<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report MARCH 4, 1998
-------------
Date of Earliest Event Reported DECEMBER 31, 1997
-----------------
DOLLAR TREE STORES, INC.
------------------------
(Exact name of registrant as specified in its charter)
VIRGINIA
--------
(State or other jurisdiction of incorporation)
0-25464 54-1387365
------- ----------
(Commission (IRS Employer
File Number) Identification No.)
500 VOLVO PARKWAY
CHESAPEAKE, VIRGINIA 23320
-------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (757) 321-5000
--------------
2555 ELLSMERE AVENUE
NORFOLK, VIRGINIA 23513
-----------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5: OTHER EVENTS
- --------------------
The Company's consolidated financial statements, audited by KPMG Peat Marwick
LLP, for the year ended December 31, 1997, are filed herewith:
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1995, 1996 and 1997
(With Independent Auditors' Report Thereon)
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report.............................................. 1
Consolidated Balance Sheets as of December 31, 1996 and 1997.............. 2
Consolidated Income Statements for the years ended December 31,
1995, 1996 and 1997.................................................. 3
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1996 and 1997..................................... 4
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.................................................. 5
Notes to Consolidated Financial Statements................................ 6
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Dollar Tree Stores, Inc.:
We have audited the accompanying consolidated balance sheets of Dollar
Tree Stores, Inc. and subsidiaries (the Company) as of December 31, 1996 and
1997, and the related consolidated income statements and statements of
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dollar Tree
Stores, Inc. and subsidiaries as of December 31, 1996 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Norfolk, Virginia
January 20, 1998
1
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
---- ----
(In thousands, except
ASSETS share data)
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................................... $ 2,987 $ 43,695
Accounts receivable............................................................... 1,855 1,406
Merchandise inventories........................................................... 75,081 89,066
Deferred tax asset (Note 2)....................................................... 2,002 5,093
Prepaid expenses and other current assets......................................... 4,028 3,762
--------- ---------
Total current assets........................................................ 85,953 143,022
--------- ---------
Property and equipment (Note 4):
Land.............................................................................. - 6,275
Buildings......................................................................... - 7,864
Leasehold improvements............................................................ 23,376 32,010
Furniture and fixtures............................................................ 33,867 46,841
Transportation vehicles........................................................... 1,420 1,463
Construction in progress.......................................................... 1,596 22,459
--------- ---------
Total property and equipment................................................ 60,259 116,912
Less accumulated depreciation and amortization.................................... 24,224 34,841
--------- ---------
Net property and equipment.................................................. 36,035 82,071
--------- ---------
Deferred tax asset (Note 2)........................................................... 1,947 2,029
Goodwill, net of accumulated amortization (Note 3).................................... 46,405 44,478
Other assets.......................................................................... 759 976
--------- ---------
TOTAL ASSETS................................................................ $ 171,099 $ 272,576
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 35,296 $ 44,058
Accrued liabilities (Note 5)...................................................... 14,260 19,526
Income taxes payable (Note 2)..................................................... 12,607 18,908
Current installments of obligations under capital leases (Note 4)................. 302 317
--------- ---------
Total current liabilities................................................... 62,465 82,809
Senior notes (Note 6)................................................................. - 30,000
Revolving credit facility (Note 6).................................................... 3,000 -
Obligations under capital leases, excluding current installments (Note 4)............. 1,051 804
Other liabilities..................................................................... 2,993 4,037
--------- ---------
Total liabilities........................................................... 69,509 117,650
--------- ---------
Commitments, contingencies and subsequent events (Notes 4, 6, 7, 8, 11 and 12)
Shareholders' equity (Notes 7, 8 and 11):
Common stock, par value $0.01. Authorized 100,000,000 shares,
38,847,258 shares and 39,139,965 shares issued and outstanding at December 31,
1996 and 1997, respectively..................................................... 259 391
Additional paid-in capital........................................................ 31,555 36,185
Retained earnings................................................................. 69,776 118,350
--------- ---------
Total shareholders' equity.................................................. 101,590 154,926
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................. $ 171,099 $ 272,576
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C>
Net sales.................................................................. $ 300,229 $ 493,037 $ 635,473
Cost of sales ............................................................. 187,552 310,900 397,116
----------- ----------- -----------
Gross profit................................................. 112,677 182,137 238,357
----------- ----------- -----------
Selling, general and administrative expenses (Notes 3, 4, 7, 10 and 11):
Operating expenses.................................................. 70,504 111,401 143,438
Depreciation and amortization....................................... 5,468 10,527 13,125
----------- ----------- -----------
Total selling, general and administrative expenses........... 75,972 121,928 156,563
----------- ----------- -----------
Operating income........................................................... 36,705 60,209 81,794
Interest expense (Note 6).................................................. 2,617 5,193 2,812
----------- ----------- -----------
Income before income taxes................................................. 34,088 55,016 78,982
Provision for income taxes (Note 2)........................................ 13,125 21,181 30,408
----------- ----------- -----------
Net income................................................... $ 20,963 $ 33,835 $ 48,574
=========== =========== ===========
Net income per share (Note 9):
Basic net income per share............................................. $ 0.56 $ 0.89 $ 1.24
=========== =========== ===========
Weighted average number of common shares outstanding................... 37,271 38,217 39,033
=========== =========== ===========
Diluted net income per share........................................... $ 0.51 $ 0.80 $ 1.13
=========== =========== ===========
Weighted average number of common shares
and common share equivalents outstanding............................ 41,026 42,171 43,106
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Series A Series A
Common Class I Class II
stock stock stock Common
shares shares shares Stock
