Family Dollar 2010 Annual Report Download

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2010 Annual Report

Table of contents

  • Page 1
    2010 Annual Report

  • Page 2

  • Page 3
    ... selection of key traffic-driving consumables, increased our focus on quality, and incorporated more customer and market data into our merchandising strategies to provide our customers with even greater value; enhanced our assortment of Family Dollar private brand, increasing sales by approximately...

  • Page 4

  • Page 5
    ... of principal executive offices) (Mailing address) 28105 (Zip Code) P.O. Box 1017, Charlotte, North Carolina 28201-1017 Registrant's telephone number, including area code: (704) 847-6961 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which...

  • Page 6
    ...'s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...Selected Financial Data ...Management's Discussion and Analysis of Financial Condition and Results of Operations ...Quantitative and Qualitative Disclosures about Market Risk ...Financial Statements and...

  • Page 7
    ...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 28, 2010 ("fiscal 2010"); August 29, 2009 ("fiscal 2009"); August 30, 2008 ("fiscal 2008"); September 1, 2007 ("fiscal 2007...

  • Page 8
    ...size of a Family Dollar store allows us to select store locations that provide neighborhood convenience to our customers in each of these market areas. Family Dollar stores are generally open seven days a week and accept cash, checks, PIN-based debit cards, credit cards, and other electronic payment...

  • Page 9
    ... operational improvements, combined with softening real estate markets and a growing customer base, have resulted in additional opportunities for new store growth. During fiscal 2011, we plan to open approximately 300 new stores, a 50% increase over fiscal 2010 openings. We also expect to build the...

  • Page 10
    ... Toys Stationery and school supplies Seasonal goods Personal electronics, including pre-paid cellular phones and services Apparel and Accessories ... Seasonal and Electronics ... During fiscal 2010, nationally advertised brand name merchandise accounted for approximately 51% of sales. Merchandise...

  • Page 11
    ...2010, we completed the roll-out of new register and point-of-sale technology in our stores. The new technology platform facilitates the acceptance of additional payment types, including credit cards and food stamps, and includes a number of computer-based tools designed to provide our store managers...

  • Page 12
    .... We consider our employee relations generally to be good. NYSE Certification In accordance with New York Stock Exchange (the "NYSE") rules, on February 23, 2010, we filed the annual certification by our Chief Executive Officer that, as of the date of the certification, Family Dollar was in 8

  • Page 13
    ... Act of 2002, which are filed as exhibits to this Report. Executive Officers The following information is furnished with respect to each of the executive officers of Family Dollar as of October 1, 2010: Name Position and Office Age Howard R. Levine ...R. James Kelly ...Dorlisa K. Flur ...Charles...

  • Page 14
    ...February 2008. Prior to his employment by the Company, he was employed by ShopNBC, a multi-media retailer, from May 2004 to November 2007, where his last position was Senior Vice President-Operations, Customer Service and Human Resources. All executive officers of the Company are elected annually by...

  • Page 15
    ... managing our store operations and increasing our customer retention and recruitment levels, our sales may not increase and our growth may be impacted adversely. Our ability to open profitable new stores depends on many factors, including our ability to identify suitable markets and sites for new...

  • Page 16
    ..., merchandise, real estate locations and employees. This competitive environment subjects us to various risks, including the ability to continue our store and sales growth and to provide attractive merchandise to our customers at competitive prices that allow us to maintain our profitability. Price...

  • Page 17
    ... exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, and imposes new and significant taxes on health insurers and health care benefits. Due to the breadth and complexity of the health reform legislation, the current lack of implementing...

  • Page 18
    ..., tort, real estate, commercial and other litigation. Certain of these lawsuits, if decided adversely to us or settled by us, may result in liability material to our results of operations, financial condition and liquidity. The number of employment-related class actions filed each year has continued...

  • Page 19
    ... affect 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 profitably conduct our operations. For...

  • Page 20
    ... rate securities ($154.2 million at fair value as of August 28, 2010), which are not currently liquid or readily available to convert to cash. We do not believe that the current liquidity issues related to our auction rate securities will impact our ability to fund our ongoing business operations...

