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, 1998
( ) 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.)
500 Volvo Parkway
Chesapeake, Virginia 23320
(Address of principal executive offices)
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 6, 1998, there were 59,158,498 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, 1998 and December 31, 1997........................ 3
Condensed Consolidated Income Statements
Three months and nine months ended September 30, 1998 and 1997.. 4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1998 and 1997................... 5
Notes to Condensed Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 13
Item 5. Other Information............................................... 13
Item 6. Exhibits and Reports on Form 8-K................................ 13
Signatures................................................... 15
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 5,325 $ 43,695
Accounts receivable............................ 1,014 1,406
Merchandise inventories ....................... 184,511 89,066
Deferred tax asset ............................ 6,162 5,093
Prepaid expenses and other current assets ..... 6,606 3,762
------- -------
Total current assets....................... 203,618 143,022
------- -------
Property and equipment, net......................... 108,364 82,071
Deferred tax asset.................................. 2,294 2,029
Goodwill, net . . . . .............................. 43,033 44,478
Other assets, net................................... 1,149 976
------- -------
TOTAL ASSETS............................... $358,458 $272,576
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.............. $ 40,000 $ --
Accounts payable .............................. 53,057 44,058
Accrued liabilities ........................... 16,541 19,526
Income taxes payable........................... -- 18,908
Current installments of obligations
under capital leases........................ 392 317
------- -------
Total current liabilities.................. 109,990 82,809
------- -------
Long-term debt (note 4)............................. 50,000 30,000
Obligations under capital leases,
excluding current installments................... 2,188 804
Other liabilities................................... 4,072 4,037
------- -------
Total liabilities.......................... 166,250 117,650
------- -------
Shareholders' equity:
Common stock, par value $0.01. Authorized
100,000,000 shares, 59,144,230 shares issued
and outstanding at September 30, 1998 and
58,709,948 shares issued and outstanding at
December 31, 1997 (note 2)................... 591 391
Additional paid-in capital..................... 44,124 36,185
Retained earnings.............................. 147,493 118,350
------- -------
Total shareholders' equity................. 192,208 154,926
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. $358,458 $272,576
======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
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DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.................................... $176,071 $142,386 $500,769 $389,464
Cost of sales................................ 107,915 88,550 312,927 248,173
------- ------- ------- -------
Gross profit......................... 68,156 53,836 187,842 141,291
------- ------- ------- -------
Selling, general, and administrative
expenses:
Operating expenses........................ 43,384 35,444 124,615 99,973
Depreciation and amortization............. 4,736 3,327 13,207 9,422
------- ------- ------- -------
Total selling, general
and administrative expenses........ 48,120 38,771 137,822 109,395
------- ------- ------- -------
Operating income............................. 20,036 15,065 50,020 31,896
Interest expense............................. 1,313 971 2,634 2,209
------- ------- ------- -------
Income before income taxes................... 18,723 14,094 47,386 29,687
Provision for income taxes................... 7,208 5,425 18,243 11,428
------- ------- ------- -------
Net income........................... $ 11,515 $ 8,669 $ 29,143 $ 18,259
======= ======= ======= =======
Net income per share (notes 2 and 3):
Basic net income per share................ $ 0.19 $ 0.15 $ 0.49 $ 0.31
======= ======= ======= =======
Weighted average number of common
shares outstanding:..................... 59,132 58,616 58,968 58,492
======= ======= ======= =======
Diluted net income per share ............. $ 0.18 $ 0.13 $ 0.45 $ 0.28
======= ======= ======= =======
Weighted average number of common
shares and dilutive potential
common shares outstanding............... 65,391 64,831 65,213 64,569
======= ======= ======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
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DOLLAR TREE STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 29,143 $ 18,259
