Family Dollar 2011 Annual Report Download

Download and view the complete annual report

Please find the complete 2011 Family Dollar annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 80

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80

2011 Annual Report

Table of contents

  • Page 1
    2011 Annual Report

  • Page 2

  • Page 3
    ... the addition of 300 new stores, resulted in an acceleration of revenue growth to 8.7% for the year. We expanded operating margin and grew earnings per diluted share for the year by 19.1% to $3.12 per share. We completed an initial public debt offering of $300 million in 10-year notes and secured an...

  • Page 4
    ... with our intensified efforts to develop high-performing teams and drive operational efficiencies, position us well to further expand our market share, drive double-digit earnings growth and improve our financial returns. Sincerely, Howard R. Levine Chairman of the Board and Chief Executive Officer

  • Page 5
    ...file number 1-6807 FAMILY DOLLAR STORES, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 56-0942963 (I.R.S. Employer Identification No.) 10401 Monroe Road, Matthews, North Carolina (Address of principal executive...

  • 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
    ... 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 27, 2011 ("fiscal 2011"); August 28, 2010 ("fiscal 2010"); August 29, 2009...

  • Page 8
    ...Family Dollar Stores, Inc. was incorporated in Delaware in 1969, and all then-existing corporate entities became its wholly-owned subsidiaries. The mailing address of our executive offices is P.O. Box 1017, Charlotte, North Carolina 28201-1017, and our telephone number is (704) 847-6961. Our website...

  • Page 9
    ... value perception, and strengthened the Family Dollar brand (based on the results of internal customer service surveys). Develop diverse, high-performing teams We believe customer satisfaction is strongly linked with employee engagement, which is why we continue to invest to develop diverse, high...

  • Page 10
    ..., in fiscal 2012, we plan to open our first stores in California. We believe the foundation we built over the past several years, coupled with the continued investments we are making to our supply chain, have positioned us for sustainable new store growth into the future. Private brands represent an...

  • Page 11
    ... these market areas. Family Dollar stores are generally open seven days a week and operate between the hours of 8:00 a.m. and 9:00 p.m. Our stores accept cash, checks, PIN-based debit cards, credit cards, and other electronic payment types, including food stamps. Our Merchandise We provide customers...

  • Page 12
    ...in our stores. During fiscal 2011, we expanded the number of basic SKUs in our stores, primarily in food and health and beauty aids, by 20-25%. During fiscal 2011, nationally advertised brand name merchandise accounted for approximately 53% of sales. Merchandise sold under our private brands program...

  • Page 13
    ... managed and operated by us. A store manager manages each store and is responsible for hiring and training 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...

  • Page 14
    .... We consider our employee relations generally to be good. NYSE Certification In accordance with New York Stock Exchange ("NYSE") rules, on February 17, 2011, 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
    ... development due to capital constraints, difficulties in staffing and operating new store locations, and lack of customer acceptance of stores in new market areas or our renovated store design all may impact our new store growth negatively and the costs or the profitability associated with new...

  • Page 16
    ... products could be impacted by various actions of our competitors that are beyond our control. See Item 1 - "Competition" for further discussion of our competitive position. Any disruption in our ability to select, obtain, distribute and market merchandise attractive to customers at prices...

  • Page 17
    ..., employee rights, health care, social welfare and entitlement programs could increase our cost of doing business. We employ more than 50,000 team members, and are exposed to the risk that federal or state legislation, particularly related to our team members, may negatively impact our operations...

  • Page 18
    ... operations. See Note 10 to the Consolidated Financial Statements included in this Report for further details regarding certain of these pending matters. If we are unable to secure our customers' confidential and credit card information, or other private data relating to our employees or the Company...

  • Page 19
    ..., store and distribution center managers, and to control labor costs, could adversely affect our business. Our growth could be adversely impacted by our inability to attract and retain qualified employees at the store operations level, in distribution facilities, and at the corporate level, at costs...

  • Page 20
    ... of credit, higher cost of borrowing and lack of confidence in the equity market, making it more difficult to obtain additional financing on terms that are favorable to us. Funds associated with auction rate securities may not be liquid or readily available. Our portfolio of investment securities...

