Dollar Tree 2011 Annual Report Download

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2011 Annual Report
Strong. Consistent. Growing.
675
748
829
597
551
Customer Transac
(in Millions)
3,806
4,101
4,351
3,591
3,411
mber of Stores Open
(at year-end)
$5.2
$5.9
$6.6
$4.6
$4.2
Net Sales
($ in Billions)
9.8%
10.7%
11.8%
7.9%
7.8%
Operating Margin
$2.37
$3.10
$4.03
$1.69
$1.39
Earnings Per Share
tions
Nu

Table of contents

  • Page 1
    ... Growing. Operating Margin 11.8% 10.7% 9.8% 7.8% 7.9% Net Sales ($ in Billions) $6.6 $5.9 $5.2 $4.2 $4.6 Earnings Per Share $4.03 $3.10 $2.37 $1.39 $1.69 Customer Transactions (in Millions) 829 748 675 551 597 Number of Stores Open (at year-end) 4,351 4,101 3,411 3,591 3,806 2011 Annual Report

  • Page 2
    ... stores are supported by a coast-to-coast logistics network and more than 70,000 associates. Dollar Tree continues to grow, and is reaching new customers via the Internet at www.dollartree.com . Table of Contents Letter to Shareholders from the Chief Executive Officer...2 Narrative ...6 Management...

  • Page 3
    ... 2011 (in millions, except store and per share data) 2010(a) 2009 2008 2007 Net Sales Gross Profit Operating Income Net Income Diluted Net Income Per Share(b) Working Capital Total Assets Total Debt Shareholders' Equity Number of Stores Open Total Selling Square Footage Comparable Store...

  • Page 4
    ... highest new store productivity since 2001; U Increased inventory turns for the seventh consecutive year, to 4.22 turns in 2011 compared with 4.17 turns in 2010; U Completed the expansion of our Distribution Center in Savannah, Georgia, on-time and on-budget, and U Repurchased 8.7 million shares for...

  • Page 5
    ...Increase Store Productivity Along with expanding the number of stores, we are focused on operating better, more productive stores. Efforts are concentrated on optimum site-selection, on opening new stores earlier in the year and on right-sizing our stores at about 10,000 - 11,000 square feet, gross...

  • Page 6
    ...2,500 items for sale by the case. s Dollar Tree Direct launched a Spanish language version of the website to serve this important and growing customer base. s Dollar Tree Direct is now available to mobile users. Customers can view the merchandise, read product ratings and reviews, make purchases, or...

  • Page 7
    ... for better inventory management, increasingly efficient supply chain logistics, more productive stores, and crisper overall execution. U And there is more to come. ere are plenty of opportunities to grow our business, through New Dollar Tree Stores, More productive Stores and Category expansion. We...

  • Page 8
    ... was supported by an expansion of our Distribution Center in Savannah, Georgia, from its original size of 600,000 square feet to one million square feet. This project was completed on time and on budget using existing cash. As of the end of 2011, our logistics infrastructure can support sales up...

  • Page 9
    ...,000 sq. ft.) Dollar Tree's Solid, Scalable Infrastructure U.S. Distribution Centers Date opened (square footage) Third-Party Canadian Distribution Centers Port of Entry (non-U.S.-sourced products) Shading indicates service area for each distribution center. Savannah, Georgia February 2001 (1,014...

  • Page 10
    Balanced Assortment Things you want - Things you need one at a time. Increasing productivity, aisle ollar Tree is not only opening more stores; we are also working to make each store more productive. New stores in 2011 reached the highest productivity level in ten years driven by improved site ...

  • Page 11
    Net Sales Per Selling Square Foot $167 $174 $182 Inventory Turns 4.22 4.06 4.17 3.74 3.80 Return on Assets 20.7% 17.0% 14.8% 12.0% 11.0% $155 $158 '07 '08 '09 '10 '11 '07 '08 '09 '10 '11 '07 '08 '09 '10 '11 2011 Annual Report 9

  • Page 12
    ... site and created a Y ouTube channel for Dollar Tree videos. Deal$, our multi-price format, continued its growth during 2011-we added 28 new Deal$ stores, ending the year with 182 of these stores where not everything is a dollar, but everything is a value. We also continued our expansion into Canada...

  • Page 13
    2011 Annual Report 11

  • Page 14
    ... a consolidated source for information about Dollar Tree's operations as they relate to environmental issues, social impact, and corporate governance. D 250 ay by day, and year after year, Dollar Tree strives to build value for our customers, associates, communities, 200 150 100 50 0 2/3/07...

  • Page 15
    ... • the average size of our stores to be added in 2012 and beyond; • the effect of a shift in merchandise mix to consumables and the increase in the number of our stores with freezers and coolers on gross profit margin and sales; • the net sales per square foot, net sales and operating income...

  • Page 16
    ... RESULTS OF OPERATIONS In Management's Discussion and Analysis, we explain the general financial condition and the results of operations for our company, including: • what factors affect our business; • what our net sales, earnings, gross margins and costs were in 2011, 2010 and 2009; • why...

