Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 27, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6807
FAMILY DOLLAR STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-0942963
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 1017, 10401 Old Monroe Road
Charlotte, North Carolina 28201-1017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 704-847-6961
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at December 31, 1999
Common Stock, $.10 par value 172,831,757 shares
<PAGE>
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information
Item 1 - Consolidated Condensed Financial Statements:
Consolidated Condensed Balance Sheets -
November 27, 1999 and August 28, 1999 2
Consolidated Condensed Statements of Income -
Quarters Ended November 27, 1999 and
November 28, 1998 3
Consolidated Condensed Statements of Cash Flows -
Quarters Ended November 27, 1999 and
November 28, 1998 4
Notes to Consolidated Condensed Financial
Statements 5-7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-11
Part II - Other Information and Signatures
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 12
<PAGE>
<TABLE>
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
November 27, August 28,
1999 1999
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 2) $ 69,948,542 $ 95,301,411
Merchandise inventories 594,665,137 568,780,481
Deferred income taxes 47,666,920 47,066,920
Prepayments and other current assets 13,412,055 8,806,072
Total current assets 725,692,654 719,954,884
Property and equipment, net 396,920,474 371,141,298
Other assets 4,039,277 4,155,454
$1,126,652,405 $1,095,251,636
<PAGE>
<CAPTION>
Liabilities and Shareholders' Equity
<S> <C> <C>
Current liabilities:
Accounts payable and accrued
liabilities $ 354,074,156 $ 369,088,891
Income taxes payable 26,353,319 9,457,571
Total current liabilities 380,427,475 378,546,462
Deferred income taxes 27,029,116 26,054,116
Shareholders' equity (Notes 4 and 5):
Preferred stock, $1 par; authorized
and unissued 500,000 shares
Common stock, $.10 par;
authorized 300,000,000 shares;
issued 183,242,773 shares at
November 27, 1999 and 183,109,328
shares at August 28, 1999 18,324,277 18,310,933
Capital in excess of par 24,338,684 22,808,499
Retained earnings 688,822,866 660,880,894
731,485,827 702,000,326
Less common stock held in treasury,
at cost (10,412,466 shares at
November 27, 1999 and 10,358,466
shares at August 28, 1999 -
Note 5) 12,290,013 11,349,268
Total shareholders' equity 719,195,814 690,651,058
$1,126,652,405 $1,095,251,636
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Quarters Ended
November 27, November 28,
1999 1998
<S> <C> <C>
Net sales $ 713,520,628 $628,015,954
Costs and expenses:
Cost of sales 466,179,823 412,299,231
Selling, general and
administrative expenses 189,757,284 168,247,792
655,937,107 580,547,023
Income before provision
for taxes on income 57,583,521 47,468,931
Provision for taxes on income 21,000,000 17,860,000
Net income $ 36,583,521 $ 29,608,931
Net income per common share-Basic
(Note 5) $0.21 $0.17
Average shares-Basic (Note 5) 172,804,326 172,231,640
Net income per common share - Diluted
(Note 5) $0.21 $0.17
Average shares-Diluted (Note 5) 173,994,669 173,469,216
Dividends per common share $.05 $.04-1/2
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
<TABLE>
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Quarters Ended
November 27, November 28,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $36,583,521 $29,608,931
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 12,800,556 10,292,411
Deferred income taxes 375,000 (40,000)
Loss (Gain) on disposition of property
and equipment 4,354 (929,607)
Changes in operating assets and liabilities:
Inventories (25,884,656) (127,700,833)
Prepayments and other current assets (4,605,983) (5,742,414)
Other assets 116,177 794,783
Accounts payable and accrued
liabilities (15,018,741) 40,329,678
Income taxes payable 16,895,748 16,811,378
21,265,976 (36,575,673)
Cash flows from investing activities:
Capital expenditures (38,603,880) (23,052,498)
Proceeds from dispositions of
property and equipment 19,794 1,313,357
(38,584,086) (21,739,141)
Cash flows from financing activities:
Purchases of common stock for treasury (940,745) -
Exercise of employee stock options 1,543,529 611,688
Payment of dividends (8,637,543) (7,749,540)
(8,034,759) (7,137,852)
Net change in cash and cash equivalents (25,352,869) (65,452,666)
Cash and cash equivalents at beginning
of period 95,301,411 134,220,673
Cash and cash equivalents at end of period $69,948,542 $ 68,768,007
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ - $ -
Income taxes 2,930,602 813,419
See notes to consolidated condensed financial statements.
