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, 2000 there were approximately 2,150
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 2000 and 1999.
<TABLE>
Market Prices and Dividends
<CAPTION>
2000 High Low Dividend
<S> <C> <C> <C>
First Quarter.............. $23.44 $16.50 $.05
Second Quarter............. 19.38 14.00 .05 1/2
Third Quarter.............. 22.50 15.25 .05 1/2
Fourth Quarter............. 21.31 14.25 .05 1/2
<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
</TABLE>
<PAGE>
<TABLE>
SUMMARY OF SELECTED FINANCIAL DATA
<CAPTION>
August 26, August 28, August 29, August 31,
Years Ended 2000 1999 1998 1997
<S> <C> <C> <C> <C>
Net sales............................. $3,132,639,132 $2,751,181,355 $2,361,930,395 $1,994,973,237
Cost of sales and operating expenses.. 2,861,727,685 2,528,502,088 2,195,942,470 1,873,496,500
Income before income taxes and
cumulative effect of accounting
change.............................. 270,911,447 222,679,267 165,987,925 121,476,737
Income taxes.......................... 98,894,200 82,600,000 62,700,000 46,800,000
Income before cumulative effect
of accounting change................ 172,017,247 140,079,267 103,287,925 74,676,737
Cumulative effect of change in
method of accounting for income
taxes............................... - - - -
Net income............................ 172,017,247 140,079,267 103,287,925 74,676,737
Earnings per common share:
Income before cumulative effect of
accounting change................... $1.00 $ .81 $ .60 $ .44
Net income(1)....................... $1.00 $ .81 $ .60 $ .44
Dividends declared.................... $ 36,858,685 $ 33,656,702 $ 30,116,216 $ 26,848,520
Dividends declared per common share $ .21 1/2 $ .19 1/2 $ .17 1/2 $ .15 2/3
Total assets.......................... $1,243,714,351 $1,095,251,636 $942,180,070 $780,293,852
Working capital....................... $ 338,655,573 $ 341,408,422 $303,354,419 $283,476,028
Shareholders' equity.................. $ 797,964,479 $ 690,651,058 $578,150,707 $500,198,473
Stores opened......................... 406 366 315 236
Stores closed......................... (41) (59) (65) (50)
Number of stores - end of year........ 3,689 3,324 3,017 2,767
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA
<CAPTION>
August 31, August 31, August 31, August 31, August 31, August 31,
Years Ended 1996 1995 1994 1993 1992 1991
<C> <C> <C> <C> <C> <C>
$1,714,627,092 $1,546,894,565 $1,428,440,427 $1,297,430,787 $1,158,703,861 $989,345,265
1,615,861,346 1,452,519,040 1,328,323,366 1,194,510,816 1,069,764,555 925,619,376
98,765,746 94,375,525 100,117,061 102,919,971 88,939,306 63,725,889
38,178,000 36,266,000 38,157,175 38,491,288 33,267,370 23,484,031
60,587,746 58,109,525 61,959,886 64,428,683 55,671,936 40,241,858
- - 1,139,153 - - -
60,587,746 58,109,525 63,099,039 64,428,683 55,671,936 40,241,858
$ .35 $ .34 $ .36 $ .39 $ .34 $ .24
$ .35 $ .34 $ .37 $ .39 $ .34 $ .24
$ 24,435,102 $ 21,837,249 $ 18,656,163 $ 16,325,918 $ 13,988,516 $11,960,851
$ .14 1/3 $ .12 2/3 $ .11 $ .09 2/3 $ .08 1/3 $ .07
$696,808,291 $636,233,767 $592,821,871 $537,445,610 $478,027,178 $399,271,302
$273,694,125 $264,671,854 $230,234,774 $205,863,199 $170,288,208 $136,207,278
$444,957,119 $407,750,588 $370,172,275 $323,281,504 $271,772,441 $227,319,970
223 213 202 174 160 122
(58) (12) (22) (24) (34) (43)
2,581 2,416 2,215 2,035 1,885 1,759
(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 13.9% ($381.5 million) in
fiscal 2000 compared with fiscal 1999, and approximately 16.5%
($389.3 million) in fiscal 1999 compared with fiscal 1998. The
sales increases in fiscal 2000 and fiscal 1999 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 5.2% in
fiscal 2000 and 7.8% in fiscal 1999, 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 8.7% in fiscal
2000. Hardlines as a percentage of total sales increased to
71.4% in fiscal 2000 compared to 69.2% in fiscal 1999.
