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
June 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 August 7, 1998, there were 59,128,165 shares of the Registrant's Common
Stock outstanding.
DOLLAR TREE STORES, INC.
and subsidiaries
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997........................... 3
Condensed Consolidated Income Statements
Three months and six months ended June 30, 1998 and 1997...... 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 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...... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 12
Item 4. Submission of Matters to a Vote of Security Holders............. 13
Item 5. Other Information............................................... 13
Item 6. Exhibits and Reports on Form 8-K................................ 13
Signatures................................................ 15
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
June 30, December 31,
1998 1997
------------ --------
ASSETS
Current assets:
Cash and cash equivalents..................... $ 5,459 $ 43,695
Accounts receivable........................... 676 1,406
Merchandise inventories ...................... 156,099 89,066
Deferred tax asset ........................... 5,744 5,093
Prepaid expenses and other current assets .... 3,776 3,762
------- -------
Total current assets...................... 171,754 143,022
------- -------
Property and equipment, net........................ 92,917 82,071
Deferred tax asset................................. 2,189 2,029
Goodwill, net . . . . ............................. 43,514 44,478
Other assets, net.................................. 1,098 976
------- -------
TOTAL ASSETS.............................. $311,472 $272,576
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............. $ 9,000 $ --
Accounts payable ............................. 43,363 44,058
Accrued liabilities .......................... 18,674 19,526
Income taxes payable.......................... 2,284 18,908
Current installments of obligations
under capital leases....................... 270 317
------- -------
Total current liabilities................. 73,591 82,809
------- -------
Long-term debt (note 4)............................ 53,000 30,000
Obligations under capital leases,
excluding current installments.................. 668 804
Other liabilities.................................. 4,357 4,037
------- -------
Total liabilities......................... 131,616 117,650
------- -------
Shareholders' equity:
Common stock, par value $0.01. Authorized
100,000,000 shares, 59,107,262 shares
issued and outstanding at June 30, 1998
and 58,709,948 shares issued and
outstanding at December 31, 1997 (note 2)... 591 391
Additional paid-in capital...................... 43,287 36,185
Retained earnings............................... 135,978 118,350
------- -------
Total shareholders' equity.................. 179,856 154,926
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.. $311,472 $272,576
======= =======
See accompanying Notes to Condensed Consolidated Financial Statements
3
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------
1998 1997 1998 1997
-------- -------- -------- ------
Net sales ..................................... $173,864 $129,332 $324,698 $247,078
Cost of sales...................................... 109,146 83,168 205,012 159,623
------- ------- ------- -------
Gross profit................................ 64,718 46,164 119,686 87,455
------- ------- ------- -------
Selling, general, and administrative expenses:
Operating expenses.............................. 42,100 32,413 81,231 64,529
Depreciation and amortization................... 4,462 3,163 8,471 6,095
------- ------- ------- -------
Total selling, general
and administrative expenses.......... 46,562 35,576 89,702 70,624
------- ------- ------- -------
Operating income................................... 18,156 10,588 29,984 16,831
Interest expense................................... 806 788 1,321 1,238
------- ------- ------- -------
Income before income taxes......................... 17,350 9,800 28,663 15,593
Provision for income taxes......................... 6,680 3,773 11,035 6,003
------- ------- ------- -------
Net income................................ $ 10,670 $ 6,027 $ 17,628 $ 9,590
======= ======= ======= =======
Net income per share (notes 2 and 3):
Basic net income per share...................... $ 0.18 $ 0.10 $ 0.30 $ 0.16
======= ======= ======= =======
Weighted average number of common
shares outstanding:........................... 59,017 58,505 58,886 58,431
======= ======= ======= =======
Diluted net income per share ................... $ 0.16 $ 0.09 $ 0.27 $ 0.15
======= ======= ======= =======
Weighted average number of common
shares and dilutive potential
common shares outstanding..................... 65,274 64,535 65,123 64,438
======= ======= ======= =======
See accompanying Notes to Condensed Consolidated Financial Statements
4
DOLLAR TREE STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
----------------
1998 1997
-------- --------
Cash flows from operating activities:
Net income............................................. $ 17,628 $ 9,590
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization...................... 8,471 6,095
