NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Description of Business
Unless otherwise stated, references to “we,” “us,” and “our” in this annual report on Form 10-K refer to Dollar Tree, Inc. and its direct and indirect subsidiaries on a consolidated basis.
We are a leading operator of discount retail stores in the United States and Canada. Below are those accounting policies that we consider to be significant.
Principles of Consolidation
The consolidated financial statements include the financial statements of Dollar Tree, Inc., and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Segment Information
At January 30, 2021, we operate more than 15,600 retail discount stores in 48 states and five Canadian provinces. Our operations are conducted in two reporting business segments: Dollar Tree and Family Dollar. We define our segments as those operations whose results our chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources.
The Dollar Tree segment is the leading operator of discount variety stores offering merchandise predominantly at the fixed price point of $1.00. The Dollar Tree segment includes our operations under the “Dollar Tree” and “Dollar Tree Canada” brands, 15 distribution centers in the United States and two distribution centers in Canada.
The Family Dollar segment operates a chain of general merchandise retail discount stores providing consumers with a selection of competitively-priced merchandise in convenient neighborhood stores. The Family Dollar segment consists of our operations under the “Family Dollar” brand and 11 distribution centers.
Refer to Note 12 for additional information regarding our operating segments.
Foreign Currency
The functional currencies of certain of our international subsidiaries are the local currencies of the countries in which the subsidiaries are located. Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at the consolidated balance sheet date. Results of operations and cash flows are translated using the average exchange rates throughout the period. The effect of exchange rate fluctuations on translation of assets and liabilities is included as a component of shareholders’ equity in accumulated other comprehensive loss. Gains and losses from foreign currency transactions, which are included in “Other expense (income), net” have not been significant.
Fiscal Year
Our fiscal year is a 52-week or 53-week period ending on the Saturday closest to January 31. References to “2020” or “fiscal 2020,” “2019” or “fiscal 2019,” and “2018” or “fiscal 2018” relate to the 52-week fiscal years ended January 30, 2021, February 1, 2020, and February 2, 2019, respectively.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents at January 30, 2021 and February 1, 2020 includes $1,135.0 million and $287.6 million, respectively, of investments primarily in money market securities which are valued at cost, which approximates fair value. We consider all highly-liquid debt instruments with original maturities of three months or less to be cash equivalents. The majority of payments due from financial institutions for the settlement of debit card and credit card transactions process within three business days, and therefore are classified as cash and cash equivalents.
Merchandise Inventories
Merchandise inventories at our distribution centers are stated at the lower of cost or net realizable value, determined on a weighted-average cost basis. Cost is assigned to store inventories using the retail inventory method on a weighted-average basis. Under the retail inventory method, the valuation of inventories at cost and the resulting gross margins are computed by applying a calculated cost-to-retail ratio to the retail value of inventories.
Costs directly associated with warehousing and distribution are capitalized as merchandise inventories. Total warehousing and distribution costs capitalized into inventory amounted to $172.7 million and $169.7 million at January 30, 2021 and February 1, 2020, respectively.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets as follows:
|
|
|
|
|
|
Buildings
|
39 to 40 years
|
Furniture, fixtures and equipment
|
3 to 15 years
|
Leasehold improvements are amortized over the shorter of the estimated useful lives of the respective assets or the related lease terms. Amortization is included in “Selling, general 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.
Capitalized Interest
We capitalize interest on borrowed funds during the construction of certain property and equipment. We capitalized $3.2 million, $2.4 million and $4.2 million of interest costs in the years ended January 30, 2021, February 1, 2020 and February 2, 2019, respectively.
Insurance Reserves and Restricted Cash
We utilize a combination of insurance and self-insurance programs, including a wholly-owned captive insurance entity, to provide for the potential liabilities for certain risks, including workers’ compensation, general liability and automobile liability. Liabilities associated with the risks that are retained by us are not discounted and are estimated, in part, by considering claims experience, exposure and severity factors and other actuarial assumptions.
Dollar Tree Insurance, Inc., a South Carolina-based wholly-owned captive insurance subsidiary of ours, charges the operating subsidiary companies premiums to insure the retained workers’ compensation, general liability and automobile liability exposures. Pursuant to South Carolina insurance regulations, Dollar Tree Insurance, Inc. maintains certain levels of cash and cash equivalents related to its self-insured exposures.
We also maintain certain cash balances related to our insurance programs, which are held in trust and restricted as to withdrawal or use.
Lease Accounting
In the first quarter of fiscal 2019, we adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” and subsequent amendments, using the optional effective date transition method provided by accounting pronouncement, ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” and recorded a cumulative effect adjustment to beginning retained earnings. Our reporting for the fiscal 2018 comparative period presented in the consolidated financial statements continues to be in accordance with Accounting Standards Codification (“ASC”) Topic 840, “Leases.” Adoption of the standard resulted in the recognition of Operating lease right-of-use assets and Operating lease liabilities of $6.2 billion and $6.1 billion, respectively, and a reduction to Retained earnings of $65.3 million, net of tax, as of February 3, 2019. For fiscal 2019, the adoption of the standard did not have a material impact on our consolidated statements of operations or consolidated statements of cash flows.
Our lease portfolio primarily consists of leases for our retail store locations and we also lease vehicles and trailers, as well as distribution center space and equipment. We determine if an arrangement is a lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether we obtain substantially all of the economic benefits from and have the ability to direct the use of the asset. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets. We recognize expense for these leases on a straight-line basis over the lease term. For leases with an initial term in excess of 12 months, operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future lease payments
over the committed lease term at the lease commencement date.
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate in determining the present value of future lease payments. Inputs to the calculation of our incremental borrowing rate include the valuations and yields of our outstanding senior notes and their credit spreads over comparable U.S. Treasury rates, adjusted to a collateralized basis by estimating the credit spread improvement that would result from an upgrade of one ratings classification. Most leases include one or more options to renew and the exercise of renewal options is at our sole discretion. We do not include renewal options in our determination of the lease term unless the renewals are deemed to be reasonably certain. Operating lease expense for lease payments not yet paid is recognized on a straight-line basis over the lease term. The operating lease right-of-use asset is reduced by lease incentives, which has the effect of lowering the operating lease expense. Operating lease right-of-use assets are periodically reviewed for impairment losses. We use the long-lived assets impairment guidance in ASC Subtopic 360-10, “Property, Plant, and Equipment - Overall,” to determine whether a right-of-use asset is impaired, and if so, the amount of the impairment loss to recognize.
