Family Dollar 2013 Annual Report Download

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2013 Annual Report

Table of contents

  • Page 1
    2013 Annual Report

  • Page 2

  • Page 3
    ... two years, our customers have increasingly relied on Family Dollar for their basic needs, and we've moved quickly to meet their demand. In 2012, we added about 1,000 new consumables items to our assortment, and in 2013 we launched a partnership with McLane Company, a highly successful supply chain...

  • Page 4

  • Page 5
    ...offices) 28105 (Zip Code) P.O. Box 1017, Charlotte, North Carolina 28201-1017 (Mailing address) 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 registered Common Stock...

  • Page 6
    ... 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 ...72 Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 7
    ..., our capital investment and financing plans, net sales, comparable store sales, store openings and closings, cost of sales, selling, general and administrative ("SG&A") expenses, gross margin, income tax rates, earnings per diluted share, dividends and share repurchases; or statements regarding the...

  • Page 8
    ... the Company's shares are traded on the New York Stock Exchange under the ticker symbol 'FDO.' Our Mission and Strategy Our mission is to provide our customers with a compelling place to shop, our team members with a compelling place to work, and our investors with a compelling place to invest. Our...

  • Page 9
    ... in fiscal 2012 to increase our consumables assortment. We expanded our assortment of food, increased our selection of health and beauty aids, and added a number of new merchandise categories, including tobacco products. In fiscal 2013, we leveraged these investments and continued our focus on...

  • Page 10
    ... our long-term success. Over the last several years, we have invested significantly in new merchandising processes, including price management capabilities, customer research and category management tools. In fiscal 2013, we established a strategic pricing team to help us improve our price and value...

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

  • Page 12
    ... refrigerated products, tobacco products, home cleaning supplies, housewares, stationery, seasonal goods, apparel, and home fashions. Reflecting trends in customer demand over the past three fiscal years, we have expanded our assortment of consumable merchandise in our stores. We manage the business...

  • Page 13
    ... 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 payment terms to help finance the cost of carrying this inventory. We balance the value of maintaining high inventory...

  • Page 14
    .... We consider our employee relations generally to be good. NYSE Certification In accordance with New York Stock Exchange ("NYSE") rules, on February 15, 2013, we filed the annual certification by our Chief Executive Officer certifying that, as of the date of the certification, Family Dollar was in...

  • Page 15
    ... 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 16
    ... share. We have substantially increased the number of our private brand items, and the program is a sizable part of our future growth plans. We believe our success in maintaining broad market acceptance of our private brands depends on many factors, including pricing, our costs, quality and customer...

  • Page 17
    ...and build new facilities to support our growth objectives. Delays in opening distribution facilities or stores could adversely affect our future operations by slowing the unit growth, which may in turn reduce revenue growth. Adverse changes in the cost of operating distribution facilities and stores...

  • Page 18
    ...as health insurance, paid leave programs, or other changes in workplace regulation or tax laws, could adversely impact our ability to achieve our financial targets. Changes in other regulatory areas, such as consumer credit, privacy and information security, product safety, supply chain transparency...

  • Page 19
    ... 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, suppliers or the Company, we could be...

  • Page 20
    ... centers or stores, disruption of our technology support or information systems, fuel shortages or dramatic increases in fuel prices, which increase the cost of doing business. Any of these factors, or combination thereof, could adversely affect our operations. Our current insurance program...

  • Page 21
    ... financing on favorable terms, if needed, could be adversely affected by volatility in the capital markets. We obtain and manage liquidity from the positive cash flow we generate from our operating activities and our access to capital markets, including our credit facilities with a consortium...

  • Page 22
    ... additional payments based upon a percentage of sales, property taxes, insurance premiums, or common area maintenance charges. Of our 7,685 leased stores at October 5, 2013, all but 489 leases grant us options to renew for additional terms, in most cases for a number of successive five-year periods...

  • Page 23
    ...Executive Vice President - Supply Chain Executive Vice President - Store Operations Executive Vice President - Chief Financial Officer Senior Vice President - General Counsel and Secretary Senior Vice President - Human Resources 54 53 49 49 52 49 45 Mr. Howard R. Levine was employed by the Company...

