FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 SEPTEMBER 30, 1997
( ) Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER: 0-25464
DOLLAR TREE STORES, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1387365
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2555 ELLSMERE AVENUE
NORFOLK COMMERCE PARK
NORFOLK, VIRGINIA 23513
(Address of principal executives office)
TELEPHONE NUMBER (757) 321-5000
(Registrants telephone number, including area code)
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 ( )
As of November 1, 1997, there were 39,131,538 shares of the Registrant's Common
Stock outstanding.
<PAGE>
DOLLAR TREE STORES, INC.
and subsidiaries
INDEX
PART I. FINANCIAL INFORMATION
Page No.
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets
September 30, 1997 and December 31, 1996............................ 3
Condensed Consolidated Income Statements
Three months and nine months ended September 30, 1997 and 1996...... 4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1997 and 1996....................... 5
Notes to Condensed Consolidated Financial Statements................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................ 11
ITEM 5. OTHER INFORMATION................................................ 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................. 12
SIGNATURES................................................. 12
<PAGE>
<TABLE>
<CAPTION>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
September 30, December 31,
1997 1996
------------- ------------
ASSETS
Current assets:
<S> <C> <C>
Cash ........................................................... $ 4,638 $ 2,987
Accounts receivable................................................. 1,220 1,855
Merchandise inventories ............................................ 133,150 75,081
Deferred tax asset ................................................. 2,800 2,002
Prepaid expenses and other current assets .......................... 3,795 4,028
------ -------
Total current assets............................................ 145,603 85,953
------- -------
Property and equipment, net.............................................. 70,581 36,035
Deferred tax asset....................................................... 2,133 1,947
Goodwill, net . . . . ................................................... 44,960 46,405
Other assets, net........................................................ 1,122 759
------ -------
TOTAL ASSETS.................................................... $264,399 $171,099
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of revolving
credit facility................................................ $ 12,500 $ --
Accounts payable ................................................... 46,774 35,296
Accrued liabilities ................................................ 14,330 14,260
Income taxes payable................................................ 1,742 12,607
Current installments of obligations
under capital leases........................................... 309 302
------- -------
Total current liabilities....................................... 75,655 62,465
------- -------
Revolving credit facility,
excluding current installments........................................ 30,000 3,000
Long-term senior notes (note 4).......................................... 30,000 --
Obligations under capital leases,
excluding current installments........................................ 817 1,051
Other liabilities........................................................ 3,798 2,993
------ -------
Total liabilities............................................... 140,270 69,509
------- -------
Shareholders' equity:
Common stock, par value $0.01. Authorized 100,000,000 shares, 39,120,712
shares issued and outstanding at September 30, 1997 and 38,847,258
shares issued and outstanding at
December 31, 1996 (note 2)...................................... 391 259
Additional paid-in capital.......................................... 35,703 31,555
Retained earnings................................................... 88,035 69,776
------- -------
Total shareholders' equity...................................... 124,129 101,590
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................... $264,399 $171,099
======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales ............................................ $142,386 $110,588 $389,464 $298,252
Cost of sales............................................. 88,550 68,698 248,173 191,633
------- ------- ------- --------
Gross profit..................................... 53,836 41,890 141,291 106,619
------- ------- ------- -------
Selling, general, and administrative expenses:
Operating expenses..................................... 35,444 28,075 99,973 77,843
Depreciation and amortization.......................... 3,327 2,681 9,422 7,486
------- ------ ------ ------
Total selling, general
and administrative expenses................. 38,771 30,756 109,395 85,329
------- ------- ------- -------
Operating income.......................................... 15,065 11,134 31,896 21,290
Interest expense.......................................... 971 1,408 2,209 4,032
------- ------ ------ ------
Income before income taxes................................ 14,094 9,726 29,687 17,258
Provision for income taxes................................ 5,425 3,748 11,428 6,646