------ ------ ------ -----
(In thousands, except share data)
<S> <C> <C> <C> <C>
Balance at December 31, 1994.......................... - 18,616,391 18,616,391 $ -
Net income for the year ended December 31, 1995....... - - - -
Conversion of Series A Class I and II, no par stock,
into Common Stock, $0.01 par value (Note 8)....... 37,232,782 (18,616,391) (18,616,391) 165
Exercise of stock options, including income
tax benefit of $592 (Note 11)..................... 133,162 - - 1
----------- ----------- ----------- -------
Balance at December 31, 1995.......................... 37,365,944 - - 166
Transfer from additional paid-in capital for Common
Stock dividend.................................... - - - 83
Net income for the year ended December 31, 1996....... - - - -
Issuance of stock under Employee Stock Purchase
Plan (Note 11).................................... 13,752 - - -
Issuance of stock in public offering (Note 8)......... 1,125,000 - - 8
Exercise of stock options, including income
tax benefit of $2,266 (Note 11)................... 342,562 - - 2
----------- ----------- ----------- -------
Balance at December 31, 1996.......................... 38,847,258 - - 259
Transfer from additional paid-in capital for Common
Stock dividend.................................... - - - 130
Net income for the year ended December 31, 1997....... - - - -
Issuance of stock under Employee Stock Purchase
Plan (Note 11).................................... 14,765 - - -
Exercise of stock options, including income
tax benefit of $2,752 (Note 11)................... 277,942 - - 2
----------- ----------- ----------- -------
Balance at December 31, 1997.......................... 39,139,965 - - $ 391
=========== =========== ========== ===========
<CAPTION>
Additional
paid-in Retained Shareholders'
capital earnings equity
------- -------- ------
(In thousands, except share data)
<S> <C> <C> <C>
Balance at December 31, 1994.......................... $ 2,296 $ 14,978 $ 17,274
Net income for the year ended December 31, 1995....... - 20,963 20,963
Conversion of Series A Class I and II, no par stock,
into Common Stock, $0.01 par value (Note 8)....... (165) - -
Exercise of stock options, including income
tax benefit of $592 (Note 11)..................... 849 - 850
------- ------- --------
Balance at December 31, 1995.......................... 2,980 35,941 39,087
Transfer from additional paid-in capital for Common
Stock dividend.................................... (83) - -
Net income for the year ended December 31, 1996....... - 33,835 33,835
Issuance of stock under Employee Stock Purchase
Plan (Note 11).................................... 180 - 180
Issuance of stock in public offering (Note 8)......... 25,325 - 25,333
Exercise of stock options, including income
tax benefit of $2,266 (Note 11)................... 3,153 - 3,155
------- ------- --------
Balance at December 31, 1996.......................... 31,555 69,776 101,590
Transfer from additional paid-in capital for Common
Stock dividend.................................... (130) - -
Net income for the year ended December 31, 1997....... - 48,574 48,574
Issuance of stock under Employee Stock Purchase
Plan (Note 11).................................... 343 - 343
Exercise of stock options, including income
tax benefit of $2,752 (Note 11)................... 4,417 - 4,419
------- ------- --------
Balance at December 31, 1997.......................... $ 36,185 $ 118,350 $ 154,926
======= ======= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................. $ 20,963 $ 33,835 $ 48,574
Adjustments to reconcile net income to net cash provided by operating --------- -------- --------
activities:
Depreciation and amortization.................................... 5,467 10,527 13,125
Loss on disposal of property and equipment....................... 248 275 290
Provision for deferred income taxes.............................. 579 (1,010) (3,173)
Changes in assets and liabilities increasing (decreasing) cash and
cash equivalents:
Accounts receivable......................................... 46 (1,026) 449
Merchandise inventories..................................... (8,069) (18,673) (13,985)
Prepaid and other current assets............................ (810) (1,544) 266
Other assets................................................ (47) 683 (14)
Accounts payable............................................ 6,441 9,879 8,762
Accrued liabilities......................................... 2,348 3,426 5,266
Income taxes payable........................................ 1,558 2,833 9,053
Other liabilities........................................... (1,531) 2 1,044
-------- ------ -------
Total adjustments...................................... 6,230 5,372 21,083
-------- ------ -------
Net cash provided by operating activities.............. 27,193 39,207 69,657
-------- ------ -------
Cash flows from investing activities:
Capital expenditures................................................... (11,614) (16,530) (57,501)
Proceeds from sale of property and equipment........................... 32 59 50
Purchase of Dollar Bills, Inc., net of cash acquired of $414........... - (52,216) -
-------- ------- -------
Net cash used in investing activities.................. (11,582) (68,687) (57,451)
-------- ------- -------
Cash flows from financing activities:
Repayments of revolving credit facilities.............................. (9,550) (148,643) (209,600)
Proceeds from revolving credit facilities.............................. 9,550 151,643 206,600
Proceeds from development facility..................................... - 52,630 -
Repayment of development facility...................................... - (52,630) -
Repayments of senior subordinated notes................................ - (7,000) -
Repayments of junior subordinated notes................................ - (7,000) -
Principal payments on notes payable to bank............................ - (6,900) -
Proceeds from senior notes............................................. - - 30,000
Payment of credit facility fees........................................ - (445) (203)
Principal payments under capital lease obligations..................... (62) (271) (305)
Proceeds from exercise of stock options................................ 850 3,155 1,667
Proceeds from public offering.......................................... - 25,333 -
Proceeds from stock purchased under the Employee Stock Purchase Plan... - 180 343
-------- ------ -------
Net cash provided by financing activities.............. 788 10,052 28,502
-------- ------ -------
Net increase (decrease) in cash and cash equivalents....................... 16,399 (19,428) 40,708
Cash and cash equivalents at beginning of year............................. 6,016 22,415 2,987
-------- ------ -------
Cash and cash equivalents at end of year................................... $ 22,415 $ 2,987 $ 43,695
======== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest, net of amount capitalized................................. $ 2,634 $ 4,042 $ 3,414
======== ======= =======
Income taxes........................................................ $ 10,396 $ 15,656 $ 24,288
======== ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Dollar Tree Stores, Inc. (DTS) owns and operates discount variety
retail stores which sell substantially all items for $1.00. The Company's
headquarters and one of its distribution centers are located in Chesapeake,
Virginia. The Company also operates distribution centers in Memphis, Tennessee
and in the Chicago, Illinois area. Most of the Company's stores are located in
the eastern half of the United States. The Company's merchandise includes
housewares, seasonal goods, food, toys, health and beauty aids, gifts, party
goods, stationery, books, hardware and other consumer items. A substantial
portion of the Company's merchandise is purchased directly or indirectly from
countries in the Far East, principally China. The Company is not dependent on a
few suppliers.