  • Page 24
    ...Bloom was employed by the Company as President and Chief 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...

  • Page 25
    ...Directors declared a regular quarterly cash dividend on the Company's common stock of $0.21 per share, payable Monday, October 15, 2012, to shareholders of record at the close of business on Friday, September 14, 2012. Issuer Purchases of Equity Securities The following table sets forth information...

  • Page 26
    ... in this Report for more information regarding share repurchases. Equity Compensation Plan Information This information will be included in our proxy statement to be filed for the Annual Meeting of Stockholders to be held in January 2014, under the caption "Equity Compensation Plan Information" and...

  • Page 27
    ITEM 6. SELECTED FINANCIAL DATA August 31, 2013* August 25, 2012 Years Ended August 27, 2011 August 28, 2010 August 29, 2009 (in thousands, except per share, store, and net sales per square foot data) Net sales ...$10,391,457 $9,331,005 $8,547,835 $7,866,971 $7,400,606 6,836,712 6,071,058 5,515,...

  • Page 28
    ...diluted share during fiscal 2013. During fiscal 2013, we remained focused on achieving our four corporate goals: build customer loyalty and experience; deliver profitable sales growth; drive continuous improvement; and develop diverse, high performing teams. • • We achieved our new store opening...

  • Page 29
    ... the Corporate Office was renamed the Store Support Center. • • • Fiscal 2014 Outlook Building on the improvements we made over the past several years, we plan to continue to execute on our initiatives designed to increase our relevancy with customers, deliver profitable sales growth and...

  • Page 30
    ... of Net Sales** Years Ended August 25, % of Net 2012 Sales** August 27, 2011 % of Net Sales** (in thousands) Net sales ...Cost and expenses: Cost of sales*** ...Selling, general and administrative ...Litigation charge ...Cost of sales and operating expenses ...Operating profit ...Investment income...

  • Page 31
    ... fourth quarter of fiscal 2012, we recorded an $11.5 million litigation charge associated with the settlement of a lawsuit in the state of New York. This lawsuit involves claims for overtime pay from New York store managers who worked in our stores. Investment Income The change in investment income...

  • Page 32
    ... macro-economic times as well as to increase market share. We continue to focus on improving our purchase markups through the continued development of our private brand assortment, the expansion of our Global Sourcing efforts, and improved price management capabilities. Selling, General and...

  • Page 33
    ... operating cash flows and to support our growth initiatives, including our significant merchandise expansions and our Fee Development Program, we had borrowings under our unsecured revolving credit facilities and had an average daily outstanding balance of $141.5 million during fiscal 2013. Working...

  • Page 34
    ..., and pays the developer a fee for its work on the project. This program results in a lower total construction cost of the store because the Company's weighted average borrowing rate, based on its investment grade credit rating, is lower than interest rates on construction loans its developers could...

  • Page 35
    ... 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 36
    ...fee development stores. In fiscal 2013 we spent $385.2 million related to new stores; $149.1 million on our store renovation program; $76.0 million to support our supply chain, including the completion of our eleventh distribution center; $81.1 million related to corporate and technology investments...

  • Page 37
    ... in fiscal 2013, as compared to fiscal 2012, which was offset partially by changes in prepayments and other current assets and income taxes, all in the ordinary course of business. Cash provided by operating activities decreased $158.7 million during fiscal 2012, as compared to fiscal 2011. The...

  • Page 38
    ... at the end of fiscal 2013. (in thousands) Contractual Obligations Fiscal 2014 Payments Due During Fiscal Fiscal Fiscal 2015 2016 2017 Fiscal 2018 Total Thereafter Long-term debt ...Interest ...Merchandise letters of credit ...Operating leases ...Construction obligations ...Minimum royalties...

  • Page 39
    ... 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 40
    ... self-insured for health care, property loss, workers' compensation, general liability, and auto liability costs. These costs are significant primarily due to the large number of our retail locations and employees. Our self-insurance liabilities are based on the total estimated costs of claims filed...