------ ------ ------- ------
Net income....................................... $ 8,669 $ 5,978 $ 18,259 $ 10,612
====== ====== ======= =======
Net income per share (notes 2 and 3)...................... $ 0.20 $ 0.14 $ 0.42 $ 0.25
======= ======= ======= =======
Weighted average number of common shares and common share equivalents
outstanding (notes 2 and 3):
Primary ......................................... 43,576 42,996 43,606 42,286
------- ------- ------- -------
Fully diluted.................................... 43,625 43,060 43,625 42,383
------- ------- ------- -------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
DOLLAR TREE STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Net income.......................................................................... $ 18,259 $ 10,612
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization.................................................... 9,422 7,485
Loss on disposal of property and equipment ...................................... 77 258
Provision for deferred income taxes.............................................. (984) (664)
Changes in assets and liabilities increasing
(decreasing) cash and cash equivalents,
(1996 shown net of effects resulting from
purchase of Dollar Bills, Inc.):
Accounts receivable........................................................... 635 (411)
Merchandise inventories....................................................... (58,069) (56,291)
Prepaid expenses and other current assets..................................... 233 (1,527)
Other assets ................................................................. (160) 267
Accounts payable.............................................................. 11,478 10,971
Accrued liabilities........................................................... 70 (1,105)
Income taxes payable.......................................................... (8,269) (7,412)
Other liabilities............................................................. 805 57
-------- -------
Total adjustments............................................................ (44,762) (48,372)
-------- --------
Net cash used in operating activities ....................................... (26,503) (37,760)
-------- --------
Cash flows from investing activities:
Capital expenditures ............................................................... (42,600) (12,495)
Proceeds from sale of property and equipment........................................ -- 23
Payment for purchase of Dollar Bills, Inc.,
net of cash acquired............................................................... -- (52,209)
-------- --------
Net cash used in investing activities........................................ (42,600) (64,681)
-------- --------
Cash flows from financing activities:
Proceeds from development facility.................................................. -- 92,630
Repayment of development facility................................................... -- (52,630)
Proceeds from revolving credit facility............................................. 183,400 --
Repayment of revolving credit facility and facility fees............................ (144,103) --
Proceeds from long-term senior notes................................................ 30,000 --
Net change in notes payable to bank................................................. -- 29,600
Repayment of senior and junior subordinated notes................................... -- (14,000)
Principal payments under capital lease obligations.................................. (227) (174)
Proceeds from options exercised and purchase
of shares under ESPP............................................................... 1,684 2,902
Proceeds from public offering....................................................... -- 25,819
-------- -------
Net cash provided by financing activities.................................... 70,754 84,147
-------- -------
Net increase (decrease) in cash and cash equivalents................................. 1,651 (18,294)
Cash and cash equivalents at beginning of period..................................... 2,987 22,415
-------- -------
Cash and cash equivalents at end of period........................................... $ 4,638 $ 4,121
======= ======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of Dollar Tree Stores, Inc.
and subsidiaries (the "Company") at September 30, 1997, and for the three- and
nine-month periods then ended, are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, together with management's discussion and analysis
of financial condition and results of operations for the year ended December 31,
1996, contained in the Company's Annual Report on Form 10- K. The results of
operations for the three- and nine-month periods ended September 30, 1997 are
not necessarily indicative of the results to be expected for the entire year
ending December 31, 1997.
2. STOCK SPLIT
In connection with a stock dividend authorized by the Board of Directors,
the Company issued one-half share of Common Stock for each outstanding share of
Common Stock, payable July 21, 1997 to shareholders of record as of July 14,
1997. All share and per share data in these condensed consolidated financial
statements and accompanying notes have been retroactively adjusted to reflect
this dividend, having the effect of a three-for-two stock split.