Principles of Consolidation
DTS has two wholly owned subsidiaries, Dollar Tree Management, Inc.
(DTM) and Dollar Tree Distribution, Inc. (DTD). DTM provides management, retail
store leasing, accounting and administrative services to DTS for a fee, and DTD
provides merchandise procurement, purchasing, warehousing and distribution
services to DTS for a fee. Effective October 29, 1996, DTD established a wholly
owned subsidiary, Dollar Tree Properties, Inc. (DTP). DTP is organized as a real
estate holding company and owns certain undeveloped property. The consolidated
group is referred to throughout the notes as "the Company". The consolidated
financial statements include the financial statements of Dollar Tree Stores,
Inc. and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents at December 31, 1997 includes $39,400 of
investments in money market securities and bank participation agreements which
are valued at cost, which approximates market. The underlying assets of these
short-term participation agreements are primarily commercial notes. There were
no such investments held at December 31, 1996. For purposes of the statements of
cash flows, the Company considers all highly liquid debt instruments with
original maturities of three months or less to be cash equivalents.
Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market. Cost
is assigned to store inventories using the retail inventory method, determined
on a first-in, first-out (FIFO) basis. Costs directly associated with
warehousing and distribution are capitalized as merchandise inventories. Total
warehousing and distribution costs capitalized into inventories amounted to
$3,589 and $4,546 at December 31, 1996 and 1997, respectively.
Property and Equipment
Property and equipment are stated at cost. Buildings are depreciated
using the straight-line method over 39 years, the estimated useful life of the
assets. Furniture and fixtures are depreciated using the straight-line method
over four to seven years, the estimated useful lives of the respective assets.
Transportation vehicles are depreciated using the straight-line method over four
to six years, the estimated useful lives of the respective assets. Leasehold
improvements and assets held under capital leases are amortized using the
straight-line method over three to ten years, the estimated useful lives of the
respective assets or terms of the related leases, whichever is less.
Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is recorded as part of the asset to which
it relates and is amortized over the asset's estimated useful life. In 1997,
$916 of interest cost was capitalized. No interest was capitalized in 1995 or
1996.
6
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands, except share and per share data)
Goodwill
Goodwill, which represents the excess purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over 25 years. The
Company assesses the recoverability of this intangible asset by comparing the
carrying amount of the asset to expected future net cash flows of the acquired
organization. The recoverability of goodwill will be impacted if estimated
future net cash flows are not achieved.
Cost of Sales
The Company includes the cost of merchandise, warehousing and
distribution costs, and certain occupancy costs in cost of sales.
Store Opening Costs
The Company expenses store opening costs when the store opens.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in the tax rates is recognized in income in
the period that includes the enactment date of such change.
Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB No. 25), and related
Interpretations in accounting for its stock-based compensation plans. The
Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION
(SFAS No. 123).
Net Income Per Share
As required, the Company adopted the provisions of SFAS No. 128,
EARNINGS PER SHARE (SFAS No. 128), for the year ended December 31, 1997. Basic
net income per share as calculated in accordance with SFAS No. 128 has been
computed by dividing net income by the weighted average number of common shares
outstanding. Diluted net income per share reflects the potential dilution that
could occur assuming the inclusion of common share equivalents and has been
computed by dividing net income by the weighted average number of common shares
and common share equivalents outstanding. Common share equivalents include all
outstanding stock options and warrants after applying the treasury stock method.
The market price used in applying the treasury stock method was $6.67 per share
(the original public offering price) for the periods prior to March 6, 1995 and
the closing market price of the stock at the end of each day thereafter. All
share and per share data in these consolidated financial statements and the
accompanying notes have been retroactively adjusted to reflect the
implementation of SFAS No. 128.
7
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands, except share and per share data)
In connection with stock dividends authorized by the Board of Directors
in 1996 and 1997, the Company issued one-half share for each outstanding share
of Common Stock, payable April 19, 1996 to shareholders of record as of April 5,
1996 and payable July 21, 1997 to shareholders of record as of July 14, 1997,
respectively. All share and per share data in these consolidated financial
statements and the accompanying notes have been retroactively adjusted to
reflect these dividends, each having the effect of a three-for-two stock split.
New Accounting Standards
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE
INCOME. This Statement establishes standards for the reporting and display of
comprehensive income; however, it does not affect the principles of measurement
of items that comprise comprehensive income. This Statement is effective for the
Company beginning January 1, 1998.