Softlines as a percentage of sales decreased to 28.6% in fiscal
2000 (with hanging apparel and shoes representing 15.6%, basic
apparel 5.3% and domestics 7.7%) compared to 30.8% in fiscal
1999 (with hanging apparel and shoes representing 17.3%, basic
apparel 5.7% and domestics 7.8%). The Company continues to
broaden its assortment of hardlines merchandise. During the
fourth quarter of fiscal 2000 the Company executed a program in
the majority of its stores to reallocate selling space to
hardlines, including name brand, basic consumable merchandise
such as food, household chemicals and paper products, as well as
seasonal and giftware categories. Space allocated to hanging
apparel has been reduced by 15% to 20%. These changes, coupled
with below plan apparel sales in the fourth quarter, led to a
2.5% decrease in softline sales in comparable stores in fiscal
2000. The space reallocation program was completed in all
stores in October 2000, and the Company expects the shift in the
merchandise mix to hardlines to continue into fiscal 2001. The
Company distributed five advertising circulars in fiscal 2000
and fiscal 1999.
The comparable store sales increase of 7.8% in fiscal 1999
was also primarily attributable to the favorable customer
response to everyday low pricing and increased sales of
hardlines. In fiscal 1999, comparable store hardlines sales
increased approximately 10.6% and softlines sales increased
<PAGE>
approximately 2.0%. The Company distributed five advertising
circulars in fiscal 1999, which was four fewer circulars than
were distributed in fiscal 1998.
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 2000, the Company opened 406 stores and
closed 41 stores for a net addition of 365 stores, compared with
the opening of 366 stores and closing of 59 stores for a net
addition of 307 stores during fiscal 1999. The Company also
expanded or relocated 153 stores in fiscal 2000, compared with
107 stores that were expanded or relocated in fiscal 1999. In
addition, approximately 125 stores in fiscal 2000 and
approximately 350 stores in fiscal 1999 were renovated. The
Company currently plans to open approximately 500 stores and
close approximately 50 stores for a net addition of 450 stores
during fiscal 2001. The Company also currently expects to
renovate an additional 200 stores and expand or relocate
approximately 200 stores in fiscal 2001. 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 13.3% ($243.5
million) in fiscal 2000 compared with fiscal 1999, and
approximately 15.4% ($244.8 million) in fiscal 1999 compared
with fiscal 1998. These increases primarily reflected the
additional sales volume in each of the years. Cost of sales, as
a percentage of net sales, was 66.3% in fiscal 2000, 66.6% in
fiscal 1999, and 67.3% in fiscal 1998. The decrease in the cost
of sales percentage for fiscal 2000 was due primarily to a
decrease in clearance and advertising markdowns during the first
three quarters of the fiscal year. This decrease was mitigated
throughout the year by the shift in sales to lower margin
branded consumable hardlines merchandise and away from higher
margin apparel, and by additional apparel clearance markdowns
during the fourth quarter. The cost of sales percentages also
<PAGE>
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 four advertising circulars and a reduction in
clearance markdowns as a percentage of sales were the primary
reasons for the decrease in the cost of sales percentage for
fiscal 1999 compared with fiscal 1998. This decrease was
mitigated by the increase in sales of lower margin, basic
consumable merchandise.
For fiscal 2001, the Company's plan is for the cost of
sales percentage to remain at about the same level as in fiscal
2000.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased
approximately 12.9% ($89.75 million) in fiscal 2000 compared
with fiscal 1999, and approximately 14.5% ($87.77 million) in
fiscal 1999 compared with fiscal 1998. 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 25.1% in fiscal 2000, 25.3% in
fiscal 1999, and 25.7% in fiscal 1998. The percentage decrease
in fiscal 2000 primarily was due to the leverage provided by the
5.2% increase in sales in comparable stores and effective
expense control. These effects were partially offset by
start-up costs of the Company's fifth full-service distribution
center in Rowan County, Kentucky and by increases in rent and
depreciation expenses as a percentage of net sales.
The percentage decrease in expenses in fiscal 1999
primarily was due to the leverage provided by the 7.8% increase
in sales in comparable stores, 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.
Selling, general and administrative expenses are expected
to increase in fiscal 2001 due to continued store growth.