  • Page 41
    ... on our financial position, results of operations or cash flows. During fiscal 2013 and fiscal 2012 we incurred an immaterial amount of interest expense related to our credit facilities. We are also subject to market risk from exposure to changes in the fair value of our investment securities. Our...

  • Page 42
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES Page No. Report of Independent Registered Public Accounting Firm ...Consolidated Statements of Income for fiscal 2013, fiscal 2012, and fiscal 2011 ......

  • Page 43
    ... financial 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 31, 2013 and August 25, 2012, and the results of their operations and their cash flows for each of the three years...

  • Page 44
    FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) August 31, 2013 Years Ended August 25, 2012 August 27, 2011 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 31, 2013 Years Ended August 25, 2012 August 27, 2011 Net income ...Other comprehensive income: Unrealized gains/(losses) on investment securities (net of taxes of $0.4 million in ...

  • Page 46
    ... CONSOLIDATED BALANCE SHEETS (in thousands, except per share and share amounts) August 31, 2013 August 25,2012 Assets Current assets: Cash and cash equivalents ...Short-term investment securities ...Restricted cash and investments ...Merchandise inventories ...Deferred income taxes ...Income tax...

  • Page 47
    ... incentive plans (Director compensation) ...Stock-based compensation ...Dividends declared on common stock, $0.695 per share ...Balance, August 27, 2011 (117,353,341 shares common stock; 29,962,891 shares treasury stock) ...$14,732 Net income for the year ...Unrealized gains on investment securities...

  • Page 48
    FAMILY DOLLAR STORES, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended (in thousands) August 31, 2013 August 25, 2012 August 27, 2011 Cash flows from operating activities: Net income ...Adjustments to reconcile net income to net cash provided by operating activities: ...

  • Page 49
    ...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 50
    ...to be reported at fair value with unrealized gains and losses, net of taxes, excluded from net income and shown separately as a component of Accumulated Other Comprehensive Income within Shareholders' Equity on the Consolidated Balance Sheets. The Company's short-term investment securities currently...

  • Page 51
    ... by the number of shares issued, to the balance of Capital in Excess of Par as of the retirement date. 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. Cost of sales Cost of sales includes the...

  • Page 52
    ... against those related costs; otherwise, it is treated as a reduction to the cost of merchandise. 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...

  • Page 53
    ... on the Company's stock-based compensation plans. Other Income The Company classifies income earned on non-merchandise transactions, which primarily includes fees charged to customers when receiving cash back on debit card transactions, in a line item captioned Other Income below Operating Profit...

  • Page 54
    ... in Restricted Cash and Investments and Other Assets, respectively, in the Consolidated Balance Sheets. See Note 1 for more information. Represents assets held pursuant to a deferred compensation plan for certain key management employees. On a non-recurring basis, the Company adjusts certain...

  • Page 55
    ... securities generally have long-term nominal 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...

  • Page 56
    ... debt market. The fair value of the Company's current and long-term debt was greater than the carrying value of the debt by $29.9 million as of August 31, 2013, and $43.9 million as of August 25, 2012. See Note 6 for more information on the Company's long-term debt. 3. Investment Securities: All...

  • Page 57
    ... 2012 and fiscal 2011. 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 Sheets...

  • Page 58
    ...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's other unsecured senior indebtedness and will...

  • Page 59
    ... 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 60
    ... deferred compensation. Income Taxes: 10. The provisions for income taxes in fiscal 2013, fiscal 2012 and fiscal 2011 were as follows: (in thousands) August 31, 2013 Years Ended August 25, 2012 August 27, 2011 Current: Federal ...State ...Foreign ...Deferred: Federal ...State ...Foreign ...Total...

  • Page 61
    ..., 2013 Income tax % of pre-tax expense income Years Ended August 25, 2012 Income tax % of pre-tax expense income August 27, 2011 Income tax % of pre-tax expense income (in thousands) Computed federal income tax ...State income taxes, net of federal income tax benefit ...Tax credits ...Foreign rate...

  • Page 62
    ...a quarterly and annual basis, the Company accrues for the effects of open uncertain tax positions and the related interest and penalties. The Company is subject to U.S. federal income tax as well as income tax in multiple foreign, state and local jurisdictions. As of August 31, 2013, the Company was...