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION. This Statement requires publicly-held
entities to report financial and descriptive information about their reportable
operating segments. Reportable operating segments are components of an entity
about which separate financial information is available that is regularly
evaluated by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. This Statement is effective for the
Company for the year ended December 31, 1998.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
NOTE 2 - INCOME TAXES
The provision for income taxes for the years ended December 31, 1995,
1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Federal--Current..................................... $ 10,966 $ 19,160 $ 29,028
Federal--Deferred.................................... 468 (877) (2,787)
State--Current....................................... 1,580 3,031 4,553
State--Deferred...................................... 111 (133) (386)
---------- ---------- ----------
$ 13,125 $ 21,181 $ 30,408
========== ========== ==========
</TABLE>
8
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands, except share and per share data)
A reconciliation of the statutory Federal income tax rate and the
effective rate for the years ended December 31, 1995, 1996 and 1997 follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate.................................... 35.0% 35.0% 35.0%
Effect of:
State and local income taxes, net of
Federal income tax benefit...................... 3.3 3.4 3.4
Other, net......................................... 0.2 0.1 0.1
----- ----- ------
Effective tax rate.................................... 38.5% 38.5% 38.5%
==== ==== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Deferred tax
assets and liabilities are classified on the balance sheet based on the
classification of the underlying asset or liability. Significant components of
the Company's net deferred tax assets as of December 31, 1996 and 1997 are as
follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
Deferred tax assets:
<S> <C> <C>
Deferred compensation, due to accrual for financial
reporting purposes............................................ $ 247 $ 186
Property and equipment, principally due to differences
in depreciation............................................... 1,921 2,450
Accrued expenses, due to accrual for financial
reporting purposes............................................ 1,432 4,116
Inventories, due to differences in inventory valuation
for book and tax purposes..................................... 1,212 2,363
------- -------
Total deferred tax assets................................. 4,812 9,115
------- -------
Deferred tax liabilities:
Supplies inventory, due to difference in accounting
for store supplies for book and tax purposes.................. (174) (131)
Goodwill, due to differences in amortization..................... (689) (1,862)
-------- --------
Total deferred tax liabilities............................ (863) (1,993)
------- --------
Net deferred tax assets................................... $ 3,949 $ 7,122
======= ========
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred taxes will not be realized. Based upon the availability of carrybacks
of future deductible amounts to 1995, 1996 and 1997 taxable income and
management's projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believes the existing net
deductible temporary differences will reverse during periods in which carrybacks
are available and/or in which the Company generates net taxable income. However,
there can be no assurance that the Company will generate any income or any
specific level of continuing income in future years.
9
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands, except share and per share data)
NOTE 3 - ACQUISITION
On January 31, 1996, the Company acquired all of the outstanding
capital stock of Dollar Bills, Inc. (Dollar Bills), formerly known as Terrific
Promotions, Inc., which owned and operated 136 discount variety retail stores
under the name Dollar Bill$. The Company has assumed operations of a
distribution center and wholesale division in the Chicago area. The acquisition
was accounted for by the purchase method of accounting and these consolidated
financial statements include the operating results of Dollar Bills from the date
of acquisition through December 31, 1997. The acquisition cost for the purchase
was allocated on the basis of the estimated fair value of assets acquired and
liabilities assumed with the excess purchase price allocated to goodwill. Total
cash paid was $52,630 and goodwill of $48,170 was recorded on the date of
acquisition. Accumulated amortization relating to goodwill approximates $1,765
and $3,692 at December 31, 1996 and 1997, respectively.
The following unaudited pro forma consolidated income statement
information combines the consolidated historical results of the Company with the
historical results of Dollar Bills for the years ended December 31, 1995 and
1996, after giving effect to certain adjustments, as explained below, before any
nonrecurring charges or credits, such as severance costs, one-time training
costs, and other nonrecurring operational costs of the transaction.
These unaudited pro forma consolidated statements do not purport to be
indicative of the results that would have occurred had the transaction taken
place at the beginning of the periods presented or of future results.
<TABLE>
<CAPTION>
Pro forma
income statement
(Unaudited)
------------------------
1995 1996
---- ----
<S> <C> <C>
Net sales............................................. $ 404,079 $ 499,519
-- ------- -----------
Gross profit.......................................... 140,176 183,940
Selling, general and administrative expenses.......... (96,144) (124,171)
----------- ------------
Operating income...................................... 44,032 59,769
Interest expense...................................... (6,973) (5,567)
----------- ------------
Income before income taxes............................ 37,059 54,202
Provision for income taxes............................ (14,268) (20,867)
----------- ------------
Net income........................................... $ 22,791 $ 33,335
=========== ============
Net income per share:
Basic.............................................. $ 0.61 $ 0.87
=========== ============
Diluted............................................ $ 0.56 $ 0.79
=========== ============
</TABLE>
The pro forma 1995 income statement reflects adjustments related to the
elimination of duplicative operating costs associated with Dollar Bills'
corporate headquarters and distribution facility; amortization of goodwill over
a 25-year period; interest expense related to acquisition debt; and income taxes
relating to the conversion of Dollar Bills to a C corporation at an assumed
effective rate of 38.5%.
The pro forma 1996 income statement reflects adjustments related to the
January 1996 operating results of Dollar Bills; elimination of duplicative
operating costs associated with Dollar Bills' corporate headquarters and
10
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands, except share and per share data)
distribution facility; amortization of goodwill; interest expense related to the
acquisition debt; and income taxes relating to the conversion of Dollar Bills to
a C corporation at an assumed effective rate of 38.5%.
Pro forma basic net income per share is computed by dividing pro forma
net income by the weighted average number of common shares outstanding. Pro
forma diluted net income per share is computed by dividing pro forma net income
by the weighted average number of common shares and common share equivalents
outstanding. Common share equivalents include all outstanding stock options and
warrants after applying the treasury stock method. The market price used in
applying the treasury stock method was $6.67 (the original public offering
price) per share for the periods prior to March 6, 1995 and the closing market
price of the stock at the end of each day thereafter.
