(X)
|
Quarterly
report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of
1934
|
(
)
|
Transition
report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of
1934
|
Virginia
|
54-1387365
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
Yes
(X)
|
No
( )
|
Large
accelerated filer (X)
|
Accelerated
filer ( )
|
Non
accelerated filer ( )
|
Yes
( )
|
No
(X)
|
Page
|
||
Item
1.
|
Financial
Statements:
|
|
Condensed
Consolidated Income Statements for the 13
Weeks and 26 Weeks Ended July 29, 2006 and July 30, 2005
|
3
|
|
Condensed
Consolidated Balance Sheets as of July 29,
2006, January 28, 2006 and July 30, 2005
|
4
|
|
Condensed
Consolidated Statements of Cash Flows for
the 26 Weeks Ended July 29, 2006 and July 30, 2005
|
5
|
|
6
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial
Condition and Results of Operations
|
13
|
Item
3.
|
18
|
|
Item
4.
|
19
|
Item
1.
|
19
|
|
Item
1A.
|
20
|
|
Item
2.
|
20
|
|
Item
3.
|
20
|
|
Item
4.
|
21
|
|
Item
5.
|
21
|
|
Item
6.
|
21
|
|
22
|
13
Weeks Ended
|
26
Weeks Ended
|
||||||||||||
July
29,
|
July
30,
|
July
29,
|
July
30,
|
||||||||||
(In
millions, except per share data)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Net
sales
|
$
|
883.6
|
$
|
769.0
|
$
|
1,740.1
|
$
|
1,518.1
|
|||||
Cost
of sales
|
590.3
|
507.6
|
1,160.7
|
1,002.4
|
|||||||||
Gross
profit
|
293.3
|
261.4
|
579.4
|
515.7
|
|||||||||
Selling,
general and administrative
|
|||||||||||||
expenses
|
245.3
|
214.9
|
478.0
|
421.1
|
|||||||||
Operating
income
|
48.0
|
46.5
|
101.4
|
94.6
|
|||||||||
Interest
expense, net
|
1.7
|
2.8
|
2.5
|
4.1
|
|||||||||
Income
before income taxes
|
46.3
|
43.7
|
98.9
|
90.5
|
|||||||||
Provision
for income taxes
|
17.3
|
16.4
|
37.0
|
34.2
|
|||||||||
Net
income
|
$
|
29.0
|
$
|
27.3
|
$
|
61.9
|
$
|
56.3
|
|||||
Net
income per share:
|
|||||||||||||
Basic
|
$
|
0.28
|
$
|
0.25
|
$
|
0.59
|
$
|
0.51
|
|||||
Diluted
|
$
|
0.28
|
$
|
0.25
|
$
|
0.59
|
$
|
0.51
|
July
29,
|
January
28,
|
July
30,
|
||||||||
(In
millions)
|
2006
|
2006
|
2005
|
|||||||
ASSETS
|
||||||||||
Current
assets:
|
||||||||||
Cash
and cash equivalents
|
$
|
49.0
|
$
|
65.8
|
$
|
14.5
|
||||
Short-term
investments
|
131.4
|
274.0
|
151.0
|
|||||||
Merchandise
inventories
|
671.0
|
576.5
|
629.8
|
|||||||
Other
current assets
|
23.5
|
27.4
|
33.9
|
|||||||
Total
current assets
|
874.9
|
943.7
|
829.2
|
|||||||
Property,
leaseholds and equipment, net
|
710.5
|
681.8
|
691.6
|
|||||||
Intangibles,
net
|
145.6
|
129.3
|
130.9
|
|||||||
Other
assets, net
|
44.3
|
43.6
|
28.1
|
|||||||
TOTAL
ASSETS
|
$
|
1,775.3
|
$
|
1,798.4
|
$
|
1,679.8
|
||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||||
Current
liabilities:
|
||||||||||
Current
portion of long-term debt
|
$
|
18.8
|
$
|
19.0