  • Page 21
    ...square feet of selling space. The number of stores we operated at the end of each of our last five fiscal years was: Number of Stores at Year End Fiscal Year 2006 2007 2008 2009 2010 ... 6,173 6,430 6,571 6,655 6,785 During fiscal 2010, we opened 200 stores, closed 70 stores, relocated 13 stores...

  • Page 22
    ...Fiscal Years 2011 ...2012-2014 ...2015-2017 ...2018-2020 ...2021 and thereafter ... 970 3,175 1,721 414 28 51 256 368 523 5,110 We own 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...

  • Page 23
    ... II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the New York Stock Exchange under the ticker symbol FDO. At October 1, 2010, there were approximately 2,740 holders of record of our common stock...

  • Page 24
    ...proxy statement to be filed for the Annual Meeting of Stockholders to be held in January 2011, under the caption "Equity Compensation Plan Information" and is incorporated herein by reference. Stock Performance Graph The following graph sets forth the yearly percentage change in the cumulative total...

  • Page 25
    ITEM 6. SELECTED FINANCIAL DATA Summary of Selected Financial Data (in thousands, except per share amounts and store data) August 28, 2010 August 29, 2009 Years Ended August 30, 2008 September 1, 2007 August 26, 2006(2) Net sales ...Cost of sales and operating expenses ...Income before income ...

  • Page 26
    ... the roll-out of new register and point-of-sale technology in all our stores. The new technology platform facilitates the acceptance of 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...

  • Page 27
    ...our strategic initiatives. Our operational improvements, combined with softening real estate markets and a growing customer base, have resulted in additional opportunities for new store growth. During fiscal 2011, we plan to open approximately 300 new stores, a 50% increase over fiscal 2010 openings...

  • Page 28
    ...comparable store sales growth and continued productivity improvements, which we expect will offset pressure from expanded operating hours, the acceleration of our new store growth and our renovation program. Results of Operations Our results of operations for fiscal 2010, fiscal 2009 and fiscal 2008...

  • Page 29
    ... the opening of 180 stores and closing of 96 stores for a net addition of 84 stores during fiscal 2009, and the opening of 205 stores and closing of 64 stores for a net addition of 141 stores during fiscal 2008. Cost of Sales Cost of sales increased 4.9% in fiscal 2010 compared to fiscal 2009 and...

  • Page 30
    ... and growth initiatives. We plan to fund future share repurchases through a combination of cash on hand, cash from operations, and potential debt financings. Credit Facilities On December 16, 2009, we entered into an unsecured revolving credit facility with a syndicate of lenders for short-term...

  • Page 31
    ... fiscal 2010 and opened 200 new stores compared to 180 stores during fiscal 2009. The decrease in capital expenditures during fiscal 2009 as compared to fiscal 2008 was due primarily to a decrease in distribution- and corporate-office-related projects, which offset increases in technology-related...

  • Page 32
    ...' compensation, general liability and automobile liability risks and are not designated for general corporate purposes. As of the end of fiscal 2010, these cash and cash equivalents and investment securities balances were $42.1 million and $104.1 million, respectively. Cash flows from operating...

  • Page 33
    ... Consolidated Balance Sheet. Most of our operating leases provide us with an option to extend the term of the lease at designated rates. See Part I-Item 2- "Properties" in this Report. As of August 28, 2010, we had $23.4 million in liabilities related to our uncertain tax positions. At this time, we...

  • Page 34
    ... new Level 3 activity disclosures, which are effective for interim and annual reporting periods beginning after December 15, 2010. We adopted the applicable disclosure requirements during the third quarter of fiscal 2010. The adoption did not have an impact on our Consolidated Financial Statements...

  • Page 35
    ... large number of our retail locations and employees. Our self-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...

  • Page 36
    ... of operations. Our liabilities related to uncertain tax positions were $23.4 million as of the end of fiscal 2010 and $39.4 million as of the end of fiscal 2009. The decrease was due primarily to the settlement of an income tax examination related to U.S. federal income taxes for fiscal years 2008...