NOTE 4 - LEASES
Future minimum lease payments under noncancelable store, distribution
center and former corporate headquarters operating leases and the present value
of future minimum capital lease payments as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
------- ---------
Year ending December 31:
<S> <C> <C>
1998 ........................................................... $ 396 $ 40,195
1999 ........................................................... 323 38,223
2000 ........................................................... 314 32,001
2001 ........................................................... 244 23,140
2002 ........................................................... 21 13,830
Later years....................................................... - 23,261
------- --------
Total minimum lease payments......................................... 1,298 $ 170,650
========
Less amount representing interest (at an average rate of
approximately 8%)................................................. 177
-------
Present value of net minimum capital lease payments.................. 1,121
Less current installments of obligations under
capital leases.................................................... 317
-------
Obligations under capital leases, excluding current
installments...................................................... $ 804
=======
</TABLE>
The above payments include amounts for leases that were signed prior to
December 31, 1997 for stores that were not open as of December 31, 1997. Minimum
rental payments for operating leases do not include contingent rentals that may
be paid under certain store leases based on a percentage of sales in excess of
stipulated amounts.
The Company is a party to a lease agreement for the former corporate
headquarters and distribution center in Norfolk, Virginia, with a partnership
owned by certain Company shareholders. The lease includes land, a building and
certain equipment and expires in June 2004 with options to renew for three
five-year periods. The lease currently provides for an aggregate annual rental
payment of $656 which is included in the future minimum lease payments above.
The Company also leases properties for three of its stores from related
partnerships. The total rental payments related to the leases for the former
corporate headquarters and distribution center and these stores were $765, $746
and $789 for the years ended December 31, 1995, 1996 and 1997, respectively.
Rental payments for these properties are included in the rental expense
disclosure below.
11
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands, except share and per share data)
Included in property and equipment at December 31, 1996 and 1997 are
leased furniture and fixtures and transportation vehicles with a cost of $1,671
and $1,744 and accumulated amortization of $373 and $702 at December 31, 1996
and 1997, respectively.
Rental expense for store, distribution center and former corporate
headquarters operating leases included in the accompanying consolidated income
statements for the years ended December 31, 1995, 1996 and 1997 was as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Minimum rentals..................................... $ 16,619 $ 27,685 $ 35,441
Contingent rentals.................................. 1,231 1,060 1,490
--------- --------- ---------
Total..................................... $ 17,850 $ 28,745 $ 36,931
========= ========= =========
</TABLE>
NOTE 5 - ACCRUED LIABILITIES
Accrued liabilities as of December 31, 1996 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Compensation and benefits............................................ $ 6,186 $ 9,283
Taxes (other than income taxes)...................................... 6,934 8,664
Other ............................................................... 1,140 1,579
------- --------
Total...................................................... $ 14,260 $ 19,526
======= ========
</TABLE>
NOTE 6 - LONG-TERM DEBT
On December 31, 1994, the Company issued $7,000 of noncallable 9%
Senior Subordinated Notes and $7,000 of noncallable 9% Junior Subordinated Notes
(collectively, 9% Subordinated Notes) to certain Company shareholders. The 9%
Subordinated Notes were paid in full during June 1996.
Interest expense related to this debt was $1,260 and $574 for the
years ended December 31, 1995 and 1996, respectively.
12
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands, except share and per share data)
On January 11, 1996, the Company replaced its previous credit
agreement with a new credit facility which provided for, among other things:
(1) a $60,000 development facility, bearing interest at LIBOR, plus a spread
and (2) a $60,000 working capital line and letter of credit facility, bearing
interest at LIBOR, plus a spread.
On September 27, 1996, the Company entered into an Amended and Restated
Revolving Credit Agreement with its banks (the Agreement). The Agreement
provides for, among other things: (1) a $135,000 revolving line of credit,
bearing interest at the agent bank's prime interest rate or LIBOR, plus a
spread, at the option of the Company; (2) an annual facilities fee and annual
agent's fee payable quarterly; and (3) the reduction of amounts outstanding
under the Agreement for a period of 30 consecutive days between each December 1
and March 1 to the following:
<TABLE>
<S> <C>
December 1, 1997 to March 1, 1998...................... $30,000
December 1, 1998 to March 1, 1999...................... 20,000
December 1, 1999 to March 1, 2000...................... 10,000
</TABLE>
There are no reduction requirements beyond those indicated above.
The Agreement, among other things, requires the maintenance of certain
specified financial ratios, restricts the amount of capital expenditures and the
payment of certain distributions, prohibits the incurrence of certain new
indebtedness and establishes certain minimum beneficial ownership requirements
of the founding shareholders. The Agreement was amended to remove collateral
requirements in January 1997. Also during 1997, the Agreement was amended to
extend its term for two additional years. The Agreement matures on May 31, 2002.
During 1996 and 1997, the weighted average interest rate charged by the banks
under the Company's credit agreements approximated 6.5% and 6.4%, respectively.
At December 31, 1997, approximately $28,500 of the $135,000 available under the
Agreement was committed to certain letters of credit issued in relation to the
routine purchase of foreign merchandise.
On April 30, 1997, the Company issued $30,000 of 7.29% unsecured
Senior Notes (Notes). The principal amount is payable in five equal annual
installments of $6,000 beginning April 30, 2000. Interest is payable
semi-annually on April 30 and October 30 of each year. The Note holders have
the right to require the Company to prepay the Notes in full without premium
upon a change of control or upon certain other transactions by the Company.