However, the Company continues to focus on cost containment
efforts and plans for selling, general, and administrative
<PAGE>
expenses in fiscal 2001 to decrease modestly as a percentage of
net sales.
Income Taxes
The effective tax rate was 36.5% in fiscal 2000, 37.1% in
fiscal 1999 and 37.8% in fiscal 1998. The decrease in the
effective tax rates compared to the prior years resulted
primarily from maintaining a low effective state tax rate and
taking advantage of certain federal tax credit programs.
Liquidity and Capital Resources
The Company has consistently maintained a strong position
of liquidity and financial strength. Cash provided by operating
activities during fiscal 2000 was $183.6 million as compared to
$110.9 million in fiscal 1999 and $211.5 million in fiscal 1998.
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 short-term or long-term borrowings during fiscal
2000, 1999 or 1998.
Merchandise inventories at August 26, 2000, increased 13.3%
over the level at August 28, 1999. This increase was due in
part to additional inventory for 365 new stores and to stock the
new distribution center in Rowan County, Kentucky.
The increase in capital expenditures to $172.1 million in
fiscal 2000 from $125.0 million in fiscal 1999 primarily was due
to expenditures incurred in fiscal 2000 to complete construction
of the fifth distribution center, costs to open an additional 58
new stores, as well as the costs associated with the space
reallocation program. The Company also continued to invest in
information technology in fiscal 2000. Capital expenditures for
fiscal 2001 are expected to be approximately $165 million, which
primarily represent estimated expenditures for new store
expansion, including construction of an increased number of
stores, existing store expansion, relocation, and renovation,
and the start of construction of the sixth distribution center
in the spring of 2001. The new store expansion will require
additional investment in merchandise inventories.
<PAGE>
On November 5, 1999, the Company announced that the Board
of Directors had authorized the purchase of up to 5,000,000
shares of its outstanding Common Stock from time to time as
market conditions warrant. As of August 26, 2000, the Company
had purchased in the open market, 2,148,000 shares at a cost of
$33,611,352.
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 2001.
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,
renovation, 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, dependence on
imports, changes in currency exchange rates, tariffs, quotas and
freight rates, availability of real estate, costs and delays
associated with building, opening and operating new distribution
facilities, costs and potential problems associated with the
implementation of new systems and technology, including supply
chain systems and electronic commerce, changes in energy prices
and the impact on consumer spending and the Company's costs, and
the effects of legislation on wage levels and entitlement
programs. Consequently, all of the forward-looking statements
<PAGE>
made are qualified by these and other factors, risks and
uncertainties. The Company does not undertake to publicly
update or revise its forward-looking statements even if
experience or future changes make it clear that projected
results expressed or implied in such statements will not be
realized.
<PAGE>
<TABLE>
Family Dollar Stores, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
August 26, August 28, August 29,
Years Ended 2000 1999 1998
<S> <C> <C> <C>
Net sales.......................................... $ 3,132,639,132 $ 2,751,181,355 $ 2,361,930,395
Costs and expenses:
Cost of sales.................................... 2,076,916,042 1,833,441,611 1,588,655,757
Selling, general and administrative.............. 784,811,643 695,060,477 607,286,713
2,861,727,685 2,528,502,088 2,195,942,470
Income before income taxes......................... 270,911,447 222,679,267 165,987,925
Income taxes (Note 5).............................. 98,894,200 82,600,000 62,700,000
Net income......................................... $ 172,017,247 $ 140,079,267 $ 103,287,925
Net income per common share-basic (Note 9):........ $1.00 $.81 $.60
Average shares - basic (Note 9)................ 171,697,772 172,511,199 172,008,335
Net income per common share - diluted (Note 9):... $1.00 $.81 $.60
Average shares - diluted (Note 9).............. 172,648,787 173,834,350 173,223,635
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 26,
2000 and August 28, 1999, and the results of their operations and their
cash flows for each of the three years in the period ended August 26,
2000, in conformity with accounting principles generally accepted in the
United States of America. 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 auditing
standards generally accepted in the United States of America, 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 our opinion.
