Family Dollar 2009 Annual Report Download

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2009 Annual Report

Table of contents

  • Page 1
    2009 Annual Report

  • Page 2

  • Page 3
    ... have curtailed their new store growth or closed down all together, Family Dollar has continued to expand, opening 180 new stores in fiscal 2009. In addition to our relentless focus on customers, we are dedicated to recruiting and retaining talented team members to help build upon our success...

  • Page 4

  • Page 5
    ... È Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended August 29, 2009 Or ' Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-6807 FAMILY DOLLAR STORES, INC. (Exact name of...

  • Page 6

  • Page 7
    ... 9. Item 9A. Item 9B. Part III Item 10. Item 11. Item 12. Item 13. Item 14. Part IV Item 15. Exhibits and Financial Statement Schedules ...62 Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 8
    ... We have provided information in this Annual Report on Form 10-K (this "Report") regarding the operations of Family Dollar Stores, Inc., and its subsidiaries ("we," "Family Dollar" or the "Company") related to the fiscal years ended on August 29, 2009 ("fiscal 2009"); August 30, 2008 ("fiscal 2008...

  • Page 9
    ... 7,500 and 9,500 square feet and generally serves customers who live within five miles of the store. Our stores are located in urban, suburban, small town and rural markets. See Item 2-"Properties" in this Report for more information. The relatively small size of a Family Dollar store allows us to...

  • Page 10
    ...We provide customers with quality merchandise at everyday low prices. We offer a focused assortment of merchandise in a number of core categories, such as health and beauty aids, packaged food and refrigerated products, home cleaning supplies, housewares, stationery, seasonal goods, apparel and home...

  • Page 11
    ... store employees, managing the financial performance of the store, and providing quality customer service. The store manager reports to a district manager or area operations manager. A district manager or area operations manager is typically responsible for 15 to 25 stores. During fiscal 2009...

  • Page 12
    ... provide for payment for such merchandise in U.S. Dollars. We maintain a substantial variety and depth of merchandise inventory in stock in our stores (and in our distribution centers for weekly store replenishment) to attract customers and meet their shopping needs. We negotiate vendors' trade...

  • Page 13
    ...additional payment types, including credit cards and food stamps, and includes a number of computer-based tools designed to provide our store managers with better training, analytics and work flow management. At the end of fiscal 2009, approximately 74% of our stores operated with the technology. We...

  • Page 14
    ...We consider our employee relations generally to be good. NYSE Certification In accordance with New York Stock Exchange (the "NYSE") rules, on February 11, 2009, we filed the annual certification by our Chief Executive Officer that, as of the date of the certification, Family Dollar was in compliance...

  • Page 15
    Executive Officers The following information is furnished with respect to each of the executive officers of Family Dollar as of October 2, 2009: Name Position and Office Age Howard R. Levine ...R. James Kelly ...Dorlisa K. Flur ...Charles S. Gibson, Jr...Barry Sullivan ...Kenneth T. Smith ...James ...

  • Page 16
    ... of home improvement stores, from July 2001 to March 2009, where his last position was Vice President and Associate General Counsel for Legal and Risk Management. Mr. C. Martin Sowers was employed by the Company as an accountant in October 1984 and was promoted to Assistant Controller in January...

  • Page 17
    ... and the costs or the profitability associated with new or remodeled stores. We operate in a highly competitive environment and, as a result, we may not be able to compete effectively or maintain or increase our sales, market share or margins, particularly if the prolonged global economic conditions...

  • Page 18
    ... technology associated with our Project Accelerate initiative or our new store POS systems, could impact our operations or profitability adversely. If we are unable to secure our customer's confidential and credit card information, or other private data relating to our employees or the Company...

  • Page 19
    ... tax rates could adversely impact our ability to achieve our financial targets. Changes in trade restrictions, new tariffs and quotas, and higher shipping costs for goods also could impact our ability to achieve anticipated operating results adversely. Product safety concerns could affect our sales...

  • Page 20
    ...; temporary or long-term disruption in the transport of goods; delay in the delivery of goods to our distribution centers or stores; disruption of our technology support or information systems; or fuel shortages or dramatic increases in fuel prices which increase the cost of doing business. Any of...

  • Page 21
    ... our business. Our growth could be adversely impacted by our inability to attract and retain employees at the store operations level, in distribution facilities, and at the corporate level, including our senior management team, at costs which allow us to profitability conduct our operations. For...

  • Page 22
    ... Financial Statements included in this Report for more information on our auction rate securities. ITEM 1B. None. ITEM 2. PROPERTIES UNRESOLVED STAFF COMMENTS We operate a chain of self-service retail discount stores. As of October 2, 2009, there were 6,664 stores in 44 states and the District...