Loss on disposal of property and equipment ......... 386 37
Provision for deferred income taxes................. (811) (390)
Changes in assets and liabilities increasing
(decreasing) cash and cash equivalents:
Accounts receivable.............................. 730 796
Merchandise inventories.......................... (67,033) (28,271)
Prepaid expenses and other current assets........ (14) 752
Other assets .................................... 85 11
Accounts payable................................. (695) (671)
Accrued liabilities.............................. (852) (1,737)
Income taxes payable............................. (12,842) (10,489)
Other liabilities................................ 320 780
-------- -------
Total adjustments............................... (72,255) (33,087)
-------- --------
Net cash used in operating activities .......... (54,627) (23,497)
-------- --------
Cash flows from investing activities:
Capital expenditures .................................. (18,877) (25,069)
Proceeds from sale of property and equipment........... 138 --
-------- -----
Net cash used in investing activities........... (18,739) (25,069)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt........................... 89,200 153,400
Repayment of long-term debt and facility fees.......... (57,407) (103,603)
Principal payments under capital lease obligations..... (183) (151)
Proceeds from options exercised and purchase
of shares under ESPP.................................. 3,520 1,198
-------- -------
Net cash provided by financing activities....... 35,130 50,844
-------- -------
Net increase (decrease) in cash and cash equivalents.... (38,236) 2,278
Cash and cash equivalents at beginning of period........ 43,695 2,987
-------- -------
Cash and cash equivalents at end of period.............. $ 5,459 $ 5,265
======== =======
See accompanying Notes to Condensed Consolidated Financial Statements
5
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 June 30, 1998, and for the three- and
six-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 six-month periods ended June 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:
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(In thousands, except per share data)
Basic net income per share:
Net income............................... $ 10,670 $ 6,027 $ 17,628 $ 9,590
------ ------ ------ ------
Weighted average number of
common shares outstanding............. 59,017 58,505 58,886 58,431
------ ------ ------ ------
Basic net income
per share.................... $ 0.18 $ 0.10 $ 0.30 $ 0.16
====== ====== ====== ======
Diluted net income per share:
Net income............................... $ 10,670 $ 6,027 $ 17,628 $ 9,590
------ ------ ------ ------
Weighted average number of
common shares outstanding.............. 59,017 58,505 58,886 58,431
Dilutive effect of stock options
and warrants........................... 6,257 6,030 6,237 6,007
------ ------ ------ ------
Weighted average number of
common shares and dilutive potential
common shares outstanding.............. 65,274 64,535 65,123 64,438
------ ------ ------ ------
Diluted net income
per share.................... $ 0.16 $ 0.09 $ 0.27 $ 0.15
====== ====== ====== ======
6
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 June 30, 1998 the balance
outstanding on the Bonds is $3.0 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. Interest is payable
monthly based on a variable interest rate which was 5.65% at June 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. SUBSEQUENT EVENT
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 62 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 will issue or reserve
approximately 2.025 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 in late 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; and adverse economic
factors. Forward looking statements also concern factors relating to the
proposed merger with Step Ahead Investments, Inc. and its effects on the
Company's financial condition and results of operations. Such factors include
the failure of the merger to be consummated and the failure of
7
the combined company to integrate successfully. Such forward-looking statements
are subject to various known and unknown 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 those
discussed 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-Forward Looking Statements" and "Business" and as detailed in the
Company's Registration Statement on Form S-4, dated August 11, 1998, under the
caption "Risk Factors."
The Three Months Ended June 30, 1998 and 1997
Results of Operations and General Comments
Net sales increased $44.5 million, or 34.4%, to $173.9 million for the
three months ended June 30, 1998, from $129.3 million for the three months ended
June 30, 1997. Of this increase, (i) approximately 67%, 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 33%, or
$14.7 million, was attributable to comparable store net sales growth, which
represented a 12.0% 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. Second quarter sales were favorably impacted by
the shift in Easter from the first quarter in 1997 to the second quarter in
1998. The Company opened 57 new stores during the second quarter of 1998 and
closed one store, compared to opening 45 new stores and closing no stores during
the second quarter of 1997.