3. STOCK OPTION PLAN, STOCK INCENTIVE PLAN, EMPLOYEE STOCK PURCHASE PLAN AND
UNATTACHED WARRANTS
The Company maintains a stock option plan ("SOP") which was established on
December 16, 1993 and a stock incentive plan ("SIP") which was established on
January 1, 1995. No additional shares may be granted under the SOP. Under the
original terms of the SIP, options for no more than 405,000 shares of common
stock may be granted in any calendar year. This restriction on the number of
shares granted in any one year was removed by the Board of Directors in a
unanimous consent signed March 18, 1997. The Company's shareholders approved an
increase in the total number of shares issuable under the SIP from 1,350,000 to
3,600,000 on June 4, 1997.
At September 30, 1997 and 1996, options for the following numbers of shares
were outstanding under each plan:
Options for Shares Outstanding at Exercise
PLAN September 30, 1997 September 30, 1996 Price/Range
- ---- ------------------ ------------------ -------------
SOP......... 308,975 513,684 $ 1.93
SIP......... 1,083,116 720,137 $ 6.67 - 35.83
The options above include options for 2,250 shares granted during the third
6
<PAGE>
quarter of 1997 which are not included in the earnings per share calculation.
On January 1, 1995, the Company also established the Dollar Tree Stores,
Inc. Employee Stock Purchase Plan (the "ESPP"). The Company reserved 337,500
shares of common stock for future issuance under the ESPP. The ESPP enables
eligible employees, as defined in the ESPP, to buy shares of common stock for
85% of fair market value on the first day or the last day of the applicable
offering period, whichever is lower. As of September 30, 1997, 24,560 shares
have been purchased under the ESPP.
Additionally, in 1993 and 1994, the Company issued unattached warrants to
purchase a total of 3,723,262 shares of Common Stock to certain shareholders.
These warrants carry an exercise price of $1.29 and may be exercised at any
time.
The Company will adopt Statement of Financial Accounting Standards No. 128,
Earnings Per Share, for the year ended December 31, 1997. This accounting
pronouncement replaces the calculation and presentation of primary earnings per
share with basic earnings per share and of fully diluted earnings per share with
diluted earnings per share. Under SFAS No. 128, the pro forma basic earnings per
share would have been $0.22 for the three months and $0.47 for the nine months
ended September 30, 1997. The Company believes that diluted earnings per share
under SFAS No. 128 will approximate the Company's fully diluted earnings per
share as reported.
4. ISSUANCE OF DEBT
On April 30, 1997, the Company issued $30.0 million of Senior Unsecured
Notes (the "Notes") due April 30, 2004. The principal amount of the Notes is
payable in five equal annual installments of $6.0 million beginning May 2000.
Interest is payable semi-annually at a fixed rate of 7.29%. The Notes contain
restrictive covenants which, among other things, require the Company to maintain
certain financial ratios. The Notes rank pari passu with all other senior
unsecured indebtedness.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FORWARD LOOKING STATEMENTS. The Company has made in this Report, and from time
to time may otherwise make, forward looking statements regarding the Company's
operations, economic performance, and financial condition. These statements are
recognizable by the incorporation of words such as "believe," "anticipate" and
"expect." Such forward looking statements are subject to various risks and
uncertainties, as discussed throughout this Report, as summarized in the
Company's 1996 Annual Report on Form 10-K under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations-
Forward Looking Statements," and as detailed in the Company's most recent
prospectus, dated June 19, 1997, under the caption "Risk Factors."
THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
RESULTS OF OPERATIONS AND GENERAL COMMENTS
Net sales increased $31.8 million, or 28.8%, to $142.4 million for the
three months ended September 30, 1997, from $110.6 million for the three months
ended September 30, 1996. Of this increase, (i) approximately 75%, or $23.9
million, was attributable to stores opened in 1996 and 1997 which are not
included in the Company's comparable store net sales calculation, and (ii)
approximately 25%, or $7.9 million, was attributable to comparable store net
sales growth, which represented a 7.4% increase over comparable store net sales
in the corresponding quarter of the prior period. Dollar Bills stores, which
were added on January 31, 1996, are included in the comparable store net sales
percentage calculation. Because substantially all the Company's products sell
for $1.00, the increase in comparable store net sales was a direct result of
increased unit volume. Management believes that a strong in-stock inventory
position throughout the quarter, coupled with a favorable retail environment,
contributed to the comparable store net sales increase. The Company opened 54
new stores and closed one store during the third quarter of 1997, compared to
opening 26 new stores during the third quarter of 1996.