|
$
|
19.0
|
||||
Accounts
payable
|
211.8
|
135.6
|
120.4
|
|||||||
Other
current liabilities
|
105.3
|
99.2
|
103.1
|
|||||||
Income
taxes payable
|
5.0
|
41.7
|
5.3
|
|||||||
Total
current liabilities
|
340.9
|
295.5
|
247.8
|
|||||||
Long-term
debt, excluding current portion
|
250.0
|
250.0
|
250.0
|
|||||||
Other
liabilities
|
70.6
|
80.6
|
84.8
|
|||||||
Total
liabilities
|
661.5
|
626.1
|
582.6
|
|||||||
Shareholders'
equity
|
1,113.8
|
1,172.3
|
1,097.2
|
|||||||
Commitments
and contingencies
|
||||||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$
|
1,775.3
|
$
|
1,798.4
|
$
|
1,679.8
|
||||
Common
shares outstanding
|
102.0
|
106.5
|
108.5
|
26
Weeks Ended
|
|||||||
July
29,
|
July
30,
|
||||||
(In
millions)
|
2006
|
2005
|
|||||
Cash
flows from operating activities:
|
|||||||
Net
income
|
$
|
61.9
|
$
|
56.3
|
|||
Adjustments
to reconcile net income to net cash
|
|||||||
provided
by operating activities:
|
|||||||
Depreciation
and amortization
|
74.1
|
68.1
|
|||||
Other
non-cash adjustments to net income
|
(7.9
|
)
|
(8.4
|
)
|
|||
Other
changes in working capital
|
(22.7
|
)
|
(47.0
|
)
|
|||
Net
cash provided by operating activities
|
105.4
|
69.0
|
|||||
Cash
flows from investing activities:
|
|||||||
Capital
expenditures
|
(88.6
|
)
|
(74.5
|
)
|
|||
Purchase
of short-term investments
|
(346.8
|
)
|
(497.7
|
)
|
|||
Proceeds
from maturities of short-term investments
|
489.3
|
558.0
|
|||||
Purchase
of Deal$ assets, net of cash aquired of $0.3
|
(54.1
|
)
|
-
|
||||
Purchase
of restricted investments
|
-
|
(15.2
|
)
|
||||
Other
|
(1.1
|
)
|
(3.3
|
)
|
|||
Net
cash used in investing activities
|
(1.3
|
)
|
(32.7
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Principal
payments under long-term debt
|
|||||||
and
capital lease obligations
|
(0.5
|
)
|
(3.5
|
)
|
|||
Payments
for share repurchases
|
(136.4
|
)
|
(130.4
|
)
|
|||
Proceeds
from stock issued pursuant to stock-based
|
|||||||
compensation
plans
|
14.7
|
5.6
|
|||||
Tax
benefit of stock options exercised
|
1.3
|
-
|
|||||
Net
cash used in financing activities
|
(120.9
|
)
|
(128.3
|
)
|
|||
Net
decrease in cash and cash equivalents
|
(16.8
|
)
|
(92.0
|
)
|
|||
Cash
and cash equivalents at beginning of period
|
65.8
|
106.5
|
|||||
Cash
and cash equivalents at end of period
|
49.0
|
$
|
14.5
|
||||
Supplemental
disclosure of cash flow information:
|
|||||||
Cash
paid for:
|
|||||||
Interest,
net of amount capitalized
|
$
|
5.9
|
$
|
5.4
|
|||
Income
taxes
|
$
|
86.5
|
$
|
73.0
|
13
Weeks Ended
|
26
Weeks Ended
|
||||||||||||
July
29,
|
|
July
30,
|
|
July
29,
|
|
July
30,
|
|||||||
(In
millions, except per share data)
|
2006
|
|
2005
|
|
2006
|
|
2005
|
||||||
Basic
net income per share:
|
|||||||||||||
Net
income
|
$