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 any increases 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 $18.6 million, or 40.2%, to
$64.7 million in the second quarter of 1998 from $46.2 million in the second
quarter of 1997. As a percentage of net sales, gross profit increased to 37.2%
from 35.7%, primarily due to improved merchandise costs (including freight) and
improved occupancy costs as a percentage of net sales. The improvement in
occupancy costs resulted primarily from the leveraging of fixed costs, due to
the strong comparable store sales increases. 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. In addition, 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
8
$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.
Selling, general and administrative expenses ("SGA"), which include
operating expenses and depreciation and amortization, increased $11.0 million,
or 30.9%, to $46.6 million in the second quarter of 1998 from $35.6 million in
the second quarter of 1997, and decreased as a percentage of net sales to 26.8%
from 27.5% 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.
Operating income increased $7.6 million, or 71.5%, to $18.2 million for the
second quarter of 1998 from $10.6 million for the comparable period in 1997, and
increased as a percentage of net sales to 10.4% from 8.2% during the same period
for the reasons noted above.
The Six Months Ended June 30, 1998 and 1997
Results of Operations and General Comments
Net sales increased $77.6 million, or 31.4%, to $324.7 million for the six
months ended June 30, 1998, from $247.1 million for the six months ended June
30, 1997. Of this increase, (i) approximately 73%, or $56.8 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 27%, or
$20.8 million, was attributable to comparable store net sales growth, which
represented an 8.8% increase over comparable store net sales in the
corresponding half 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 and an extended
Easter selling season contributed to the comparable store net sales increase.
The Company opened 96 new stores and closed three stores during the first half
of 1998, compared to opening 75 new stores and closing no stores during the
first half of 1997.
Gross profit, which consists of net sales less cost of sales (including
distribution and certain occupancy costs), increased $32.2 million, or 36.9%, to
$119.7 million in the first half of 1998 from $87.5 million in the first half of
1997. As a percentage of net sales, gross profit increased to 36.9% from 35.4%,
primarily due to improved merchandise costs (including freight) and improved
occupancy costs as a percentage of net sales. The improvement in occupancy costs
resulted primarily from the leveraging of fixed costs, due to the strong
comparable store sales increases. The improvement in merchandise costs is
primarily due to favorable pricing and the earlier receipt of higher margin
items.
SGA increased $19.1 million, or 27.0%, to $89.7 million in the first half
of 1998 from $70.6 million in the first half of 1997, and decreased as a
percentage of net sales to 27.6% from 28.6% during the same period. This
decrease in SGA, as a percentage of net sales, resulted primarily from the
9
leveraging of fixed costs, due to the strong comparable store sales increases,
and from on-going cost control initiatives.
Operating income increased $13.2 million, or 78.1%, to $30.0 million for
the first half of 1998 from $16.8 million for the comparable period in 1997, and
increased as a percentage of net sales to 9.2% from 6.8% 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 six months of 1998, net cash used in operations was $54.6
million. The net cash used in operations during the first six months of 1998 was
used primarily to build inventory levels and compares to net cash used in
operations of $23.5 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 possible shipping container shortage in
Southeast Asia. Net cash used in investing activities during the first six
months of 1998 was $18.7 million, which consisted primarily of capital
expenditures relating to new store expansion. Net cash provided by financing
activities during the first six months of 1998 was $35.1 million, which was
primarily used to fund seasonal working capital needs.
The Company's borrowings under its bank facilities, senior notes and Bonds
were $62.0 million at June 30, 1998, and $53.0 million at June 30, 1997.
Borrowings at December 31, 1997, amounted to $30.0 million. Under the Company's
bank facilities, an additional $106.0 million is available at June 30, 1998,
approximately $34.1 million of which is committed to certain letters of credit
issued in relation to the routine purchase of foreign merchandise.
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 June 30, 1998, the
balance outstanding on the Bonds is $3.0 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. Interest
is payable monthly based on a variable interest rate which was 5.65% at June 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.
