FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
/ / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
COMMISSION FILE NUMBER: 0-25464
DOLLAR TREE STORES, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1387365
(State or other jurisdiction of (I.R.S. Employer
incorporation or Identification No.)
organization)
2555 ELLSMERE AVENUE
NORFOLK COMMERCE PARK
NORFOLK, VIRGINIA 23513
(Address of principal executive office)
TELEPHONE NUMBER (804) 857-4600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes /X/ No / /
As of May 3, 1996, there were 25,040,752 shares of the Registrant's Common Stock
outstanding.
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets
March 31, 1996 and December 31, 1995.................................... 3
Condensed Consolidated Income Statements
Three Months Ended March 31, 1996 and 1995.............................. 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995.............................. 5
Notes to Condensed Consolidated Financial Statements......................
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION................................................ 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS......................................................... 11
ITEM 5. OTHER INFORMATION......................................................... 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................... 13
Signatures................................................................ 15
2
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 13,116 $ 22,415
Accounts receivable................................................ 1,543 380
Merchandise inventories............................................ 72,677 40,113
Income taxes receivable............................................ 510 --
Deferred tax asset................................................. 732 720
Prepaid expenses and other current assets.......................... 2,902 2,392
----------- ------------
Total current assets........................................... 91,480 66,020
----------- ------------
Property and equipment, net.......................................... 31,015 23,091
Deferred tax asset................................................... 2,265 2,219
Goodwill, net (Note 2)............................................... 47,592 --
Other assets, net.................................................... 1,218 291
----------- ------------
TOTAL ASSETS................................................... $ 173,570 $ 91,621
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank.............................................. $ 18,500 $ --
Accounts payable................................................... 32,710 19,603
Accrued liabilities................................................ 9,756 8,939
Income taxes payable............................................... -- 8,244
Current installments of obligations under capital leases........... 293 101
----------- ------------
Total current liabilities...................................... 61,259 36,887
----------- ------------
Development facility................................................. 52,630 --
Senior subordinated notes............................................ 7,000 7,000
Junior subordinated notes............................................ 7,000 7,000
Obligations under capital leases, excluding current installments..... 785 417
Other liabilities.................................................... 3,638 1,230
----------- ------------
Total liabilities.............................................. 132,312 52,534
----------- ------------
Shareholders' equity (Note 3):
Common stock, par value $0.01. Authorized 50,000,000 shares,
25,017,300 issued and outstanding at March 31, 1996.............. 250 166
Additional paid-in capital......................................... 4,144 2,980
Retained earnings.................................................. 36,864 35,941
----------- ------------
Total shareholders' equity..................................... 41,258 39,087
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................... $ 173,570 $ 91,621
=========== ============
See accompanying Notes to Condensed Consolidated Financial Statements
3
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
------- -------
Net sales............................................................ $84,975 $48,733
Cost of sales........................................................ 55,905 32,275
------- -------
Gross profit................................................... 29,070 16,458
------- -------
Selling, general, and administrative expenses:
Operating expenses................................................. 24,288 14,418
Depreciation and amortization...................................... 2,212 1,175
------- -------
Total selling, general and administrative expenses............. 26,500 15,593
------- -------
Operating income..................................................... 2,570 865
Interest expense..................................................... 1,069 460
------- -------
Income before income taxes........................................... 1,501 405
Provision for income taxes........................................... 578 156
------- -------
Net income..................................................... $ 923 $ 249
------- -------
Net income per share................................................. $ 0.03 $ 0.01
======= =======
Weighted average number of common shares and common share equivalents
outstanding (Note 3):
Primary........................................................ 27,795 27,306
Fully diluted.................................................. 27,866 27,439
See accompanying Notes to Condensed Consolidated Financial Statements
4