PRICEWATERHOUSECOOPERS LLP
September 25, 2000
Charlotte, North Carolina
<PAGE>
<TABLE>
Family Dollar Stores, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<CAPTION>
August 26, August 28,
2000 1999
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 43,558,010 $ 95,301,411
Merchandise inventories................................... 644,614,067 568,780,481
Deferred income taxes (Note 5)............................ 51,563,225 47,066,920
Prepayments and other current assets...................... 10,937,390 8,806,072
Total current assets .................................. $ 750,672,692 $ 719,954,884
Property and equipment, net (Note 2)........................ 487,585,296 371,141,298
Other assets................................................ 5,456,363 4,155,454
$1,243,714,351 $1,095,251,636
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 277,265,022 $ 244,809,886
Accrued liabilities (Note 4).............................. 127,575,281 124,279,005
Income taxes payable (Note 5)............................. 7,176,816 9,457,571
Total current liabilities.............................. 412,017,119 378,546,462
Deferred income taxes (Note 5).............................. $ 33,732,753 $ 26,054,116
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 ...... 18,363,670 18,310,933
Capital in excess of par.................................... 28,516,899 22,808,499
Retained earnings........................................... 796,039,456 660,880,894
842,920,025 702,000,326
Less common stock held in treasury, at cost................. 44,955,546 11,349,268
797,964,479 690,651,058
$1,243,714,351 $1,095,251,636
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Family Dollar Stores, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Capital in
Years Ended August 26, 2000, August 28, 1999 Common excess Retained Treasury
and August 29, 1998 stock of par earnings stock
<S> <C> <C> <C> <C>
Balance, September 1, 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
(183,109,328 shares common stock;
10,358,466 shares treasury stock)................ 18,310,933 22,808,499 660,880,894 11,349,268
Net income for the year.............................. 172,017,247
Issuance of 527,370 common shares
under employee stock option plan,
including tax benefits (Note 8) ................ 52,737 5,683,474
Purchase of 2,148,000 common shares for treasury 33,611,352
Issuance of 1,680 shares of treasury stock under
the Family Dollar 2000 outside directors plan 24,926 (5,074)
Less dividends on common stock, $.21 1/2 per share... (36,858,685)
Balance, August 26, 2000
(183,636,698 shares common stock;
12,504,786 shares treasury stock).............. $ 18,363,670 $ 28,516,899 $796,039,456 $ 44,955,546
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Family Dollar Stores, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
August 26, August 28, August 29,
Years Ended 2000 1999 1998
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $172,017,247 $140,079,267 $103,287,925
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.... 54,509,412 43,788,467 34,842,830
Deferred income taxes............ 3,182,332 (1,071,000) (10,403,000)
(Gain) Loss on disposition of property and equipment 417,405 (58,130) (37,710)
Changes in operating assets and liabilities:
Merchandise inventories........ (75,833,586) (103,223,922) 2,388,924
Prepayments and other current assets (2,131,318) (2,649,558) (274,994)
Other assets................... (1,300,909) (364,916) 565,801
Accounts payable and accrued liabilities 34,976,278 36,614,611 80,597,237
Income taxes payable........... (2,280,755) (2,231,494) 570,262
183,556,106 110,883,325 211,537,275
Cash flows from investing activities:
Capital expenditures................ (172,055,853) (125,038,135) (96,853,635)
Proceeds from dispositions of property and equipment 685,038 1,926,366 1,523,405
(171,370,815) (123,111,769) (95,330,230)
Cash flows from financing activities:
Purchases of common stock for treasury (33,606,278) - -
Exercise of employee stock options,
including tax benefits 5,761,137 6,077,786 4,780,525
Payment of dividends............... (36,083,551) (32,768,604) (29,235,197)
(63,928,692) (26,690,818) (24,454,672)
Net (decrease) increase in cash and cash equivalents (51,743,401) (38,919,262) 91,752,373
Cash and cash equivalents at beginning of year 95,301,411 134,220,673 42,468,300
Cash and cash equivalents at end of year.. $ 43,558,010 $ 95,301,411 $134,220,673
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest..................... $ - $ - $ 12,594
Income taxes................. 95,316,735 82,714,126 70,840,009
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
Family Dollar Stores, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended August 26, 2000, August 28, 1999, and August 29, 1998
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
The Company capitalizes certain costs incurred in connection with developing,
obtaining and implementing software for internal use. Capitalized costs are
amortized over the expected economic life of the assets, generally ranging
from five to eight years.