The Note agreements, among other things, prohibit certain mergers and
consolidations, require the maintenance of certain specified ratios, require
that the Notes rank pari passu with the Company's other debt and limit the
amount of Company debt. In the event of default or a prepayment at the option
of the Company, the Company is required to pay a prepayment penalty equal to
a make-whole amount.
The carrying value of the Company's long-term debt approximates its
fair value. The fair value is estimated by discounting the future cash flows of
each instrument at rates offered for similar debt instruments of comparable
maturities.
NOTE 7 - MANAGEMENT ADVISORY SERVICES
The Company has a financial and management advisory service
agreement with one of its nonemployee shareholders. The agreement initially
provided for the payment of $250 annually. During 1995, the shareholder
agreed to reduce the annual payment to $200 over the remaining term of the
agreement. The agreement is terminable by vote of the Company's Board of
Directors. During the years ended December 31, 1995, 1996 and 1997, the
Company paid $210, $200 and $200, respectively, under this agreement.
13
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands, except share and per share data)
NOTE 8 - SHAREHOLDERS' EQUITY
The Company issued unattached warrants to purchase 1,861,633 shares of
Common Stock on September 30, 1993 for $0.27 per warrant and unattached warrants
to purchase 1,861,633 shares of Common Stock on February 22, 1994 for $0.27 per
warrant. The warrants, which are held by certain Company shareholders, carry an
exercise price of $1.29 per share, have been exercisable since March 6, 1995
(the effective date of the Company's initial public offering), and expire on
December 31, 2003. All warrants were outstanding at December 31, 1997.
Effective February 1, 1995, the Articles of Incorporation were amended
to authorize 50,000,000 shares of Common Stock, $0.01 par value per share, and
10,000,000 shares of Preferred Stock, $0.01 par value per share. Upon the
closing of the initial public offering, each share of the Company's Series A
Class I and Class II Stock automatically converted into one share of the
Company's Common Stock. On July 23, 1996, the shareholders of the Company
approved an increase in authorized shares of Common Stock from 50,000,000 to
100,000,000 shares.
On June 10, 1996, the Company sold 1,125,000 shares of Common Stock,
$0.01 par value per share, pursuant to a registration statement filed on Form
S-3 under the Securities Act of 1933. In connection with this offering, the
Company received $25,333, net of offering expenses.
NOTE 9 - NET INCOME PER SHARE
The following table sets forth the calculation of basic and diluted net
income per share:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
(In thousands, except per share data)
Basic net income per share:
<S> <C> <C> <C>
Net income.............................................. $20,963 $33,835 $48,574
------- ------- -------
Weighted average common shares outstanding.............. 37,271 38,217 39,033
------ ------ ------
Basic net income per share..................... $0.56 $0.89 $1.24
===== ===== =====
Diluted net income per share:
Net income.............................................. $20,963 $33,835 $48,574
------- ------- -------
Weighted average number of common shares
outstanding........................................ 37,271 38,217 39,033
Dilutive effect of stock options and warrants (as deter-
mined by applying the treasury stock method)....... 3,755 3,954 4,073
----- ----- -----
Weighted average number of common shares and
common share equivalents outstanding............... 41,026 42,171 43,106
------ ------ ------
Diluted net income per share................... $0.51 $0.80 $1.13
===== ===== =====
</TABLE>
NOTE 10 - PROFIT SHARING AND 401(K) RETIREMENT PLAN
The Company maintains a defined contribution profit sharing and 401(k)
plan which is available to all employees over 21 years of age who have completed
one year of service in which they have worked at least 1,000 hours. Eligible
employees may make elective salary deferrals. The Company may make contributions
at its discretion.
14
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands, except share and per share data)
Contributions to and reimbursements by the Company of expenses of the
plan included in the accompanying consolidated income statements for the years
ended December 31 were as follows:
<TABLE>
<S> <C>
1995....................................... $ 1,059
1996....................................... 1,949
1997....................................... 2,827
</TABLE>
NOTE 11 - STOCK COMPENSATION PLANS
At December 31, 1997, the Company has three stock-based compensation
plans, which are described below. The Company applies APB No. 25 and related
Interpretations in accounting for its plans. No compensation cost has been
recognized in the accompanying consolidated income statements for the
stock-based compensation plans under APB No. 25.
The Company adopted the disclosure-only option under SFAS No. 123 as
of January 1, 1996. If the accounting provisions of SFAS No. 123 had been
adopted as of the beginning of 1995, the Company's net income and net income
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net income:
As reported.................................... $20,963 $33,835 $48,574
======= ======= =======
Pro forma...................................... $20,617 $32,506 $45,873
======= ======= =======
Basic net income per share:
As reported.................................... $0.56 $0.89 $1.24
===== ===== =====
Pro forma...................................... $0.55 $0.85 $1.18
===== ===== =====
Diluted net income per share:
As reported.................................... $0.51 $0.80 $1.13
===== ===== =====
Pro forma...................................... $0.50 $0.77 $1.06
===== ===== =====
</TABLE>
The full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income and net income
per share amounts presented above because compensation cost is reflected over
the options' vesting periods and compensation cost for options granted prior to
January 1, 1995 is not considered. These pro forma amounts may not be
representative of future disclosures because compensation cost is reflected over
the options' vesting periods and because additional options may be granted in
future years.
Fixed Stock Option Plans
The Company has two fixed stock option plans. Under the
Non-Qualified Stock Option Plan (SOP), the Company granted options to its
employees for 465,447 shares of Common Stock in 1993 and 465,864 shares in
1994. Options granted under the SOP have an exercise price of $1.93 and are
fully vested at the date of grant.