  • Page 23
    ... our corporate headquarters and a distribution center located on a 108-acre tract of land in Matthews, North Carolina, just outside of Charlotte, in two buildings containing approximately 1.24 million square feet. We use approximately 930,000 square feet for the distribution center, which includes...

  • Page 24
    ...eight additional full-service distribution centers described in the table below: Distribution Center Land Facility Size Building Date Operational West Memphis, AR ...Front Royal, VA ...Duncan, OK ...Morehead, KY ...Maquoketa, IA ...Odessa, TX ...Marianna, FL ...Rome, NY ...ITEM 3. LEGAL PROCEEDINGS...

  • Page 25
    ... ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the New York Stock Exchange under the ticker symbol FDO. At October 2, 2009, there were approximately 2,690 holders of record of our common stock. The accompanying tables give the high and low sales prices of our common stock and...

  • Page 26
    ... was invested in Family Dollar common stock on August 28, 2004, and, in each of the foregoing indices on August 28, 2004, and that dividends were reinvested. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN Among Family Dollar Stores, Inc., The S&P 500 Index And The S&P General Merchandise Stores Index...

  • Page 27
    ...FINANCIAL DATA SUMMARY OF SELECTED FINANCIAL DATA (in thousands, except per share amounts and store data) August 29, 2009 August 30, 2008 Years Ended September 1, 2007 August 26, 2006(1) August 27, 2005 Net sales ...Cost of sales and operating expenses ...Income before income taxes ...Income taxes...

  • Page 28
    ... quarter of fiscal 2009 and the second quarter of fiscal 2008 included 13 weeks compared with 14 weeks in the second quarter of fiscal 2007. Executive Overview We operate a chain of more than 6,600 general merchandise retail discount stores in 44 states, providing primarily low to middle income...

  • Page 29
    ...as we continue to make revenue driving investments, including the re-alignment of space in our stores, the roll-out of new register and point-of-sale technology and the expansion of store operating hours. See Part I, Item 1 of this Report for more information on our current strategic initiatives. 21

  • Page 30
    ...) August 29, 2009 August 30, 2008 September 1, 2007 Net sales ...Cost and expenses: Cost of sales ...% of net sales ...Selling, general and administrative ...% of net sales ...Cost of sales and operating expenses ...% of net sales ...Operating profit ...% of net sales ...Interest income ...% of net...

  • Page 31
    ... in cost of sales, as a percentage of net sales, during fiscal 2008 as compared to fiscal 2007, was due primarily to increased sales of lower-margin consumable merchandise. The Consumer Product Safety Improvement Act of 2008 was signed into law in August 2008. The new legislation addresses a number...

  • Page 32
    ... in fiscal 2008 and $415.8 million in fiscal 2007. These amounts have enabled us to fund our regular operating needs, capital expenditure program, cash dividend payments, interest payments, and share repurchases. We believe operating cash flows and existing credit facilities will provide sufficient...

  • Page 33
    ... inventory per store at the end of fiscal 2008. The decrease in total inventory and inventory per store during fiscal 2009 was due to a decrease in discretionary merchandise. During fiscal 2009, we reduced our purchases of discretionary merchandise and focused on meeting higher customer demand for...

  • Page 34
    ... insurance subsidiary. Cash provided by operating activities increased $100.0 million during fiscal 2008 as compared to fiscal 2007. The increase was due primarily to changes in merchandise inventories and other working capital items in the ordinary course of business. Cash flows from investing...

  • Page 35
    ... our operating leases provide us with an option to extend the term of the lease at designated rates. See Item 2-"Properties" in this Report. During the first quarter of fiscal 2008, we adopted FIN 48, which clarifies the accounting for income taxes recognized in an enterprise's financial statements...

  • Page 36
    ... about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, "Interim Financial Reporting," to require those disclosures in summarized financial information at interim...

  • Page 37
    ... Consolidated Financial Statements. Merchandise Inventories: Our inventories are valued using the retail method, based on retail prices less mark-on percentages, which approximates the lower of first-in, first-out (FIFO) cost or market. We record adjustments to inventory through cost of goods sold...

  • Page 38
    ...-insurance liabilities are based on the total estimated costs of claims filed and estimates of claims incurred but not reported, less amounts paid against such claims, and are not discounted. We review current and historical claims data in developing our estimates. We also use information provided...

  • Page 39
    ... the credit markets could continue to negatively impact the timing of future liquidity related to these investments and lead to additional adjustments to their carrying value. See Note 2 to the Consolidated Financial Statements included in this Report and "Risk Factors" set forth in Part I, Item IA...