</TABLE>
<PAGE>
FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position as of
November 27, 1999, and the results of operations and the
cash flows for the quarters ended November 27, 1999, and
November 28, 1998.
The results of operations for the quarter ended
November 27, 1999, are not necessarily indicative of
the results to be expected for the full year.
2. 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.
3. The Company has two unsecured bank lines of credit for
short-term revolving borrowings of up to $50,000,000 each,
or $100,000,000 of total borrowing capacity. The lines of
credit expire on March 31, 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
March 31, 2001, into either a five or seven year term loan,
at the bank's variable prime rate.
4. The Company's non-qualified stock option plan provides for
the granting of options to key employees to purchase shares
of common stock at prices not less than the fair market
value on the date of grant. Options expire five years from
the date of grant and are exercisable to the extent of 40%
after the second anniversary of the grant and an additional
30% at each of the following two anniversary dates on a
cumulative basis.
<PAGE>
<TABLE>
The following is a summary of transactions under the plan during the
quarters ended November 27, 1999, and November 28, 1998.
<CAPTION>
Quarters Ended
November 27, 1999 November 28, 1998
Number of Number of
shares Option price shares Option price
under option per share under option per share
<S> <C> <C> <C> <C>
Outstanding-beginning 3,910,750 $ 3.83-$24.75 3,739,335 $ 3.50-$20.75
Granted 742,850 $17.50-$21.75 557,550 $12.75-$15.00
Exercised (133,445) $ 3.83-$11.38 (62,622) $ 4.33-$ 6.25
Cancelled (11,700) (7,135)
Outstanding-ending 4,508,455 $ 3.83-$24.75 4,227,128 $ 3.50-$20.75
</TABLE>
At November 27, 1999, options to purchase 1,341,256 shares were
exercisable at prices ranging from $3.83 to $11.38 per share, and
at November 28, 1998, options to purchase 904,589 shares were
exercisable at prices ranging from $3.50 to $ 6.25 per share.
5. 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
has 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
December 31, 1999, the company had purchased in the open market,
1,576,000 shares at a cost of $24,284,227, substantially all of which was
purchased in December 1999.
<PAGE>
The following table sets forth the computation of basic and diluted
net income per common share:
<TABLE>
<CAPTION
Quarter Ended
November 27, November 28,
1999 1998
<S> <C> <C>
Basic Net Income Per Share:
Net Income $ 36,583,521 $ 29,608,931
Weighted Average Number of Shares
Outstanding 172,804,326 172,231,640
Net Income Per Common Share - Basic $.21 $.17
Diluted Net Income Per Share:
Net Income $ 36,583,521 $ 26,608,931
Weighted Average Number of Shares
Outstanding 172,804,326 172,231,640
Effect of Dilutive Securities -
Stock Options 1,190,343 1,237,576
Average Shares - Diluted 173,994,669 173,469,216
Net Income Per Common Share - Diluted $.21 $.17
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
At November 27, 1999, the Company had working capital of $345.3 million
with cash and cash equivalents of approximately $69.9 million and no
outstanding borrowings. Changes in working capital and cash and cash
equivalents during the first quarter of fiscal 2000 and 1999 were primarily
the result of earnings, seasonal increases in merchandise inventories, and
capital expenditures. These increases in merchandise inventories
contributed to reductions in cash and cash equivalents on hand, and, in
fiscal 1999, to an increase in trade accounts payable.
