximately 16.0% ($83.95 million) in fiscal
1998 compared with fiscal 1997. The increases in these expenses
primarily were attributable to additional costs arising from the
continued growth in the number of stores in operation. As a
percentage of net sales, selling, general and administrative
expenses were 25.3% in fiscal 1999, 25.7% in fiscal 1998, and
26.2% in fiscal 1997. The percentage decrease in fiscal 1999
<PAGE>
primarily was due to the leverage provided by the 7.8% increase
in sales in comparable stores, continued improved store labor
performance, as well as a reduction in advertising expenses due
to the elimination of four advertising circulars. These effects
were partially offset by start-up costs of the Company's fourth
full-service distribution center in Duncan, Oklahoma and by
increased technology costs.
The percentage decrease in expenses in fiscal 1998 primarily
was due to the leverage provided by the 9.4% increase in sales in
comparable stores as well as a reduction in advertising expenses
due to the elimination of five advertising circulars. These
effects were partially offset by an increase in store labor costs
due to the federal minimum wage increase that was effective
September 1, 1997, and by start-up costs of the Company's third
full-service distribution center in Warren County, Virginia.
Selling, general and administrative expenses are expected to
increase in fiscal 2000 due to continued store growth and costs
associated with the Company's fifth full-service distribution
center. However, the Company continues to focus on cost
containment efforts and plans for selling, general, and
administrative expenses in fiscal 2000 to decrease modestly as a
percentage of net sales.
Income Taxes
The effective tax rate was 37.1% in fiscal 1999, 37.8% in
fiscal 1998 and 38.5% in fiscal 1997. The decrease in the
effective tax rates compared to the prior years resulted
primarily from changes in effective state income tax rates.
Liquidity and Capital Resources
The Company has consistently maintained a strong position of
liquidity and financial strength. Cash provided by operating
activities during fiscal 1999 was $110.9 million as compared to
$211.5 million in fiscal 1998 and $123.2 million in fiscal 1997.
These amounts have enabled the Company to fund its regular
operating needs, capital expenditure program and cash dividend
payments. In addition, the Company maintains $100 million of
unsecured bank lines of credit for short-term financing and
periodically utilizes short-term borrowings to meet the cash
needs of its expansion program and seasonal inventory increases.
There were no long-term borrowings during fiscal 1999, 1998 or
1997.
Merchandise inventories at August 28, 1999, increased 22.2%
over the level at August 29, 1998. This increase was due in part
to additional inventory for 307 new stores and to stock the new
distribution center in Duncan, Oklahoma. The Company also
accelerated the receipt of certain seasonal import merchandise to
the fourth quarter of fiscal 1999 from the first quarter of
fiscal 2000 to insure the efficient flow of the merchandise to
the stores for the fall and Christmas seasons.
<PAGE>
The increase in capital expenditures to $125.0 million in
fiscal 1999 from $96.9 million in fiscal 1998 primarily was due
to expenditures incurred in fiscal 1999 to complete construction
of the fourth distribution center in Duncan, Oklahoma, as well as
costs to open an additional 51 new stores. The Company also
increased its investment in information technology in fiscal
1999. Capital expenditures for fiscal 2000 are currently
expected to be approximately $160 million, which primarily
represent estimated expenditures for new store expansion,
existing store expansion, relocation, and renovation, and
construction and equipping of the fifth distribution center, as
well as additional information technology investments. The new
store expansion and the fifth distribution center also will
require additional investment in merchandise inventories.
On November 5, 1999, the Company announced that the Board of
Directors has authorized the purchase of up to 5,000,000 shares
of its outstanding Common Stock from time to time as market
conditions warrant.
Capital spending plans, including store expansion, are
continuously reviewed and are subject to change. Cash flow from
current operations and short-term borrowings under the bank lines
of credit are expected to be sufficient to meet all foreseeable
liquidity and capital resource needs, including store expansion
and other capital spending programs and any Common Stock
purchases. No long-term borrowings are now expected to be
required during fiscal 2000.
Year 2000
The Company continues to address a situation believed to
affect virtually all companies and organizations that is commonly
referred to as Year 2000 issues. Year 2000 issues relate to the
inability of certain computer software programs to properly
recognize and process date-sensitive information relative to the
Year 2000 and beyond.
The Company has completed the assessment phase of its Year
2000 compliance program, during which the Company evaluated its
exposure to Year 2000 risks in its information technology (IT)
systems, as well as potential risks in other non-IT systems with
embedded technology and risks from the non-compliance of third
parties with which the Company has significant dealings. The
Company has substantially completed planned remediation and
testing of its software applications and critical non-IT systems
with embedded technology for Year 2000 compliance. In addition,
the Company implemented new financial and human resource software
as part of its strategic IT plan. The implementation of this
software was completed in January 1999, and was not accelerated
due to Year 2000 issues. The Company has spent approximately $1
million for Year 2000 assessment and remediation and no further
substantial expenditures are currently planned. The Company's
<PAGE>
Year 2000 compliance program has not resulted in the deferral of
other significant planned IT projects.
The Company presently believes that with the remediation of
existing software and implementation of new software, the Year
2000 issue will not pose significant internal operational
problems. However, there can be no assurances that this will be
the case, and there are also risks to the Company's operations
from Year 2000 failures by third parties, such as merchandise
vendors, utility companies or government agencies.
The Company has initiated a formal communication program
with significant vendors to evaluate their Year 2000 compliance,
and is assessing their responses to the Company's Year 2000
readiness questionnaire. The majority of merchandise vendors
have responded to the effect that their ability to supply the
Company will not be affected by Year 2000 issues. If a
significant vendor becomes unable to deliver merchandise or
services, the Company believes that substitute merchandise for
many of the goods the Company sells and substitutes for many of
the services it receives can be obtained from other vendors. No
single merchandise supplier accounts for more than 1.5% of the
Company's merchandise purchases, and the Company does not
currently foresee any significant impairment in its ability to
procure merchandise due to operational failures of vendors.