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31
------------------
1996 1995
------- -------
Cash Flows from operating activities:
Net income............................................................. $ 923 $ 249
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization........................................ 2,212 1,175
Loss on disposal of property and equipment........................... 60 39
Provision for deferred income taxes.................................. (58) (15)
Changes in assets and liabilities increasing (decreasing) cash and
cash equivalents, net of effects resulting from purchase of Dollar
Bills, Inc.:
Accounts receivable................................................ 293 262
Merchandise inventories............................................ (15,891) (18,200)
Prepaid expenses and other current assets.......................... (325) (69)
Other assets....................................................... (221) (14)
Accounts payable................................................... 5,312 6,868
Accrued liabilities................................................ (1,597) (1,513)
Income taxes payable............................................... (7,932) (5,954)
Other liabilities.................................................. 33 (257)
------- -------
Total adjustments................................................ (18,114) (17,678)
------- -------
Net cash used in operating activities............................ (17,191) (17,429)
------- -------
Cash flows from investing activities:
Capital expenditures................................................... (4,417) (2,585)
Proceeds from sale of property and equipment........................... -- 28
Payment for purchase of Dollar Bills, Inc., net of cash acquired....... (52,209) --
------- -------
Net cash used in investing activities............................ (56,626) (2,557)
------- -------
Cash flows from financing activities:
Repayments of revolving credit facility................................ -- (2,550)
Proceeds from revolving credit facility................................ -- 9,550
Net proceeds from notes payable to bank................................ 11,600 8,700
Principal payments under capital lease obligations..................... (138) (30)
Proceeds from exercise of stock options ............................... 426 --
Proceeds from development facility..................................... 52,630 --
------- -------
Net cash provided by financing activities........................ 64,518 15,670
------- -------
Net increase (decrease) in cash and cash equivalents..................... (9,299) (4,316)
Cash and cash equivalents at beginning of period......................... 22,415 6,016
------- -------
Cash and cash equivalents at end of period............................... $ 13,116 $ 1,700
======= =======
See accompanying Notes to Condensed Consolidated Financial Statements
5
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of Dollar Tree Stores, Inc.
and subsidiaries (the "Company") at March 31, 1996, and for the three-month
period then ended, are unaudited and reflect all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of the financial position and operating results for the
interim period. The condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto,
together with Management's Discussion and Analysis of Financial Condition and
Results of Operations for the year ended December 31, 1995, contained in the
Company's Annual Report on Form 10-K. The results of operations for the
three-month period ended March 31, 1996 are not necessarily indicative of the
results to be expected for the entire year ending December 31, 1996.
2. ACQUISITION OF DOLLAR BILLS, INC.
On January 31, 1996, the Company acquired all of the outstanding stock of
Dollar Bills, Inc. ("Dollar Bills"), formerly known as Terrific Promotions,
Inc., which owned and operated 136 discount variety stores under the name Dollar
Bill$, a distribution center in the Chicago area and a wholesale division. The
acquisition is accounted for by the purchase method of accounting. Amounts shown
in these financial statements include the aggregate purchase price and the
relative fair values of the assets and liabilities of Dollar Bills. The Company
financed the acquisition through borrowings under its development facility with
its commercial lenders.
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight line basis over 25 years. The
Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
organization.
3. STOCK SPLIT AND NET INCOME PER SHARE
In connection with a stock dividend authorized by the Board of Directors,
the Company issued one-half share for each outstanding share of Common Stock,
payable April 19, 1996 to shareholders of record as of April 5, 1996. All share
and per share data in these financial statements and accompanying notes have
been retroactively adjusted to reflect this dividend, having the effect of a
three-for-two stock split.
Primary net income per share has been computed by dividing net income by the
weighted average number of common shares and common share equivalents
outstanding. Common share equivalents include the weighted average number of
outstanding stock options and warrants after applying the treasury method. The
market price used in applying the treasury method was $15.00 per share, restated
to $10.00 per share due to the stock split, through March 6, 1995 and the
closing market price of the stock at the end of each week thereafter.
The fully diluted computation was based on the market price of the stock at
the end of the quarter. Net income per share was the same using either primary
or fully diluted shares and share equivalents. All amounts have been adjusted to
reflect the stock split.