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization........................ 13,207 9,422
Loss on disposal of property and equipment .......... 500 77
Provision for deferred income taxes.................. (1,334) (984)
Changes in assets and liabilities increasing
(decreasing) cash and cash equivalents:
Accounts receivable............................... 392 635
Merchandise inventories........................... (95,445) (58,069)
Prepaid expenses and other current assets......... (2,844) 233
Other assets ..................................... 57 (160)
Accounts payable.................................. 8,999 11,478
Accrued liabilities............................... (2,985) 70
Income taxes payable.............................. (14,754) (8,269)
Other liabilities................................. 35 805
------- -------
Total adjustments................................ (94,172) (44,762)
------- -------
Net cash used in operating activities ........... (65,029) (26,503)
------- -------
Cash flows from investing activities:
Capital expenditures ................................... (36,933) (42,600)
Proceeds from sale of property and equipment............ 137 --
------- -------
Net cash used in investing activities............ (36,796) (42,600)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt............................ 162,900 213,400
Repayment of long-term debt and facility fees........... (103,130) (144,103)
Principal payments under capital lease obligations...... (300) (227)
Proceeds from options exercised and purchase
of shares under ESPP................................... 3,985 1,684
------- -------
Net cash provided by financing activities........ 63,455 70,754
------- -------
Net increase (decrease) in cash and cash equivalents..... (38,370) 1,651
Cash and cash equivalents at beginning of period......... 43,695 2,987
------- -------
Cash and cash equivalents at end of period............... $ 5,325 $ 4,638
======= =======
</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, 1998, 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,
1997, 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, 1998 are
not necessarily indicative of the results to be expected for the entire year
ending December 31, 1998.
2. STOCK DIVIDEND
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 June 29, 1998 to shareholders of record as of June 22,
1998. 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. NET INCOME PER SHARE
The following table sets forth the calculation of basic and diluted net
income per share:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Basic net income per share:
Net income........................ $ 11,515 $ 8,669 $ 29,143 $ 18,259
------ ------ ------ ------
Weighted average number of
common shares outstanding...... 59,132 58,616 58,968 58,492
------ ------ ------ ------
Basic net income
per share............. $ 0.19 $ 0.15 $ 0.49 $ 0.31
====== ====== ====== ======
Diluted net income per share:
Net income........................ $ 11,515 $ 8,669 $ 29,143 $ 18,259
------ ------ ------ ------
Weighted average number of
common shares outstanding....... 59,132 58,616 58,968 58,492
Dilutive effect of stock options
and warrants.................... 6,259 6,215 6,245 6,077
------ ------ ------ ------
Weighted average number of
common shares and dilutive
potential common shares
outstanding..................... 65,391 64,831 65,213 64,569
------ ------ ------ ------
Diluted net income
per share............. $ 0.18 $ 0.13 $ 0.45 $ 0.28
====== ====== ====== ======
</TABLE>
6
<PAGE>
4. ISSUANCE OF DEBT
On May 20, 1998, the Company entered into a Loan Agreement with the
Mississippi Business Finance Corporation ("MBFC") under which the MBFC issued
Taxable Variable Rate Demand Revenue Bonds (the "Bonds") in an aggregate
principal amount of $19.0 million, to finance the acquisition, construction, and
installation of land, buildings, machinery and equipment for the Company's new
distribution facility in Olive Branch, Mississippi. At September 30, 1998 the
balance outstanding on the Bonds is $7.9 million. The Company begins repayment
of the principal amount of the Bonds beginning on June 1, 2006, with a portion
maturing each June 1 until the final portion matures on June 1, 2018. The Bonds
contain a demand provision and, therefore, outstanding amounts are classified as
current liabilities. Interest is payable monthly based on a variable interest
rate which was 5.65% at September 30, 1998.
The Bonds are supported by a $19.3 million Letter of Credit issued by one
of the Company's existing lending banks. The Letter of Credit is renewable
annually. The Letter of Credit and Reimbursement Agreement requires, among other
things, the maintenance of certain specified ratios and restricts the amount of
capital expenditures and the payment of dividends.
