Family Dollar 2012 Annual Report Download

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2012 Annual Report

Table of contents

  • Page 1
    2012 Annual Report

  • Page 2

  • Page 3
    ...1,000 new food, health, beauty and personal care items to our assortment; Introduced tobacco in 6,200 stores; Opened our 10th distribution center and began construction of our 11th distribution center; Enhanced and increased our marketing efforts; and Signed a 6-year exclusive, strategic partnership...

  • Page 4

  • Page 5
    ...-K È Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended August 25, 2012 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
    ... 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 Supplementary Data ...Changes in 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 25, 2012 ("fiscal 2012"); August 27, 2011 ("fiscal 2011"); August 28, 2010...

  • Page 8
    ... and Accessories, and Seasonal and Electronics. We sell merchandise at prices that generally range from less than $1 to $10. We opened our first Family Dollar store in Charlotte, North Carolina, in 1959. In subsequent years, we opened additional stores and organized separate corporations to operate...

  • Page 9
    ... internal customer service surveys). Deliver profitable sales growth Several years ago, we slowed new store growth to focus more on improving returns in existing stores and the chain overall. Over this period, we completed an end-to-end re-engineering of our merchandising and supply chain processes...

  • Page 10
    ... in new merchandising processes, including price management capabilities, customer research and category management tools. These investments have enabled us to navigate challenging macro-economic environments. During fiscal 2012, our teams worked diligently to create the right merchandise value...

  • Page 11
    ... 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 operate between the hours of 8:00 a.m. and 9:00 p.m. Our stores accept cash, checks...

  • Page 12
    ... fiscal 2012, we expanded the number of basic SKUs in our stores, primarily in food and health and beauty aids, by 20% and 25%, respectively. During fiscal 2012, nationally advertised brand name merchandise accounted for approximately 56% of sales. Merchandise sold under our private brands program...

  • Page 13
    ... hiring system designed to provide consistent pre-employment assessments and interviews for prospective team members in all of our stores. To improve our customer service and drive productivity, we also utilize an online training system in our stores. Distribution and Logistics During fiscal 2012...

  • Page 14
    ... center in St. George, Utah, in the summer of fiscal 2012. Competition Our industry is highly competitive. The principal competitive factors include store locations, convenience, price and quality of merchandise, in-stock consistency, merchandise assortment and presentation, and customer service...

  • Page 15
    ... New York Stock Exchange ("NYSE") rules, on February 20, 2012, we filed the annual certification by our Chief Executive Officer that, as of the date of the certification, Family Dollar was in compliance with the NYSE listing standards. For the fiscal year ended August 25, 2012, our Chief Executive...

  • Page 16
    ... 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 17
    ... than us. We compete for customers, 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...

  • Page 18
    ... 2012, we entered into an exclusive six year agreement with McLane Company, Inc., a large supply chain services company that will serve as a principal supplier for a portion of our merchandise. During fiscal 2013, we expect to purchase approximately 10% of our merchandise, including tobacco products...

  • Page 19
    ... employment, 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...

  • Page 20
    ... us to lose market share to our competitors and could have an adverse effect on our financial results. Inability to attract and retain qualified employees, particularly field, store and distribution center managers, and to control labor costs, could adversely affect our business. Our growth could be...

  • Page 21
    ... a market, 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...

  • Page 22
    ... STAFF COMMENTS We operate a chain of self-service retail discount stores. As of September 29, 2012, there were 7,475 stores in 45 states and the District of Columbia as follows: Texas ...Florida ...Ohio ...North Carolina ...Michigan ...Georgia ...New York ...Pennsylvania ...Louisiana ...Tennessee...

  • Page 23
    ... and we use approximately 310,000 square feet for the Store Support Center. We also own nine 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...

  • Page 24
    ... Statements included in this Report, and incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. Executive Officers of the Company The following information is furnished with respect to each of the executive officers of Family Dollar as of September 29, 2012. Name Position...

  • Page 25
    ... chain 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. Bryan E. Venberg was employed by the Company as Senior Vice President-Human Resources in February 2008. Prior to his employment...