6
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. STOCK OPTION PLAN, STOCK INCENTIVE PLAN, EMPLOYEE STOCK PURCHASE PLAN AND
UNATTACHED WARRANTS
The Company maintains a stock option plan ("SOP") which was established on
December 16, 1993 and a stock incentive plan ("SIP") which was established on
January 1, 1995. No additional shares may be granted under the SOP and, under
the terms of the SIP, options for no more than 270,000 shares of common stock
may be granted in any calendar year.
At March 31, 1996 and 1995, options for the following numbers of shares
(restated for the stock split) were outstanding under each plan:
OPTIONS FOR SHARES OUTSTANDING
AT
-------------------------------- EXERCISE
PLAN MARCH 31, 1996 MARCH 31, 1995 PRICE/RANGE
- -------------------------------- -------------- -------------- -------------
SOP............................. 432,328 616,436 $2.90
SIP............................. 264,888 157,500 $10.00-22.83
The options above include options for 10,500 shares which were granted on
February 1, 1996, but are not included in the earnings per share computation.
On January 1, 1995, the Company also established the Dollar Tree Stores,
Inc. Employee Stock Purchase Plan (the "ESPP"). The Company reserved 225,000
shares of common stock for future issuance under the ESPP. The ESPP enables
eligible employees, as defined in the ESPP, to buy shares of common stock for
85% of fair market value on the first day or the last day of the applicable
offering period, whichever is lower. As of April 5, 1996, 5,014 shares
(post-split) have been purchased under the ESPP.
Additionally, in 1993 and 1994, the Company issued unattached warrants to
purchase a total of 2,482,178 shares of Common Stock to certain shareholders.
These warrants carry an exercise price of $1.93 and may be exercised upon the
occurrence of certain events.
The Company adopted the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, as of January 1, 1996.
7
5. DOLLAR TREE STORES, INC. AND SUBSIDIARIES AND DOLLAR BILLS INC. UNAUDITED
CONDENSED CONSOLIDATED PROFORMA INCOME STATEMENT
The following unaudited pro forma financial information of the Company is
based on the historical Consolidated Financial Statements of the Company for the
year ended December 31, 1995 and for the three months ended March 31, 1996
adjusted to give effect to the Company's acquisition of Dollar Bills on January
31, 1996. The unaudited pro forma condensed consolidated income statements for
the year ended December 31, 1995 and the three months ended March 31, 1996 give
effect to the transactions described as if they had occurred on January 1, 1995
and January 1, 1996, respectively. The pro forma adjustments are based upon
currently available information and upon certain assumptions that management of
the Company believes are reasonable. Final purchase adjustments may differ from
the pro forma adjustments herein. The pro forma financial information is
presented for informational purposes and does not purport to represent what the
Company's actual results of operations would have been if the transaction
described had been consummated on January 1, 1995 (for the year ended December
31, 1995) or on January 1, 1996 (for the three months ended March 31, 1996).
The pro forma financial information should be read in conjunction with the
related Notes, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the Consolidated Financial Statements of the Company
and the Notes thereto and the Financial Statements of Dollar Bills and the Notes
thereto incorporated by reference.
The acquisition of Dollar Bills has been accounted for by the purchase
method of accounting. Accordingly, the Company established new accounting basis
for the assets and liabilities of Dollar Bills based upon the relative fair
values thereof and the aggregate purchase price paid by the Company. These
values are reflected in the Company's March 31, 1996 condensed consolidated
balance sheet.
8
The unaudited pro forma condensed consolidated income statements do not
purport to be indicative of the results that would have occurred had the
transaction taken place at the beginning of the period presented or of future
results.