|
29.0
|
$
|
27.3
|
$
|
61.9
|
$
|
56.3
|
|||||
Weighted
average number of
|
|||||||||||||
shares
outstanding
|
103.7
|
108.4
|
105.0
|
109.8
|
|||||||||
Basic
net income per share
|
$
|
0.28
|
$
|
0.25
|
$
|
0.59
|
$
|
0.51
|
|||||
Diluted
net income per share:
|
|||||||||||||
Net
income
|
$
|
29.0
|
$
|
27.3
|
$
|
61.9
|
$
|
56.3
|
|||||
Weighted
average number of
|
|||||||||||||
shares
outstanding
|
103.7
|
108.4
|
105.0
|
109.8
|
|||||||||
Dilutive
effect of stock options and
|
|||||||||||||
restricted
stock units (as determined
|
|||||||||||||
by
applying the treasury stock method)
|
0.4
|
0.4
|
0.4
|
0.5
|
|||||||||
Weighted
average number of shares and
|
|||||||||||||
dilutive
potential shares outstanding
|
104.1
|
108.8
|
105.4
|
110.3
|
|||||||||
Diluted
net income per share
|
$
|
0.28
|
$
|
0.25
|
$
|
0.59
|
$
|
0.51
|
13
Weeks
|
|
26
Weeks
|
|
||||
|
|
Ended
|
|
Ended
|
|
||
|
|
July
30,
|
|
July
30,
|
|||
(In
millions, except per share data)
|
2005
|
|
2005
|
||||
Net
income, as reported
|
$
|
27.3
|
$
|
56.3
|
|||
Add:
Total stock-based employee compensation expense
|
|||||||
included
in net income, net of related tax effects
|
0.4
|
0.4
|
|||||
Deduct:
Total stock-based employee compensation determined
|
|||||||
under
fair value-based method, net of related tax effects
|
(2.7
|
)
|
(5.0
|
)
|
|||
Pro
forma net income
|
$
|
25.0
|
$
|
51.7
|
|||
Net
income per share:
|
|||||||
Basic,
as reported
|
$
|
0.25
|
$
|
0.51
|
|||
Basic,
pro forma
|
$
|
0.23
|
$
|
0.47
|
|||
Diluted,
as reported
|
$
|
0.25
|
$
|
0.51
|
|||
Diluted,
pro forma
|
$
|
0.23
|
$
|
0.47
|
Expected
term in years
|
6.0
|
|
Expected
volatility
|
30.2%
|
|
Annual
dividend yield
|
-
|
|
Risk
free interest rate
|
4.8%
|
July
29, 2006
|
|||||||||||||
|
|
Weighted
|
|
|
|
|
|
||||||
|
|
|
|
Average
|
|
Weighted
|
|
Aggregate
|
|
||||
|
|
|
|
Per
Share
|
|
Average
|
|
Intrinsic
|
|
||||
|
|
|
|
Exercise
|
|
Remaining
|
|
Value
(in
|
|
||||
|
|
Shares
|
|
Price
|
|
Term
|
|
millions)
|
|||||
Outstanding
at January 29, 2006
|
5,990,757
|
$
|
24.71
|
||||||||||
Granted
|
335,019
|
27.64
|
|||||||||||
Exercised
|
(603,185
|
)
|
21.67
|
||||||||||
Forfeited
|
(58,011
|
)
|
29.41
|
||||||||||
Outstanding
at July 29, 2006
|
5,664,580
|
25.16
|
6.0
|
$
|
7.1
|
||||||||
Options
vested and expected
|
|||||||||||||
to
vest at July 29, 2006
|
5,630,517
|
25.15
|
6.0
|
7.1
|
|||||||||
Options
exercisable at end of period
|
5,322,080
|
25.01
|
5.8
|
7.5
|
|||||||||
Weighted
average fair value of options
|
|||||||||||||
granted
during the period
|
$
|
10.93
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||
Options
|
|
|
|
|
|
Options
|
|
|
|
|||||||
Range
of
|
|
Outstanding
|
|
Weighted
Avg.
|
|
Weighted
Avg.
|
|
Exercisable
|
|
Weighted
Avg.