We have real estate leases that typically include payments related to non-lease components, such as common area maintenance, as well as payments for real estate taxes and insurance which are not considered components of the lease. These payments are generally variable and based on actual costs incurred by the lessor. These costs are expensed as incurred as variable lease costs and excluded for the purpose of calculating the right-of-use asset and lease liability. A smaller number of real estate leases contain fixed payments for common area maintenance, real estate taxes and insurance. These fixed payments are considered part of the lease payment and included in the right-of-use asset and lease liability. In addition, certain of our lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. These payments are expensed as incurred as variable lease costs. Our lease agreements do not contain any material residual value guarantees or material restrictive financial covenants.
Purchased leases with terms which were either favorable or unfavorable as compared to prevailing market rates at the date of acquisition are amortized over the remaining lease terms, including, in some cases, an assumed renewal. Amortization expense, net of $48.1 million, $52.9 million and $65.4 million was recognized in “Selling, general and administrative expenses” in 2020, 2019 and 2018, respectively, related to these lease rights.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
We review our long-lived assets and certain identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets based on discounted cash flows or other readily available evidence of fair value, if any. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. In fiscal 2020, 2019 and 2018, we recorded charges of $4.6 million, $9.1 million and $13.0 million, respectively, to write down certain assets, including $3.8 million and $8.5 million in fiscal 2020 and fiscal 2019, respectively, to write down Operating lease right-of-use assets. These charges are recorded as a component of “Selling, general and administrative expenses” in the accompanying consolidated statements of operations.
Goodwill and Nonamortizing Intangible Assets
Goodwill and nonamortizing intangible assets, including the Family Dollar trade name, are not amortized, but rather tested for impairment at least annually. In addition, goodwill and nonamortizing intangible assets will be tested on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred.
We perform a qualitative assessment to determine whether it is more likely than not that the Family Dollar trade name is impaired. If we determine that it is more likely than not that an impairment exists, we evaluate the Family Dollar trade name for impairment by comparing its fair value, based on an income approach using the relief-from-royalty method, to its carrying value. If the carrying value of the asset exceeds its estimated fair value, an impairment loss is recognized in an amount equal to that excess.
Subsequent to the evaluation of the Family Dollar trade name for impairment, we perform a goodwill impairment evaluation. In the event that a qualitative assessment of the fair value of a reporting unit indicates it is more likely than not that the fair value is less than the carrying amount, we then estimate the fair value of the reporting unit using a combination of a market multiple method and a discounted cash flow method. We recognize goodwill impairment for the amount by which the reporting unit’s carrying amount exceeds its estimated fair value, not to exceed the total carrying amount of goodwill allocated to the reporting unit.
Our reporting units are determined in accordance with the provisions of ASC Topic 350, “Intangibles - Goodwill and Other.” We perform our annual impairment testing of goodwill and nonamortizing intangible assets during the fourth quarter of each year. Refer to Note 3 for additional information on the results of the impairment tests.
Revenue Recognition
We recognize sales revenue, net of estimated returns and sales tax, at the time the customer tenders payment for and takes control of the merchandise.
Taxes Collected
We report taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions (i.e., sales tax) on a net (excluded from revenue) basis.
Cost of Sales
We include the cost of merchandise, warehousing and distribution costs, and certain occupancy costs in cost of sales.
Vendor Allowances
We receive vendor support in the form of cash payments or allowances through a variety of reimbursements such as purchase discounts, cooperative advertising, markdowns, scandowns and volume rebates. We have agreements with vendors setting forth the specific conditions for each allowance or payment. We either recognize the allowance as a reduction of current costs or defer the payment over the period the related merchandise is sold. If the payment is a reimbursement for costs incurred, it is offset against those related costs; otherwise, it is treated as a reduction to the cost of merchandise.
Pre-Opening Costs
We expense pre-opening costs for new, expanded, relocated and re-bannered stores and for distribution centers, as incurred.
Advertising Costs
We expense advertising costs as they are incurred and they are included in “Selling, general and administrative expenses” within the accompanying consolidated statements of operations. Advertising costs, net of co-op recoveries from vendors, were $80.8 million, $102.9 million and $99.9 million in fiscal 2020, 2019 and 2018, respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change.
We recognize a financial statement benefit for a tax position if we determine that it is more likely than not that the position will be sustained upon examination.
We include interest and penalties in the provision for income tax expense and income taxes payable. We do not provide for any penalties associated with tax contingencies unless they are considered probable of assessment.
Stock-Based Compensation
We recognize expense for all share-based payments to employees and non-employee directors based on their fair values. Total stock-based compensation expense for 2020, 2019 and 2018 was $83.9 million, $61.4 million and $63.3 million, respectively.
We recognize expense related to the fair value of restricted stock units (RSUs) and stock options over the requisite service period on a straight-line basis or a shorter period based on the retirement eligibility of the grantee. The fair value of RSUs is determined using the closing price of our common stock on the date of grant. The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option pricing model. We account for forfeitures when they occur.
Net Income (Loss) Per Share
Basic net income (loss) per share has been computed by dividing net income (loss) by the weighted average number of shares outstanding. Diluted net income (loss) per share reflects the potential dilution that could occur assuming the inclusion of dilutive potential shares and has been computed by dividing net income (loss) by the weighted average number of shares and dilutive potential shares outstanding. Dilutive potential shares include all outstanding stock options and unvested RSUs after applying the treasury stock method.
Note 2 - Supplemental Balance Sheet Information
Property, Plant and Equipment, Net
Property, plant and equipment, net, as of January 30, 2021 and February 1, 2020 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
February 1,
|
(in millions)
|
|
2021
|
|
2020
|
Land
|
|
$
|
238.7
|
|
|
$
|
233.5
|
|
Buildings
|
|
1,524.0
|
|
|
1,395.5
|
|
Leasehold improvements
|
|
2,631.7
|
|
|
2,335.1
|
|
Furniture, fixtures and equipment
|
|
4,229.4
|
|
|
3,813.2
|
|
Construction in progress
|
|
257.5
|
|
|
298.6
|
|
Total property, plant and equipment
|
|
8,881.3
|
|
|
8,075.9
|
|
Less: accumulated depreciation
|
|
4,765.0
|
|
|
4,194.1
|
|
Total property, plant and equipment, net
|
|
$
|
4,116.3
|
|
|
$
|
3,881.8
|
|
Depreciation expense was $631.1 million, $581.9 million, and $555.7 million for the years ended January 30, 2021, February 1, 2020, and February 2, 2019, respectively.