Unaudited Pro Forma Condensed Consolidated Income Statements
(In thousands except per share data)
For the Year Ended December 31, 1995 For the Three Months Ended March 31, 1996
----------------------------------------------- -------------------------------------------------
Pro Forma Pro Forma
The Company Dollar Bills Adjustments Pro Forma The Company Dollar Bills(1) Adjustments Pro Forma
----------- ------------ ----------- --------- ----------- -------------- ----------- ---------
Net sales . . . . . . . . . .$300,229 $103,850 $404,079 $ 84,975 $ 6,482 $ 91,457
Gross profit . . . . . . . . 112,679 27,497 140,176 29,070 1,803 30,873
Selling, general and
administrative
expenses . . . . . . . . . 75,967 22,201 (4,004)(2) 96,144 26,500 2,613 (529)(2) 28,743
1,980 (3) 159 (3)
Operating income (loss) . . . 36,712 5,296 44,032 2,570 (810) 2,130
Interest expense . . . . . . 2,618 505 3,850 (4) 6,973 1,069 50 324 (4) 1,443
Income (loss) before
income taxes . . . . . . . 34,094 4,791 37,059 1,501 (860) 687
Provision for income taxes. . 13,127 178 963 (5) 14,268 578 (26) 288 (5) 264
Net income (loss) . . . . . . $20,967 $ 4,613 $ 22,791 $ 923 $ (834) $ 423
====== ====== ====== ====== ====== ======
Net income per share(6) . . . $ 0.76 $ 0.83 $ 0.03 $ 0.02
====== ====== ====== ======
Weighted average number
of common shares
and common shares
equivalent outstanding. . . 27,589 27,589 27,795 27,795
====== ====== ====== ======
(1)Represents January 1996 results of Dollars Bills. The Company acquired
Dollars Bills on January 31, 1996 and accordingly the Company's income statement
for the three months ended March 31, 1996 includes the results of the acquired
business beginning February 1, 1996.
(2) Represents the elimination of duplicative operating costs associated
with Dollar Bills corporate headquarters and distribution facility.
(3) Represents amortization of goodwill recognized in connection with the
acquisition of Dollar Bills which is being amortized by the Company over a 25
year period.
(4) Represents interest expense related to the borrowings under the
Company's development facility used to fund the acquisition.
(5) Represents income taxes related to the conversion of Dollars Bills to
a C Corporation at an assumed effective tax rate of 38.5%
(6) Net income per common share and pro forma income per common share is
computed by dividing net income and pro forma net income by the weighted average
number of common shares and common share equivalents outstanding. Common share
equivalents include all outstanding stock options and warrants after applying
the treasury stock method.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to the Three Months Ended March 31,
1995:
Net sales increased $36.3 million, or 74.5%, to $85.0 million for the three
months ended March 31, 1996, from $48.7 million for the three months ended March
31, 1995. Of this increase, (i) approximately 43.5%, or $15.8 million, was
attributable to the addition of 136 Dollar Bills stores in January 1996, (ii)
approximately 40.5%, or $14.7 million, was attributable to a net increase of 100
stores opened in 1995 and 1996 which are not included in the Company's
comparable store net sales calculation, and (iii) approximately 16.0%, or $5.8
million, was attributable to comparable store net sales growth, which
represented an 11.8% increase over comparable store net sales in the
corresponding quarter of the prior period. Dollar Bills stores are not included
in the comparable store net sales calculation. Because substantially all the
Company's products sell for $1.00, the increase in comparable store net sales
was a direct result of increased unit volume. Comparable store net sales were
driven primarily by an earlier Easter shopping season and a strong in-stock
position on seasonal and general merchandise throughout the quarter. The Company
opened 24 new stores during the first quarter of 1996 compared to opening 15 new
stores during the first quarter of 1995. The Company also added 136 Dollar Bills
stores in January 1996.
Management anticipates that the primary sources of future sales growth will
be new store openings and, to a lesser degree, sales increases from expanded and
relocated stores and comparable store net sales increases. Although the Company
has experienced significant increases in comparable store net sales
historically, management expects that any increases in comparable store net
sales in the future will be smaller than those experienced historically.
Gross profit, which consists of net sales less cost of sales (including
distribution and certain occupancy costs), increased $12.6 million, or 76.6%, to
$29.1 million in the first quarter of 1996 from $16.5 million in the first
quarter of 1995. As a percentage of net sales, gross profit increased to 34.2%
from 33.8%, reflecting lower occupancy costs as a percentage of net sales due
primarily to the increase in comparable store sales, partially offset by a
slight increase in merchandise costs. Management expects that merchandise costs
as a percentage of net sales may continue to be higher than they have been
historically due to the addition of Dollar Bills stores, which carry a higher
proportion of consumable goods having a lower merchandise margin.