  • Page 26
    ... under this authorization as of August 25, 2012. Remaining dollar amounts are converted to shares using the closing stock price as of the end of the fiscal month. (2) See Note 13 to the Consolidated Financial Statements included in this Report for more information regarding share repurchases. 22

  • Page 27
    ... total shareholder return on our common stock during the five fiscal years ended August 25, 2012, compared with the cumulative total returns of the S&P 500 Index and the S&P General Merchandise Stores Index. The comparison assumes that $100 was invested in Family Dollar common stock on September...

  • Page 28
    ... Financial Data (in thousands, except per share, store, and net sales per square foot data) August 25, 2012 August 27, 2011 Years Ended August 28, 2010 August 29, 2009 August 30, 2008 Net sales ...Cost of sales ...Selling, general and administrative expenses ...Litigation charge(1) ...Operating...

  • Page 29
    ... each year, which generally results in an extra week every six years. Fiscal 2012, fiscal 2011 and fiscal 2010 were 52-week years. Fiscal 2013 will be a 53-week year. Executive Overview We operate a chain of more than 7,400 general merchandise retail discount stores in 45 states, providing primarily...

  • Page 30
    ... team member branding. With a strong focus on increasing our relevancy with customers and driving sales productivity, we significantly expanded our merchandise selection in both food and health and beauty aids and added new consumer brands. We added tobacco products to our assortment in fiscal 2012...

  • Page 31
    ...store sales, we expect selling, general and administrative expenses to leverage in fiscal 2013, as compared to fiscal 2012. Results of Operations Our results of operations for fiscal 2012, fiscal 2011 and fiscal 2010 are highlighted in the table below and discussed in the following paragraphs: Years...

  • Page 32
    ... lawsuit in the state of New York. This lawsuit involves claims for overtime pay from New York store managers who worked in our stores over the past nine years. See note 11 of the Consolidated Financial Statements for more information. Investment Income The change in investment income in fiscal 2012...

  • Page 33
    ...with the balance of the increase due primarily to sales from new stores opened as part of our store growth program. 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 34
    ... jobs tax credits. Liquidity and Capital Resources General We have consistently maintained a strong liquidity position. Cash provided by operating activities during fiscal 2012 was $369.4 million compared to $528.1 million in fiscal 2011, and $591.5 million in fiscal 2010. Our operating cash flows...

  • Page 35
    ... classified as Restricted Cash and Investments in the Consolidated Balance Sheets. Fee Development Program We occupy most of our stores under operating leases. As part of our new store growth strategy, we have created a Fee Development Program ("Fee Development Program"), intended to provide us with...

  • Page 36
    ... completion of the construction of our 11th distribution center. We plan to open approximately 500 new stores and renovate, relocate or expand approximately 850 stores in fiscal 2012. During fiscal 2012, we purchased 3.2 million shares of our common stock at a cost of $191.6 million, compared to 13...

  • Page 37
    ...designated for general corporate purposes. As of the end of fiscal 2012, these cash and cash equivalents and investment securities balances (including Restricted Cash and Investments) were $19.0 million, and $85.3 million, respectively. Cash Flows from Operating Activities Cash provided by operating...

  • Page 38
    ... Consolidated Balance Sheets. 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 25, 2012, we had $22.4 million in liabilities related to our uncertain tax positions. At this time, we...

  • Page 39
    ... of operations are based on these financial statements. The preparation of these financial statements requires the application of accounting policies in addition to certain estimates and judgments by our management. Our estimates and judgments are based on currently available information, historical...

  • Page 40
    ... fiscal 2012. 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, property loss, workers' compensation, general liability, and auto liability costs...

  • Page 41
    ... MARKET RISK We are subject to market risk from exposure to changes 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...

  • Page 42
    ... FAMILY DOLLAR STORES, INC. Page No. Report of Independent Registered Public Accounting Firm ...Consolidated Statements of Income for fiscal 2012, fiscal 2011, and fiscal 2010 ...Consolidated Statements of Comprehensive Income for fiscal 2012, fiscal 2011, and fiscal 2010 ...Consolidated Balance...

  • Page 43
    ..., the financial position of Family Dollar Stores, Inc., and its subsidiaries at August 25, 2012 and August 27, 2011, and the results of their operations and their cash flows for each of the three years in the period ended August 25, 2012 in conformity with accounting principles generally accepted in...