Management anticipates that the primary source of future net sales growth
will be new store openings and, to a lesser degree, sales increases from
expanded and relocated stores and comparable store net sales increases. Although
the Company has experienced significant increases in comparable store net sales
historically, management expects that any increases in comparable store net
sales in the future will be smaller than those experienced historically.
Gross profit, which consists of net sales less cost of sales (including
distribution and certain occupancy costs), increased $11.9 million, or 28.5%, to
$53.8 million in the third quarter of 1997 from $41.9 million in the third
quarter of 1996. As a percentage of net sales, gross profit decreased slightly
to 37.8% from 37.9%, primarily due to an increase in distribution costs as a
percentage of sales offset by a decrease in merchandise costs (including
freight). The increase in distribution costs is due in part to costs relating to
the Company's new Store Support Center in Chesapeake, Virginia, which is
8
<PAGE>
expected to be operational in the first quarter of 1998.
Selling, general and administrative expenses ("SGA"), which include
operating expenses and depreciation and amortization, increased $8.0 million, or
26.1%, to $38.8 million in the third quarter of 1997 from $30.8 million in the
third quarter of 1996, and decreased as a percentage of net sales to 27.2% from
27.8% during the same period. This decrease in SGA expense is primarily due to
the positive effect of the comparable store net sales increase on fixed costs
and to lower legal fees in the current year compared to 1996.
Operating income increased $3.9 million, or 35.3%, to $15.1 million for the
third quarter of 1997 from $11.1 million for the comparable period in 1996, and
increased as a percentage of net sales to 10.6% from 10.1% during the same
period for the reasons noted above.
INTEREST EXPENSE
Interest expense decreased $0.4 million in the third quarter of 1997
compared to the third quarter of 1996 to $1.0 million from $1.4 million during
the same period. This decrease is primarily a result of the capitalization of
interest related to the construction of the new Store Support Center.
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
RESULTS OF OPERATIONS AND GENERAL COMMENTS
Net sales increased $91.2 million, or 30.6%, to $389.5 million for the nine
months ended September 30, 1997, from $298.3 million for the nine months ended
September 30, 1996. Of this increase, (i) approximately 65%, or $58.8 million,
was attributable to stores opened in 1996 and 1997 which are not included in the
Company's comparable store net sales calculation, and (ii) approximately 35%, or
$32.4 million, was attributable to comparable store net sales growth, which
represented a 9.1% increase over comparable store net sales in the corresponding
prior year period. Dollar Bills stores are included in the comparable store net
sales percentage calculation for the full nine month period, beginning January
1, of each respective year. Because substantially all the Company's products
sell for $1.00, the increase in comparable store net sales was a direct result
of increased unit volume. The Company opened 129 new stores and closed one store
during the first nine months of 1997 compared to opening 79 new stores and
closing three stores during the first nine months of 1996.
Gross profit, which consists of net sales less cost of sales (including
distribution and certain occupancy costs), increased $34.7 million, or 32.5%, to
$141.3 million in the first nine months of 1997 from $106.6 million in the first
nine months of 1996. As a percentage of net sales, gross profit increased to
36.3% from 35.7%, primarily due to improved merchandise costs (including
freight), offset by increased distribution costs and a slight increase in
inventory shrinkage and markdowns as a percentage of net sales. Merchandise
costs as a percentage of net sales improved primarily as a result of higher
sales of foreign-sourced merchandise, which carries a higher gross
9
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margin than domestic goods, in the current period compared to last year. This is
due in part to the change in merchandise mix, year over year, in the Dollar
Bills stores, which were operating with a heavier consumable product emphasis in
the first half of 1996. Throughout 1996, the merchandise mix at Dollar Bills
stores was changed to more closely resemble the mix at Dollar Tree stores. As a
consequence, management does not expect the increase in gross profit realized in
the first three quarters of 1997 to continue at the same rate in the future.