10
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"). SAI, a
privately-held corporation established in 1983, operates 62 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. For its fiscal year ended January 25, 1998,
SAI reported net sales of $92.9 million. Net sales for the fiscal quarters ended
April 26, 1998 and April 27, 1997 were $25.9 million and $20.4 million,
respectively, reflecting a 12.1% comparative store sales increase. SAI has more
than 1,200 employees.
Under the terms of the merger agreement, the Company will issue or reserve
approximately 2.025 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 in late 1998, pending approval of SAI's
shareholders and fulfillment of other customary closing conditions.
Costs relating to the merger are expected to be approximately $5.3 million,
which will be charged to operations in the course of the transaction. 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
In reference to the Year 2000 compliance, the Company has conducted a
preliminary assessment of its computer systems and made inquiries regarding the
computer systems of other entities with which the Company does business, such as
contractors, suppliers and creditors. Management believes that the Company's
internal systems, including computer programs housed on its mainframe and those
used to accumulate data from its stores, are currently Year 2000 compliant.
Given information known at this time about the Company's systems, management
does not expect Year 2000 compliance costs to have a material adverse impact on
the Company's business or results of operations. No assurance can be given,
however, that unanticipated or undiscovered Year 2000 compliance problems will
not have a material adverse effect on the Company's business or results of
operations. In addition, if the Company's significant contractors, suppliers or
creditors do not successfully achieve Year 2000 compliance, the Company's
business and operations could be adversely affected.
11
On August 4, 1998, the Securities and Exchange Commission issued new
disclosure requirements with regard to Year 2000 compliance. The Company is
evaluating these requirements and will include any required information not
previously disclosed in its Quarterly Report on Form 10-Q for the period ended
September 30, 1998.
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.
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.
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.
12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Shareholders held on June 4, 1998, the
following individuals were elected to the Board of Directors:
Votes For Votes Withheld
H. Ray Compton 36,682,189 296,918
John F. Megrue 35,656,922 1,322,185
Alan L. Wurtzel 35,658,805 1,320,302
As Class III directors, Messrs. Compton, Megrue and Wurtzel will serve until the
Annual Meeting of Shareholders in 2001, or such time as successors are elected
and qualified.
J. Douglas Perry, Macon F. Brock, Jr., Thomas A. Saunders, III, Allan W.
Karp and Frank Doczi continue as directors after the meeting and no elections
were held with respect to their offices.
Item 5. OTHER INFORMATION.
Grant of Options to Directors
On June 4, 1998, options to purchase 13,500 shares of Common Stock each
were granted to Frank Doczi and Alan Wurtzel as continuing directors, under the
terms of the Stock Incentive Plan. These options are immediately exercisable and
have an exercise price of $33.50 per share.
Stock Dividend
On June 4, 1998, the Company's Board of Directors authorized a 50% stock
dividend having the effect of a three-for-two stock split for shareholders of
record of common stock as of June 22, 1998, payable on June 29, 1998. Cash
payments were made in lieu of fractional shares. As of the record date, there
were 39,373,121 shares of Common Stock outstanding, resulting in a dividend of
19,686,454 shares of Common Stock.
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 30, 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.
13
The following documents are filed herewith:
10.1 Loan Agreement between Dollar Tree Distribution, Inc. and Mississippi
Business Finance Corporation, dated May 1, 1998.
10.2 Placement Letter Agreement by First Union National Bank, dated May 1,
1998.
10.3 Tender Agency Agreement between Dollar Tree Distribution, Inc.
and Amsouth Bank, dated May 1, 1998.
10.4 Remarketing Agreement between Dollar Tree Distribution, Inc.
and First Union National Bank, dated May 1, 1998.
10.5 Guaranty Agreement by Dollar Tree Distribution, Inc, dated May 1, 1998.
10.6 Letter of Credit and Reimbursement Agreement between Dollar
Tree Distribution, Inc. and First Union National Bank, dated May 1,
1998.
(b) Reports on Form 8-K.
The Company filed a Report on Form 8-K on July 16, 1998, which included the
Company's press release regarding a 50% stock dividend. The Company also filed a
Report on Form 8-K on July 30, 1998 regarding the signing of a definitive merger
agreement between the Company and Step Ahead Investments, Inc.
14
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: August 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