5. STEP AHEAD INVESTMENTS, INC.
On July 22, 1998, the Company signed a definitive merger agreement with
Sacramento, California based Step Ahead Investments, Inc.("SAI"). SAI, a
privately-held corporation established in 1983, operates 63 stores under the
name "98(cent) Clearance Centers." The stores offer variety merchandise at a
fixed price of 98(cent) or less and are located in northern and central
California and northwestern Nevada.
Under the terms of the merger agreement, the Company expects to issue or
reserve between 1.9 and 2.1 million shares for all of SAI's outstanding stock
and options, adjusted for certain changes in the Company's stock price. The
stock-for-stock transaction is expected to be accounted for as a
pooling-of-interests. The Company's Registration Statement on Form S-4, as
amended, became effective on November 10, 1998. This transaction is expected to
close on or shortly after December 10, 1998, pending approval of SAI's
shareholders and fulfillment of other customary closing conditions.
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 within the meaning of the
Private Securities Litigation Reform Act of 1995 concerning the Company's
operations, economic performance and financial condition. Such statements may be
identified by the use of words such as "believe," "anticipate" and "expect." The
forward-looking statements concern, among other things, the Company's expansion
plans and store openings; sales per selling square foot and comparable store net
sales trends; increases in shipping or distribution costs; the Dollar Bills
litigation; the potential products liability claims; the Step Ahead merger and
adverse economic factors. Such forward-looking statements could be inaccurate
and are subject to various known and unknown
7
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risks and uncertainties. Actual results, performance or actions of the Company
could differ materially from those currently anticipated due to a number of
factors, including the failure of the merger to be consummated at all or in the
manner anticipated as well as the risks discussed in this Form 10-Q under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations", in the Company's 1997 Annual Report on Form 10-K under the
captions "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business", and in the Company's Registration
Statement on Form S-4, as amended, effective November 10, 1998, under the
caption "Risk Factors".
The Three Months Ended September 30, 1998 and 1997
Results of Operations and General Comments
Net sales increased $33.7 million, or 23.6%, to $176.1 million for the
three months ended September 30, 1998, from $142.4 million for the three months
ended September 30, 1997. Of this increase, (i) approximately 88%, or $29.8
million, was attributable to stores opened in 1997 and 1998 which are not
included in the Company's comparable store net sales calculation, and (ii)
approximately 12%, or $3.9 million, was attributable to comparable store net
sales growth, which represented a 2.9% increase over comparable store net sales
in the corresponding quarter of the prior 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 added 75 new stores
during the third quarter of 1998 and closed one store, compared to opening 54
new stores and closing one store during the third quarter of 1997. Nine of the
new stores were obtained from two small dollar store operators.
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 believes that the increases, if any, in comparable
store net sales in the future may be smaller than those experienced
historically, and that decreases in average net sales per selling square foot
will occur as the average store size increases.
Gross profit, which consists of net sales less cost of sales (including
distribution and certain occupancy costs), increased $14.3 million, or 26.6%, to
$68.2 million in the third quarter of 1998 from $53.8 million in the third
quarter of 1997. As a percentage of net sales, gross profit increased to 38.7%
from 37.8%, primarily due to improved merchandise costs (after consideration of
the increased freight costs) and a reduction in inventory shrinkage and markdown
costs as a percentage of net sales. The improvement in merchandise costs as a
percentage of net sales is primarily due to favorable pricing and the earlier
receipt of higher margin items, compared to last year. Because of the earlier
receipt of selected items, management does not expect this rate of improvement
to continue for the balance of the year.
8
<PAGE>
Selling, general and administrative expenses ("SGA"), which include
operating expenses and depreciation and amortization, increased $9.3 million, or
24.1%, to $48.1 million in the third quarter of 1998 from $38.8 million in the
third quarter of 1997, and increased as a percentage of net sales to 27.3% from
27.2% during the same period. This increase in SGA, as a percentage of net
sales, resulted primarily from increased payroll, primarily due to the minimum
wage increase late in 1997, and higher depreciation, offset by a general
reduction in operating expenses resulting from cost controls.