Selling, general and administrative expenses, which include operating
expenses and depreciation and amortization, increased $10.9 million, or 69.9%,
to $26.5 million in the first quarter of 1996 from $15.6 million in the first
quarter of 1995, and decreased as a percentage of net sales to 31.2% from 32.0%
during the same period. This decrease resulted primarily from reduced payroll
costs due to the comparable store net sales increase and stronger controls over
hourly payroll at the stores. During the first quarter of 1996, the Company's
selling, general and administrative expenses increased by approximately $1.8
million due to tranactional costs and expenses incurred in connection with the
Dollar Bills acquisition. Amortization of goodwill relating to the acquisition
amounted to $0.3 million during the first quarter of 1996.
Operating income increased $1.7 million, or 197.1%, to $2.6 million for the
first three months of 1996 from $0.9 million for the comparable period in 1995,
and increased as a percentage of net sales to 3.0% from 1.8% during the same
period for the reasons noted above.
Interest expense increased $0.6 million to $1.1 million in the first quarter
of 1996 from $0.5 million during the first quarter of 1995. This increase is a
result of borrowings under the Company's Development Facility in connection with
the acquisition of Dollar Bills and the amortization of deferred financing costs
relating thereto.
10
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements result primarily from capital
expenditures related to new store openings and working capital requirements
related to new and existing stores. The Company's working capital requirements
for existing stores are seasonal in nature and typically reach their peak near
the end of the third and the beginning of the fourth quarter of the year.
Historically, the Company has met its seasonal working capital requirements for
its existing stores and funded its store expansion program from internally
generated funds and borrowings under its credit facilities.
The Company ended the first quarter of 1996 with a high cash position due to
the quarter ending on a weekend, resulting in three days of sales remaining in
store accounts. Additionally, transitory funds remained in dormant Dollar Bills
depositary accounts. These funds were transferred into the Company's main
account in early April and are used to fund working capital requirements.
During the first three months of 1996 and 1995, net cash used in operations
was $17.2 million and $17.4 million, respectively, primarily used to build
inventory levels. During the first three months of 1996 and 1995, net cash used
in investing activities was $56.6 million and $2.6 million, respectively, the
increase consisting primarily of payment for the acquisition of Dollar Bills in
1996. Net cash provided by financing activities was $64.5 million and $15.7
million during the first three months of 1996 and 1995, the increase primarily
attributable to borrowings incurred to fund the acquisition of Dollar Bills in
1996.
The Company's borrowings under its bank facilities were $71.1 million at
March 31, 1996, and $15.7 million at March 31, 1995. There were no amounts
outstanding at December 31, 1995. Under the Company's bank facilities, an
additional $48.9 million is available at March 31, 1996.
PART II
ITEM 1. LEGAL PROCEEDINGS
On January 31, 1996, the Company bought all of the capital stock of Dollar
Bills, pursuant to a stock purchase agreement (see "Other Information--
Acquisition and Merger of Dollar Bills"). In March and April, 1996,
Michael and Pamela Alper (the "Alpers"), former shareholders of Dollar Bills,
together with a corporation they control, filed lawsuits in the state and
federal courts in Cook County, Illinois, against the Company and one of its
employees relating to the Dollar Bills transaction. The lawsuits seek to recover
compensatory damages of not less than $10 million, (tripled under the federal
antitrust law claim described below), punitive damages, attorney's fees, costs
and injunctive and other relief.
In the lawsuit, the plaintiffs claim that the Alpers were defrauded into
selling the wholesale merchandising operations which were owned by Dollar Bills;
that the Company improperly obtained and misused confidential and proprietary
information related to those operations; that the Company breached the
provisions of a confidentiality agreement which it had entered into with Dollar
Bills when negotiations regarding the acquisition began; that the Company
breached certain terms of the stock purchase agreement relating to the
acquisition; that the Company intentionally or negligently misrepresented its
intentions with respect to the wholesale merchandising operations; and that the
Company and that the co-defendant conspired to violate antitrust law by
excluding the plaintiffs as competitors in the wholesale merchandising business.