However, the Company cannot assure timely compliance of vendors
and may be adversely affected by failures of significant vendors
to supply merchandise or services due to Year 2000 compliance
failures.
Transportation of merchandise and utility service are two
particular concerns. Approximately 45% of the Company's
merchandise is imported. The Company has made and will continue
to make certain minor adjustments to historic import merchandise
flow and, where practical, has identified domestic alternatives
to imported goods. Notwithstanding these contingency plans, any
significant disruptions in the global transportation industry,
including a delay in the processing of merchandise through
Customs, could cause a material adverse impact on the Company's
operations. Also, any widespread interruptions of utility
service could have material adverse consequences. The Company
continues to evaluate Year 2000 related risks and to develop
contingency plans. These activities are expected to continue
into the Year 2000.
Due to the uncertainty of the effect of Year 2000 concerns
and failures on the Company's customers, the Company is unable to
assess the effect these concerns and failures will have on
consumer spending patterns and the related impact on the Company
and its vendors.
<PAGE>
Forward-Looking Statements
Certain statements contained herein and elsewhere in this Annual
Report 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, changes
in information systems, 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>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
Family Dollar Stores, Inc. and Subsidiaries
<CAPTION>
August 28, August 29, August 31,
Years Ended 1999 1998 1997
<S> <C> <C> <C>
Net sales.......................................... $ 2,751,181,355 $ 2,361,930,395 $ 1,994,973,237
Costs and expenses:
Cost of sales.................................... 1,833,441,611 1,588,655,757 1,350,157,693
Selling, general and administrative.............. 695,060,477 607,286,713 523,338,807
2,528,502,088 2,195,942,470 1,873,496,500
Income before income taxes......................... 222,679,267 165,987,925 121,476,737
Income taxes (Note 5).............................. 82,600,000 62,700,000 46,800,000
Net income......................................... $ 140,079,267 $ 103,287,925 $ 74,676,737
Net income per common share-basic (Note 9):........ $.81 $.60 $.44
Average shares - basic (Note 9)................ 172,511,199 172,008,335 171,187,420
Net income per common share - diluted (Note 9):... $.81 $.60 $.44
Average shares - diluted (Note 9).............. 173,834,350 173,223,635 171,717,952
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Family Dollar Stores, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of shareholders' equity and of
cash flows present fairly, in all material respects, the financial
position of Family Dollar Stores, Inc. and its subsidiaries at August 28,
1999 and August 29, 1998, and the results of their operations and their
cash flows for each of the three years in the period ended August 28,
1999, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards, which require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
September 28, 1999
Charlotte, North Carolina
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
Family Dollar Stores, Inc. and Subsidiaries
<CAPTION>
August 28, August 29,
1999 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 95,301,411 $ 134,220,673
Merchandise inventories.................................. 568,780,481 465,556,559
Deferred income taxes (Note 5)........................... 47,066,920 40,695,920
Prepayments and other current assets..................... 8,806,072 6,156,514
Total current assets ................................. $ 719,954,884 $ 646,629,666
Property and equipment, net (Note 2)....................... 371,141,298 291,759,866
Other assets............................................... 4,155,454 3,790,538
$1,095,251,636 $ 942,180,070
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 244,809,886 $ 214,099,581
Accrued liabilities (Note 4)............................. 124,279,005 117,486,601
Income taxes payable (Note 5)............................ 9,457,571 11,689,065
Total current liabilities............................. 378,546,462 343,275,247
Deferred income taxes (Note 5)............................. $ 26,054,116 $ 20,754,116
Commitments and contingencies (Note 7)
Shareholders' equity (Notes 8 and 9):
Preferred stock, $1 par; authorized and
unissued 500,000 shares
Common stock, $.10 par; authorized
300,000,000 shares ..................................... 18,310,933 18,256,237
Capital in excess of par................................. 22,808,499 16,785,409
Retained earnings........................................ 660,880,894 554,458,329
702,000,326 589,499,975
Less common stock held in treasury, at cost.............. 11,349,268 11,349,268
690,651,058 578,150,707
$1,095,251,636 $ 942,180,070
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Family Dollar Stores, Inc. and Subsidiaries
<CAPTION>
Capital in
Years Ended August 28, 1999, August 29, 1998 Common excess Retained Treasury
and August 31, 1997 stock of par earnings stock
<S> <C> <C> <C> <C>
Balance, September 1, 1996
(60,290,684 shares common stock;
3,452,822 shares treasury stock).............. $ 6,029,068 $ 16,818,916 $433,458,403 $ 11,349,268
Net income for the year............................ 74,676,737
Issuance of 421,757 common shares under employee
stock option plan, including tax benefits (Note 8) 42,176 7,370,961
Issuance of 30,319,037 common shares as a result of
stock split, including 1,726,411 shares of treasury
stock............................................. 3,031,904 (3,031,904)
Less dividends on common stock, $.15 2/3 per share.... (26,848,520)
Balance, August 31, 1997
(91,031,478 shares common stock;
5,179,233 shares treasury stock)................. 9,103,148 21,157,973 481,286,620 11,349,268
Net income for the year................... 103,287,925
Issuance of 267,236 common shares under employee
stock option plan, including tax benefits (Note 8) 26,724 4,753,801
Issuance of 91,263,654 common shares as a result of
stock split, including 5,179,233 shares of treasury
stock .................................... 9,126,365 (9,126,365)
Less dividends on common stock, $.17 1/2 per share.... (30,116,216)
Balance, August 29, 1998
(182,562,368 shares common stock;
10,358,466 shares treasury stock)................ 18,256,237 16,785,409 554,458,329 11,349,268
Net income for the year................................ 140,079,267
Issuance of 546,960 common shares under
employee stock option plan, including tax
benefits (Note 8)................................. 54,696 6,023,090
Less dividends on common stock, $.19 1/2 per share..... (33,656,702)
Balance, August 28, 1999 $18,310,933 $22,808,499 $660,880,894 $11,349,268
(183,109,328) shares common stock;
10,358,466 shares treasury stock).................