  • Page 17
    ...2, 2009, we purchased a new distribution center in San Bernardino, California. is new distribution center replaced our Salt Lake City, Utah leased facility whose lease ended in April 2010. • On February 20, 2008, we entered into a five-year $550.0 million unsecured Credit Agreement (the Agreement...

  • Page 18
    ...to better manage our inventory ï¬,ow resulting in more efficient distribution and store operations and increased inventory turnover for each of the last five years. In 2007, legislation was enacted that increased the Federal Minimum Wage. e last increase to $7.25 an hour was effective in July 2009...

  • Page 19
    .... Due to the reasons noted above, operating income margin excluding this charge, improved 70 basis points. Income Taxes. Our effective tax rate was 37.4% in 2011 and 36.9% in 2010. January 29, 2011 235 86 New stores Acquired stores Expanded or relocated stores Closed stores 278 - 91 (28) 95 (26...

  • Page 20
    ..., operating income margin, excluding this charge, improved 130 basis points. Income Taxes. Our effective tax rate was 36.9% in 2010 and 2009. January 30, 2010 240 - 75 (25) New stores Acquired stores Expanded or relocated stores Closed stores 235 86 95 (26) Of the 2.9 million selling square...

  • Page 21
    ... to funds for new store projects and the expansion of our distribution center in Savannah, Georgia. Net cash used in investing activities increased $161.6 million in 2010 compared with 2009 primarily due to short-term investment activity and the Dollar Giant acquisition. In 2010 we purchased $157...

  • Page 22
    ... million revolving line of credit, including up to $150.0 million in available letters of credit, and a $250.0 million term loan. e interest rate on the Agreement is based, at our option, on a LIBOR rate, plus a margin, or an alternate base rate, plus a margin. e revolving line of credit also bears...

  • Page 23
    ...2SHUDWLRQV Funding Requirements Overview, Including Off-Balance Sheet Arrangements We expect our cash needs for opening new stores and expanding existing stores in fiscal 2012 to total approximately $205.9 million, which includes capital expenditures, initial inventory and pre-opening costs. Our...

  • Page 24
    ... of land, buildings, machinery and equipment for our distribution facility in Olive Branch, Mississippi. At January 28, 2012, the balance outstanding on the bonds was $15.5 million. ese bonds are due to Letters of Credit and Surety Bonds. We are a party to two Letter of Credit Reimbursement and...

  • Page 25
    ... factors as they become apparent. Our management believes that our application of the retail inventory method results in an inventory valuation that reasonably approximates cost and results in carrying inventory at the lower of cost or market each year on a consistent basis. 2011 Annual Report 23

  • Page 26
    ... • the timing of new store openings; • the net sales contributed by new stores; • changes in our merchandise mix; and • competition. Our highest sales periods are the Christmas and Easter seasons. Easter was observed on April 4, 2010, April 24, 2011, and will be observed on April 8, 2012. We...

  • Page 27
    ...being enacted in July 2009. As a result, our wages increased in 2009 and through the first half of 2010 compared with the prior year periods; however, we offset the increase in payroll costs through increased productivity and continued efficiencies in product ï¬,ow to our stores. QUANTITATIVE AND...

  • Page 28
    ... Diesel Fuel Cost Risk In order to manage ï¬,uctuations in cash ï¬,ows resulting from changes in diesel fuel costs, we entered into fuel derivative contracts with third parties. We hedged 3.5 million and 5.0 million gallons of diesel fuel in 2011 and 2010, respectively. ese hedges represented...

  • Page 29
    ... issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 15, 2012 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting. Norfolk, Virginia March 15, 2012 2011 Annual Report 27

  • Page 30
    ... $ 397.3 3.13 3.10 $ $ $ (in millions, except per share data) Net sales Cost of sales, excluding non-cash beginning inventory adjustment Non-cash beginning inventory adjustment Gross profit Selling, general and administrative expenses Operating income Interest expense, net Other income, net Income...

  • Page 31
    ...share and per share data) ASSETS January 28, 2012 January 29, 2011 Current assets: Cash and cash equivalents Short-term investments Merchandise inventories, net Current deferred tax assets, net Prepaid expenses and other current assets Total current assets Property, plant....5 2011 Annual Report 29

  • Page 32
    ... income Issuance of stock under Employee Stock Purchase Plan Exercise of stock options, including income tax benefit of $2.0 Repurchase and retirement of shares Stock-based compensation, net, including income tax benefit of $1.9 Balance at January 30, 2010 Net income for the year ended January 29...

  • Page 33
    ... under long-term debt and capital lease obligations Payments for share repurchases Proceeds from stock issued pursuant to stock-based compensation plans Tax benefit of exercises/vesting of equity-based compensation Net cash used in financing activities Effect of exchange rate changes on cash and...