Other Current Liabilities
Other current liabilities as of January 30, 2021 and February 1, 2020 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
February 1,
|
(in millions)
|
|
2021
|
|
2020
|
Taxes (other than income taxes)
|
|
$
|
305.0
|
|
|
$
|
183.3
|
|
Compensation and benefits
|
|
162.8
|
|
|
102.8
|
|
Insurance
|
|
115.4
|
|
|
112.0
|
|
Accrued construction costs
|
|
44.9
|
|
|
51.1
|
|
Accrued utilities
|
|
27.8
|
|
|
22.0
|
|
Other
|
|
159.4
|
|
|
146.8
|
|
Total other current liabilities
|
|
$
|
815.3
|
|
|
$
|
618.0
|
|
Note 3 - Goodwill and Nonamortizing Intangible Assets
Goodwill allocated to our reportable segments and changes in the net carrying amount of goodwill for the years ended January 30, 2021 and February 1, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Dollar Tree
|
|
Family Dollar
|
|
Total
|
Balance at February 2, 2019
|
|
$
|
376.5
|
|
|
$
|
1,920.1
|
|
|
$
|
2,296.6
|
|
Foreign currency translation adjustments
|
|
(0.3)
|
|
|
—
|
|
|
(0.3)
|
|
Goodwill reassignment for re-bannered stores
|
|
47.6
|
|
|
(47.6)
|
|
|
—
|
|
Goodwill impairment
|
|
—
|
|
|
(313.0)
|
|
|
(313.0)
|
|
Balance at February 1, 2020
|
|
423.8
|
|
|
1,559.5
|
|
|
1,983.3
|
|
Foreign currency translation adjustments
|
|
1.1
|
|
|
—
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2021
|
|
$
|
424.9
|
|
|
$
|
1,559.5
|
|
|
$
|
1,984.4
|
|
Goodwill is reassigned between segments when previously acquired stores are re-bannered between segments. The goodwill related to previously acquired re-bannered stores in 2020 was not material. In 2019, we reassigned $47.6 million of goodwill from Family Dollar to Dollar Tree as a result of re-bannering. Re-bannered stores are treated as new stores.
Goodwill and other indefinite-lived intangible assets must be evaluated for impairment annually and may also be tested on an interim basis upon the occurrence of a triggering event or a change in circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The annual goodwill impairment evaluation in 2020 did not result in impairment. The 2019 and 2018 goodwill impairment evaluations indicated that the fair value of the Family Dollar reporting unit was lower than
its carrying value resulting in $313.0 million and $2.73 billion non-cash pre-tax and after-tax goodwill impairment charges in the fourth quarters of fiscal 2019 and 2018, respectively, which were recorded as a component of “Selling, general and administrative expenses” in the accompanying consolidated statements of operations.
Our annual impairment evaluation of the Family Dollar trade name did not result in impairment charges during fiscal 2020, 2019 or 2018.
Note 4 - Income Taxes
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
January 30,
|
|
February 1,
|
|
February 2,
|
(in millions)
|
|
2021
|
|
2020
|
|
2019
|
Current taxes:
|
|
|
|
|
|
|
Federal
|
|
$
|
279.5
|
|
|
$
|
210.1
|
|
|
$
|
245.6
|
|
State
|
|
87.4
|
|
|
52.5
|
|
|
47.8
|
|
Foreign
|
|
0.2
|
|
|
0.1
|
|
|
0.4
|
|
Total current taxes
|
|
367.1
|
|
|
262.7
|
|
|
293.8
|
|
Deferred taxes:
|
|
|
|
|
|
|
Federal
|
|
32.6
|
|
|
39.2
|
|
|
0.3
|
|
State
|
|
(3.8)
|
|
|
(5.6)
|
|
|
(12.3)
|
|
Foreign
|
|
2.0
|
|
|
(24.6)
|
|
|
—
|
|
Total deferred taxes
|
|
30.8
|
|
|
9.0
|
|
|
(12.0)
|
|
Provision for income taxes
|
|
$
|
397.9
|
|
|
$
|
271.7
|
|
|
$
|
281.8
|
|
A reconciliation of the statutory U.S. federal income tax (benefit) rate and the effective tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
January 30, 2021
|
|
February 1, 2020
|
|
February 2, 2019
|
Statutory U.S. federal income tax (benefit) rate
|
|
21.0
|
%
|
|
21.0
|
%
|
|
(21.0)
|
%
|
Effect of:
|
|
|
|
|
|
|
State and local income taxes, net of federal income tax benefit
|
|
3.2
|
|
|
3.7
|
|
|
3.0
|
|
Non-deductible executive compensation
|
|
0.4
|
|
|
—
|
|
|
—
|
|
Incremental tax expense (benefit) of exercises/vesting of equity-based
compensation
|
|
0.2
|
|
|
(0.4)
|
|
|
0.1
|
|
State tax reserve release
|
|
(0.5)
|
|
|
—
|
|
|
—
|
|
Work Opportunity Tax Credit
|
|
(1.6)
|
|
|
(2.7)
|
|
|
(2.0)
|
|
Goodwill impairment
|
|
—
|
|
|
6.0
|
|
|
43.7
|
|
|
|
|
|
|
|
|
Deferred tax rate change
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
—
|
|
|
(2.2)
|
|
|
0.3
|
|
Tax Cuts and Jobs Act
|
|
—
|
|
|
—
|
|
|
(1.3)
|
|
Other, net
|
|
0.2
|
|
|
(0.8)
|
|
|
(1.3)
|
|
Effective tax rate
|
|
22.9
|
%
|
|
24.7
|
%
|
|
21.5
|
%
|
Goodwill Impairment
In the fourth quarters of 2019 and 2018, we recorded goodwill impairment charges of $313.0 million and $2.73 billion, respectively, related to the Family Dollar goodwill, as further discussed in Note 3. As the purchase of Family Dollar was a stock acquisition, carryover basis applied for tax purposes. The impairment charges are not deductible for federal or state tax purposes and therefore there is no tax benefit related to the impairments.
Foreign Taxes
United States income taxes have not been provided on accumulated but undistributed earnings of our foreign subsidiaries as we intend to permanently reinvest earnings. We do not consider the tax on the mandatory deemed repatriation of undistributed foreign earnings and profits to be material.