  • Page 37
    ... in interest rates based on our financing, investing and cash management activities. We maintain unsecured revolving credit facilities at variable rates of interest to meet the short-term needs of our expansion program and seasonal inventory increases. During fiscal 2010 and fiscal 2009, we did...

  • Page 38
    ... 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FAMILY DOLLAR STORES, INC. Page No. Report of Independent Registered Public Accounting Firm ...Consolidated Statements of Income for fiscal 2010, fiscal 2009 and fiscal 2008 ...Consolidated Balance Sheets as...

  • Page 39
    ... statements listed in the accompanying index present fairly, in all material respects, the financial position of Family Dollar Stores, Inc., and its subsidiaries at August 28, 2010 and August 29, 2009, and the results of their operations and their cash flows for each of the three fiscal years...

  • Page 40
    FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) August 28, 2010 Years Ended August 29, 2009 August 30, 2008 Net sales ...Cost and expenses: Cost of sales ...Selling, general and administrative ...Cost of sales and operating ...

  • Page 41
    FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share and share amounts) August 28, 2010 August 29, 2009 Assets Current assets: Cash and cash equivalents ...Investment securities ...Merchandise inventories ...Deferred income taxes ...Income tax ...

  • Page 42
    ... STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended August 28, 2010, August 29, 2009, and August 30, 2008 Accumulated other Common Capital in Retained comprehensive Treasury stock excess of par earnings loss stock (in thousands, except per share and share amounts) Total Balance, September 1, 2007...

  • Page 43
    FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS August 28, 2010 Years Ended August 29, 2009 August 30, 2008 (in thousands) Cash flows from operating activities: Net income ...$ 358,135 $ 291,266 $ 233,073 Adjustments to reconcile net income to net cash provided ...

  • Page 44
    ... 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 on the basis of one operating...

  • Page 45
    ... designated for general corporate purposes. These cash and cash equivalents balances totaled $42.1 million as of the end of fiscal 2010 and $58.6 million as of the end of fiscal 2009. Investment securities The Company classifies all investment securities as available-for-sale. Securities accounted...

  • Page 46
    ... closings, have not been material to the Company's financial position or results of operations. Revenues The Company recognizes revenue, net of returns and sales tax, at the time the customer tenders payment for and takes possession of the merchandise. Sales of prepaid services such as phone cards...

  • Page 47
    ... when the closing occurs. Operating leases Except for its corporate headquarters and distribution centers, the Company generally conducts its operations from leased facilities. Generally, store real estate leases have an initial term of five or ten years with multiple renewal options for additional...

  • Page 48
    ...million of interest costs during fiscal 2010, fiscal 2009 and fiscal 2008, 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 49
    ... 29, 2009, for items that are required to be measured at fair value on a recurring basis: (in thousands) Fair Value August 28, 2010 Level 1 Level 2 Level 3 Cash equivalents: Money market funds ...Investment securities: Auction rate securities ...Other debt securities ...Equity securities ...Other...

  • Page 50
    ...' Equity on the Consolidated Balance Sheets. 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...

  • Page 51
    ...market. The fair value was greater than the carrying value of the debt by $27.8 million as of August 28, 2010, and $16.2 million as of August 29, 2009. See Note 5 for more information on the Company's long-term debt. 3. Investment Securities: All of the Company's investment securities are currently...

  • Page 52
    ... 2009 and fiscal 2008. 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 assets on the Consolidated Balance Sheet...

  • Page 53
    ... 364 days and provides for two one-year extensions that require lender consent. Any borrowings under the credit facility accrue interest at a variable rate based on short-term market interest rates. The credit facility replaced the Company's previous $250 million 364-day credit facility. The Company...

  • Page 54
    ...August 28, 2010 August 29, 2009 Self-insurance liabilities ...Income taxes ... $185,676 18,181 $203,857 $198,949 37,694 $236,643 8. Income Taxes: The provisions for income taxes in fiscal 2010, fiscal 2009 and fiscal 2008 were as follows: (in thousands) 2010 2009 2008 Current: Federal ...State...

  • Page 55
    ...profitability resulting in utilization of loss carryforwards for which a valuation allowance was previously provided. The Company classifies accrued interest expense and penalties related to uncertain tax positions as a component of income tax expense. During fiscal 2010, fiscal 2009 and fiscal 2008...