  • Page 63
    ... $6.2 million in fiscal 2013, $3.2 million in fiscal 2012 and $4.0 million in fiscal 2011, and are included in Selling General and Administrative expenses on the Consolidated Statements of Income. The Company has a deferred compensation plan to provide certain key management employees the ability to...

  • Page 64
    ... attorneys' fees, and court costs. The first two of the MDL cases are Grace v. Family Dollar Stores, Inc. and Ward v. Family Dollar Stores, Inc., filed in May 2004 and June 2006, respectively, and were pending in the U.S. District Court for the Western District of North Carolina, Charlotte Division...

  • Page 65
    ... Actions The Company is currently a defendant in six additional class action lawsuits in six states alleging that Store Managers should be non-exempt employees under various state laws. The plaintiffs in these cases seek recovery of overtime pay, liquidated damages, attorneys' fees, and court costs...

  • Page 66
    ...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 applicable...

  • Page 67
    ... 2013, fiscal 2012 and fiscal 2011 for stockbased compensation totaled $6.2 million, $5.9 million and $5.4 million, respectively. Stock Options The 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...

  • Page 68
    ... compensation cost related to outstanding stock options. The unrecognized compensation cost will be recognized over a weighted-average period of 2.6 years. Performance Share Rights The Company grants performance share rights to key employees on an annual basis and in connection with employment...

  • Page 69
    ... policy for retirements of treasury shares. Stockholders' Rights Plan On March 2, 2011, the Company adopted a stockholders' rights plan whereby the Board of Directors of the Company authorized and declared a dividend distribution of one right for each outstanding share of common stock of the Company...

  • Page 70
    ...12 The Company operates a chain of more than 7,900 general merchandise retail discount stores in 46 states, serving the basic needs of value-conscious customers. The stores are supported by eleven distribution centers and one Store Support Center. All stores operate under the Family Dollar name and...

  • Page 71
    ... phones and services Home Products ... Apparel and Accessories ... Seasonal and Electronics ... 17. Unaudited Summaries of Quarterly Results: First Quarter Second Quarter(2) Third Quarter Fourth Quarter(3) (in thousands, except per share amounts) 2013 Net sales ...Gross profit ...Net income...

  • Page 72
    ...reports to the Securities and Exchange Commission ("SEC") is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial...

  • Page 73
    ... 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 noted. OTHER INFORMATION 69

  • Page 74
    ...by reference herein. The information required 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 2014 Proxy Statement under the caption...

  • Page 75
    ... the Company's 2014 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 76
    ... 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 77
    ..., thereunto duly authorized. FAMILY DOLLAR STORES, INC. (Registrant) Date: October 28, 2013 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 78
    ...4.1 to the Company's Current Report on Form 8-K filed with the SEC on January 28, 2011) Note Purchase Agreement dated as of September 27, 2005, between Family Dollar Stores, Inc., Family Dollar, Inc., and the various purchasers named therein, relating to $169,000,000 5.41% Series 2005-A Senior Notes...

  • Page 79
    ... named executive officers for fiscal 2014 (filed under Item 5.02 in the Company's Current Report on Form 8-K filed with the SEC on October 21, 2013) Family Dollar Stores, Inc., 2006 Incentive Plan (filed as Appendix B to the Company's Definitive Proxy Statement filed with the SEC on December 7, 2010...

  • Page 80
    ... Relocation 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...

  • Page 81
    ... Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Shareholders' Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements Exhibit represents a management contract or compensatory plan...

  • Page 82

  • Page 83
    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 16, 2014, at the Company's Store Support Center, at 10401 Monroe Road, Matthews, North Carolina, 28105. Independent Registered Public Accounting ...

  • Page 84

  • Page 85
    Officers of Family Dollar Howard R. Levine Chairman of the Board and Chief Executive Officer Michael K. Bloom President and Chief Operating Officer Barry W. Sullivan Executive Vice President Store Operations Mary A. Winston Executive Vice President Chief Financial Officer Kevin M. Boyanowski Senior ...

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