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Family Dollar Stores, Inc. and Subsidiaries
<CAPTION>
August 28, August 29, August 31,
Years Ended 1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $140,079,267 $ 103,287,925 $ 74,676,737
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.... 43,788,467 34,842,830 29,116,624
Deferred income taxes............ (1,071,000) (10,403,000) (6,812,000)
(Gain) Loss on disposition of property
and equipment (58,130) (37,710) 39,207
Changes in operating assets and liabilities:
Merchandise inventories........ (103,223,922) 2,388,924 (5,105,432)
Prepayments and other current assets (2,649,558) (274,994) (38,567)
Other assets................... (364,916) 565,801 (55,249)
Accounts payable and accrued liabilities 36,614,611 80,597,237 27,124,270
Income taxes payable........... (2,231,494) 570,262 4,296,612
110,883,325 211,537,275 123,242,202
Cash flows from investing activities:
Capital expenditures................ (125,038,135) (96,853,635) (77,061,959)
Proceeds from dispositions of property
and equipment 1,926,366 1,523,405 1,278,601
(123,111,769) (95,330,230) (75,783,358)
Cash flows from financing activities:
Net change in short-term borrowings - - (4,400,000)
Exercise of employee stock options,
including tax benefits 6,077,786 4,780,525 7,413,137
Payment of dividends............... (32,768,604) (29,235,197) (26,848,520)
(26,690,818) (24,454,672) (23,835,383)
Net (decrease) increase in cash and cash equivalents (38,919,262) 91,752,373 23,623,461
Cash and cash equivalents at beginning of year 134,220,673 42,468,300 18,844,839
Cash and cash equivalents at end of year $ 95,301,411 $ 134,220,673 $ 42,468,300
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest..................... $ - $ 12,594 $ 320,830
Income taxes................. 82,714,126 70,840,009 48,440,176
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Family Dollar Stores, Inc. and Subsidiaries
Years Ended August 28, 1999, August 29, 1998, and August 31, 1997
1. Description of business and summary of significant accounting policies:
Description of business:
The Company operates a chain of neighborhood retail discount stores in
39 contiguous states in the Northeast, Southeast, Midwest and
Southwest. The Company manages its business on the basis of one
reportable segment. The Company's products include hardlines
merchandise such as household products, health and beauty aids and
snack and other food, and softlines merchandise such as clothing, shoes
and domestic items.
Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All
significant intercompany balances and transactions have been
eliminated.
Cash equivalents:
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The carrying
amount of the Company's cash equivalents approximates fair value due to
the short maturities of these investments.
Merchandise inventories:
Inventories are valued using retail prices less markon percentages,
and approximate the lower of first-in, first-out (FIFO) cost or market.
Property and equipment and depreciation:
Property and equipment is stated at cost. Depreciation for financial
reporting purposes is being provided principally by the straight-line
method over the estimated useful lives of the related assets, and by
straight-line and accelerated methods for income tax reporting
purposes.
Estimated useful lives are as follows:
Buildings 33-40 years
Furniture, fixtures and equipment 3-10 years
Transportation equipment 3- 6 years
Leasehold improvements 5- 7 years
During fiscal 1998, the Company adopted Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software Developed
For or Obtained For Internal Use," which requires the capitalization of
certain costs incurred in connection with developing or obtaining
software for internal use. Previously, the Company had expensed
software development costs when incurred.
<PAGE>
Advertising costs:
Advertising costs, net of co-op recoveries from vendors, are expensed
the first time the advertising is run and amounted to $10.6 million,
$16.0 million, and $23.7 million in fiscal 1999, 1998 and 1997,
respectively.
Store opening and closing costs:
During fiscal 1998, the Company adopted Statement of Position
(SOP) 98-5, "Reporting on the Costs of Start-Up Activities", which
requires that the costs of start-up activities be expensed as incurred.
Since the Company charges pre-opening costs against operating results
when incurred, the adoption of this SOP had no effect on operating
results. When a store is identified for closing, the remaining
investment in fixed assets, net of expected recovery value, is
expensed. For properties under operating lease agreements, the present
value of any remaining liability under the lease, net of expected
sublease and lease termination recoveries, is expensed when the closing
is determined.
Selling, general and administrative expenses:
Buying, warehousing and occupancy costs, including depreciation, are
included in selling, general and administrative expenses.
Stock Options:
The Company accounts for stock based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
Interpretations. The exercise price of options awarded under the
Company's non-qualified stock option plan has been equal to the fair
market value of the underlying common stock on the date of grant.
Accordingly, no compensation expense has been recognized for options
granted under the plan. Income tax benefits attributable to stock
options exercised are credited to capital in excess of par.
Change in Fiscal Year:
Effective for fiscal 1998, the Company changed its fiscal reporting
calendar to a more commonly used "retail" calendar. The Company's
fiscal years now generally end on the Saturday closest to August 31,
but may deviate from this convention during certain years by one week
in order to coincide with the standard "retail" calendar. Previously,
the Company's fiscal year consisted of 12 calendar months ending
August 31.