Distribution costs increased as a result of start-up costs inherent in the
installation of the Company's new Warehouse Management System, which was
installed in all three distribution centers in early 1997, and costs relating to
the Company's new Store Support Center in Chesapeake, Virginia. Management
expects the slight increase in distribution costs to continue through the first
quarter of 1998, when the new facility will be put into use, but believes it
will not materially affect the Company's results of operations.
SGA increased $24.1 million, or 28.2%, to $109.4 million in the first nine
months of 1997 from $85.3 million in the first nine months of 1996, and
decreased as a percentage of net sales to 28.1% from 28.6% during the same
period. This decrease is primarily attributable to approximately $2.0 million in
non-recurring expenses incurred in 1996 as a result of the Dollar Bills
acquisition. Excluding these non-recurring costs, SGA increased as a percentage
of net sales to 28.1% in the first nine months of 1997 from 27.9% in the first
nine months of 1996, primarily due to increased hourly payroll costs resulting
from the federally mandated minimum wage increase. Management anticipates that
the additional $0.40 per hour increase in minimum wage, implemented in September
1997, will increase hourly payroll costs by $650,000 to $750,000 above otherwise
expected levels during the four month period ending December 31, 1997.
Operating income increased $10.6 million, or 49.8%, to $31.9 million for
the first nine months of 1997 from $21.3 million for the comparable period in
1996, and increased as a percentage of net sales to 8.2% from 7.1% during the
same period for the reasons noted above.
INTEREST EXPENSE
Interest expense decreased $1.8 million in the first nine months of 1997
compared to the first nine months of 1996 to $2.2 million from $4.0 million
during the same period. This decrease is primarily a result of lower levels of
debt in the current year compared to the same period in 1996, when the Company
had increased borrowings related to the purchase of Dollar Bills, Inc.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements result primarily from capital
expenditures related to new store openings, working capital requirements related
to new and existing stores and, in 1997, capital expenditures related to the new
Store Support Center. The Company's working capital requirements for existing
stores are seasonal in nature and typically reach their peak near the end of the
third and the beginning of the fourth quarter of the year. Historically, the
Company has met its seasonal working capital requirements
10
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for its existing stores and funded its store expansion program from internally
generated funds and borrowings under its credit facilities.
During the first nine months of 1997 and 1996, net cash used in operations
was $26.5 million and $37.8 million, respectively, primarily used to build
inventory levels. During the first nine months of 1997 and 1996, net cash used
in investing activities was $42.6 million and $64.7 million, respectively, the
decrease primarily due to payment for the acquisition of Dollar Bills in 1996.
During the first nine months of 1997, net cash used in investing activities was
related to capital expenditures, including approximately $25 million related to
the construction of the new Store Support Center. Management believes that the
Store Support Center project is proceeding as planned, within the expected
timetable and budget. Net cash provided by financing activities was $70.8
million and $84.1 million during the first nine months of 1997 and 1996,
respectively, the decrease primarily attributable to borrowings incurred to fund
the acquisition of Dollar Bills in January 1996 and to capital raised during a
public offering completed in June, 1996. In 1997, net cash provided by financing
activities was primarily used for the construction of the new Store Support
Center and to fund seasonal working capital needs.
The Company's borrowings under its bank facilities and senior notes were
$72.5 million at September 30, 1997, and $76.5 million at September 30, 1996.
Borrowings at December 31, 1996, amounted to $3.0 million. Under the Company's
bank facilities, an additional $92.5 million is available at September 30, 1997,
approximately $11.0 million of which is committed to certain letters of credit
issued in relation to the routine purchase of foreign merchandise.