Operating income increased $5.0 million, or 33.0%, to $20.0 million for the
third quarter of 1998 from $15.1 million for the comparable period in 1997, and
increased as a percentage of net sales to 11.4% from 10.6% during the same
period for the reasons noted above.
The Nine Months Ended September 30, 1998 and 1997
Results of Operations and General Comments
Net sales increased $111.3 million, or 28.6%, to $500.8 million for the
nine months ended September 30, 1998, from $389.5 million for the nine months
ended September 30, 1997. Of this increase, (i) approximately 78%, or $87.0
million, was attributable to stores opened in 1997 and 1998 which are not
included in the Company's comparable store net sales calculation, and (ii)
approximately 22%, or $24.3 million, was attributable to comparable store net
sales growth, which represented a 6.8% increase over comparable store net sales
in the corresponding nine months of the prior 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. Management believes that a
consistent in-stock inventory position in basic consumable goods early in the
year, combined with an extended Easter selling season, contributed to the
comparable store net sales increase. The Company added 171 new stores and closed
four stores during the first nine months of 1998, compared to opening 129 new
stores and closing one store during the first nine months of 1997. Nine of the
new stores were obtained from two small dollar store operators.
Gross profit, which consists of net sales less cost of sales (including
distribution and certain occupancy costs), increased $46.6 million, or 32.9%, to
$187.8 million in the first nine months of 1998 from $141.3 million in the first
nine months of 1997. As a percentage of net sales, gross profit increased to
37.5% from 36.3%, primarily due to improved merchandise costs (after
consideration of the increased freight costs). The improvement in merchandise
costs is primarily due to favorable pricing and the earlier receipt of higher
margin items. In May 1998, a trans-Pacific ocean-shipping cartel imposed an
increase of $300 per container on all U.S. imports from Asia, which took effect
with shipments beginning in mid-May 1998. This rate increase is expected to add
approximately $600,000 to $700,000 in freight expenses to the Company's cost of
sales for the second half of 1998, and approximately $1.5 million to $2.0
million for 1999. The cartel recently announced its intention to impose a
further increase of $900 per container for shipments from Asia to the West Coast
of the United States and $1,000 for shipments to the East Coast, with a $300 per
container surcharge during the peak shipping season from June 1 through November
30. Although it is uncertain
9
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whether the cartel will be successful in implementing the increase at the
announced rates, the target effective date for the increase is May 1, 1999.
SGA increased $28.4 million, or 26.0%, to $137.8 million in the first nine
months of 1998 from $109.4 million in the first nine months of 1997, and
decreased as a percentage of net sales to 27.5% from 28.1% during the same
period. This decrease in SGA, as a percentage of net sales, resulted primarily
from the leveraging of fixed costs, due to the strong comparable store sales
increases, and from on-going cost control initiatives, which more than offset
slight increases in payroll and depreciation.
Operating income increased $18.1 million, or 56.8%, to $50.0 million for
the first nine months of 1998 from $31.9 million for the comparable period in
1997, and increased as a percentage of net sales to 10.0% from 8.2% during the
same period for the reasons noted above.
Liquidity and Capital Resources
The Company's ongoing capital requirements result primarily from capital
expenditures related to new store openings and working capital requirements
related to new and existing stores. 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 beginning of the fourth quarter of the year.
Historically, the Company has met its seasonal working capital requirements for
existing stores and funded its store expansion program from internally generated
funds and borrowings under its credit facilities.
During the first nine months of 1998, net cash used in operations was $65.0
million. The net cash used in operations during the first nine months of 1998
was used primarily to build inventory levels and compares to net cash used in
operations of $26.5 million during the comparable period of 1997. The increase
in 1998 reflects higher inventory levels due to the earlier receipt of
merchandise in anticipation of a shipping container shortage in Southeast Asia.
Net cash used in investing activities during the first nine months of 1998 was
$36.8 million, which consisted primarily of capital expenditures relating to new
store expansion. Net cash provided by financing activities during the first nine
months of 1998 was $63.5 million, which was primarily used to fund seasonal
working capital needs.