  • Page 21
    ...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 2007 2008 2009 2010 2011 ... 6,430 6,571 6,655 6,785 7,023 During fiscal 2011, we opened 300 stores, closed 62 stores, and renovated, relocated or expanded 1,019 stores...

  • Page 22
    ...Fiscal Years 2012 ...2013-2015 ...2016-2018 ...2019-2021 ...2022 and thereafter ... 993 3,230 1,672 573 42 86 252 381 530 5,261 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
    ... Operating Officer of the Company in September 2011. Prior to joining the Company, Mr. Bloom served as Executive Vice President - Merchandising, Supply Chain, Marketing and Advertising for CVS Caremark Corporation, a pharmacy healthcare provider, since June 2006. Mr. Bloom began his 20-year career...

  • Page 24
    ... 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, and serve at the...

  • Page 25
    ... record of our common stock. The accompanying tables give the high and low sales prices of our common stock and the dividends declared per share for each quarter of fiscal 2011 and fiscal 2010. We expect that dividends will continue to be declared quarterly for the foreseeable future. Market Prices...

  • Page 26
    ...proxy statement to be filed for the Annual Meeting of Stockholders to be held in January 2012, 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 27
    ... Selected Financial Data (in thousands, except per share, store, and net sales per square foot data) August 27, 2011 August 28, 2010 Years Ended August 29, 2009 August 30, 2008 September 1, 2007 Net sales ...Cost of sales ...Selling, general and administrative expenses ...Operating profit ...Income...

  • Page 28
    ...every six years. Fiscal 2011, fiscal 2010 and fiscal 2009 were 52-week years. Executive Overview We operate a chain of more than 7,000 general merchandise retail discount stores in 44 states, providing primarily low- and middle-income consumers with a selection of competitively priced merchandise in...

  • Page 29
    ... Team Member branding. • To respond to customer demand, provide our customers with more value and convenience, and increase productivity in all stores, we significantly expanded our merchandise assortment in both food and health and beauty aids in stores that were not renovated in fiscal 2011...

  • Page 30
    ... comparable store sales calculation may not be comparable to similarly titled measures reported by other companies. The 5.5% increase in comparable store sales in fiscal 2011 resulted from increases in both customer traffic, as measured by the number of register transactions, and the dollar value of...

  • Page 31
    ...in fiscal 2011 were leveraged as a result of a 5.5% increase in comparable store sales and continued productivity improvements. The increased comparable store sales volumes helped offset our investments to drive revenue growth, including store renovations, extended store hours and enhanced marketing...

  • Page 32
    ....2 million in fiscal 2009. Our operating cash flows are generally sufficient to fund our regular operating needs, capital expenditure program, cash dividend payments, share repurchases, interest payments, and debt maturities. In fiscal 2011, we completed an initial public debt offering to supplement...

  • Page 33
    ...investments we made to drive revenue growth, including our comprehensive store renovation program, other improvements and upgrades to existing stores, purchases of new and existing stores, and supply chain projects (including the start of construction of the 10th distribution center). In fiscal 2011...

  • Page 34
    ...developers' higher rate and reduce our effective cost of ownership. Also, in fiscal 2012, we expect to renovate, relocate or expand more than 1,000 stores. We also plan to complete construction of our 10th distribution center and begin construction of our 11th distribution center. During fiscal 2011...

  • Page 35
    ... 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 27, 2011, we had $26.3 million in liabilities related to our uncertain tax positions. At this time, we cannot reasonably determine the timing of any payments...

  • Page 36
    ... 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 sales when retail price...

  • Page 37
    ... related to the valuation and classification of property and equipment during fiscal 2011. See Notes 1 and 4 to the Consolidated Financial Statements included in this Report for more information on property and equipment. Insurance Liabilities: We are primarily self-insured for health care...

  • Page 38
    ... stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. We also grant performance share rights and adjust compensation expense each quarter based on the ultimate number of shares expected to be issued. If factors change and we employ...

  • Page 39
    ... auction rate securities at par at some point in the future as a result of issuer calls or refinancings, repurchases by the broker dealers, or upon maturity. However, volatility in the credit markets could continue to negatively impact the timing of future liquidity related to these investments and...

  • Page 40
    ITEM 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 2011, fiscal 2010, and fiscal 2009 ...Consolidated Balance ...