It is possible that, in the future, the plaintiffs could amend their complaint
to request that the court set aside or rescind the entire Dollar Bills
transaction. The Company emphatically denies the plaintiffs' claims and will
vigorously defend itself in this matter.
11
The litigation is in its preliminary stages and discovery has only recently
commenced; however, based on management's understanding of the facts (which
facts are contested by the plaintiffs) and the advice of its lead litigation
counsel for this matter in reliance on such facts, the Company believes it is
unlikely that the plaintiffs will ultimately prevail on the merits of this
litigation. Accordingly, the Company believes that the ultimate outcome of this
matter will not have a material adverse effect on the Company's results of
operations or financial condition. Nevertheless, particularly in light of the
contested factual circumstances, there can be no assurances regarding the
ultimate outcome of this litigation or that this litigation will not have a
material adverse effect on the Company's results of operations or financial
condition. In any event, the litigation has diverted, and is expected to
continue to divert, the efforts and attention of the Company's management.
On April 8, 1996, the National Labor Relations Board certified the results
of the March 20, 1996 election in which the employees of the Company's Norfolk
warehouse declined representation by the International Brotherhood of Teamsters.
On May 1, 1996, the Company determined that certain terra cotta potted
candles, approximately 31,170 sets of which it sold in April 1996, might contain
a defect which could create a substantial risk of injury. As required by the
Consumer Product Safety Act, the Company filed an initial report of the
potential danger with the U.S. Consumer Product Safety Commission ("CPSC") on
May 3, 1996. The Company has voluntarily stopped distribution of the product and
intends to issue a recall to customers. The Company is not aware of any serious
injuries, either to person or property, as a result of the potential defect.
Additionally, the Company is a party to ordinary routine litigation and
proceedings incidental to its business, including certain matters which may
occasionally be asserted by the CPSC, none of which is individually or in the
aggregate material to the Company.
ITEM 5. OTHER INFORMATION
Acquisition and Merger of Dollar Bills
As previously disclosed in the Company's Form 10-K, on January 31, 1996, the
Company acquired all of the outstanding capital stock of Dollar Bills. As part
of that acquisition, on April 1, 1996, Dollar Bills was merged into Dollar Tree
Stores, Inc. and ceased to exist as a separate corporate subsidiary. See Note 2
of the Notes to Condensed Consolidated Financial Statements.
Stock Dividend
On March 26, 1996, the Company's Board of Directors authorized a 50% stock
dividend having the effect of a three-for-two stock split for shareholders of
record of common stock as of April 5, 1996. Cash payments were made in lieu of
fractional shares. As of the record date, there were 16,680,275 shares of common
stock outstanding, resulting in a dividend of 8,340,076 shares of Common Stock.
Changes to Stock Option Plans
On March 26, 1996, the Company's Board of Directors authorized an amendment
to the Company's Amended and Restated Stock Option Plan (the "SOP") which made
certain administrative changes to the Plan and eliminated the Plan's Restrictive
Stock Agreement. The Restrictive Stock Agreement had previously restricted the
timing of sales of shares purchased under the SOP. Additionally, the Company's
Employee Stock Purchase Plan (the "ESPP") was clarified to specifically include
12
employees of the Company's subsidiaries, as was originally intended when the
Company adopted the plan.