Use of Estimates:
The preparation of the Company's consolidated financial statements, in
conformity with generally accepted accounting principles, requires
management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
<PAGE>
2. Property and equipment:
<TABLE>
<CAPTION>
August 28, August 29,
1999 1998
<S> <C> <C>
Buildings............................ $ 128,814,803 $ 103,092,778
Furniture, fixtures and equipment.... 310,275,915 240,087,682
Transportation equipment............. 26,892,567 22,135,664
Leasehold improvements............... 79,010,743 60,964,347
Construction in progress............. 8,313,731 6,549,739
553,307,759 432,830,210
Less accumulated depreciation
and amortization................. 192,824,434 151,440,949
360,483,325 281,389,261
Land................................ 10,657,973 10,370,605
$ 371,141,298 $ 291,759,866
</TABLE>
3. Lines of credit and short-term borrowings:
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, 2001 and
March 26, 2000, respectively, and the Company expects that the line
expiring on March 26, 2000, 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 on March 31, 2001, into either a five or seven year term
loan, at the bank's variable prime rate.
<PAGE>
Interest expense, average and maximum borrowings outstanding and interest
rates for each of the three years in the period ended August 28, 1999,
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Interest expense............. - $ 12,574 $ 312,147
Average borrowings
outstanding............ - $ 209,000 $ 5,222,000
Maximum month-end
outstanding............ - $ 6,300,000 $ 31,000,000
Interest rates at
year-end............... N/A N/A N/A
Daily weighted average
interest rates.......... N/A 5.9% 5.7%
The Company had outstanding letters of credit of $27,130,491 and
$51,710,665 at August 28, 1999 and August 29, 1998, respectively.
</TABLE>
4. Accrued liabilities:
<TABLE>
<CAPTION>
August 28, August 29,
1999 1998
<S> <C> <C>
Compensation...................... $ 30,144,697 $ 27,466,711
Insurance............................ 45,921,369 43,497,526
Taxes other than income taxes........ 23,709,222 21,916,366
Other................................ 24,503,717 24,605,998
$ 124,279,005 $117,486,601
</TABLE>
<PAGE>
5. Income Taxes:
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
August 28, 1999 and August 29, 1998, were as follows:
<TABLE>
<CAPTION>
August 28, August 29,
1999 1998
<S> <C> <C>
Deferred income tax liabilities:
Excess of book over tax basis of
property and equipment.............. $ 26,054,116 $ 20,754,116
Deferred income tax assets:
Excess of tax over book basis
of inventories...................... $ 22,123,771 $ 16,549,238
Currently nondeductible accruals for:
Insurance........................... 18,102,577 17,273,955
Vacation pay........................ 2,520,977 2,097,021
Closed store lease liabilities...... 1,960,599 1,984,014
State net operating losses............ 250,000 983,000
Other................................. 2,483,996 3,158,692
Gross deferred income tax assets.... 47,441,920 42,045,920
Valuation allowance for deferred
income tax assets................... (375,000) (1,350,000)
Net deferred income tax assets...... $ 47,066,920 $ 40,695,920
</TABLE>
A valuation allowance has been established for a portion of the
benefits of state tax net operating losses and for a portion of
certain other state tax benefits because the Company currently
believes that it is more likely than not that these benefits
will not be realized in future years.
<PAGE>
5. Income taxes (continued):
The provisions for income taxes in each of the three years in the
period ended August 28, 1999, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current:
Federal... $75,746,000 $67,103,000 $47,142,000
State..... 7,925,000 6,000,000 6,470,000
83,671,000 73,103,000 53,612,000
Deferred:
Federal... 1,109,000 (9,431,000) (5,753,000)
State.... (2,180,000) (972,000) (1,059,000)
(1,071,000) (10,403,000) (6,812,000)
$82,600,000 $62,700,000 $46,800,000
</TABLE>
<PAGE>
The following table summarizes the components of income tax expense
in each of the three years in the period ended August 28, 1999:
<TABLE>
<CAPTION>
1999 1998 1997
% % %
Income tax of pre-tax Income Tax of pre-tax Income tax of pre-tax
expense income expense income expense income
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" federal income tax $77,937,746 35.0 $58,095,773 35.0 $42,516,858 35.0
State income taxes, net of federal
income tax benefit........... 3,227,862 1.5 4,943,200 3.0 4,187,150 3.4
Other............................. 1,434,392 .6 (338,973) (0.2) 95,992 0.1
Actual income tax expense......... $82,600,000 37.1 $62,700,000 37.8 $46,800,000 38.5
</TABLE>
<PAGE>
6. Employee benefit plans:
Incentive compensation plan:
The Company has an incentive profit-sharing plan whereby, at the
discretion of the Board of Directors, the Company may pay certain
employees and officers an aggregate amount not to exceed 5% of the
Company's consolidated income before income taxes. Expenses under
the profit-sharing plan were $3,786,933 in fiscal 1999, $3,455,060
in fiscal 1998, and $2,446,586 in fiscal 1997.
Compensation deferral plan:
The Company has a voluntary compensation deferral plan, under section
401(k) of the Internal Revenue Code, available to eligible employees.
At the discretion of the Board of Directors, the Company makes
contributions to the plan which are allocated to participants, and in
which they become vested, in accordance with formulas and schedules
defined by the plan. Company expenses for contributions to the plan
were $1,310,588 in fiscal 1999, $1,124,569 in fiscal 1998, and
$1,066,966 in fiscal 1997.
<PAGE>
7. Commitments and contingencies:
Operating leases:
Except for its executive offices and primary distribution centers, the
Company generally conducts its operations from leased facilities. Normally,
store real estate leases are for initial terms of from five to fifteen years
with multiple renewal options for additional five year periods. Certain
leases provide for contingent rental payments based upon a percentage of
store sales.
