Dollar Tree 2006 Annual Report Download - page 49

DOLLAR TREE STORES, INC. • 2006 ANNUAL REPORT 47
In connection with the vesting of RSUs in 2006,
certain employees elected to receive shares net of
minimum statutory tax withholding amounts which
totaled $1.0 million.
Employee Stock Purchase Plan
Under the Dollar Tree Stores, Inc. Employee Stock
Purchase Plan (ESPP), the Company is authorized to
issue up to 1,040,780 shares of common stock to
eligible employees. Under the terms of the ESPP,
employees can choose to have up to 10% of their
annual base earnings withheld to purchase the
Company’s common stock. The purchase price of the
stock is 85% of the lower of the price at the begin-
ning or the end of the quarterly offering period.
Under the ESPP, the Company has sold 917,883
shares as of February 3, 2007.
The fair value of the employees’ purchase rights is
estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted
average assumptions:
Fiscal Fiscal Fiscal
2006 2005 2004
Expected term 3 months 3 months 3 months
Expected volatility 13.1% 12.0% 15.6%
Annual dividend yield ———
Risk free interest rate 4.8% 3.9% 2.1%
The weighted average per share fair value of
those purchase rights granted in 2006, 2005 and
2004 was $4.59, $4.11 and $4.93, respectively.
NOTE 10 – ACQUISITION
On March 25, 2006, the Company completed its
acquisition of 138 Deal$ stores. These stores are
located primarily in the Midwest part of the United
States and the Company has existing logistics capacity
to service these stores. This acquisition also includes
a few “combo” stores that offer an expanded assort-
ment of merchandise including items that sell for
more than $1. Substantially all Deal$ stores acquired
will continue to operate under the Deal$ banner while
providing the Company an opportunity to leverage
its Dollar Tree infrastructure in the testing of new
merchandise concepts, including higher price points,
without disrupting the single-price point model in its
Dollar Tree stores.
The Company paid approximately $32.0 million
for store-related and other assets and $22.1 million
for inventory. This amount includes approximately
$0.6 million of direct costs associated with the acqui-
sition. The results of Deal$ store operations are
included in the Company’s financial statements since
the acquisition date and did not have a significant
impact on the Company’s operating results in 2006.
This acquisition is immaterial to the Company’s oper-
ations as a whole and therefore no proforma disclo-
sure of financial information has been presented. The
following table summarizes the allocation of the pur-
chase price to the fair value of the assets acquired.
(in millions)
Inventory $22.1
Other current assets 0.1
Property and equipment 15.1
Goodwill 14.6
Other intangibles 2.2
$54.1
The goodwill resulting from this acquisition
will not be amortized but will be tested annually for
impairment. Included in other intangibles is approxi-
mately $2.1 million related to net favorable lease
rights for operating leases for retail locations. This
amount is being amortized on a straight-line basis to
rent expense over 35 months, the weighted average
remaining initial lease term of the locations purchased.
NOTE 11 – INVESTMENT
In 2003, the Company paid $4.0 million 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 com-
bined fully diluted interest in Ollie’s of 53.1%. Two
of the Company’s directors, Thomas Saunders and
John Megrue, are principal members of SKM
Partners, L.L.C., which serves as the general partner