Capital expenditures for the quarter ended November 27, 1999, were
approximately $38.6 million, and are currently expected to be approximately
$160 million for fiscal 2000. The majority of planned capital expenditures
for fiscal 2000 is related to the Company's new store expansion, existing
store expansion, relocation and renovation and to the construction and
equipping of a new full-service distribution center in Rowan County,
Kentucky currently scheduled for completion in the summer of 2000. The new
store expansion and the additional distribution center will require
additional investment in merchandise inventories. In fiscal 2000, the
Company currently expects to open approximately 400 stores and close
approximately 50 stores for a net addition of approximately 350 stores,
compared with the opening of 366 stores and closing of 59 stores for a net
addition of 307 stores in fiscal 1999. The Company also currently plans to
expand or relocate approximately 150 stores and renovate approximately 300
stores in fiscal 2000, compared with the expansion or relocation of 107
stores and renovation of 350 stores in fiscal 1999. In the first quarter of
fiscal 2000, the Company opened 78 stores, closed 7 stores, expanded or
relocated 24 stores and renovated 50 stores. The Company occupies most of
its stores under operating leases. Store opening, closing, expansion,
relocation, and renovation plans, as well as overall capital expenditure
plans, are continuously reviewed and are subject to change.
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.
As of December 31, 1999, the Company had purchased in the open market,
1,576,000 shares at a cost of $24,284,227, substantially all of which was
purchased in December 1999.
<PAGE>
RESULTS OF OPERATIONS
NET SALES
Net sales increased 13.6% in the quarter ended November 27, 1999, as
compared with 15.7% in the quarter ended November 28, 1998. The increase
was attributable to increased sales in existing stores and sales from new
stores opened as part of the Company's store expansion program. Sales in
existing stores increased 4.8% in the quarter ended November 27, 1999, as
compared with the similar period in the prior fiscal year, with sales of
hardlines merchandise increasing approximately 6.1% and sales of softlines
merchandise increasing approximately 1.8%. Hardlines as a percent of total
sales increased to approximately 71.4% in the first quarter of fiscal 2000,
compared to 70.6% in the first quarter of 1999. The Company continues to
broaden its assortment of hardlines merchandise and dedicate more selling
space in its stores to hardlines. The Company expects the shift in the
merchandise mix to hardlines to continue for the remainder of fiscal 2000.
Hardlines merchandise includes primarily household chemical and paper
products, health and beauty aids, candy and snack food, electronics,
housewares, giftware, toys, hardware and automotive supplies. Softlines
merchandise includes men's, women's, boy's, girl's and infant's clothing,
shoes, and domestic items such as blankets, sheets and towels.
The average number of stores open during the first quarter of fiscal
2000 was 10.0% more than during the first quarter of fiscal 1999. The
Company had 3,395 stores in operation at November 27, 1999, as compared with
3,097 stores in operation at November 28, 1998, representing an increase of
approximately 9.6%.
COST OF SALES
Cost of sales increased 13.1% in the quarter ended November 27, 1999,
as compared with the quarter ended November 28, 1998. This increase
primarily reflected the additional sales volume between years. Cost of
sales, as a percentage of net sales, was 65.3% in the quarter ended
November 27, 1999, as compared to 65.7% in the quarter ended November 28,
1998. The decrease in the cost of sales percentage for the quarter was due
in part to greater sales of higher margin seasonal merchandise. The Company
also recorded fewer clearance markdowns on spring/summer apparel during the
quarter. The cost of sales percentages also are affected by changes in the
effectiveness of the merchandise purchasing programs and by changes in
merchandise shrinkage losses and freight costs.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 12.8% in the
quarter ended November 27, 1999, as compared with the quarter ended
November 28, 1998. The increase in these expenses was due primarily to
additional costs arising from the continued growth in the number of stores
in operation. Selling, general and administrative expenses, as a percentage
of net sales, were 26.6% in the quarter ended November 27, 1999, as compared
with 26.8% in the quarter ended November 28, 1998. Distribution center
expenses as a percentage of net sales decreased during the quarter as
relatively less merchandise was handled due to the earlier receipt of
seasonal merchandise, and continued productivity improvements. Occupancy
costs increased as a percentage of net sales as a result of new store growth
and higher store rents.
PROVISION FOR TAXES ON INCOME
The effective tax rate was 36.5% for the quarter ended November 27,
1999, as compared to 37.6% for the quarter ended November 28, 1998. The
decrease in the effective tax rate for the quarter ended November 27, 1999,
resulted primarily from changes in effective state income tax rates.