  • Page 34
    ...LQDQFLDO6WDWHPHQWV NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Dollar Tree, Inc. (the Company) is the leading operator of discount variety retail stores offering merchandise at the fixed price of $1.00 or less with 4,351 discount variety retail stores in the United...

  • Page 35
    ... and administrative expenses" in the accompanying consolidated statements of operations. Costs incurred related to software developed for internal use are capitalized and amortized generally over three years. e Company reviews its long-lived assets and certain identifiable intangible assets for...

  • Page 36
    ...in fiscal 2011 to reduce certain store assets to their estimated fair value. e fair values were determined based on the income approach, in which the Company utilized internal cash ï¬,ow projections over the life of the underlying lease agreements discounted based on a risk-free rate of return. ese...

  • Page 37
    ... for new, expanded and relocated stores, as incurred. Advertising Costs e Company recognizes all share-based payments to employees, including grants of employee stock options, in the financial statements based on their fair values. Total stock-based compensation expense for 2011, 2010 and 2009 was...

  • Page 38
    ... years ended January 28, 2012, January 29, 2011, and January 30, 2010, respectively. Other Current Liabilities Other current liabilities as of January 28, 2012 and January 29, 2011 consist of accrued expenses for the following: (in millions) Compensation and benefits Taxes (other than income taxes...

  • Page 39
    ... jobs credits and tax-exempt interest offset by certain nondeductible expenses and foreign taxes. United States income taxes have not been provided on accumulated but undistributed earnings of its foreign subsidiaries as the company intends to permanently reinvest earnings. 2011 Annual Report...

  • Page 40
    ...company is participating in the Internal Revenue Service ("IRS") Compliance Assurance Program ("CAP") for the 2011 fiscal year and has applied to participate for fiscal year 2012. is program accelerates the examination of key transactions with the goal of resolving any issues before the tax return...

  • Page 41
    ...Contingent Rentals Rental expense for store and distribution center operating leases (including payments to related parties) included in the accompanying consolidated statements of operations are as follows: Year Ended January 29, 2011 $ 381.5 1.4 January 30, 2010 $ 349.9 1.0 (in millions) Minimum...

  • Page 42
    ... or summer of 2012. In April 2011, a former assistant store manager, on behalf of himself and those similarly situated, instituted a class action in a California state court primarily alleging a failure by the Company to provide meal breaks, to compensate for all hours worked, and to pay overtime...

  • Page 43
    ... periods and the Florida, Colorado, Michigan and Illinois cases seek nationwide certifications for those assistant store managers similarly situated during the relevant time periods. e Illinois case also includes a purported class of all other hourly store associates, making the same allegations...

  • Page 44
    ...stock method) 0.9 Weighted average number of shares and dilutive potential shares outstanding 121.2 Diluted net income per share $ 4.03 Year Ended January 29, 2011 $ $ $ 397.3 127.1 3.13 397.3 127.1 0.9 128.0 $ 3.10 January 30, 2010 $ 320.5 134.1 $ 2.39 $ 320.5 134.1 0.9 135.0 $ 2.37 42 Dollar Tree...

  • Page 45
    ...may receive a maximum of 3.8 million shares under the agreement. e number of shares is determined based on the weighted average market price of the Company's common stock, less a discount, during a specified period of time. e weighted average market price through January 28, 2012 as defined in the...

  • Page 46
    ...of each stock option granted equaled the closing market price of the Company's stock on the date of grant. e options generally vested immediately. is plan was terminated on June 16, 2011 and replaced with the Company's Omnibus Incentive Plan (Omnibus Plan). e 2003 Director Deferred Compensation Plan...

  • Page 47
    ...of expense related on these RSUs in 2011. e fair value of these RSUs was determined using the Company's closing stock price on the grant date. e following table summarizes the status of RSUs as of January 28, 2012, and changes during the year then ended: Weighted Average Grant Date Fair Shares Value...

  • Page 48
    ...to directors vest immediately and are expensed on the grant date. During 2011, 2010 and 2009, the Company recognized $1.1 million, $2.3 million and $3.7 million, respectively of expense related to service-based stock option grants. e following tables summarize the Company's various option plans and...

  • Page 49
    ... 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 2011 2010 2009 Expected term 3 months 3 months 3 months Expected volatility 12.6% 13.2% 17.4% Annual dividend yield...

  • Page 50
    ... table sets forth certain items from the Company's unaudited consolidated statements of operations for each quarter of fiscal year 2011 and 2010. e unaudited information has been prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this report and...

  • Page 51
    ... for interim and annual reports, Forms 10-K, or more information should be directed to: Investor Relations Dollar Tree, Inc. 500 Volvo Parkway Chesapeake, VA 23320 (757) 321-5000 Or from the Investor Relations section of our Company web site: www.DollarTreeinfo.com Legal Counsel Williams Mullen 999...

  • Page 52
    500 Volvo ParkwayÊUÊChesapeake, Virginia 23320 U Phone (757) 321-5000 U www.DollarTree.com