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of our net deferred tax assets (liabilities) follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
January 30,
2021
|
|
February 1,
2020
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities
|
|
$
|
1,658.4
|
|
|
$
|
1,621.8
|
|
Accrued expenses
|
|
72.9
|
|
|
26.0
|
|
Net operating losses, interest expense and credit carryforwards
|
|
95.5
|
|
|
102.2
|
|
Accrued compensation expense
|
|
47.2
|
|
|
31.6
|
|
State tax election
|
|
17.4
|
|
|
19.3
|
|
Other
|
|
3.2
|
|
|
2.4
|
|
Total deferred tax assets
|
|
1,894.6
|
|
|
1,803.3
|
|
Valuation allowance
|
|
(16.8)
|
|
|
(18.5)
|
|
Deferred tax assets, net
|
|
1,877.8
|
|
|
1,784.8
|
|
Deferred tax liabilities:
|
|
|
|
|
Property and equipment
|
|
(410.5)
|
|
|
(304.3)
|
|
Operating lease right-of-use assets
|
|
(1,587.2)
|
|
|
(1,550.1)
|
|
Other intangibles
|
|
(840.4)
|
|
|
(852.2)
|
|
Inventory
|
|
(4.8)
|
|
|
(14.4)
|
|
Prepaids
|
|
(25.2)
|
|
|
(24.1)
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
(2,868.1)
|
|
|
(2,745.1)
|
|
Deferred income taxes, net
|
|
$
|
(990.3)
|
|
|
$
|
(960.3)
|
|
At January 30, 2021, we had certain state tax credit carryforwards, net operating loss carryforwards and capital loss carryforwards totaling $95.5 million. Some of these carryforwards will expire, if not utilized, beginning in 2021 through 2040.
A valuation allowance of $16.8 million, net of federal tax benefits, has been provided principally for certain state credit carryforwards and net operating loss carryforwards. Since February 1, 2020, the valuation allowance has been decreased to reflect capital loss carryforwards, state credits and net operating losses expected to be utilized over the carryforward period. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred taxes will not be realized. Based upon the availability of carrybacks of future deductible amounts and our projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe it is more likely than not the remaining existing deductible temporary differences will reverse during periods in which carrybacks are available or in which we generate net taxable income.
Uncertain Tax Positions
We are participating in the IRS Compliance Assurance Program (“CAP”) for fiscal 2020 and we have been accepted into the program for fiscal 2021. This program accelerates the examination of key transactions with the goal of resolving any issues before the tax return is filed. Our federal tax returns have been examined and all issues have been settled through the fiscal 2019 tax year. Several states completed their examinations during fiscal 2020. In general, fiscal 2017 and forward are within the statute of limitations for state tax purposes. The statute of limitations is still open prior to fiscal 2017 for some states. For fiscal 2020, we are participating in the CAP under the IRS’s bridge year program and as a result, the IRS will not be completing an audit on the 2020 tax return.
The balance for unrecognized tax benefits at January 30, 2021 was $22.6 million. The total amount of unrecognized tax benefits at January 30, 2021 that, if recognized, would affect the effective tax rate was $17.9 million (net of the federal tax benefit).
The following is a reconciliation of our total gross unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
January 30, 2021
|
|
February 1, 2020
|
Beginning Balance
|
|
$
|
28.9
|
|
|
$
|
35.4
|
|
Additions, based on tax positions related to current year
|
|
1.2
|
|
|
0.9
|
|
Additions for tax positions of prior years
|
|
3.4
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
Lapses in statutes of limitation
|
|
(10.9)
|
|
|
(12.2)
|
|
Ending balance
|
|
$
|
22.6
|
|
|
$
|
28.9
|
|
We believe it is reasonably possible that $6.0 million to $7.0 million of the reserve for uncertain tax positions may be reduced during the next 12 months principally as a result of the effective settlement of outstanding issues. It is also possible that state tax reserves will be reduced for audit settlements and statute expirations within the next 12 months. At this point it is not possible to estimate a range associated with the resolution of these audits. We do not expect any change to have a material impact to our consolidated financial statements.
As of January 30, 2021, we have recorded a liability for potential interest and penalties of $2.6 million.
Note 5 – Commitments and Contingencies
Purchase Obligations
We have commitments totaling $189.8 million related to agreements for software licenses and support, telecommunication services and store technology assets and maintenance for its stores.
Letters of Credit
We have $356.5 million in Letter of Credit Reimbursement and Security Agreements with various financial institutions, under which $209.6 million was committed to these letters of credit issued for routine purchases of imported merchandise at January 30, 2021.
At January 30, 2021, we also have $98.7 million in standby letters of credit that serve as collateral for our large-deductible insurance programs and expire in fiscal 2021.
Surety Bonds
We have issued various surety bonds that primarily serve as collateral for utility payments at our stores and self-insured insurance programs. These bonds total $96.5 million and are committed through various dates through fiscal 2024.
Contingencies
We are defendants in legal proceedings including the class, collective, representative and large cases described below as well as individual claims in arbitration. We will vigorously defend ourselves in these matters. We do not believe that any of these matters will, individually or in the aggregate, have a material effect on our business or financial condition. We cannot give assurance, however, that one or more of these matters will not have a material effect on our results of operations for the quarter or year in which they are resolved.
We assess our legal proceedings monthly and reserves are established if a loss is probable and the amount of such loss can be reasonably estimated. For matters that have settled, we reserve the estimated settlement amount even if the settlement has not been approved by the court. Many, if not substantially all, of our legal proceedings are subject to significant uncertainties and, therefore, determining the likelihood of a loss and the measurement of any loss can be complex and subject to judgment. With respect to legal proceedings where we have determined that a loss is reasonably possible but not probable, we are unable to estimate the amount or range of the reasonably possible loss due to the inherent difficulty of predicting the outcome of and uncertainties regarding legal proceedings. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. Management’s assessment of legal proceedings could change because of future determinations or the discovery of facts which are not presently known. Accordingly, the ultimate costs of resolving these proceedings may be substantially higher or lower than currently estimated.
Dollar Tree Active Matters
The Food and Drug Administration (“FDA”) has alleged that we improperly sold certain topically applied, over the counter
(“OTC”) products manufactured by certain Chinese factories that were on an import “alert” restriction issued by the FDA. We responded to the FDA by proposing enhanced procedures and processes for any OTC products we import from China.
In December 2020, a former store manager brought a class action in California state court alleging we failed to reimburse employees for business expenses and in so failing, engaged in unfair competition.
Actual or threatened California state court lawsuits have been filed against Dollar Tree and Family Dollar for similar employment-related claims brought under Private Attorney General Act (“PAGA”). These cases may allege violations such as failure to provide employees with compliant rest and meal breaks, suitable seating and overtime pay, reimburse business expenses, pay minimum wages for all time worked, provide accurate wage statements, and timely pay wages as well as other potential labor code violations.
Lawsuits have been filed against Dollar Tree, Family Dollar and our vendors alleging that personal talc powder products caused cancer. We do not believe the products we sold caused the illnesses. We believe these lawsuits are insured and we are being indemnified by our third party vendors.