Rental expenses on all operating leases, both cancellable and
non-cancellable, for each of the three years in the period ended August 28,
1999, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Minimum rentals,
net of minor
sublease rentals...... $107,620,387 $90,616,520 $78,414,264
Contingent rentals....... 3,963,680 2,619,790 1,707,010
$111,584,067 $93,236,310 $80,121,274
</TABLE>
Future minimum rental payments required under operating leases that have
initial or remaining non-cancellable lease terms in excess of one year as of
August 28, 1999, were as follows:
<TABLE>
<CAPTION>
Fiscal Year: Minimum Rental
<C> <C>
2000 $ 98,880,457
2001 85,705,372
2002 70,204,305
2003 51,909,204
2004 28,498,776
Thereafter 40,099,684
$375,297,798
</TABLE>
Insurance Liabilities:
The Company is primarily self-insured for health care, property loss,
workers' compensation and general liability costs. Self-insurance
liabilities are based on the total estimated costs of claims filed and
claims incurred but not reported, and are not discounted.
<PAGE>
8. Employee stock option plan:
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 fair market value on the
date of the grant. Options are exercisable to the extent of 40%
after the second anniversary of the grant, an additional 30%
annually on a cumulative basis, and expire five years from the
date of the grant.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation." If compensation cost for the
Company's stock-based compensation plan had been determined
based on the fair value at the grant date for awards under this
plan consistent with the methodology prescribed under this
statement, net income and net income per share would have been
reduced to the pro forma amounts indicated in the table below.
<TABLE>
<CAPTION>
August 28, August 29, August 31,
1999 1998 1997
<S> <C> <C> <C>
Net income - as reported $140,079,267 $103,287,925 $74,676,737
Net income - pro forma $138,568,250 $102,367,767 $74,493,973
Net income per share -
as reported
basic $.81 $.60 $.44
diluted $.81 $.60 $.44
Net income per share -
pro forma
basic $.80 $.60 $.44
diluted $.80 $.59 $.43
</TABLE>
<PAGE>
The pro forma effects on net income for fiscal 1999, 1998 and 1997 are
not representative of the pro forma effect on net income in future years
because they do not take into consideration pro forma compensation expense
related to grants made prior to fiscal 1997. The average fair value of
options granted during fiscal 1999, 1998 and 1997 is $4.84, $3.66 and $1.66
per share, respectively.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
August 28, August 29, August 31,
1999 1998 1997
<S> <C> <C> <C>
Expected dividend yield 1.13% 1.36% 2.36%
Expected stock price volatility 33.54% 30.53% 28.75%
Weighted average risk-free
interest rate 4.88% 5.73% 6.35%
Expected life of options (years) 3.5 3.5 3.5
</TABLE>
<PAGE>
The summary of the status of the Company's stock-based compensation
plan as of August 28, 1999, August 29, 1998 and August 31, 1997, and
changes during the years then ended were as follows:
<TABLE>
<CAPTION>
Options Range of Option Weighted Average
Outstanding Prices Per Share Exercise Price
<S> <C> <C> <C>
Balance, September 1, 1996 3,006,900 $ 3.42 to $ 7.08 $ 5.29
Granted 1,705,700 5.59 to 10.88 6.58
Exercised (1,191,074) 3.50 to 7.08 5.49
Cancelled (379,518) 3.42 to 7.08 4.85
Balance, August 31, 1997 3,142,008 $ 3.50 to $10.88 $ 5.96
Granted 1,224,800 10.88 to 20.75 13.31
Exercised (499,413) 3.50 to 7.08 6.20
Cancelled (128,060) 4.08 to 18.00 7.50
Balance, August 29, 1998 3,739,335 $ 3.50 to $20.75 $ 8.28
Granted 855,600 12.75 to 24.75 16.82
Exercised (546,960) 3.50 to 9.67 5.26
Cancelled (137,225) 4.33 to 24.00 10.34
Balance, August 28, 1999 3,910,750 $ 3.83 to $24.75 $10.50
</TABLE>
<PAGE>
At August 28, 1999, August 29, 1998 and August 31,1997, options for
983,507, 660,687 and 709,066 shares were exercisable, respectively.
The following table summarizes information about stock options
outstanding at August 28, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at 8/28/99 Contractual Life Exercise Price at 8/28/99 Exercise Price
<S> <C> <C> <C> <C> <C>
$ 3.83 to $ 6.25 1,184,700 1.52 Years $ 5.19 686,307 $ 4.90
6.26 to 14.50 1,463,400 2.81 9.41 297,200 7.52
14.51 to 24.75 1,262,650 4.02 16.74 - -
$ 3.83 to $24.75 3,910,750 2.81 Years $10.50 983,507 $ 5.69
</TABLE>
At August 28, 1999, August 29, 1998 and August 31, 1997, shares
available for granting of stock options under the Company's stock
option plan were 6,129,090, 6,846,464 and 1,943,188 shares, respectively.
9. Common stock:
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.
<PAGE>
The following table sets forth the computation of basic and diluted net
income per common share:
<TABLE>
<CAPTION>
August 28, August 29, August 31,
1999 1998 1997
<S> <C> <C> <C>
Basic net income per share:
Net income $140,079,267 $103,287,925 $ 74,676,737
Weighted average number of shares
outstanding 172,511,199 172,008,335 171,187,420
Net income per common share - basic $.81 $.60 $.44
Diluted net income per share:
Net income $140,079,267 $103,287,925 $ 74,676,737
Weighted average number of shares
outstanding 172,511,199 172,008,335 171,187,420
Effect of dilutive securities -
stock options 1,323,151 1,215,300 530,532
Average shares - diluted 173,834,350 173,223,635 171,717,952
Net income per common share - diluted $.81 $.60 $.44
</TABLE>
<PAGE>
10. Unaudited summaries of quarterly results:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands, except per share data)
<S> <C> <C> <C> <C>
1999
Net sales..................... $628,016 $752,217 $678,858 $692,091
Gross margin.................. 215,717 242,495 238,226 221,302
Net income.................... 29,609 41,673 41,767 27,030
Net income per
common share*.............. $.17 $.24 $.24 $.16
1998
Net sales..................... $542,747 $635,877 $585,807 $597,499
Gross margin.................. 186,327 199,179 200,116 187,653
Net income.................... 24,327 27,597 31,343 20,021
Net income per
common share.*............. $.14 $.16 $.18 $.12
1997
Net sales..................... $454,883 $530,259 $498,404 $511,427
Gross margin.................. 154,581 164,165 167,732 158,338
Net income.................... 17,360 20,002 23,088 14,227
Net income per
common share*.............. $.10 $.12 $.13 $.08
</TABLE>
* Figures represent both basic and diluted earnings per share. The sum of the
quarterly net income per common share may not equal the annual net income per
common share due to rounding.