<PAGE>
Advertising costs:
Advertising costs, net of co-op recoveries from vendors, are expensed
the first time the advertising is run and amounted to $8.7 million,
$10.6 million, and $16.0 million in fiscal 2000, 1999,and 1998,
respectively.
Store opening and closing costs:
The Company charges pre-opening costs against operating results when
incurred. 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.
Income taxes:
Under Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes," the Company records deferred income tax assets and
liabilities for the expected future tax consequences of temporary
differences between the financial reporting bases and the income tax
bases of its assets and liabilities.
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.
Fiscal year:
The Company's fiscal years beginning with 1998 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.
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 26, August 28,
2000 1999
<S> <C> <C>
Buildings............................ $ 174,304,111 $ 128,814,803
Furniture, fixtures and equipment.... 387,403,447 310,275,915
Transportation equipment............. 34,219,526 26,892,567
Leasehold improvements............... 100,964,041 79,010,743
Construction in progress............. 16,471,605 8,313,731
713,362,730 553,307,759
Less accumulated depreciation
and amortization................. 242,120,125 192,824,434
471,242,605 360,483,325
Land................................ 16,342,691 10,657,973
$ 487,585,296 $ 371,141,298
</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, 2002 and
March 27, 2001, respectively, and the Company expects that the line
expiring on March 27, 2001, 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, 2002, into either a five or seven
year term loan, at the bank's variable prime rate. The Company did not
borrow against these lines of credit in fiscal 2000 or fiscal 1999.
The Company had outstanding letters of credit of $33,722,930 and
$27,130,491 at August 26, 2000 and August 28, 1999, respectively.
4. Accrued Liabilities:
<TABLE>
<CAPTION>
August 26, August 28,
2000 1999
<S> <C> <C>
Compensation........................... $ 30,992,226 $ 30,144,697
Insurance................................ 46,328,121 45,921,369
Taxes other than income taxes............ 27,563,837 23,709,222
Other................................. 22,691,097 24,503,717
$ 127,575,281 $ 124,279,005
</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 26, 2000 and August 28, 1999, were as follows:
<TABLE>
<CAPTION>
August 26, August 28,
2000 1999
<S> <C> <C>
Deferred income tax liabilities:
Excess of book over tax basis of
property and equipment.............. $ 33,732,753 $ 26,054,116
Deferred income tax assets:
Excess of tax over book basis
of inventories...................... $ 22,800,709 $ 22,123,771
Currently nondeductible accruals for:
Insurance........................... 18,322,772 18,102,577
Vacation and bonus.pay.............. 3,938,339 2,520,977
Closed store lease liabilities...... 1,954,775 1,960,599
State net operating losses 250,000
Other................................. 4,546,630 2,483,996
Gross deferred income tax assets.... 51,563,225 47,441,920
Valuation allowance for deferred
income tax assets................... - (375,000)
Net deferred income tax assets...... $ 51,563,225 $ 47,066,920
</TABLE>
The provisions for income taxes in each of the three years in the
period ended August 26, 2000, were as follows:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Current:
Federal... $85,858 739 $75,746,000 $67,103,000
State..... 9,853,129 7,925,000 6,000,000
95,711,868 83,671,000 73,103,000
Deferred:
Federal... 1,567,367 1,109,000 (9,431,000)
State..... 1,614,965 (2,180,000) (972,000)
3,182,332 (1,071,000) (10,403,000)
$98,894,200 $82,600,000 $62,700,000
</TABLE>
<PAGE>
The following table summarizes the components of income tax expense
in each of the three years in the period ended August 26, 2000:
<TABLE>
<CAPTION>
2000 1999 1998
% % %
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 $94,818,998 35.0 $77,937,746 35.0 $58,095,773 35.0
State income taxes, net of federal
income tax benefit........... 5,302,490 2.0 3,227,862 1.5 4,943,200 3.0
Other............................. (1,227,288) (0.5) 1,434,392 0.6 (338,973) (0.2)
Actual income tax expense......... $98,894,200 36.5 $82,600,000 37.1 $62,700,000 37.8
</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 $3,989,125 in fiscal 2000, $3,786,933 in fiscal
1999, and $3,455,060 in fiscal 1998.
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 $1,410,497 in fiscal
2000, $1,310,588 in fiscal 1999, and $1,124,569 in fiscal 1998.