Dollar Tree Resolved Matters
In April 2015, a distribution center employee filed a class action in California state court with allegations concerning wages, meal and rest breaks, recovery periods, wage statements and timely termination pay. We have reached an agreement and received final approval from the court.
In August 2018, a former employee brought suit in California state court as a class action and as a PAGA representative suit alleging we failed to provide all non-exempt California store employees with compliant rest and meal breaks, accrued vacation, accurate wage statements and final pay upon termination of employment. We have reached an agreement to settle the matter and have received the court’s approval.
In June 2020, a current employee filed a class action in California state court on behalf of herself and other non-exempt store employees in California alleging we failed to provide an effective illness and injury prevention program in our California stores and failed to provide personal protective equipment to our store employees thereby engaging in unfair business practices and creating a public nuisance. The court granted our request to compel arbitration which resolves the class action matter.
The consumer dismissed the January 2020 class action that was filed against us in New York relating to Almond Milk sold by us.
Family Dollar Active Matters
In August 2020, a consumer class action was filed against us in New York alleging Smoked Almonds sold by us are mislabeled because the almonds do not go through a smoking process but rather acquire their smoky taste through the use of smoked flavoring. The legal claims include New York consumer protection laws, negligent misrepresentations, breach of warranties, fraud and unjust enrichment.
In late 2019 and early 2020, personal injury and consumer class actions were filed alleging that we sold Zantac containing N- Nitrosodimethylamine, which is classified by the FDA as a probable carcinogen. Although all the suits were dismissed in December, 2020, on February 8, 2021, an Amended Master Personal Injury Complaint was filed against us and other retailers, manufacturers, and distributors alleging unjust enrichment, physical harm, loss of consortium, and death.
In January 2021, a consumer class action was filed against us in Georgia for breach of warranty based on the allegation that the coffee we sold was mislabeled because the canister did not contain enough coffee to make the number of cups of coffee stated on the label.
Please see the description above for talc and PAGA lawsuits against Family Dollar.
Family Dollar Resolved Matters
The court dismissed a January 2017 lawsuit filed as a class action in federal court in Illinois alleging we violated various state consumer fraud laws as well as express and implied warranties by selling a product that purported to contain aloe when it did not.
We have reached a tentative settlement, which will have to be approved by the court, of multiple class actions that were brought under the Americans with Disabilities Act.
Note 6 - Long-Term Debt
Long-term debt at January 30, 2021 and February 1, 2020 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2021
|
|
February 1, 2020
|
(in millions)
|
|
Principal
|
|
Unamortized Debt Discount and Issuance Costs
|
|
Principal
|
|
Unamortized Debt Discount, Premium and Issuance Costs
|
5.00% Senior Notes, due 2021
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
300.0
|
|
|
$
|
(2.4)
|
|
$1.25 billion Revolving Credit Facility, interest
payable at LIBOR, reset periodically, plus
1.125%, which was 1.24% at January 30, 2021
|
|
—
|
|
|
5.3
|
|
|
—
|
|
|
7.7
|
|
Senior Floating Rate Notes, due 2020
|
|
—
|
|
|
—
|
|
|
250.0
|
|
|
0.2
|
|
3.70% Senior Notes, due 2023
|
|
1,000.0
|
|
|
4.2
|
|
|
1,000.0
|
|
|
5.9
|
|
4.00% Senior Notes, due 2025
|
|
1,000.0
|
|
|
5.1
|
|
|
1,000.0
|
|
|
6.2
|
|
4.20% Senior Notes, due 2028
|
|
1,250.0
|
|
|
9.2
|
|
|
1,250.0
|
|
|
10.2
|
|
Total
|
|
$
|
3,250.0
|
|
|
$
|
23.8
|
|
|
$
|
3,800.0
|
|
|
$
|
27.8
|
|
Maturities of long-term debt are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
2022
|
2023
|
2024
|
2025
|
Thereafter
|
$
|
—
|
|
$
|
—
|
|
$
|
1,000.0
|
|
$
|
—
|
|
$
|
1,000.0
|
|
$
|
1,250.0
|
|
Senior Credit Facilities
On April 19, 2018, we entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, providing for $2.03 billion in senior credit facilities (the “Senior Credit Facilities”), consisting of a $1.25 billion revolving credit facility (the “Revolving Credit Facility”), of which up to $350.0 million is available for letters of credit, and a $782.0 million term loan facility (the “Term Loan Facility”), which was scheduled to mature on April 19, 2020. The loans under the Term Loan Facility bore interest at an initial interest rate of LIBOR, reset periodically, plus 1.00%, subject to adjustment based on (i) our credit ratings and (ii) our leverage ratio. We borrowed the entire $782.0 million Term Loan Facility on April 19, 2018 and repaid the entire amount in January 2019.
The Revolving Credit Facility matures on April 19, 2023, subject to extensions permitted under the Credit Agreement. The loans under the Revolving Credit Facility bore interest at an initial interest rate of LIBOR, reset periodically, plus 1.25%, subject to adjustment based on (i) our credit ratings and (ii) our leverage ratio. Based on these factors, interest on the loans under the Revolving Credit Facility may range from LIBOR plus 1.00% to 1.50%. At January 30, 2021, the Revolving Credit Facility bore interest at LIBOR plus 1.125%. We pay certain commitment fees in connection with the Revolving Credit Facility. The Senior Credit Facilities allow voluntary repayment of outstanding loans at any time without premium or penalty, other than customary breakage costs with respect to LIBOR loans.
The Senior Credit Facilities contain a number of affirmative and negative covenants that, among other things, and subject to certain significant baskets and exceptions, restrict our ability to incur subsidiary indebtedness, incur liens, sell all or substantially all of our (including our subsidiaries’) assets and consummate certain fundamental changes. The Senior Credit Facilities also contain a maximum rent-adjusted leverage ratio covenant and a minimum fixed charge coverage ratio covenant. The Credit Agreement provides for certain events of default which, if any of them occurs, would permit or require the loans under the Senior Credit Facilities to be declared due and payable and the commitments thereunder to be terminated.
In the first quarter of fiscal 2020, we preemptively drew $750.0 million on our Revolving Credit Facility to reduce our exposure to potential short-term liquidity risk in the banking system as a result of the COVID-19 pandemic, all of which was repaid by the end of the third quarter of fiscal 2020.