Effect of the Stock Split on Stock Plans
The SOP and the Company's Stock Incentive Plan contain anti-dilution
provisions requiring, upon a stock dividend or stock split, an equitable
adjustment to the exercise price and/or the number of shares that can be
purchased upon exercise. As a result of this requirement, the Company has
adjusted the number of shares of Common Stock issuable upon exercise of
outstanding options and the exercise price of such options. See Note 4 of the
Notes to Condensed Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*10.1 Agreement for Sale and Purchase of Stock
**10.2 Credit Agreement--Dollar Tree Distribution, Inc., Dollar Tree Management, Inc.,
Dollar Tree Stores, Inc., and NationsBank, N.A., Signet Bank, Crestar Bank, and
the First National Bank of Boston (January 11, 1996)
**10.3 Commercial Notes (Development Line Notes) (January 11, 1996)
**10.4 Commercial Notes (Working Capital Line Notes) (January 11, 1996)
**10.5 Subordination Agreements
**10.6 Allonges to Subordinated Notes (senior/junior notes)
**10.7 Guaranties
**10.8 Security Agreements--Commercial--Dollar Tree Distribution, Inc., Dollar Tree
Management, Inc., Dollar Tree Stores, Inc., and NationsBank, N.A., Signet Bank,
Crestar Bank, and the First National Bank of Boston
**10.9 Negative Pledge Agreement
**10.10 Second Amendment to Subordination Agreement
**10.11 First Amendment to Credit Agreement
**10.12 Stock Pledge Agreement--Dollar Tree Stores, Inc., Dollar Tree Distribution, Inc.,
Dollar Tree Management, Inc., Dollar Bills, Inc., and NationsBank, N.A., Signet
Bank, Crestar Bank, and the First National Bank of Boston
**10.13 Corporate Guaranty to NationsBank, N.A., Signet Bank, Crestar Bank, and First
National Bank of Boston by Dollar Bills, Inc.
**10.14 Security Agreement--Commercial--Dollar Bills, Inc., NationsBank, N.A., Signet
Bank, Crestar Bank, First National Bank of Boston
**10.15 Non-Competition Agreements--Michael Alper and Pamela Alper
10.16 Letter Agreement on Extensions of Development Loan Maturity Date and Development
Line Extension Request by DollarTree Stores, Inc. dated March 27, 1996
10.17 Waivers of Certain Rights under 9% Senior Subordinated Notes due April 1, 1997
10.18 Waivers of Certain Rights under 9% Junior Subordinated Notes due April 1, 1997
10.19 Fourth Amendment to Dollar Tree Stores, Inc. Amended and Restated Stock Option
Plan (with forms of Second Amendment to 1993 Stock Option Agreement and Second
Amendment to 1994 Stock Option Agreement)
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10.20 Technical Clarification to Dollar Tree Stores, Inc. Employee Stock Purchase Plan
10.21 Second Amendment to the Amended and Restated Dollar Tree Stores, Inc. Deferred
Compensation Plan
10.22 Consent to Amendment of 9% Senior Subordinated Notes due April 1, 1997 with form
of Second Allonge
10.23 Consent to Amendment of 9% Junior Subordinated Notes due April 1, 1997 with form
of Second Allonge
10.24 Second Allonge to 9% Senior Subordinated Notes due April 1, 1997
10.25 Second Allonge to 9% Junior Subordinated Notes due April 1, 1997
- ------------
* Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated February 14, 1996, filed with the Securities and Exchange
Commission.
** Previously filed as an exhibit to the Company's 1995 Annual Report on Form
10-K, filed with the Securities and Exchange Commission.
(b) Reports on Form 8-K
1. The Company filed a Form 8-K on January 19, 1996, announcing that the
Company had signed an agreement on January 16, 1996, to purchase all of the
outstanding stock of Dollar Bills. This announcement stated that the transaction
was expected to close January 31, 1996.
2. The Company filed a Form 8-K on February 14, 1996, outlining the
above-referenced acquisition, in compliance with information required under Item
2 of the Form 8-K.
3. The Company filed a Form 8-K/A on April 12, 1996, amending the Form 8-K
filed on February 14, 1996 (discussed in #2 above), to include information
required under Item 7 of the Form 8-K. The Form 8-K/A included, as exhibit, the
following financial statements and pro forma information:
A. Audited financial statements of Dollar Bills for the fiscal years
ended September 30, 1995 and 1994.
B. Unaudited interim financial information for the year ended December
31, 1995 for Dollar Bills.
C. Unaudited pro forma condensed consolidated financial statements as of
and for the year ended December 31, 1995, relating to the business
combination.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DATE: May 13, 1996
DOLLAR TREE STORES, INC.
By /s/ MACON F. BROCK, JR.
.....................................
Macon F. Brock, Jr.
President and Chief Executive Officer
By /s/ H. RAY COMPTON
.....................................
H. Ray Compton
Executive Vice President and
Chief Financial Officer
(principal financial and accounting officer)
15