  • Page 40
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FAMILY DOLLAR STORES, INC. Report of Independent Registered Public Accounting Firm ...Consolidated Statements of Income for fiscal 2009, fiscal 2008 and fiscal 2007 ...Consolidated Balance Sheets as of ...

  • Page 41
    ..., the financial position of Family Dollar Stores Inc., and its subsidiaries at August 29, 2009, and August 30, 2008, and the results of their operations and their cash flows for each of the three years in the period ended August 29, 2009, in conformity with accounting principles generally accepted...

  • Page 42
    FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) August 29, 2009 Years Ended August 30, 2008 September 1, 2007 Net sales ...Cost and expenses: Cost of sales ...Selling, general and administrative ...Cost of sales and operating ...

  • Page 43
    FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share and share amounts) August 29, 2009 August 30, 2008 Assets Current assets: Cash and cash equivalents ...Investment securities ...Merchandise inventories ...Deferred income taxes ...Income tax ...

  • Page 44
    FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended August 29, 2009, August 30, 2008, and September 1, 2007 Accumulated other comprehensive loss (in thousands, except per share and share amounts) Balance, August 26, 2006 (178,559,411 shares ...

  • Page 45
    FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended (in thousands) August 29, 2009 August 30, 2008 September 1, 2007 Cash flows from operating activities: Net income ...$ 291,266 $ Adjustments to reconcile net income to net cash provided by operating ...

  • Page 46
    ...packaged food and refrigerated products, home cleaning supplies, housewares, stationery, seasonal goods, apparel and domestics. In the typical Family Dollar store, the majority of the products are priced at $10 or less, with many of the products priced at $1 or less. The Company manages its business...

  • Page 47
    ... risks and are not designated for general corporate purposes. As of the end of fiscal 2009, these cash and cash equivalents balances totaled $58.6 million on the Consolidated Balance Sheet. Investment securities The Company classifies all investment securities as available-for-sale. Securities...

  • Page 48
    ...phones and related air-time minutes are recorded on a net basis. As a result, only the markup on the sales of these products is recorded as revenue. Cost of sales Cost of sales includes the purchase cost of merchandise and transportation costs to the Company's distribution centers and stores. Buying...

  • Page 49
    ...million of interest costs during fiscal 2009, fiscal 2008 and fiscal 2007, respectively. Income taxes The Company records deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting bases and the income tax bases of its...

  • Page 50
    ... about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, "Interim Financial Reporting," to require those disclosures in summarized financial information at interim...

  • Page 51
    ...Company's fair value hierarchy for its financial assets that are required to be measured at fair value as of August 29, 2009: (in thousands) Fair Value August 29, 2009 Level 1 Level 2 Level 3 Cash equivalents: Money market funds ...Investment securities: Auction rate securities ...Equity securities...

  • Page 52
    ... 29, 2009. Because there is no active market for the Company's auction rate securities, the fair value of each security was determined through the use of a discounted cash flow analysis using Level 3 inputs. The terms used in the analysis were based on management's estimate of the timing of future...

  • Page 53
    ... on those sales for fiscal 2009, fiscal 2008 and fiscal 2007. The Company also holds investments in mutual funds in connection with a deferred compensation plan for certain key management employees. These investments are classified as trading securities and are included, at fair value, in other...

  • Page 54
    ..., and a priority debt to consolidated net worth ratio. At the end of fiscal 2009, the Company was in compliance with all such covenants. On December 18, 2008, the Company entered into an unsecured revolving credit facility with a syndicate of lenders for short-term borrowings of up to $250 million...

  • Page 55
    ... net worth ratio. As of August 29, 2009, the Company was in compliance with all such covenants. The estimated fair value of the Company's long-term debt was $266.2 million as of August 29, 2009, and $238.3 million as of August 30, 2008. The fair value was determined based on a discounted cash flow...

  • Page 56
    ... income tax positions in an enterprise's financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." FIN 48 prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. This pronouncement also provides...

  • Page 57
    ... allows for payments to certain employees and officers at an aggregate annual amount not to exceed 7% of the Company's consolidated income before income taxes and certain incentive compensation. Expenses under the profit-sharing plan were $34.3 million in fiscal 2009, $8.7 million in fiscal 2008 and...

  • Page 58
    .... Most of the Company's operating leases provide the Company with an option to extend the term of the lease at designated rates. During the first quarter of fiscal 2008, the Company adopted FIN 48, which clarifies the accounting for income taxes recognized in an enterprise's financial statements. In...