Senior Notes
On April 19, 2018, we completed the registered offering of $750.0 million aggregate principal amount of Senior Floating Rate Notes due 2020 (the “Floating Rate Notes”), $1.0 billion aggregate principal amount of 3.70% Senior Notes due 2023 (the “2023 Notes”), $1.0 billion aggregate principal amount of 4.00% Senior Notes due 2025 (the “2025 Notes”) and $1.25 billion aggregate principal amount of 4.20% Senior Notes due 2028 (the “2028 Notes” and together with the 2023 Notes and the 2025 Notes, the “Fixed Rate Notes”; and the Fixed Rate Notes together with the Floating Rate Notes, the “Notes”).
The Notes were issued pursuant to an indenture, dated as of April 2, 2018, between us and U.S. Bank National Association, as trustee, as supplemented by the First Supplemental Indenture dated as of April 19, 2018 (the “First Supplemental Indenture”).
The Notes are unsecured, unsubordinated obligations of ours and rank equal in right of payment to all of our existing and future debt and other obligations that are not, by their terms, expressly subordinated in right of payment to the Notes.
The 2023 Notes mature on May 15, 2023 and bear interest at the rate of 3.70% annually. The 2025 Notes mature on May 15, 2025 and bear interest at the rate of 4.00% annually. The 2028 Notes mature on May 15, 2028 and bear interest at the rate of 4.20% annually. We are required to pay interest on the Fixed Rate Notes semiannually, in arrears, on May 15 and November 15 of each year, beginning on November 15, 2018, to holders of record on the preceding May 1 and November 1, respectively. The Floating Rate Notes matured on April 17, 2020 and bore interest at a floating rate, reset quarterly, equal to LIBOR plus 70 basis points. We were required to pay interest on the Floating Rate Notes quarterly, in arrears, on January 17, April 17, July 17 and October 17 of each year, beginning on July 17, 2018, to holders of record on the preceding January 3, April 3, July 3 and October 3, respectively.
We may redeem the Fixed Rate Notes of each series in whole or in part, at our option, at any time and from time to time prior to (i) in the case of the 2023 Notes, April 15, 2023, (ii) in the case of the 2025 Notes, March 15, 2025 and (iii) in the case of the 2028 Notes, February 15, 2028 (each such date with respect to the applicable series, the “Applicable Par Call Date”), in each case, at a “make-whole” price described in the First Supplemental Indenture plus accrued and unpaid interest to, but excluding, the date of redemption. In addition, on or after the Applicable Par Call Date, we may redeem the Fixed Rate Notes of the applicable series, at any time in whole or from time to time in part, at a redemption price equal to 100% of the principal amount thereof.
In the event of a Change of Control Triggering Event, as defined in the indenture, with respect to any series, the holders of the Notes of such series may require us to purchase for cash all or a portion of their Notes of such series at a purchase price equal to 101% of the principal amount of such Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase. The indenture limits our ability and that of our subsidiaries, subject to significant baskets and exceptions, to incur certain secured debt. The First Supplemental Indenture also provides for events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the Notes to become or to be declared due and payable, as applicable.
Upon the acquisition of Family Dollar in 2015, we assumed the liability for $300.0 million of 5.00% Senior Notes that were due February 1, 2021.
Repayments of Long-term Debt
During the first quarter of 2018, we redeemed our $750.0 million acquisition notes and accelerated the amortization of debt-issuance costs associated with the notes of $6.1 million, which is included in “Interest expense, net” within the accompanying consolidated statements of operations for the year ended February 2, 2019.
In connection with entry into the Credit Agreement and the offering of the Notes discussed above, we used the proceeds of borrowings under the Senior Credit Facilities, together with the net proceeds from the offering of the Notes and cash on hand to repay the $2.2 billion then outstanding under our existing senior secured credit facilities and to redeem the remaining $2.5 billion then outstanding under our acquisition debt. This resulted in the acceleration of the expensing of $41.2 million of amortizable non-cash deferred financing costs and our incurring $114.3 million in prepayment penalties, which are reflected in “Interest expense, net” within the accompanying consolidated statements of operations for the year ended February 2, 2019.
In the fourth quarter of 2019, we prepaid $500.0 million of our $750.0 million Floating Rate Notes and we repaid the remaining $250.0 million outstanding in the first quarter of 2020.
In the fourth quarter of 2020, we repaid the $300.0 million 5.00% Senior Notes.
Debt Covenants
As of January 30, 2021, we were in compliance with our debt covenants.
Note 7 - Leases
The lease cost for operating leases that was recognized in the accompanying consolidated statements of operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
(in millions)
|
|
January 30, 2021
|
|
February 1, 2020
|
Operating lease cost
|
|
$
|
1,551.2
|
|
|
$
|
1,520.5
|
|
Variable lease cost
|
|
391.4
|
|
|
375.9
|
|
Short-term lease cost
|
|
9.7
|
|
|
14.8
|
|
Total lease cost*
|
|
$
|
1,952.3
|
|
|
$
|
1,911.2
|
|
|
|
|
|
|
*Excludes sublease income, which is immaterial
|
|
|
As previously disclosed in our Annual Report on Form 10-K for the year ended February 2, 2019 and in accordance with ASC 840, rental expense for the year ended February 2, 2019 was $1,411.3 million.
As of January 30, 2021, maturities of lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2021
|
|
$
|
1,467.5
|
|
2022
|
|
1,372.0
|
|
2023
|
|
1,159.0
|
|
2024
|
|
939.9
|
|
2025
|
|
706.3
|
|
Thereafter
|
|
1,578.0
|
|
Total undiscounted lease payments
|
|
7,222.7
|
|
Less interest
|
|
809.0
|
|
Present value of lease liabilities
|
|
$
|
6,413.7
|
|
The future lease payments above exclude $236.8 million of legally binding minimum lease payments for leases signed but not yet commenced as of January 30, 2021.
Information regarding the weighted-average remaining lease term and the weighted-average discount rate for operating leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2021
|
|
February 1, 2020
|
Weighted-average remaining lease term (years)
|
|
6.1
|
|
6.4
|
Weighted-average discount rate
|
|
3.9
|
%
|
|
4.3
|
%
|
The following represents supplemental information pertaining to our operating lease arrangements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
(in millions)
|
|
January 30, 2021
|
|
February 1, 2020
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
1,519.4
|
|
|
$
|
1,433.4
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
1,440.2
|
|
|
1,286.1
|
|
Distribution Center Lease and Related Bonds
In May 2017, we entered into a long-term property lease (“Missouri Lease”) which includes land and the construction of a 1.2 million square foot distribution center in Warrensburg, Missouri (“Distribution Center Project”). The Distribution Center Project was completed in 2018 and our investment in the project of $96.9 million as of January 30, 2021 is reflected in “Property, plant and equipment, net.” The Missouri Lease commenced upon its execution in May 2017 and expires on December 1, 2032. We have two options to extend the Missouri Lease term for up to a combined additional ten years. Following the expiration of the lease, the property reverts back to us.