  • Page 56
    ... profit-sharing plan which 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 $28.8 million in fiscal 2010...

  • Page 57
    ... of the merchandise letters of credit were included in accounts payable on the Company's Consolidated Balance Sheet. Most of the Company's operating leases provide the Company with an option to extend the term of the lease at designated rates. As of August 28, 2010, the Company had $23.4 million...

  • Page 58
    ... of the store manager classification litigation known as the Morgan case. During the first quarter of fiscal 2010, the Company paid the judgment of $35.6 million, plus interest, attorneys' fees and other related costs, thus concluding the Morgan litigation. Grace v. Family Dollar Stores, Inc. and...

  • Page 59
    ...these actions. 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 action...

  • Page 60
    ... Statements of Income. Tax benefits recognized in fiscal 2010, fiscal 2009 and fiscal 2008 for stockbased compensation totaled $5.8 million, $4.9 million and $4.2 million, respectively. Stock Options The Company grants stock options to key employees at prices not less than the fair market value...

  • Page 61
    ... yield is based on the projected annual dividend payment per share divided by the stock price on the grant date. Expected stock price volatility is derived from an analysis of the historical and implied volatility of the Company's publicly traded stock. The risk-free interest rate is based on the...

  • Page 62
    .... During fiscal 2009, the Company purchased 2.3 million shares of its common stock at a cost of $71.1 million, and during fiscal 2008, the Company purchased 3.7 million shares at a cost of $97.7 million. All of the share repurchases during fiscal 2010 were made in the open market, with the exception...

  • Page 63
    ... losses on investment securities are shown net of tax ($1.2 million income tax expense in fiscal 2010, $2.5 million income tax benefit in fiscal 2009 and $3.0 million income tax benefit in fiscal 2008). (in thousands) August 28, 2010 Years Ended August 29, 2009 August 30, 2008 Net income ...Other...

  • Page 64
    ...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. The Company manages the...

  • Page 65
    ... during fiscal 2008 were for Company purchases of merchandise in the ordinary course of business from entities owned or represented by non-employee family members of the Company's Chairman of the Board and Chief Executive Officer. 18. Subsequent Events: On September 29, 2010, the Company announced...

  • Page 66
    ... evaluated the design and operating effectiveness of our disclosure controls and procedures as of August 28, 2010. This evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation...

  • Page 67
    ...Reporting There were no changes in the Company's internal control over financial reporting during the Company's fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. ITEM 9B. None OTHER INFORMATION...

  • Page 68
    ...in the Company's 2011 Proxy Statement, under the captions "Compensation Discussion and Analysis," "2010 Summary Compensation Table," "2010 Grants of Plan-Based Awards," "Employment and Severance Agreements," "2010 Outstanding Equity Awards at Fiscal Year End," "2010 Option Exercises and Stock Vested...

  • Page 69
    ... the Company's 2011 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 26, 2010 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
    ... Report on Form 8-K filed with the SEC on October 14, 2008) Medical Expense Reimbursement Plan, amended as of November 2, 2004 (filed as Exhibit 10(v) to the Company's Form 10-K for the fiscal year ended August 28, 2004) Summary of Family Dollar Stores, Inc., Executive Supplemental Disability Income...

  • Page 73
    ... and Restated Family Dollar Compensation Deferral Plan (filed as Exhibit 10.3 to the Company's Form 10-Q for the quarter ended March 1, 2008) *10.16 Summary of compensation arrangements of the Company's named executive officers for fiscal 2010 (filed under Item 5.02 in the Company's Report on Form...

  • 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 20, 2011, at the Company's corporate offices at 10401 Monroe Road, Matthews, North Carolina, 28105. Independent Registered Public Accounting Firm ...

  • Page 75
    ... Vice President Customer Marketing Joshua R. Jewett Senior Vice President Information Technology, Chief Information Officer Thomas M. Nash Senior Vice President Real Estate Development John J. Scanlon Senior Vice President Merchandising Kenneth T. Smith Senior Vice President Chief Financial Officer...

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