On June 4, 1997, the Company's shareholders approved an increase in
the total number of shares issuable under the 1995 Stock Incentive Plan (SIP)
from 1,350,000 to 3,600,000. 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 1997. Under the SIP, the exercise price
of each option equals the market price of the Company's stock at the date of
grant, unless a higher price is established by the Board of Directors and an
option's maximum term is ten years. Options granted under the SIP vest over a
three-year period.
15
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands, except share and per share data)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995, 1996 and 1997:
<TABLE>
<S> <C>
Expected term.................................. 8-10 years
Expected volatility............................ 49%
Annual dividend yield.......................... 0%
Risk-free interest rate........................ 5.83-6.74%
</TABLE>
<TABLE>
<CAPTION>
Stock Option Activity
1995 1996 1997
----------------------- ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year.............. 925,012 $ 1.93 1,189,054 $ 4.20 1,205,776 $ 10.00
Granted................ 405,091 8.63 390,949 21.64 503,141 23.42
Exercised.............. (133,162) 1.93 (342,562) 2.60 (277,942) 6.01
Forfeited.............. (7,887) 3.39 (31,665) 16.17 (47,057) 20.93
--------- --------- ---------
Outstanding at end
of year.............. 1,189,054 4.20 1,205,776 10.00 1,383,918 15.31
========= ========= =========
Options exercisable
at end of year....... 820,147 2.25 624,595 3.88 596,484 8.08
========= ========= =========
Weighted average fair
value of options
granted during the year........... $ 5.82 $ 15.15 $ 15.79
</TABLE>
Stock Options Outstanding and Exercisable
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ ------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at December 31, Contractual Exercise at December 31, Exercise
Prices 1997 Life Price 1997 Price
------ ---- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C>
$1.93................. 305,375 (a) $ 1.93 305,375 $ 1.93
$6.67 to $11.83....... 291,676 7.4 years 9.05 180,604 9.31
$15.22 to $22.32...... 302,040 8.3 years 21.81 91,740 21.43
$22.33 to $37.50...... 484,827 9.2 years 23.46 18,765 30.97
---------- ---------
$1.93 to $37.50....... 1,383,918 8.5 years $ 15.31 596,484 $ 8.08
========== =========
</TABLE>
16
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(In thousands, except share and per share data)
(a) Options granted under the SOP in 1993 and 1994 have no expiration date. They
are therefore not included in the total weighted-average remaining life.
Employee Stock Purchase Plan
Under the Dollar Tree Stores, Inc. Employee Stock Purchase Plan (ESPP),
the Company is authorized to issue up to 337,500 shares of Common Stock to
eligible employees. Under the terms of the ESPP, employees can choose to have up
to 10 percent of their annual base earnings withheld to purchase the Company's
Common Stock. The purchase price of the stock is 85 percent of the lower of the
price at the beginning or the price at the end of the quarterly offering period.
Under the ESPP, the Company has sold 28,517 shares as of December 31, 1997.
Under SFAS No. 123, compensation cost is recognized for the fair
value of the employees' purchase rights, which was estimated using the
Black-Scholes model with the following assumptions:
<TABLE>
<CAPTION>
<S> <C>
Expected term.................................... 3 months
Expected volatility.............................. 21% to 30%
Annual dividend yield............................ 0%
Risk-free interest rate.......................... 5.32%-5.88% (annualized)
</TABLE>
The weighted-average fair value of those purchase rights granted in
1995, 1996 and 1997 was $3.05, $3.52, and $5.95, respectively.
NOTE 12 - SUBSEQUENT EVENTS (Unaudited)
In preparation for moving to the Chesapeake corporate headquarters and
distribution center, the Company listed its Norfolk facility with a commercial
real estate agent for sublease. Subsequent to year end, the Company was in the
process of negotiating a sublease agreement for this facility.
During February 1998, the Company entered into a contract to purchase
approximately 43 acres of land for approximately $1,685 in Olive Branch,
Mississippi, for the purpose of building a new distribution center to replace
the existing facility located in Memphis, Tennessee. The new facility will be
designed after the new Chesapeake distribution center and will include an
automated conveyor and sorting system. The Company has also entered into a
contract to equip the new facility. The total commitment under this contract
approximates $3,700. The new facility is scheduled to be operational in early
1999. The Company intends to secure new financing for construction of this
facility.
In preparation for moving to the Olive Branch facility, the Company has
listed its Memphis distribution center with a commercial real estate agent for
sublease. The Company's current lease on its Memphis facility expires in
September 2005, and the Company will be responsible for rent payments through
this date if a suitable sublease cannot be secured.
17
<PAGE>
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS
- -----------------------------------------
(C) Exhibits.
10.1 Fourth Amendment to Amended and Restated Revolving Credit Agreement
by and among the Company, Dollar Tree Distribution, Inc., Dollar Tree
Management, Inc., BankBoston, N.A., NationsBank, N.A., Crestor Bank,
First Union National Bank of Virginia, AmSouth Bank of Alabama, Union
Bank of California, N.A., dated November 7, 1997.
23.1 Consent of KPMG Peat Marwick LLP, independent certified public
accountants.
27 Financial Data Schedule.
<PAGE>
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, hereunto duly authorized.
DOLLAR TREE STORES, INC.
(Registrant)
DATE: MARCH 4, 1998 By: /s/ J. Douglas Perry
-------------------------------------
J. Douglas Perry
Chairman
<PAGE>
EXHIBIT INDEX
10.1 Fourth Amendment to Amended and Restated Revolving Credit Agreement
by and among the Company, Dollar Tree Distribution, Inc., Dollar Tree
Management, Inc., BankBoston, N.A., NationsBank, N.A., Crestor Bank,
First Union National Bank of Virginia, AmSouth Bank of Alabama, Union
Bank of California, N.A., dated November 7, 1997.