  • Page 44
    FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) August 25, 2012 Years Ended August 27, 2011 August 28, 2010 Net sales ...Cost and expenses: Cost of sales ...Selling, general and administrative ...Litigation charge ...Cost of ...

  • Page 45
    FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) August 25, 2012 Years Ended August 27, 2011 August 28, 2010 Net income ...Other comprehensive income: Unrealized gains on investment securities (net of taxes of $2.7 million, $0.6 million, ...

  • Page 46
    ... CONSOLIDATED BALANCE SHEETS (in thousands, except per share and share amounts) August 25, 2012 August 27, 2011 Assets Current assets: Cash and cash equivalents ...Short-term investment securities ...Restricted cash and investments ...Merchandise inventories ...Deferred income taxes ...Income tax...

  • Page 47
    ..., 2009 (138,795,832 shares common stock; 6,689,902 shares treasury stock) ...Net income for the year ...Unrealized gains on investment securities (net of $1.2 million of taxes) ...Comprehensive income ...Issuance of 1,010,503 common shares under incentive plans, including tax benefits ...Purchase of...

  • Page 48
    FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended August 27, August 28, 2011 2010 (in thousands) August 25, 2012 Cash flows from operating activities: Net income ...$ 422,240 $ 388,445 $ 358,135 Adjustments to reconcile net income to net cash provided ...

  • Page 49
    ..., 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 50
    ... that are not designated for general corporate purposes. These investment securities balances were $30.0 million as of the end of fiscal 2012 and $93.0 million as of the end of fiscal 2011. Restricted cash and investments The Company has restricted cash and investments that serve as collateral for...

  • Page 51
    ... of property and equipment. The Company capitalized $4.0 million, $0.6 million and $0.8 million of interest costs during fiscal 2012, fiscal 2011 and fiscal 2010, respectively. Revenues The Company recognizes revenue, net of returns and sales tax, at the time the customer tenders payment for...

  • Page 52
    ... when the closing occurs. Operating leases Except for its Store Support Center 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 53
    ... of ASU 2011-05. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU 2011-05 and ASU 2011-12 in fiscal 2012 did not have a material impact on the Company's Consolidated Financial Statements. 2. Fair Value...

  • Page 54
    ... 2011, or fiscal 2010. Level 2 Inputs The majority of the assets classified as Level 2 are valued by a third-party pricing service which uses matrix pricing to value the assets. The Company believes that while a majority of the assets valued using Level 2 inputs currently trade in active markets...

  • Page 55
    ... maturities that exceed one year, the interest rates reset periodically in scheduled auctions (generally every 7-35 days). Due to the continued issues in the global credit and capital markets, specifically as it relates to the ARS market, the Company's ARS portfolio experienced sustained failed...

  • Page 56
    ...Equity. The Company's investments consisted of the following available-for-sale securities at the end of fiscal 2012 and fiscal 2011 (in thousands): Gross Unrealized Holding Gains Gross Unrealized Holding Losses August 25, 2012 Amortized Cost Fair Value Auction rate securities ...Short-term bond...

  • Page 57
    ... or losses were realized on those sales for fiscal 2012, fiscal 2011 and fiscal 2010. 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...

  • Page 58
    ... 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 million...

  • Page 59
    ..., on the Consolidated Balance Sheets. 7. Accrued Liabilities: Accrued liabilities consisted of the following at the end of fiscal 2012 and fiscal 2011: (in thousands) August 25, 2012 August 27, 2011 Compensation ...Taxes other than income taxes ...Self-insurance liabilities ...Other(1) ... $ 99...

  • Page 60
    ... in fiscal 2011, and reduced income tax expense by $1.5 million in fiscal 2010. The decrease in fiscal 2012 relates to changes in uncertain tax positions as compared to additional uncertain tax positions recorded during fiscal 2011 and settlements of uncertain tax positions during fiscal 2010. 56

  • Page 61
    ... 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 $12.3 million in fiscal 2012, $17.8 million in fiscal 2011 and $28.8 million in fiscal 2010...