In addition to being a party to the Missouri Lease, we are also the owner of bonds which were issued in May 2017, are secured by the Missouri Lease and expire December 1, 2032 (“Missouri Bonds”). The Missouri Bonds are debt issued by the lessor in the Missouri Lease. Therefore, we hold the debt instrument pertaining to our Missouri Lease obligation. Because a legal right of offset exists, we are accounting for the Missouri Bonds as a reduction of our Missouri Lease obligation in the accompanying consolidated balance sheets.
Note 8 - Fair Value Measurements
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a fair value hierarchy has been established that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities;
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and
Level 3 - Unobservable inputs in which there is little or no market data which require the reporting entity to develop its own assumptions.
As required, financial assets and liabilities are classified in the fair value hierarchy in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment). We review certain store assets for evidence of impairment. The fair values are determined based on the income approach, in which we utilize internal cash flow projections over the life of the underlying lease agreements discounted based on our risk-adjusted rate. These measures of fair value, and related inputs, are considered a Level 3 approach under the fair value hierarchy. Refer to Note 1 under the caption “Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of” for information regarding the impairment charges recorded in fiscal 2020, 2019 and 2018.
Our indefinite-lived intangible assets are recorded at carrying value, and, if impaired, are adjusted to fair value using Level 3 inputs. See Note 3 for further information regarding the process of determining the fair value of these assets.
Fair Value of Financial Instruments
The carrying amounts of Cash and cash equivalents, Restricted cash and Accounts payable as reported in the accompanying consolidated balance sheets approximate fair value due to their short-term maturities.
The aggregate fair values and carrying values of our long-term borrowings were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2021
|
|
February 1, 2020
|
(in millions)
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
Level 1
|
|
|
|
|
|
|
|
|
Senior Notes
|
|
$
|
3,654.4
|
|
|
$
|
3,231.5
|
|
|
$
|
4,064.5
|
|
|
$
|
3,779.9
|
|
The fair values of our Senior Notes were determined using Level 1 inputs as quoted prices in active markets for identical assets or liabilities are available. The carrying value of our Revolving Credit Facility approximates its fair value because the interest rates vary with market interest rates.
Note 9 - Shareholders’ Equity
Preferred Stock
We are authorized to issue 10,000,000 shares of Preferred Stock, $0.01 par value per share. No preferred shares are issued and outstanding at January 30, 2021 and February 1, 2020.
Net Income (Loss) Per Share
The following table sets forth the calculations of basic and diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
January 30,
|
|
February 1,
|
|
February 2,
|
(in millions, except per share data)
|
|
2021
|
|
2020
|
|
2019
|
Basic net income (loss) per share:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,341.9
|
|
|
$
|
827.0
|
|
|
$
|
(1,590.8)
|
|
Weighted average number of shares outstanding
|
|
236.4
|
|
|
237.2
|
|
|
237.9
|
|
Basic net income (loss) per share
|
|
$
|
5.68
|
|
|
$
|
3.49
|
|
|
$
|
(6.69)
|
|
Diluted net income (loss) per share:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,341.9
|
|
|
$
|
827.0
|
|
|
$
|
(1,590.8)
|
|
Weighted average number of shares outstanding
|
|
236.4
|
|
|
237.2
|
|
|
237.9
|
|
Dilutive effect of stock options and restricted stock (as determined by
applying the treasury stock method)
|
|
0.9
|
|
|
1.1
|
|
|
—
|
|
Weighted average number of shares and dilutive potential shares
outstanding
|
|
237.3
|
|
|
238.3
|
|
|
237.9
|
|
Diluted net income (loss) per share
|
|
$
|
5.65
|
|
|
$
|
3.47
|
|
|
$
|
(6.69)
|
|
At January 30, 2021 and February 1, 2020, substantially all of the stock options outstanding were included in the calculation of the weighted average number of shares and dilutive potential shares outstanding. As a result of the net loss for the year ended February 2, 2019, diluted net income (loss) per share excludes the impact of stock options and restricted stock (as determined by applying the treasury stock method) because the effect would be anti-dilutive.
Share Repurchase Programs
We repurchased 3,982,478 shares of common stock on the open market for $400.0 million in fiscal 2020 and we repurchased 1,967,355 shares of common stock on the open market for $200.0 million in fiscal 2019. We did not repurchase any shares of common stock in fiscal 2018. At January 30, 2021, we had $400.0 million remaining under Board repurchase authorization.
Subsequently, on March 2, 2021, the Board increased the share repurchase authorization by $2.0 billion resulting in a total share repurchase authorization of $2.4 billion.
Note 10 – Employee Benefit Plans
Dollar Tree Retirement Savings Plan
We maintain a defined contribution profit sharing and 401(k) plan which is available to all full-time, United States-based employees over 21 years of age. Eligible employees may make elective salary deferrals. We may make contributions, at our discretion, to eligible employees who have completed one year of service in which they have worked at least 1,000 hours.
Contributions to and reimbursements by us of expenses of the plan were recorded in the accompanying consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
January 30,
|
|
February 1,
|
|
February 2,
|
(in millions)
|
|
2021
|
|
2020
|
|
2019
|
Cost of sales
|
|
$
|
7.4
|
|
|
$
|
8.1
|
|
|
$
|
8.7
|
|
Selling, general and administrative expenses
|
|
19.0
|
|
|
17.0
|
|
|
32.7
|
|
Total
|
|
$
|
26.4
|
|
|
$
|
25.1
|
|
|
$
|
41.4
|
|
Eligible employees vest in our profit sharing contributions based on the following schedule:
|
|
|
|
|
|
•
|
20% after two years of service
|
•
|
40% after three years of service
|
•
|
60% after four years of service
|
•
|
100% after five years of service
|
All eligible employees are immediately vested in any company match contributions under the 401(k) portion of the plan.
Note 11 - Stock-Based Compensation Plans
Fixed Stock-Based Compensation Plans
Under our 2011 Omnibus Incentive Plan (“Omnibus Plan”), we may grant to our employees, including executive officers and independent contractors, up to 4.0 million shares of our Common Stock plus any shares available under former plans which were previously approved by the shareholders. The Omnibus Plan permits us to grant equity awards in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), performance bonuses, performance share units (“PSUs”), non-employee director stock options and other equity-related awards. These awards generally vest over a three-year period with a maximum term of 10 years. No awards may be granted under the Omnibus Plan after March 16, 2021.