NEW ACCOUNTING PRONOUNCEMENTS
With the period ending December 31, 1997, the Company will implement SFAS
No. 128, Earnings Per Share (see note 3 of the Notes to Condensed Consolidated
Financial Statements).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company has previously reported in its 1996 Annual Report on Form 10-K
litigation in the state and federal courts of Illinois involving Michael and
Pamela Alper and a corporation they control. There have been no material
developments regarding this matter in 1997.
The bankruptcy liquidators for a Hong Kong trading company claim that the
Company owes the trading company approximately $440,000 based on invoices found
in the trading company's files. A substantial majority of the invoices have
either been paid, are in error, or represent goods that were never shipped. In
any event, the Company believes that any amounts due as a result of this matter
will not exceed the Company's existing reserves.
Additionally, the Company is a party to ordinary routine litigation and
proceedings incidental to its business, including certain matters which may
11
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occasionally be asserted by the U.S. Consumer Product Safety Commission, none
of which is individually or in the aggregate material to the Company.
ITEM 5. OTHER INFORMATION.
Stock Dividend
On July 2, 1997, the Company's Board of Directors announced a 50% stock
dividend having the effect of a three-for-two stock split for shareholders of
record of common stock as of July 14, 1997. Cash payments were made in lieu of
fractional shares. As of the record date, there were 26,037,225 shares of Common
Stock outstanding, resulting in a dividend of 13,018,500 shares of Common Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following document is filed herewith:
10.6 Third Amendment to the Amended and Restated Revolving Credit Agreement.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter.
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.
DATE: November 13, 1997
DOLLAR TREE STORES, INC.
By: /s/ H. Ray Compton
-----------------------------
H. Ray Compton
Executive Vice President and
Chief Financial Officer
(principal financial and accounting officer)
12
THIRD AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
This Third Amendment to Amended and Restated Revolving Credit Agreement is
made as of the 2nd day of September 1997 by and among
Dollar Tree Distribution, Inc. (the "Borrower"), a Virginia corporation
having its chief executive office at 2555 Ellsmere Avenue, Norfolk,
Virginia 23513;
Dollar Tree Stores, Inc. ("DTS") a Virginia corporation having its chief
executive office at 2555 Ellsmere Avenue, Norfolk, Virginia;
Dollar Tree Management, Inc. ("DTM"), a Virginia corporation having its
chief executive office at 2555 Ellsmere Avenue, Norfolk, Virginia;
BankBoston, N.A. (f/k/a The First National Bank of Boston), NationsBank,
NA., Signet Bank, Crestar Bank, First Union National Bank of Virginia,
Amsouth Bank of Alabama, Union Bank of California, N.A. and all other
financial institutions which are now or may hereafter become parties to
such Amended and Restated Revolving Credit Agreement (individually, a
"Lender" and collectively, the "Lenders"); and
BankBoston, N.A. (f/k/a The First National Bank of Boston), a national
banking association having its head office at 100 Federal Street, Boston,
Massachusetts, as Agent for the Lenders (in such capacity, the "Agent")
in consideration of the mutual Covenants herein contained and benefits to be
derived herefrom,
W I T N E S S E T H:
WHEREAS, the Borrower, DTS, DTM, the Agent and the Lenders entered into an
Amended and Restated Revolving Credit Agreement dated as of September 27, 1996
(as Amended by First Amendment to Amended and Restated Revolving Credit
Agreement dated January 25, 1997, as further amended by Second Amendment to
Amended and Restated Revolving Credit dated as of May 8, 1997, collectively, the
"Agreement"); and
WHEREAS, the Agent, the Lenders, the Borrower, DTS and DTM desire to modify
and amend the Agreement as provided herein.
NOW, THEREFORE, it is hereby agreed as follows:
1 Definitions. All capitalized terms used herein and not otherwise
defined shall have the same meaning herein as in the Agreement.