<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 26, 2000, were as follows:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
Minimum rentals,
net of minor
sublease rentals...... $126,489,927 $107,620,387 $90,616,520
Contingent rentals....... 3,819,191 3,963,680 2,619,790
$130,309,118 $111,584,067 $93,236,310
</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 26, 2000, were as follows:
<TABLE>
<CAPTION>
Fiscal Year: Minimum Rental
<C> <C>
2001 $117,341,035
2002 102,128,477
2003 84,028,317
2004 60,531,885
2005 34,201,420
Thereafter 56,541,863
$454,772,997
</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>
Litigation:
The Company is subject to legal proceedings and claims which arise in
the ordinary course of business. The Company believes that the final
disposition of these matters will not have a material adverse effect
on its financial position, results of operation or liquidity.
<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 26, August 28, August 29,
2000 1999 1998
<S> <C> <C> <C>
Net income - as reported $172,017,247 $140,079,267 $103,287,925
Net income - pro forma $169,699,506 $138,568,250 $102,367,767
Net income per share -
as reported
basic $1.00 $.81 $.60
diluted $1.00 $.81 $.60
Net income per share -
pro forma
basic $ .99 $.80 $.60
diluted $ .98 $.80 $.59
</TABLE>
<PAGE>
The pro forma effects on net income for fiscal 2000, 1999, and 1998
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 1998. The average fair
value of options granted during fiscal 2000, 1999 and 1998 is $5.82,
$4.84 and $3.66 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 26, August 28, August 29,
2000 1999 1998
<S> <C> <C> <C>
Expected dividend yield 1.00% 1.13% 1.36%
Expected stock price volatility 35.32% 33.54% 30.53%
Weighted average risk-free
interest rate 6.01% 4.88% 5.73%
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 26, 2000, August 28, 1999 and August 29, 1998, 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, 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
Granted 918,150 14.75 to 21.75 18.46
Exercised (527,370) 3.83 to 17.38 5.40
Cancelled (132,755) 5.00 to 23.50 14.62
Balance, August 26, 2000 4,168,775 $ 3.83 to $24.75 $12.76
</TABLE>
At August 26, 2000, August 28, 1999, and August 29, 1998, options for
1,380,413, 983,507 and 660,687 shares were exercisable, respectively. The
following table summarizes information about stock options outstanding at
August 26, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at 8/26/00 Contractual Life Exercise Price at 8/26/00 Exercise Price
<S> <C> <C> <C> <C> <C>
$ 3.83 to $ 8.33 1,218,845 1.18 Years $ 6.16 844,891 $ 6.11
8.34 to 16.13 1,723,730 2.43 13.08 503,642 11.87
16.14 to 24.75 1,226,200 3.98 18.89 31,880 17.81
$ 3.83 to $24.75 4,168,775 2.52 Years $12.76 1,380,413 $ 8.49
</TABLE>
At August 26, 2000, August 28, 1999 and August 29, 1998, shares available
for granting of stock options under the Company's stock option plan were
5,343,695, 6,129,090 and 6,846,464 shares, respectively.
<PAGE>
9. Common Stock:
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.
On November 5, 1999, the Company announced that the Board of Directors
had authorized the purchase of up to 5,000,000 shares of its outstanding
common stock from time to time as market conditions warrant. As of
August 26, 2000, the Company had purchased in the open market, 2,148,000
shares at a cost of $33,611,352.
The following table sets forth the computation of basic and diluted net
income per common share:
<TABLE>
<CAPTION>
August 26, August 28, August 29,
2000 1999 1998
<S> <C> <C> <C>
Basic net income per share:
Net income $172,017,247 $140,079,267 $103,287,925
Weighted average number of shares
outstanding 171,697,772 172,511,199 172,008,335
Net income per common share - basic $1.00 $.81 $.60
Diluted net income per share:
Net income $172,017,247 $140,079,267 $103,287,925
Weighted average number of shares
outstanding 171,697,772 172,511,199 172,008,335
Effect of dilutive securities -
stock options 951,015 1,323,151 1,215,300
Average shares - diluted 172,648,787 173,834,350 173,223,635
Net income per common share - diluted $1.00 $.81 $.60
</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>
2000
Net sales..................... $713,521 $858,500 $770,776 $789,842
Gross margin.................. 247,341 284,135 272,434 251,813
Net income.................... 36,583 54,981 50,131 30,322
Net income per
common share*.............. $.21 $.32 $.29 $.18
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
</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.