  • Page 59
    ... on an annual basis) is used as surety for future premium and deductible payments to the Company's workers' compensation and general liability insurance carrier. The Company accrues for these liabilities based on the total estimated costs of claims filed and claims incurred but not reported, and are...

  • Page 60
    ... merits or otherwise. On October 14, 2008, a complaint was filed in the U.S. District Court in Birmingham, Alabama captioned Scott, et al. v. Family Dollar Stores, Inc. alleging discriminatory pay practices with respect to the Company's female store managers. This case was pled as a putative class...

  • Page 61
    ... operating results. 10. Stock-Based Compensation: The Family Dollar Stores, Inc. 2006 Incentive Plan (the "2006 Plan") permits the granting of a variety of compensatory award types. The Company currently grants non-qualified stock options and performance share rights under the 2006 Plan. Shares...

  • Page 62
    ... Company grants stock options to key employees at prices not less than the fair market value of the Company's common stock on the grant date. The Company's practice for a number of years has been to make a single annual grant to all employees participating in the stock option program and generally...

  • Page 63
    ... grant-date fair value of performance share rights granted was $23.56 during fiscal 2009, $26.96 during fiscal 2008 and $29.40 during fiscal 2007. Compensation cost is recognized on a straight-line basis, net of estimated forfeitures, over the requisite service period and adjusted quarterly to...

  • Page 64
    ... distribution centers and one corporate headquarters. All of the stores operate under the Family Dollar name and are substantially the same in terms of size, merchandise, customers, distribution and operations. The Company has no franchised locations, foreign operations or other lines of business...

  • Page 65
    ... accessories Toys Stationery and school supplies Seasonal goods Personal electronics, including pre-paid cellular phones and services Home Products ... Apparel and Accessories ... Seasonal and Electronics ... 15. Unaudited Summaries of Quarterly Results: First Quarter Second Quarter Third Quarter...

  • Page 66
    ...-employee family members of the Company's Chairman of the Board and Chief Executive Officer. These transactions totaled approximately $0.8 million in both fiscal 2008 and fiscal 2007. 17. Subsequent Events: In preparation of the Consolidated Financial Statements and related disclosures, the Company...

  • Page 67
    ... evaluation, management concluded that the Company's internal control over financial reporting was effective as of August 29, 2009. PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the Consolidated Financial Statements included in this Annual Report on Form...

  • Page 68
    ...by this item as to compliance by the Company's directors, executive officers and beneficial owners of the Company's Common Stock with Section 16(a) of the Securities Exchange Act of 1934 also will be included in the 2010 Proxy Statement under the caption "Section 16(a) Beneficial Ownership Reporting...

  • Page 69
    ... the Company's 2010 Proxy Statement, under the captions "Transactions with Related Persons" and "Corporate Governance Matters and Committees of the Board of Directors" and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item will...

  • Page 70
    ... the applicable accounting regulations of the SEC are not required under the related instructions, are inapplicable or the information is included in the Consolidated Financial Statements, and therefore, have been omitted. The Financial Statements of Family Dollar Stores, Inc., (Parent Company) are...

  • Page 71
    ..., thereunto duly authorized. FAMILY DOLLAR STORES, INC. (Registrant) Date: October 27, 2009 By /s/ HOWARD R. LEVINE Howard R. Levine Chairman of the Board (Chief Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following...

  • Page 72
    ... representing shares of the Company's Common Stock (filed as Exhibit 4.2 to the Company's Form 10-K filing for the fiscal year ended August 27, 2005) Note Purchase Agreement dated as of September 27, 2005, between Family Dollar Stores, Inc., Family Dollar, Inc., and the various purchasers named...

  • Page 73
    ...for the fiscal year ended September 1, 2007) Summary of compensation arrangements of the Company's named executive officers for fiscal 2009 (filed under Item 5.02 in the Company's Report on Form 8-K filed October 14, 2008) Family Dollar Stores, Inc., 2006 Incentive Plan (filed as Exhibit 10.4 to the...

  • Page 74
    Stockholder Information Annual Meeting The annual meeting of stockholders of Family Dollar Stores, Inc. will be held at 2:00 pm (local time) on January 21, 2010, at the Company's corporate offices at 10401 Monroe Road, Matthews, North Carolina, 28105. Independent Registered Public Accounting Firm ...

  • Page 75
    ... President Facilities Management Mtu W. Pugh Vice President Business Development Kiley F. Rawlins Vice President Investor Relations & Corporate Communications Holly Shaskey-Platek Vice President Change Management and Leadership Management Thomas E. Schoenheit Assistant General Counsel, Real Estate...

  • Page 76
    P.O. Box 1017, Charlotte, North Carolina, 28201-1017 www.familydollar.com