The Company's borrowings under its bank facilities, senior notes and Bonds
were $90.0 million at September 30, 1998, and $72.5 million at September 30,
1997. Borrowings at December 31, 1997, amounted to $30.0 million. Under the
Company's bank facilities, an additional $82.9 million is available at September
30, 1998, approximately $13.5 million of which is committed to certain letters
of credit issued in relation to the routine purchase of foreign merchandise.
During September 1998, the Amended and Restated Revolving Credit Agreement
was amended to remove the minimum beneficial ownership requirements of the
founding shareholders.
10
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Except for the cost of the new Olive Branch facility, the Company believes
that it can adequately fund its planned capital expenditures and working capital
requirements for the next several years from net cash provided by operations and
availability under its credit facilities.
Recent Development
On July 22, 1998, the Company signed a definitive merger agreement with
Sacramento, California based Step Ahead Investments, Inc.("SAI"). The merger
agreement was amended on October 20, 1998. SAI, a privately-held corporation
established in 1983, operates 63 stores under the name "98(cent) Clearance
Centers." The stores offer variety merchandise at a fixed price of 98(cent) or
less and are located in northern and central California and northwestern Nevada.
The Company's Registration Statement on Form S-4, as amended, became effective
on November 10, 1998.
Under the terms of the merger agreement, the Company expects to issue or
reserve between 1.9 and 2.1 million shares for all of SAI's outstanding stock
and options, adjusted for certain changes in the Company's stock price. The
stock-for-stock transaction is expected to be accounted for as a
pooling-of-interests. This transaction is expected to close on or shortly after
December 10, 1998, pending approval of SAI's shareholders and fulfillment of
other customary closing conditions.
Costs relating to the merger are expected to be approximately $5.5 million,
which will be charged to operations upon consummation of the merger. After
consideration of these costs and charges, the Company anticipates that the
merger will be dilutive for shareholders of the combined company for the year
ended December 31, 1998, but management believes that the merger will not be
dilutive for the year ended December 31, 1999.
Year 2000 Compliance
The Company has been evaluating and adjusting all known date-sensitive
systems and equipment for Year 2000 compliance. The Year 2000 project has been
divided into four phases: 1) inventory and initial assessment, 2) remediation
& testing, 3) implementation and 4) contingency planning. The assessment phase
of the Year 2000 project is substantially complete and included both
information technology, such as computer equipment and software, as well as
non-information technology equipment, such as warehouse conveyor systems.
The Company's plan provides for internal compliance of all mission-critical
systems by mid-1999. The Company believes that the majority of its internal
systems are currently Year 2000 compliant. Some programs and equipment will be
replaced beginning in late 1998 by routine upgrades which will provide numerous
system enhancements and will be Year 2000 compliant. These upgrades were
previously planned and were not accelerated due to Year 2000 issues. The Company
has not deferred any information technology projects to address the Year 2000
issue.
11
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The Company plans to continue to rely primarily on internal resources in
order to identify, correct or reprogram and test systems for Year 2000
compliance. The total costs of modifying the Company's current systems are not
expected to exceed $500,000. These costs are not expected to have a material
adverse impact on the Company's financial position, results of operations or
cash flows in future periods.
Additionally, the Company is in the process of communicating with service
providers and suppliers of merchandise in order to assess their Year 2000
readiness and the extent to which the Company may be vulnerable to any third
parties' failure to remediate their own Year 2000 issues. Many of these parties
have stated their ability to supply the Company will not be affected by the Year
2000 issue. However, the Company cannot assure timely compliance of third
parties and may be adversely affected by failure of a significant third party to
become Year 2000 compliant.
Although the Company anticipates minimal business disruption will occur as
a result of Year 2000 issues, possible consequences include, but are not limited
to, loss of communications links with store locations, customs delays, loss of
electric power, inability to process transactions, or engage in similar normal
business activities.