FAMILY DOLLAR STORES, INC.
Listing of Active Corporations and other Entities
Family Dollar Stores, Inc.
Family Dollar, Inc.
Family Dollar Holdings, Inc.
Family Dollar Services, Inc.
Family Dollar Operations, Inc.
Family Dollar Trucking, Inc.
Family Dollar Marketing, Inc.
Family Dollar Stores of Alabama, Inc.
Family Dollar Stores of Arkansas, Inc.
Family Dollar Stores of Colorado, Inc.
Family Dollar Stores of Connecticut, Inc.
Family Dollar Stores of Delaware, Inc.
Family Dollar Stores of D.C., Inc.
Family Dollar Stores of Florida, Inc.
Family Dollar Stores of Georgia, Inc.
Family Dollar Stores of Indiana, L.P.
Family Dollar Stores of Iowa, Inc.
Family Dollar Stores of Kentucky, Ltd.
Family Dollar Stores of Louisiana, Inc.
Family Dollar Stores of Maryland, Inc.
Family Dollar Stores of Massachusetts, Inc.
Family Dollar Stores of Michigan, Inc.
Family Dollar Stores of Mississippi, Inc.
Family Dollar Stores of Missouri, Inc.
Family Dollar Stores of New Jersey, Inc.
Family Dollar Stores of New Mexico, Inc.
Family Dollar Stores of New York, Inc.
Family Dollar Stores of North Carolina, Inc.
Family Dollar Stores of Ohio, Inc.
Family Dollar Stores of Oklahoma, Inc.
Family Dollar Stores of Pennsylvania, Inc.
Family Dollar Stores of Rhode Island, Inc.
Family Dollar Stores of South Carolina, Inc.
Family Dollar Stores of South Dakota, Inc.
Family Dollar Stores of Tennessee, Inc.
Family Dollar Stores of Texas, L.P.
Family Dollar Stores of Vermont, Inc.
Family Dollar Stores of Virginia, Inc.
Family Dollar Stores of West Virginia, Inc.
Family Dollar Stores of Wisconsin, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF FAMILY DOLLAR STORES, INC. AND
SUBSIDIARIES FOR THE FISCAL YEAR ENDED AUGUST 28, 1999, 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> YEAR
<FISCAL-YEAR-END> AUG-28-1999
<PERIOD-START> AUG-30-1998
<PERIOD-END> AUG-28-1999
<EXCHANGE-RATE> 1
<CASH> 95,301,411
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 568,780,481
<CURRENT-ASSETS> 719,954,884
<PP&E> 563,965,732
<DEPRECIATION> 192,824,434
<TOTAL-ASSETS> 1,095,251,636
<CURRENT-LIABILITIES> 378,546,462
<BONDS> 0
0
0
<COMMON> 18,310,933
<OTHER-SE> 672,340,125
<TOTAL-LIABILITY-AND-EQUITY> 1,095,251,636
<SALES> 2,751,181,355
<TOTAL-REVENUES> 2,751,181,355
<CGS> 1,833,441,611
<TOTAL-COSTS> 2,528,502,088
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 222,679,267
<INCOME-TAX> 82,600,000
<INCOME-CONTINUING> 140,079,267
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140,079,267
<EPS-BASIC> .81
<EPS-DILUTED> .81
</TABLE>
Exhibit 10(i)
STATE OF NORTH CAROLINA AMENDMENT TO
EMPLOYMENT AGREEMENT
COUNTY OF MECKLENBURG
THIS AMENDMENT, made and entered into effective the 29th day
of August 1999, by and between FAMILY DOLLAR STORES, INC., a Delaware
corporation (hereinafter referred to as the "Company"); and
Howard R. Levine (hereinafter referred to as the "Employee");
W I T N E S S E T H:
WHEREAS, the Company and the Employee entered into an
Employment Agreement dated April 29, 1997, as amended by Amendments
to Employment Agreement dated August 28, 1997 and August 19, 1998,
(hereinafter referred to as the "Agreement"); and
WHEREAS, the Company and the Employee desire to amend the
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the Company and the Employee agree as follows:
1. In the first line of Section 1.01 of the Agreement after
the word "corporation" add "or other entity".
2. In the eighth line of Section 1.04 of the Agreement after
the words "New Mexico" add ", Arizona".
3. Section 2 of the Agreement is deleted and the following
is substituted in lieu thereof:
"2. Employment. The Employee shall be employed by the
Company and any Affiliate in the capacity provided for in Paragraph 3
for the period commencing April 29, 1997, (the "Commencement Date"),
and ending on August 26, 2000, or upon the termination of this
Agreement as provided in Paragraph 6."