  • Page 41
    ... 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 27, 2011 and August 28, 2010, and the results of their operations and their cash flows for each of the three fiscal years...

  • Page 42
    FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) August 27, 2011 Years Ended August 28, 2010 August 29, 2009 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 27, 2011 August 28, 2010 Assets Current assets: Cash and cash equivalents ...Short-term investment securities ...Merchandise inventories ...Deferred income taxes ......

  • Page 44
    FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended August 27, 2011, August 28, 2010, and August 29, 2009 Accumulated other Common Capital in Retained comprehensive Treasury Stock excess of par earnings loss stock (in thousands, except per share ...

  • Page 45
    FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS August 27, 2011 Years Ended August 28, 2010 August 29, 2009 (in thousands) Cash flows from operating activities: Net income ...$ 388,445 $ 358,135 $ 291,266 Adjustments to reconcile net income to net cash provided ...

  • Page 46
    ..., providing low- and middle-income consumers with a selection of competitively priced merchandise in convenient neighborhood stores. The Company's products include health and beauty aids, packaged food and refrigerated products, home cleaning supplies, housewares, stationery, seasonal goods, apparel...

  • Page 47
    ...that are not designated for general corporate purposes. These investment securities balances totaled $93.0 million as of the end of fiscal 2011 and $104.1 million as of the end of fiscal 2010. Merchandise inventories Inventories are valued using the retail method, based on retail prices less mark-on...

  • Page 48
    ... revenue, net of returns and sales tax, at the time the customer tenders payment for and takes possession of the merchandise. Cost of sales Cost of sales includes the purchase cost of merchandise and transportation costs to the Company's distribution centers and stores. Buying, distribution center...

  • Page 49
    ... tax positions. See Note 8 for more information on the Company's income taxes. Stock-based compensation The Company recognizes compensation expense related to its stock-based awards based on the fair value of the awards on the grant date. The Company utilizes the Black-Scholes option-pricing...

  • Page 50
    ... adopt this guidance in the third quarter of fiscal 2012. The adoption of ASU 2011-05 is not expected to have a material impact on the Company's Consolidated Financial Statements. 2. Fair Value Measurements: Fair value accounting standards define fair value as the price that would be received to...

  • Page 51
    During fiscal 2011, the Company re-evaluated its fair value hierarchy, specifically as it relates to a portion of its municipal and corporate debt securities. Although the Company believes these investments trade in active markets and prices could be obtained for identical assets, the Company ...

  • Page 52
    ...placement debt market. The fair value of the Company's current and long-term debt was greater than the carrying value of the debt by $16.0 million as of August 27, 2011, and $27.8 million as of August 28, 2010. See Note 5 for more information on the Company's long-term debt. 3. Investment Securities...

  • Page 53
    ... losses were realized on those sales for fiscal 2011, fiscal 2010 and fiscal 2009. 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...

  • Page 54
    ...issuance costs are being amortized to interest expense over the term of the 2021 Notes. Interest on the 2021 Notes is payable semi-annually in arrears on the 1st day of February and August of each year, commencing on August 1, 2011. The 2021 Notes rank pari passu in right of payment with the Company...

  • Page 55
    ... based on short-term market interest rates. The credit facility replaced the previous 364-day $250 million unsecured revolving credit facility. On August 17, 2011, the Company entered into a new five-year unsecured revolving credit facility with a syndicate of lenders for borrowings of up to $300...

  • Page 56
    8. Income Taxes: The provisions for income taxes in fiscal 2011, fiscal 2010 and fiscal 2009 were as follows: (in thousands) Fiscal 2011 Fiscal 2010 Fiscal 2009 Current: Federal ...State ...Other ...Deferred: Federal ...State ...Other ...Total ... $155,893 25,974 41 181,908 44,964 1,832 9 46,805 ...

  • Page 57
    ...benefits in the income statement of a future period. A reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows: (in thousands) Unrecognized Tax Benefit Interest and Penalties Total Balance at August 30, 2008 ...Increases related to prior year tax positions...

  • Page 58
    ...plan were $4.0 million in fiscal 2011, $4.2 million in fiscal 2010 and $3.2 million in fiscal 2009, and are included in SG&A on the Consolidated Statements of Income. The Company has a deferred compensation plan to provide certain key management employees the ability to defer a portion of their base...