  • Page 62
    ... for contributions to the plan were $3.2 million in fiscal 2012, $4.0 million in fiscal 2011 and $4.2 million in fiscal 2010, 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...

  • Page 63
    ..., may result in liability material to the Company's financial condition or results of operations. Wage and Hour Class Actions Since 2004, certain individuals who held the position of store manager for the Company have filed lawsuits alleging that the Company violated the Fair Labor Standards Act...

  • Page 64
    ...the trial is scheduled for February 25, 2013. New Jersey - Hegab v. Family Dollar Stores, Inc., was filed in the United States District Court for the District of New Jersey on March 3, 2011, seeking unpaid overtime pay for a class of current and former New Jersey store managers whom plaintiffs claim...

  • Page 65
    ..., 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 or collective action under...

  • Page 66
    ... during fiscal 2010. As of August 25, 2012, there was approximately $8.2 million of unrecognized compensation cost related to outstanding stock options. The unrecognized compensation cost will be recognized over a weighted-average period of 2.5 years. Performance Share Rights The Company grants...

  • Page 67
    ... compensation cost related to outstanding performance share rights, based on the Company's most recent performance analysis. The unrecognized compensation cost will be recognized over a weighted-average period of 1.7 years. 13. Shareholders' Equity: Stock Repurchases During fiscal 2012, the Company...

  • Page 68
    ...of fiscal 2010. All shares are purchased pursuant to share repurchase authorizations approved by the Board of Directors. On November 18, 2009, the Board of Directors authorized the Company to purchase up to $400 million of the Company's outstanding common stock from time to time as market conditions...

  • Page 69
    ...are supported by ten distribution centers and one Store Support Center. 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...

  • Page 70
    ... cellular phones and services Home Products ... Apparel and Accessories ... Seasonal and Electronics ... 16. Unaudited Summaries of Quarterly Results: First Quarter Second Quarter Third Quarter Fourth Quarter (in thousands, except per share amounts) 2012 Net sales ...Gross profit ...Net income...

  • Page 71
    ... 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 25, 2012. Management's Report on Internal Control Over Financial Reporting Management...

  • Page 72
    ...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 73
    ...in the Company's 2013 Proxy Statement, under the captions "Compensation Discussion and Analysis," "2012 Summary Compensation Table," "2012 Grants of Plan-Based Awards," "Employment and Severance Agreements," "2012 Outstanding Equity Awards at Fiscal Year End," "2012 Option Exercises and Stock Vested...

  • Page 74
    ... in the Company's 2013 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...

  • Page 75
    ... 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 omitted because the registrant is...

  • Page 76
    ... authorized. FAMILY DOLLAR STORES, INC. (Registrant) Date: October 19, 2012 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 persons on behalf...

  • Page 77
    ... of certificate 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) Rights Agreement, dated as of March 2, 2011, between Family Dollar Stores, Inc. and American Stock Transfer & Trust Company, LLC, which...

  • Page 78
    ... and September 28, 2011) Summary of compensation arrangements of the Company's named executive officers for fiscal 2013 (filed under Item 5.02 in the Company's Current Reports on Form 8-K filed with the SEC on October 15, 2012) Family Dollar Stores, Inc., 2006 Incentive Plan (filed as Appendix B to...

  • Page 79
    ... Policy applicable to executive officers of the Company (filed as Exhibit 10.27 to the Company's Form 10-K for the fiscal year ended August 27, 2005) Amended 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...

  • Page 80
    ... 2002 Financial statements from the annual report on Form 10-K of the Company for the year ended August 25, 2012, filed on October 19, 2012, formatted in XBRL: (i) the Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv...

  • Page 81
    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 17, 2013, at the Company's Store Support Center, at 10401 Monroe Road, Matthews, North Carolina, 28105. Independent Registered Public Accounting ...

  • Page 82
    ... Jocelyn Wong Senior Vice President Chief Marketing Officer Heather B. Adams Vice President Assistant General Counsel, Compliance, Facilities and Supply Chain and Assistant Secretary Elizabeth M. Austin Vice President Information Technology Earl C. Bonnecaze Vice President Store Operations Jonathan...

  • Page 83

  • Page 84
    P.O. Box 1017, Charlotte, North Carolina, 28201-1017 www.familydollar.com