<PAGE>
2 Amendments to Section I. The provisions of Section I of the Agreement
-----------------------
are hereby amended as follows:
(a) The definition of "Applicable Margin" is hereby amended by
deleting the grid set forth therein and substituting the following
grid in its stead:
<TABLE>
<CAPTION>
Applicable Margin-LIBOR Applicable
Funded Rate Loans and Reference Margin-Base
Tier Debt /EBITDA Rate Loans Rate Loans
------- -------------------- ------------------------- ------------------
<S> <C> <C> <C>
I Less than or 50 basis points 0 basis points
equal to 0.75:1
II Less than or 60 basis points 0 basis points
equal to 1.25:1
but greater
than 0.75:1
III Greater than 105 basis points 0 basis points
1.25:1
</TABLE>
(b) The definition of "Facility Fee Rate" is hereby amended by
deleting the grid set forth therein and substituting the following
grid in its stead:
<TABLE>
<CAPTION>
Facility Fee
Tier Funded Debt /EBITDA Rate
------ ---------------------------------- ------------------------------
<S> <C> <C>
I Less than or equal to 0.75:1 12.5 basis points per annum
II Less than or equal to 1.25:1 but 15 basis points per annum
greater than 0.75.1
III Greater than 1.25:1 20 basis points per annum
</TABLE>
(c) The definition of "Agent" is hereby deleted in its entirety, and
the following substituted in its stead;
"BankBoston, N.A. f/k/a The First National Bank of Boston
acting as Agent for the Lenders."
(d) The definition of "Revolving Credit Maturity Date" is hereby
amended by deleting therefrom the words "May 31, 2000" and substituting "May 31,
2002" in its stead.
2
<PAGE>
3. Amendment to Section 2. Section 2.1(b) is hereby amended by adding the
following sentence at the end of said Section 2.1(b):
"Notwithstanding the foregoing, the provisions of this Section 2.l(b)
shall not apply to the Borrower for the period commencing after March
1, 2000."
4. Amendment to Section 3. Section 3.1(b) is hereby amended by deleting
therefrom the text "70,000,000.00" and substituting "$100,000,000.00"
in its stead.
5. Amendments to Section 9.
(a) The provisions of Section 9.2 are amended by adding the following
ratio:
"Fiscal Year 2001 and each Fiscal
Year thereafter 1.50:1"
(b) The provisions of Section 9.4 are amended as follows:
(I) the introductory provisions of Section 9.4 are amended by
deleting the word "the" in the third line thereof and
inserting in its stead, the word "any".
(ii)by deleting the maximum amount of capital expenditures for
the First Five Months of Fiscal Year 2000 (which presently
appears in the Agreement as $20,000,000) and substituting
the following in its stead:
"Fiscal Year 2000 $40,000,000
Fiscal Year 2001 $45,000,000
Fiscal Year 2002 $50,000,000"
6. Conditions to Effectiveness. This Third Amendment to Amended and
Restated Revolving Credit Term and Loan Agreement shall not be
effective until each of the following conditions precedent have been
fulfilled to the satisfaction of the Agent and the Lenders:
(a) This Third Amendment to Amended and Restated Revolving Credit and
Term Loan Agreement shall have been duly executed and delivered by
the respective parties hereto and, shall be in full
3
<PAGE>
force and effect and shall be in form and substance satisfactory
to each of the Lenders.
(b) Each of the Lenders and the Agent shall have received a favorable
opinion addressed to the Lenders and the Agent in form and
substance satisfactory to the Lenders and the Agent from Messrs.
Hofheimer, Nusbaum, McPhaul & Samuels.
(c) All action on the part of the Obligors necessary for the valid
execution, delivery and performance by the Obligors of this
Agreement shall have been duly and effectively taken and evidence
thereof satisfactory to the Lenders shall have been provided to
each of the Lenders. Each of the Lenders shall have received from
each Obligor true copies of the resolutions adopted by its board
of directors authorizing the transactions described herein, each
certified by such Obligor's secretary to be true and complete.