  • Page 59
    ... pay, liquidated damages, and attorneys' fees and court costs. The Company currently has 22 such cases pending against it. Grace v. Family Dollar Stores, Inc. and Ward v. Family Dollar Stores, Inc. are both pending in the U.S. District Court for the Western District of North Carolina, Charlotte...

  • Page 60
    ... 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 or collective action under applicable statutes...

  • Page 61
    ...'s financial position, liquidity or results of operations. 11. 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...

  • Page 62
    ...-date fair value of each option. The fair values of options granted were estimated using the following weighted-average assumptions: August 27, 2011 Years Ended August 28, 2010 August 29, 2009 Expected dividend yield ...Expected stock price volatility ...Weighted average risk-free interest rate...

  • Page 63
    ...The financial institution purchased shares of the Company's common stock in the open market and delivered shares to the Company at specified intervals during the contract term. The number of shares delivered was based on the volume weighted average price ("VWAP") of the Company's common stock during...

  • Page 64
    ... stock of the Company to stockholders of record at the close of business on March 2, 2011. Each right entitles the registered holder to purchase from the Company a unit consisting of one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $1.00 per share, at a price...

  • Page 65
    .... The unrealized gains and losses on investment securities are shown net of tax ($0.6 million income tax expense in fiscal 2011, $1.2 million income tax expense in fiscal 2010 and $2.5 million income tax benefit in fiscal 2009). (in thousands) August 27, 2011 Years Ended August 28, 2010 August 29...

  • Page 66
    ... 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 or other lines of business. All of the Company's operations are located in...

  • Page 67
    ...Figures represent diluted earnings per share. The sum of the quarterly net income per common share may not equal the annual net income per common share due to rounding. Related Party Transactions: 18. There were no material related party transactions during fiscal 2011, fiscal 2010 or fiscal 2009...

  • Page 68
    ... Executive Officer and Chief Financial Officer. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of August 27, 2011. Management's Report on Internal Control Over Financial Reporting Management...

  • Page 69
    ...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 70
    ...in the Company's 2012 Proxy Statement, under the captions "Compensation Discussion and Analysis," "2011 Summary Compensation Table," "2011 Grants of Plan-Based Awards," "Employment and Severance Agreements," "2011 Outstanding Equity Awards at Fiscal Year End," "2011 Option Exercises and Stock Vested...

  • Page 71
    ... the Company's 2012 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 72
    ... 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 73
    ..., thereunto duly authorized. FAMILY DOLLAR STORES, INC. (Registrant) Date: October 25, 2011 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 74
    ... Designation, Preferences and Rights of Series A Junior Participating Preferred Stock (filed as Exhibit 3.1 to the Company's Form 10-Q for the quarter ended February 26, 2011) Bylaws of Family Dollar Stores, Inc., as amended through March 2, 2011 (filed as Exhibit 3.1 to the Company's Current Report...

  • Page 75
    ... the Company's named executive officers for fiscal 2012 (filed under Item 5.02 in the Company's Current Reports on Form 8-K filed with the SEC on September 9, 2011 and September 28, 2011) Family Dollar Stores, Inc., 2006 Incentive Plan (filed as Appendix B to the Company's Definitive Proxy Statement...

  • Page 76
    ... Family Dollar Stores Inc., 2006 Incentive Plan 2006 Non-Qualified Stock Option Grant Program (filed as Exhibit 10.3 to the Company's Report on Form 8-K filed with the SEC on January 25, 2006) Family Dollar Stores, Inc., 2006 Incentive Plan Guidelines for Long Term Incentive Performance Share Rights...

  • Page 77
    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 19, 2012, at the Company's corporate offices at 10401 Monroe Road, Matthews, North Carolina, 28105. Independent Registered Public Accounting Firm ...

  • Page 78
    ...of Family Dollar Howard R. Levine Chairman of the Board and Chief Executive Officer Michael K. Bloom President and Chief Operating Officer Dorlisa K. Flur Vice Chair-Strategy and Chief Administrative Officer R. James Kelly Vice Chair Charles S. Gibson, Jr. Executive Vice President Supply Chain Barry...

  • Page 79

  • Page 80
    P.O. Box 1017, Charlotte, North Carolina, 28201-1017 www.familydollar.com