To date, the Company has not established a contingency plan for possible
Year 2000 issues. Where needed, the Company will establish contingency plans
based on the Company's actual testing experience and assessment of outside
risks.
The cost of the conversions and the completion dates are based on
management's best estimates and may be updated as additional information becomes
available.
New Accounting Pronouncements
The Financial Accounting Standards Board has issued Statements No. 130,
Reporting Comprehensive Income (SFAS 130), No. 131, Disclosures about Segments
of an Enterprise and Related Information (SFAS 131) and No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). SFAS 130 and SFAS 131
are effective for the Company beginning January 1998 and for the year ended
December 31, 1998, respectively. SFAS 130 is currently not applicable for the
Company. SFAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The impact of SFAS 133 is being reviewed by the Company,
but management believes it will not have a material effect on the Company's
financial condition.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position (SOP) 98-5, Reporting
on the Costs of Start-up Activities, on April 3, 1998. It requires pre-opening
costs to be expensed as incurred for fiscal years beginning after December 15,
1998 and the impact of the implementation of this SOP is not expected to be
material to the Company's financial results.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
The Company has previously reported in its 1997 Annual Report on Form
10-K a dispute involving Michael and Pamela Alper and a corporation they
control. There have been no material developments regarding this matter in 1998.
The Company has recalled certain retractable dog leashes which were alleged
to have caused several personal injuries, as previously reported in its 1997
Annual Report on Form 10-K. There have been no other material developments
regarding this matter in 1998.
Additionally, the Company is a party to ordinary routine litigation and
proceedings incidental to its business, including certain matters which may
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.
In relation to the proposed merger with Step Ahead Investments, Inc., the
Company's Registration Statement on Form S-4 (Registration No. 333-61139) became
effective on November 10, 1998.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following documents, filed as Exhibits 2.1 and 4.1 to the Company's
Current Report on Form 8-K on July 31, 1998 are incorporated herein by this
reference:
2.1 Merger Agreement dated July 22, 1998 by and among Dollar Tree
Stores, Inc., Dollar Tree West, Inc., and Step Ahead Investments,
Inc.
4.1 Voting Agreement dated July 22, 1998 by and among Dollar Tree
Stores, Inc., Gary L. Cino, Janet Cino, Gary L. Nett, Trustee for
The Cino Children's Trust dated March 18, 1997, and Gary and Janet
Cino, Trustees of the Gary and Janet Cino Trust dated May 1,
1991.
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The following document, filed as Exhibit 2.1 to the Company's Current
Report on Form 8-K on October 29, 1998 is incorporated herein by this reference:
2.2 Amendment to the Merger Agreement dated October 20, 1998 by and
among Dollar Tree Stores, Inc., Dollar Tree West, Inc., and Step
Ahead Investments, Inc.
The following document is filed herewith:
10.1 Fifth Amendment to Amended and Restated Revolving Credit
Agreement dated September 30, 1998 by and among Dollar Tree
Distribution, Inc., Dollar Tree Stores, Inc., Dollar Tree
Management, Inc., BankBoston, N.A., NationsBank, N.A., Crestar
Bank, First Union National Bank of Virginia, Amsouth Bank of
Alabama, and Union Bank of California, N.A.
(b) Reports on Form 8-K.
The Company filed the following Reports on Form 8-K.
Date Subject
July 16, 1998 Press release regarding a 50% stock dividend
July 31, 1998 Signing of a definitive merger agreement between the
Company and Step Ahead Investments, Inc.
October 8, 1998 Press release regarding net sales for the quarter
ended September 30, 1998
October 29, 1998 Amendment to the Merger Agreement between Dollar Tree
Stores, Inc., Dollar Tree West, Inc. and Step Ahead
Investments, Inc.
Press release regarding net earnings for the quarter
ended September 30, 1998
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DATE: November 13, 1998
DOLLAR TREE STORES, INC.