4. The first paragraph of Section 5.01 of the Agreement is
deleted and the following paragraph is substituted in
lieu thereof:
"5.01. In consideration of the services to be rendered by
the Employee pursuant to this Agreement, the Company shall pay, or
cause to be paid, to the Employee a weekly base salary (i) from the
Commencement Date to August 31, 1997, of $5,769.24 ($300,000.00
per annum), (ii) from September 1, 1997, to August 19, 1998, of
$6,250.00 ($325,000.00 per annum), (iii) from August 20, 1998,
to August 28, 1999, of $7,211.54 ($375,000.00 per annum), and (iv)
from August 29, 1999, to August 26, 2000, of $8,635.85 ($450,000.00
per annum)."
<PAGE>
5. Subparagraphs (a) and (b) of Section 5.02 of the
Agreement are deleted and the following subparagraphs are
substituted in lieu thereof:
"5.02. In addition, the Employee shall be entitled to:
(a) Participate in the Company's Target Bonus Plan,
as it may be amended or modified in any respect, including
achievement of established goals, as President, for the fiscal years
commencing September 1, 1996, and September 1, 1997, and as President
and Chief Executive Officer for the fiscal years commencing
August 30, 1998 and August 29, 1999. The Target Bonus Plan generally
will give the Employee the opportunity to earn a bonus of up to fifty
(50%) percent of the Employee's base salary actually received for
services on and after April 29, 1997, through August 31, 1997, for
the fiscal year ending August 31, 1997, and up to fifty (50%) percent
of the Employee's base salary actually received for services on and
after September 1, 1997, through August 19, 1998, and up to
seventy-five (75%) percent of the Employee's base salary actually
received for services on and after August 20, 1998, through
August 31, 1998, for the fiscal year ending August 29, 1998, up to
seventy-five (75%) percent of the Employee's base salary actually
received for services on and after August 30, 1998, through
August 28, 1999, for the fiscal year ending August 28, 1999, and up
to seventy-five (75%) percent of the Employee's base salary actually
received for services on and after August 29, 1999, through
August 26, 2000, for the fiscal year ending August 26, 2000, subject
to the Company's achievement of certain financial goals to be
established, the Employee's performance, and all terms and conditions
of the Target Bonus Plan as in effect for each such fiscal year;
provided that the amount of bonus paid may not be increased by the
annual individual performance rating of the Employee by the Chairman
of the Board. The Employee acknowledges that he has received a copy
of the form of the Target Bonus Plan and Bonus Conditions and is
familiar with the terms and conditions thereof. Nothing contained
herein shall limit the Company's right to alter, amend or terminate
the Target Bonus Plan at any time for any reason. The Employee
further acknowledges that, as provided in the Target Bonus Plan, in
the event the Employee is not employed by the Company, for whatever
reason, at the time the bonus for the fiscal year is actually paid to
participants in the Target Bonus Plan following the end of the fiscal
year, the Employee will not be entitled to receive the bonus.
(b) Take twenty days (exclusive of Saturdays, Sundays
and paid Company holidays) of vacation during the twelve month period
commencing August 29, 1999. Vacation time will accrue ratably during
the course of said period and cannot be accumulated from year to
year."
6. At the end of the first paragraph of Section 6.02 of the
Agreement, add the following paragraph:
<PAGE>
"In the event this Agreement is not terminated by the
Company or the Employee for any reason prior to August 26, 2000, and
the Company and the Employee do not agree in writing before
August 26, 2000, to extend the term of this Agreement beyond
August 26, 2000, or to enter into a new agreement to extend the
employment relationship beyond August 26, 2000, this Agreement shall
terminate automatically on August 26, 2000, which shall be the
Termination Date, and the Company shall pay to the Employee sixty
(60) days of the base salary set forth in Section 5.01 (which shall
constitute payment in full of the compensation due to the Employee
hereunder). Any such payments shall be made in two (2) equal monthly
installments with the first installment due and payable not later
than thirty (30) days after the Termination Date."
7. After Section 6 of the Agreement, add the following
paragraph:
"6A. Target Bonus Plan. Notwithstanding any other provision
of this Agreement, if the Company terminates this Agreement prior to
the end of the term of this Agreement on August 26, 2000, for reasons
other than for Cause, or if the Company and the Employee do not
agree in writing before August 26, 2000, to extend the term of the
Employee's employment by the Company beyond August 26, 2000, the
Employee shall be entitled to receive as a severance payment an
amount equal to the pro rata share of the bonus, or the full bonus,
as the case may be, if any, under and subject to the terms and
conditions of the Target Bonus Plan referred to in Section 5.02(a)
based on seventy-five (75%) percent of the Employee's base salary
actually received for the period from August 29, 1999, through the
Termination Date, or through August 26, 2000, if the Employee's
employment continues through that date. This payment is equal to the
amount, if any, the Employee would have received following the end of
the fiscal year ended August 26, 2000, if the Target Bonus Plan did
not have a requirement that the Employee be employed by the Company
at the time the bonus is customarily paid. Such payment shall be
made to the Employee on or about November 15 following the end of
said fiscal year."
8. All other terms and provisions of the Agreement shall
remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
in triplicate, all as of the day and year first above written.
FAMILY DOLLAR STORES, INC.
Attest:
By LEON LEVINE
Chairman of the Board
GEORGE R. MAHONEY, JR.
Secretary
(Corporate Seal)
HOWARD R. LEVINE (SEAL)
Witness:
ALICE R. BARRIER
Exhibit 10 (ii)
STATE OF NORTH CAROLINA AMENDMENT TO
EMPLOYMENT AGREEMENT
COUNTY OF MECKLENBURG
THIS AMENDMENT, made and entered into effective the 21st day
of June 1999, by and between FAMILY DOLLAR STORES, INC., a Delaware
corporation (hereinafter referred to as the "Company"); and
R. James Kelly (hereinafter referred to as the "Employee");
W I T N E S S E T H:
WHEREAS, the Company and the Employee entered into an
Employment Agreement effective December 17, 1996 (hereinafter
referred to as the "Agreement"); and
WHEREAS, the Company and the Employee desire to amend the
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the Company and the Employee agree as follows:
1. In the first line of Section 1.01 of the Agreement after
the word "corporation" add "or other entity".