|
|
|||||
Exercise
|
|
at
July 29,
|
|
Remaining
|
|
Exercise
|
|
at
July 29,
|
|
Exercise
|
|
|||||
Prices
|
|
2006
|
|
Contractual
Life
|
|
Price
|
|
2006
|
|
Price
|
||||||
$0.86
|
7,478
|
N/A
|
0.86
|
7,478
|
0.86
|
|||||||||||
$2.95
to $10.98
|
28,054
|
0.9
|
10.06
|
28,054
|
10.06
|
|||||||||||
$10.99
to $21.28
|
1,380,781
|
5.7
|
19.24
|
1,380,781
|
19.24
|
|||||||||||
$21.29
to $29.79
|
3,020,441
|
6.3
|
25.19
|
2,677,941
|
24.89
|
|||||||||||
$29.80
to $42.56
|
1,227,826
|
5.3
|
32.25
|
1,227,826
|
32.25
|
|||||||||||
$0.86
to $42.56
|
5,664,580
|
5,322,080
|
Weighted
|
|
||||||
|
|
|
|
Average
|
|
||
|
|
|
|
Grant
|
|
||
|
|
|
|
Date
Fair
|
|
||
|
|
Shares
|
|
Value
|
|||
Nonvested
at January 28, 2006
|
295,507
|
$
|
25.00
|
||||
Granted
|
290,697
|
27.66
|
|||||
Vested
|
(100,683
|
)
|
25.01
|
||||
Forfeited
|
(11,007
|
)
|
26.54
|
||||
Nonvested
at July 29, 2006
|
474,514
|
26.30
|
13
weeks
|
|
13
weeks
|
||
|
|
ended
|
|
ended
|
|
|
July
29, 2006
|
|
April
29, 2006
|
Expected
term
|
|
3
months
|
|
3
months
|
Expected
volatility
|
12.9%
|
|
14.3%
|
|
Annual
dividend yield
|
|
-
|
|
-
|
Risk
free interest rate
|
|
5.2%
|
|
4.4%
|
(In
millions)
|
||||
Inventory
|
$
|
22.1
|
||
Other
current assets
|
0.1
|
|||
Property
and equipment
|
15.1
|
|||
Goodwill
|
14.7
|
|||
Other
intangibles
|
2.1
|
|||
$
|
54.1
|
13
Weeks Ended
|
26
Weeks Ended
|
||||||||||||
July
29,
|
|
July
30,
|
|
July
29,
|
|
July
30,
|
|||||||
(In
millions)
|
2006
|
|
2005
|
|
2006
|
|
2005
|
||||||
Net
income
|
$
|
29.0
|
$
|
27.3
|
$
|
61.9
|
$
|
56.3
|
|||||
Fair
value adjustment-derivative
|
|||||||||||||
cash
flow hedging instrument
|
-
|
0.2
|
-
|
0.4
|
|||||||||
Income
tax expense
|
-
|
(0.1
|
)
|
-
|
(0.2
|
)
|
|||||||
Fair
value adjustment, net of tax
|
-
|
0.1
|
-
|
0.2
|
|||||||||
Reclassification
for amounts included
|
|||||||||||||
in
net income
|
-
|
-
|
-
|
-
|
|||||||||
Income
tax benefit
|
-
|
-
|
-
|
-
|
|||||||||
Reclassification
for amounts included
|
|||||||||||||
in
net income, net of tax
|
-
|
-
|
-
|
-
|
|||||||||
Total
comprehensive income
|
$
|
29.0
|
$
|
27.4
|
$
|
61.9
|
$
|
56.5
|
· |
our
anticipated sales, including comparable store net sales, net sales
growth,
earnings growth and new store
growth;
|
· |
the
average size of our stores to be added for the remainder of 2006
and their
performance compared with other store
sizes;
|
· |
the
effect of a slight shift in merchandise mix to consumables and of
the
roll-out of freezers and coolers on gross profit margin and
sales;
|
· |
the
impact that the acceptance of additional tender types and the roll-out
of
freezers and coolers will have on comparable store net
sales;
|
· |
the
possible effect of inflation and other economic changes on our future
costs and profitability, including the possible effect of future
changes
in shipping rates and fuel costs;
|
· |
our
cash needs, including our ability to fund our future capital expenditures
and working capital requirements;
|
· |
the
impact, capacity, performance and cost of our existing distribution
centers;
|
· |
our
integration and future operations of the recently acquired Deal$
stores;
|
· |
the
future reliability of, and cost associated with, our sources of supply,
particularly imported goods such as those sourced from China and
Hong
Kong;
|
· |
costs
of pending and possible future legal
claims;
|
· |
the
adequacy of our internal controls over financial
reporting;
|
· |
Our
profitability is affected by the mix of products we
sell.
|
· |
Our
profitability is especially vulnerable to cost
increases.
|
· |
We
may be unable to expand our square footage as profitably as
planned.
|
· |
A
downturn in economic conditions could adversely affect our
sales.
|
· |
Our
sales and profits rely on imported merchandise, which may increase
in cost
or become unavailable.
|
· |
We
could encounter disruptions or additional costs in receiving and
distributing merchandise.
|
· |
Sales
below our expectations during peak seasons may cause our operating
results
to suffer materially.
|
· |
Pressure
from competitors may reduce our sales and
profits.
|
· |
Merchandise
costs, including inbound freight, increased 40 basis points due primarily
to a slight shift in mix to more consumables, which have a lower
margin,
and increased inbound domestic freight costs. Inbound domestic freight
costs have increased primarily due to higher fuel costs.