By: /s/ Frederick C. Coble
------------------------
Frederick C. Coble
Senior Vice President,
Chief Financial Officer
(principal financial and
accounting officer)
15
<PAGE>
FIFTH AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
This Fifth Amendment to Amended and Restated Revolving Credit Agreement
is made as of the 30th day of September, 1998 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 IT 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, as further
amended by a Third Amendment to Amended and Restated Revolving Credit dated as
of September 2, 1997 and as further amended by a Fourth Amendment to Amended and
Restated Revolving Credit dated as of November 7, 1997, collectively, the
"Agreement"); and
WHEREAS, the Borrower, DTS, DTM, the Agent, and the Lenders desire to
modify and amend the Agreement, as provided herein.
NOW, THEREFORE, it is hereby agreed as follows:
1
<PAGE>
1. Definitions. All capitalized terms used herein and not
otherwise defined shall have the same meaning herein as in the
Agreement.
2. Amendment to Section 6. The provisions of Section 6.22 of the
Agreement are hereby amended by deleting the first sentence
thereof.
3. Amendment to Section 8. The provisions of Section 8.12 are
hereby amended by deleting clause (a) in its entirety.
4. 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 representation,
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.
5. Miscellaneous.
(a) This Fifth 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 Fifth 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.
2
<PAGE>
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,
Chief Financial Officer
DOLLAR TREE STORES, INC.
By: /s/ Frederick C. Coble
-----------------------------------
Name: Frederick C. Coble
Title: Senior Vice President,
Chief Financial Officer
DOLLAR TREE MANAGEMENT, INC.
By: /s/ Frederick C. Coble
-----------------------------------
Name: Frederick C. Coble
Title: Senior Vice President,
Chief Financial Officer
BANKBOSTON, N.A. (f/k/a THE
FIRST NATIONAL BANK OF BOSTON)
individually and as Agent
By: /s/ Judith C.E. Kelly
-----------------------------------
Name: Judith C.E. Kelly
Title: Vice President
3
<PAGE>
CRESTAR BANK
By: /s/ Bruce W. Nave
-----------------------------------
Name: Bruce W. Nave
Title:Senior Vice President,
FIRST UNION NATIONAL BANK
By: /s/ Leslie S. Cundiff
-----------------------------------
Name: Leslie S. Cundiff
Title:Senior Vice President,
NATIONSBANK, N.A.
By: /s/ Franklin P. Earley
-----------------------------------
Name: Franklin P. Earley
Title:Senior Vice President,
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Susan D. Biba
-----------------------------------
Name: Susan D. Biba
Title:Vice President
AMSOUTH BANK OF ALABAMA
By: /s/ Mary Anna Raburn
-----------------------------------
Name: Mary Anna Raburn
Title:Vice President
4
<PAGE>
<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, 1998 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> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,325
<SECURITIES> 0
<RECEIVABLES> 1,014
<ALLOWANCES> 0
<INVENTORY> 184,511
<CURRENT-ASSETS> 203,618
<PP&E> 153,599
<DEPRECIATION> 45,235
<TOTAL-ASSETS> 358,458
<CURRENT-LIABILITIES> 109,990
<BONDS> 0
0
0
<COMMON> 591
<OTHER-SE> 191,617
<TOTAL-LIABILITY-AND-EQUITY> 358,458
<SALES> 500,769
<TOTAL-REVENUES> 500,769
<CGS> 312,927
<TOTAL-COSTS> 312,927
<OTHER-EXPENSES> 137,822
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,634
<INCOME-PRETAX> 47,386
<INCOME-TAX> 18,243
<INCOME-CONTINUING> 29,143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,143
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.45
</TABLE>
<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. SUMMARY FINANCIAL
INFORMATION FOR THE PERIOD ENDED SEPTEMBER 30, 1997 IS HEREIN RE-PRESENTED
TO REFLECT EARNINGS PER SHARE AS RECALCULATED FOR STATEMENT OF FINANCIAL
ACCOUNTING STANDARD NO. 128.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<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> 0.31
<EPS-DILUTED> 0.28
</TABLE>