YEAR 2000
The Company continues to monitor 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 also 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 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, and as of January 7, 2000,
<PAGE>
no significant problems had been encountered. However, there can be no
assurances that this will continue to be the case, and there are also
continuing risks to the Company's operations from Year 2000 failures by
third parties, such as merchandise vendors, utility companies or government
agencies.
The Company initiated a formal communication program with significant
vendors to evaluate their Year 2000 compliance, and has assessed 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. 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.
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements contained herein and elsewhere in this Form 10-Q
which are not historical facts are forward-looking statements made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements address activities or events
which the Company expects will or may occur in the future, such as future
capital expenditures, store openings, closings, remodelings, refurbishing,
expansions and relocations, additional distribution facilities, and other
aspects of the Company' 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, 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>
PART II - OTHER INFORMATION
Item 6.
Exhibits and Reports on Form 8-K
(a) Exhibits filed herewith:
11 Statements Re: Computations of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAMILY DOLLAR STORES, INC.
(Registrant)
Date: January 7, 2000 /s/ R. JAMES KELLY
R. JAMES KELLY
Vice Chairman
Date: January 7, 2000 /s/ C. MARTIN SOWERS
C. MARTIN SOWERS
Senior Vice President-Finance
<TABLE>
<CAPTION>
EXHIBIT 11
FAMILY DOLLAR STORES, INC.
STATEMENT RE COMPUTATIONS OF PER SHARE EARNINGS
QUARTER ENDED QUARTER ENDED
AS PRESENTED NOVEMBER 27, 1999 NOVEMBER 28, 1998
BASIC DILUTED BASIC DILUTED
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING 172,804,326 172,804,326 172,231,640 172,231,640
NET INCOME $ 36,583,521 $ 36,583,521 $ 29,608,931 $ 29,608,931
NET INCOME PER SHARE $ .21 $ .21 $ .17 $ .17
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 4,488,446 4,206,758
WEIGHTED AVERAGE SHARES ASSUMED REPURCHASED FROM
ASSUMED PROCEEDS OF EXERCISES USING TREASURY STOCK
METHOD (AVERAGE MARKET PRICE) (3,298,103) (2,969,182)
NET PRO FORMA COMMON STOCK
EQUIVALENT INCREMENTAL SHARES 1,190,343 1,237,576
PERCENTAGE DILUTION FROM PRO FORMA COMMON
STOCK EQUIVALENT INCREMENTAL SHARES 0.69% 0.72%
TOTAL COMMON STOCK AND COMMON
STOCK EQUIVALENTS 173,994,669 173,469,216
NET INCOME $ 36,583,521 $ 29,608,931
PRO FORMA NET INCOME PER SHARE (INCLUDING DILUTIVE
COMMON STOCK EQUIVALENTS) $ .21 $ .17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF FAMILY DOLLAR STORES, INC.
AND SUBSIDIARIES FOR THE PERIOD ENDED NOVEMBER 27, 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> 3-MOS
<FISCAL-YEAR-END> AUG-26-2000
<PERIOD-START> AUG-29-1999
<PERIOD-END> NOV-27-1999
<EXCHANGE-RATE> 1
<CASH> 69,948,542
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 594,665,137
<CURRENT-ASSETS> 725,692,654
<PP&E> 600,220,184
<DEPRECIATION> 203,299,710
<TOTAL-ASSETS> 1,126,652,405
<CURRENT-LIABILITIES> 380,427,475
<BONDS> 0
0
0
<COMMON> 18,324,277
<OTHER-SE> 700,871,537
<TOTAL-LIABILITY-AND-EQUITY> 1,126,652,405
<SALES> 713,520,628
<TOTAL-REVENUES> 713,520,628
<CGS> 466,179,823
<TOTAL-COSTS> 655,937,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 57,583,521
<INCOME-TAX> 21,000,000
<INCOME-CONTINUING> 36,583,521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,583,521
<EPS-BASIC> .21
<EPS-DILUTED> .21
</TABLE>