23.1 Consent of KPMG Peat Marwick LLP, independent certified public
accountants.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 10.1
FOURTH AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
This Fourth Amendment to Amended and Restated Revolving Credit Agreement is
made as of the 7th day of Nov., 1997 by and among
Dollar Tree Distribution, Inc. (the "Borrower"), a Virginia corporation
having its chief executive office at 500 Volvo Parkway, Chesapeake,
Virginia 23320;
Dollar Tree Stores, Inc. ("DTS"), a Virginia corporation having its chief
executive office at 500 Volvo Parkway, Chesapeake, Virginia 23320;
Dollar Tree Management, Inc. ("DTM"), a Virginia corporation having its
chief executive office at 500 Volvo Parkway, Chesapeake, Virginia 23320;
BankBoston, N.A. (f/k/a The First National Bank of Boston), NationsBank,
N.A., 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 a First Amendment to Amended and Restated Revolving Credit
Agreement dated January 25, 1997, as further amended by a Second Amendment to
Amended and Restated Revolving Credit dated as of May 8, 1997, and as further
amended by a Third Amendment to Amended and Restated Revolving Credit dated as
of September 2, 1997, collectively, the "Agreement"); and
WHEREAS, Signet Bank is no longer a Lender under the Agreement, and, as a
result thereof, the Commitments of the remaining Lenders have been modified; and
WHEREAS, the Borrower, DTS, DTM, the Agent, and the Lenders desire to
modify and amend the Agreement to reflect the modifications to the Commitments,
as provided herein.
<PAGE>
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.
2. AMENDMENT TO SCHEDULES. SCHEDULE 1 to the Agreement is hereby deleted in
its entirety and a new SCHEDULE 1 in the form annexed hereto is substituted
in its stead.
3. 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.
4. MISCELLANEOUS.
(a) This Fourth Amendment to Amended and Restated Revolving Credit
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 all of which together shall constitute one
instrument.
(b) This Fourth Amendment to Amended and Restated Revolving Credit
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: Sr. Vice Pres., Finance
2
<PAGE>
DOLLAR TREE STORES, INC.
By: /s/ Frederick C. Coble
Name: Frederick C. Coble
Title: Sr. Vice Pres., Finance
DOLLAR TREE MANAGEMENT, INC.
By: /s/ Frederick C. Coble
Name: Frederick C. Coble
Title: Sr. Vice Pres., Finance
BANKBOSTON, N.A. (f/k/a THE FIRST
NATIONAL BANK OF BOSTON), individually
and as Agent
3
<PAGE>
By:/s/ Judith C. E. Kelly
Name: Judith C.E. Kelly
Title: Vice President
CRESTAR BANK
By /s/ Bruce W. Nave
Name: Bruce W. Nave
Title: Vice President
FIRST UNION NATIONAL BANK OF
VIRGINIA, NOW FIRST UNION
NATIONAL BANK
By /s/ Richard H. Gratton
Name: Richard H. Gratton
Title: Senior Vice President
NATIONSBANK, N.A.
By: /s/ Monique S. Adams
Name: Monique S. Adams
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By /s/ Dana C. Fenwick
Name: Dana C. Fenwick
Title: Vice President
AMSOUTH BANK OF ALABAMA
By /s/ Bryan Grantham
Name: Bryan Grantham
Title: Commercial Banking
Officer
4
<PAGE>
SCHEDULE 1
TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
LENDERS, COMMITMENTS, AND COMMITMENT PERCENTAGES
LENDER COMMITMENT COMMITMENT
PERCENTAGE
BankBoston, N.A. $32,500,000.00 24.074074074%
Crestar Bank $22,500,000.00 16.666666667%
First Union National $22,500,000.00 16.666666667%
Bank of Virginia
NationsBank, N.A. $22,500,000.00 16.666666667%
Union Bank of California, N.A. $20,000,000.00 14.814814814%
AmSouth Bank of Alabama $15,000,000.00 11.111111111%
5
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Dollar Tree Stores, Inc.:
We consent to the incorporation by reference in the registration statements on
Form S-8 (Nos. 33-92812, 33-92814, 33-92816 and 333-38735) of Dollar Tree
Stores, Inc. of our report dated January 20, 1998 relating to the
consolidated balance sheets of Dollar Tree Stores, Inc. and subsidiaries as
of December 31, 1996 and 1997 and the related consolidated income statements
and statements of shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1997, which report appears in the
Current Report on Form 8-K of Dollar Tree Stores, Inc. dated March 4, 1998.
/s/ KPMG Peat Marwick LLP
Norfolk, Virginia
March 4, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS FILED ON FORM 8-K FOR THE PERIOD ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 43,695
<SECURITIES> 0
<RECEIVABLES> 1,406
<ALLOWANCES> 0
<INVENTORY> 89,066
<CURRENT-ASSETS> 143,022
<PP&E> 116,912
<DEPRECIATION> 34,841
<TOTAL-ASSETS> 272,576
<CURRENT-LIABILITIES> 82,809
<BONDS> 0
0
0
<COMMON> 391
<OTHER-SE> 154,535
<TOTAL-LIABILITY-AND-EQUITY> 272,576
<SALES> 635,473
<TOTAL-REVENUES> 635,473
<CGS> 397,116
<TOTAL-COSTS> 397,116
<OTHER-EXPENSES> 156,563
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,812
<INCOME-PRETAX> 78,982
<INCOME-TAX> 30,408
<INCOME-CONTINUING> 48,574
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,574
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.13
</TABLE>
