Dollar Tree 2004 Annual Report Download - page 51

DOLLAR TREE STORES, INC. • 2004 ANNUAL REPORT 47
that date. Greenbacks was a privately held company
operating 100 stores in 10 western states and one
expandable 252,000 square foot distribution center in
Salt Lake City. As a result of this acquisition, the
Company extended its geographical reach to include 47
states compared with 41 states prior to the acquisition.
In addition, this acquisition has provided the Company
with an expandable distribution infrastructure in the
Rocky Mountain area of the country. The aggregate
purchase price was approximately $100,000 and was paid
in cash. In addition, the Company incurred approximately
$800 in direct costs associated with the acquisition. The
following table summarizes the fair value of the assets
acquired and liabilities assumed at the date of acquisition.
Current assets $ 27,601
Deferred tax asset-current 860
Property and equipment 7,856
Intangible assets 3,031
Goodwill 80,284
Other assets 27
Total assets acquired 119,659
Current liabilities 11,155
Deferred tax liability 1,636
Long-term debt 4,838
Other liabilities 257
Total liabilities assumed 17,886
Net assets acquired $101,773
Included in the intangible assets acquired were non-
compete agreements of $2,000 and favorable lease rights
for operating leases for retail locations of $1,000. The
non-compete agreements are with former key executives
of Greenbacks. They are being amortized over five years,
the weighted average term of the agreements. The
favorable lease rights are being amortized on a straight-
line basis to rent expense over the remaining initial lease
terms, which expire at various dates through 2012.
NOTE 11 – INVESTMENT
On August 7, 2003, the Company paid $4,000 to acquire
a 10.5% fully diluted interest in Ollie’s Holdings, Inc.
(Ollie’s), a multi-price point discount retailer located in
the mid-Atlantic region. In addition, the SKM Equity
Fund III, L.P. (SKM Equity) and SKM Investment Fund
(SKM Investment) acquired a combined fully diluted
interest in Ollie’s of 53.1%. Two of the Company’s
directors, Thomas Saunders and John Megrue, are
principal members of Saunders Karp & Megrue Partners,
L.L.C., which serves as the general partner of SKM
Equity and SKM Investment. In conjunction with the
acquisition of its interest in Ollie’s, the Company also
entered into a call option agreement. The option
agreement provides the Company with the right to
purchase all of SKM Equity’s and SKM Investment’s
equity in Ollie’s, for a fixed price as set forth in the
agreement, subject to adjustments dependent on the
occurrence of certain future events. The Company has
no obligation to exercise the option or make any
additional investment in Ollie’s. The $4,000 investment
in Ollie’s is accounted for under the cost method of
accounting and is included in “other assets” in the
accompanying consolidated balance sheets.
NOTE 12 – CONSOLIDATION OF
VARIABLE INTEREST ENTITY
In 2001, the Company entered into an operating lease
arrangement, known as a synthetic lease, with a variable
interest entity to finance the construction of four distri-
bution centers. Because the Company accounted for this
transaction as an operating lease, the related fixed assets
and lease liabilities were not included in the consolidated
balance sheets. In January 2003, the Financial Accounting
Standards Board issued FIN 46. Under the terms of this
standard, certain variable-interest entities, such as the
entity in which the Company’s lease facility is held, are
required to be consolidated. The Company implemented
this standard effective January 1, 2003 and, as a result,
the distribution center assets and the debt incurred by
the variable-interest entity to purchase and construct
the assets are included in balance sheets for periods after
January 1, 2003. The cumulative effect of a change in
accounting principle represents, net of the tax effect, the
historical depreciation related to the distribution center
assets and, the historical amortization of the deferred
financing costs recognized previously by the variable-
interest entity and the write-off of a deferred rent
liability related to the lease.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)