2. In the eighth line of Section 1.04 of the Agreement after
the words "New Mexico" add ", Arizona".
3. In the second line of Section 1.07(a) of the Agreement
after the words "Chairman of the Board" add "or President".
4. In the fifth line of Section 2 of the Agreement delete
the date "January 31, 2000" and substitute in lieu thereof
the date "September 1, 2001".
5. In the fourth line of Section 3 of the Agreement after
the words "Chairman of the Board of the Company" add "or
President of the Company".
6. In the fourth line of Section 5.01 of the Agreement
delete the date "August 31, 1998" and substitute in lieu
thereof the date "August 26, 2000".
7. In the twenty-second line of Section 5.02 delete the
words "customarily paid in December" and substitute in
lieu thereof "actually paid to participants in the Target
Bonus Plan".
8. Section 5.02(c) of the Agreement is deleted and the
following is substituted in lieu thereof:
<PAGE>
"(c) Take twenty days (exclusive of Saturdays, Sundays and
paid Company holidays) of vacation during each of the periods between
the Commencement Date and January 31, 1998; between February 1, 1998
and January 31, 1999; between February 1, 1999 and January 31, 2000;
between February 1, 2000 and January 31, 2001; and take twelve days
(exclusive of Saturdays, Sundays and paid Company holidays) of
vacation during the period February 1, 2001 and September 1, 2001.
Vacation time will accrue ratably during the course of said periods
and cannot be accumulated from year to year."
9. Section 6.02 of the Agreement is deleted and the
following is substituted in lieu thereof:
"6.02. Upon termination of this Agreement by the Company,
other than for Cause, except for the provisions of Paragraph 4, the
Employee's employment under the terms of this Agreement and all other
agreements and contracts between the Employee, the Company and the
Company's Affiliate and subsidiary corporations, shall be terminated
effective on the Termination Date. In the event the Company
terminates this Agreement prior to September 1, 2001, for reasons
other than for Cause or Medical Disability, the Company shall pay to
the Employee one hundred eighty (180) days of the base salary set
forth in, or established by the Compensation Committee in accordance
with, Paragraph 5.01 above (which shall constitute payment in full of
the compensation due to the Employee hereunder). Any such payments
shall be made in six (6) equal monthly installments with the first
installment due and payable not later than thirty (30) days after the
Termination Date. Payments made by the Company to the Employee under
this Paragraph 6.02 are herein called "Termination Compensation." In
the event the Employee accepts or begins other employment as an
employee, consultant or in any other capacity prior to the date on
which the last monthly installment of Termination Compensation is due
and payable, the monthly payments of any unpaid balance of the
Termination Compensation as of the date of such new employment shall
be (i) eliminated if the monthly base salary and all other monthly
remuneration and compensation from the new employment exceeds the
monthly base salary of the Employee in effect on the date of the
notice, or (ii) reduced to the amount by which the monthly base
salary of the Employee in effect on the date of the notice exceeds
the monthly base salary and all other monthly remuneration and
compensation from the new employment. The Employee agrees to pursue
reasonable, good faith efforts to obtain other employment in a
position suitable to his background and experience.
In the event this Agreement is not terminated by the Company
or the Employee for any reason prior to September 1, 2001, and the
Company and the Employee do not agree in writing before September 1,
2001, to extend the term of this Agreement beyond September 1, 2001,
or to enter into a new agreement to extend the employment
relationship beyond September 1, 2001, this Agreement shall terminate
automatically on September 1, 2001, which shall be the Termination
Date, and the Company shall pay to the Employee sixty (60) days of
the base salary established by the Compensation Committee of the
<PAGE>
Board of Directors and in effect on September 1, 2001 (which shall
constitute payment in full of the compensation due to the Employee
hereunder). Any such payments shall be made in two (2) equal monthly
installments with the first installment due and payable not later
than thirty (30) days after the Termination Date".
10. The first sentence of Section 7 of the Agreement is
deleted and the following is substituted in lieu thereof:
"7. Exercise of Stock Options. Notwithstanding any
other provision of this Agreement and the 1989 Non-Qualified Stock
Option Plan and the New Plan and form of Option Agreement, if the
Company terminates this Agreement prior to February 28, 2001, for
reasons other than for Cause or Medical Disability, the Employee
shall be considered an employee of the Company through February 28,
2001, for the sole and limited purpose of permitting the Employee to
exercise said option for one hundred fifty thousand (150,000) shares
as described in Paragraph 5.02(b) above and to exercise any portion
of the options for one hundred thousand (100,000) shares and fifty
thousand (50,000) shares exercisable by the Employee in accordance
with the terms of the 1989 Non-Qualified Stock Option Plan and the
New Plan if said options have been granted to the Employee as
referred to in Paragraph 5.02(b) above."
11. In Section 8 of the Agreement in the fourth line, delete
the date "January 31, 2000" and substitute in lieu thereof
the date "September 1, 2001"; in the twelfth line, delete
the words "in December"; and in the sixteenth line, delete
the date "December 15" and substitute in lieu thereof the
date "on or about November 15".
12. All other terms and provisions of the Agreement shall
remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
in triplicate, all as of the day and year first above written.
FAMILY DOLLAR STORES, INC.
Attest:
By HOWARD R. LEVINE
President and
Chief Executive Officer
GEORGE R. MAHONEY, JR.
Secretary
(Corporate Seal)
R. JAMES KELLY (SEAL)
Witness:
ALICE R. BARRIER