(d) The Borrower shall have paid to the Agent and Lenders all fees and
expenses then due and owing pursuant to Section 15 of the
Agreement.
(e) No Default or Event of Default shall have occurred and be
continuing.
(f) The Obligors shall have provided such additional instruments and
documents to the Agent and the Lenders as the Agent and the
Agent's counsel may have reasonably requested.
7. Ratification of Loan Documents. Except as provided herein, all terms
and conditions of the Agreement and the other Loan Documents remain in
full force and effect. The Obligors each hereby ratify, confirm, and
reaffirm all representations, warranties, and covenants contained
therein and acknowledge and agree that none of them have any offsets,
defenses, or counterclaims against the Agent or any Lender thereunder,
and to the extent that any such offsets, defenses, or counterclaims may
exist, each of the Obligors hereby waive and release the Agent and
Lenders therefrom.
8. Miscellaneous
(a) This Third Amendment to Amended and Restated Revolving Credit and
Term Loan Agreement may be executed in several counterparts and by
each party on a separate counterpart, each of which when so
executed and delivered shall be an original, and
4
<PAGE>
all of which together shall constitute one instrument.
(b) This Third Amendment to Amended and Restated Revolving Credit and
Term Loan Agreement expresses the entire understanding of the
parties with respect to the transactions contemplated hereby. No
prior negotiations or discussions shall limit, modify, or
otherwise affect the provisions hereof.
IN WITNESS WHEREOF, the undersigned have hereunto executed this Agreement
as a sealed instrument as of the date first above written.
DOLLAR TREE DISTRIBUTION, INC.
By: /s/ Frederick C. Coble
Name: Frederick C. Coble
Title: Senior Vice President, Finance
DOLLAR TREE STORES, INC.
By: /s/ Frederick C. Coble
Name: Frederick C. Coble
Title: Senior Vice President, Finance
DOLLAR TREE MANAGEMENT, INC.
By: /s/ Frederick C. Coble
Name: Frederick C. Coble
Title: Senior Vice President, Finance
BANKBOSTON, N.A. (f/k/a THE FIRST
NATIONAL BANK OF BOSTON), individually
and as Agent
By: /s/ Judith E. Kelly
Name: Judith E. Kelly
Title: Vice President
5
<PAGE>
NATIONSBANK, N.A.
By: /s/ Monique S. Adams
Name: Monique S. Adams
Title: Vice President
SIGNET BANK
By: /s/ John P. Matson
Name: John P. Matson
Title: Executive Vice President
CRESTAR BANK
By: /s/ Bruce Nave
Name: Bruce Nave
Title: Vice President
FIRST UNION BANK
OF VIRGINIA
By: /s/ Richard H. Grattan
Name: Richard H. Grattan
Title: Senior Vice President
AMSOUTH BANK OF ALABAMA
By: /s/ Robert Clark
Name: Robert Clark
Title: Commercial Banking Officer
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Dana C. Fenwick
Name: Dana C. Fenwick
Title: Vice President
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S
FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,638
<SECURITIES> 0
<RECEIVABLES> 1,220
<ALLOWANCES> 0
<INVENTORY> 133,150
<CURRENT-ASSETS> 145,603
<PP&E> 102,480
<DEPRECIATION> 31,899
<TOTAL-ASSETS> 264,399
<CURRENT-LIABILITIES> 75,655
<BONDS> 0
0
0
<COMMON> 391
<OTHER-SE> 123,738
<TOTAL-LIABILITY-AND-EQUITY> 264,399
<SALES> 389,464
<TOTAL-REVENUES> 389,464
<CGS> 248,173
<TOTAL-COSTS> 248,173
<OTHER-EXPENSES> 109,395
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,209
<INCOME-PRETAX> 29,687
<INCOME-TAX> 11,428
<INCOME-CONTINUING> 18,259
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,259
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