|
· |
A
30 basis point increase in occupancy costs due to a higher occupancy
rate
from the newly acquired Deal$ stores and higher rents, common area
maintenance charges and real estate taxes in the current quarter.
|
· |
A
40 basis point decrease in operating and corporate expenses due primarily
to decreased advertising in the current quarter as a result of more
efficient and targeted spending and a decrease in store supplies
expense.
|
· |
A
30 basis point decrease in depreciation resulting from the leverage
associated with the positive comparable store sales in the
quarter.
|
· |
Partially
offsetting these decreases was a 50 basis point increase in payroll
and
benefits costs due to increased healthcare costs, increased incentive
compensation costs resulting from better overall company performance
in
the current period as compared to the prior year period, and increased
stock-based compensation expense in the current
year.
|
· |
Merchandise
costs, including inbound freight, increased 60 basis points due primarily
to a slight shift in mix to more consumables, which have a lower
margin,
and increased inbound domestic freight costs. Inbound domestic freight
costs have increased primarily due to higher fuel costs.
|
· |
A
20 basis point increase in outbound freight costs resulting primarily
from
higher fuel costs.
|
26
Weeks ended
|
|||||||
July
29,
|
|
July
30,
|
|||||
(In
millions)
|
|
2006
|
|
2005
|
|||
Net
cash provided by (used in):
|
|||||||
Operating
activities
|
$
|
105.4
|
$
|
69.0
|
|||
Investing
activities
|
(1.3
|
)
|
(32.7
|
)
|
|||
Financing
activities
|
(120.9
|
)
|
(128.3
|
)
|
Receive
|
Pay
|
Knockout
|
|
Fair
Value
|
|
Hedging
Instrument
|
Variable
|
Fixed
|
Rate
|
Expiration
|
Asset
|
$18.8
million interest rate swap
|
LIBOR
|
4.88%
|
7.75%
|
4/1/2009
|
$0.1
million
|
· |
employment-related
matters;
|
· |
the
infringement of the intellectual property rights of
others;
|
· |
product
safety matters, including product recalls by the Consumer Products
Safety
Commission;
|
· |
personal
injury claims; and
|
· |
real
estate matters related to store
leases.
|
|
Dollar
value
|
|
|||||||||||||||
|
|
|
|
|
|
Total
number
|
|
of
shares that
|
|
||||||||
|
|
|
|
|
|
of
shares
|
|
may
yet be
|
|
||||||||
|
|
|
|
|
|
purchased
as
|
|
purchased
under
|
|
||||||||
|
|
Total
number
|
|
Average
|
|
part
of publicly
|
|
the
plans or
|
|
||||||||
|
|
of
shares
|
|
price
paid
|
|
announced
plans
|
|
programs
|
|
||||||||
Period
|
|
purchased
|
|
per
share
|
|
or
programs
|
|
(in
millions)
|
|||||||||
April
30, 2006 to May 27, 2006
|
263,075
|
$
|
26.24
|
263,075
|
$
|
117.8
|
|||||||||||
May
28, 2006 to July 1, 2006
|
2,305,000
|
25.56
|
2,305,000
|
58.9
|
|||||||||||||
July
2, 2006 to July 29, 2006
|
874,100
|
26.20
|
874,100
|
36.0
|
|||||||||||||
Total
|
3,442,175
|
$
|
25.78
|
3,442,175
|
$
|
36.0
|
Votes
|
Votes
|
||
|
For
|
|
Withheld
|
J.
Douglas Perry
|
94,558,035
|
5,068,320
|
|
Thomas
A. Saunders, III
|
94,680,165
|
4,946,190
|
|
Eileen
R. Scott
|
98,614,145
|
1,012,210
|
|
Mary
Anne Citrino
|
98,677,580
|
948,775
|
31.1 | Certification required under Section 302 of the Sarbanes-Oxley Act of Chief Executive Officer | |
31.2 | Certification required under Section 302 of the Sarbanes-Oxley Act of Chief Financial Officer |
32.1 | Certification required under Section 906 of the Sarbanes-Oxley Act of Chief Executive Officer | |
32.2 | Certification required under Section 906 of the Sarbanes-Oxley Act of Chief Financial Officer |
DOLLAR TREE STORES, INC. | ||
|
|
|
Date: September 7, 2006 | By: | /s/ Kent A. Kleeberger |
Kent A. Kleeberger | ||
Chief
Financial Officer
|
||
(principal financial and accounting officer) |