Stock appreciation rights may be awarded alone or in tandem with stock options. When the stock appreciation rights are exercisable, the holder may surrender all or a portion of the unexercised stock appreciation right and receive in exchange an amount equal to the excess of the fair market value at the date of exercise over the fair market value at the date of the grant. No stock appreciation rights have been granted to date.
Any restricted stock, RSUs or PSUs awarded are subject to certain general restrictions. The restricted stock shares or units may not be sold, transferred, pledged or disposed of until the restrictions on the shares or units have lapsed or have been removed under the provisions of the plan. In addition, if a holder of restricted shares or units ceases to be employed by us, any shares or units in which the restrictions have not lapsed will be forfeited.
The 2013 Director Deferred Compensation Plan permits any of our directors who receive a retainer or other fees for Board or Board committee service to defer all or a portion of such fees until a future date, at which time they may be paid in cash or shares of our common stock, or receive all or a portion of such fees in non-statutory stock options. Deferred fees that are paid out in cash will earn interest at the 30-year Treasury Bond Rate. If a director elects to be paid in common stock, the number of shares will be determined by dividing the deferred fee amount by the closing market price of a share of our common stock on the date of deferral. The number of options issued to a director will equal the deferred fee amount divided by 33% of the price of a share of our common stock. The exercise price will equal the fair market value of our common stock at the date the option is issued. The options are fully vested when issued and have a term of 10 years.
In conjunction with the acquisition of Family Dollar in 2015, we assumed the Family Dollar Stores, Inc. 2006 Incentive Plan (the “2006 Plan”). The 2006 Plan permitted the granting of a variety of compensatory award types, including stock options and performance share rights.
Total stock-based compensation expense was recorded in the accompanying consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
January 30,
|
|
February 1,
|
|
February 2,
|
(in millions)
|
|
2021
|
|
2020
|
|
2019
|
Cost of sales
|
|
$
|
15.4
|
|
|
$
|
12.9
|
|
|
$
|
12.1
|
|
Selling, general and administrative expenses
|
|
68.5
|
|
|
48.5
|
|
|
51.2
|
|
Total stock-based compensation expense
|
|
$
|
83.9
|
|
|
$
|
61.4
|
|
|
$
|
63.3
|
|
Excess tax benefit (deficit) on stock-based compensation
recognized in the Provision for income taxes
|
|
$
|
(2.8)
|
|
|
$
|
3.8
|
|
|
$
|
(1.3)
|
|
Restricted Stock
We issue service-based RSUs to employees and officers and issue PSUs to certain of our officers. We recognize expense based on the estimated fair value of the RSUs or PSUs granted over the requisite service period, which is generally three years, on a straight-line basis or a shorter period based on the retirement eligibility of the grantee. The fair value of RSUs and PSUs is determined using our closing stock price on the date of grant.
Service-Based RSUs
The following table summarizes the status of service-based RSUs as of January 30, 2021 and changes during the year then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Grant Date Fair Value
|
Nonvested at February 1, 2020
|
|
1,049,081
|
|
|
$
|
95.17
|
|
Granted
|
|
850,132
|
|
|
73.24
|
|
Vested
|
|
(533,032)
|
|
|
91.05
|
|
Forfeited
|
|
(100,965)
|
|
|
82.78
|
|
Nonvested at January 30, 2021
|
|
1,265,216
|
|
|
$
|
83.16
|
|
The total fair value of the service-based restricted shares vested during the years ended January 30, 2021, February 1, 2020 and February 2, 2019 was $48.5 million, $55.5 million and $50.2 million, respectively. The weighted average grant date fair value of the RSUs granted in 2020, 2019 and 2018 was $73.24, $103.55 and $94.30, respectively. As of January 30, 2021, there was $53.5 million of total unrecognized compensation expense related to these RSUs which is expected to be recognized over a weighted-average period of 1.4 years.
PSUs
The following table summarizes the status of PSUs as of January 30, 2021 and changes during the year then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Grant Date Fair Value
|
Nonvested at February 1, 2020
|
|
320,500
|
|
|
$
|
99.29
|
|
Granted
|
|
428,377
|
|
|
74.46
|
|
Vested
|
|
(221,876)
|
|
|
88.12
|
|
Forfeited
|
|
(103,729)
|
|
|
85.84
|
|
Nonvested at January 30, 2021
|
|
423,272
|
|
|
$
|
82.67
|
|
The total fair value of the PSUs vested during the years ended January 30, 2021, February 1, 2020 and February 2, 2019 was $19.6 million, $3.3 million and $4.2 million, respectively. The weighted average grant date fair value of the PSUs granted in 2020, 2019 and 2018 was $74.46, $103.71 and $94.90, respectively. As of January 30, 2021, there was $17.2 million of total unrecognized compensation expense related to these RSUs which is expected to be recognized over a weighted-average period of one year.
Stock Options
Stock options are valued using the Black-Scholes option-pricing model and compensation expense is recognized on a straight-line basis over the requisite service period. Options granted in 2020, 2019 and 2018 are immaterial.
Certain of our directors elected to defer their compensation into stock options under the 2013 Director Deferred Compensation Plan. These options vest immediately and are expensed on the grant date.
The following tables summarize information about options outstanding at January 30, 2021 and changes during the year then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Per Share Exercise Price
|
|
Weighted Average Remaining Term (Years)
|
|
Aggregate Intrinsic Value
(in millions)
|
Outstanding, beginning of period
|
|
205,893
|
|
|
$
|
76.87
|
|
|
|
|
|
Granted
|
|
6,412
|
|
|
89.77
|
|
|
|
|
|
Exercised
|
|
(94,890)
|
|
|
74.19
|
|
|
|
|
|
Forfeited
|
|
(358)
|
|
|
76.97
|
|
|
|
|
|
Outstanding, end of period
|
|
117,057
|
|
|
$
|
79.75
|
|
|
4.4
|
|
$
|
2.6
|
|
Options vested and exercisable at January 30, 2021
|
|
117,057
|
|
|
$
|
79.75
|
|
|
4.4
|
|
$
|
2.6
|
|
The intrinsic value of options exercised during 2020, 2019 and 2018 was $0.9 million, $1.6 million and $12.3 million, respectively.
Note 12 – Segments and Disaggregated Revenue
We operate a chain of more than 15,600 retail discount stores in 48 states and five Canadian provinces. Our operations are conducted in two reporting business segments: Dollar Tree and Family Dollar. We define our segments as those operations whose results our CODM regularly reviews to analyze performance and allocate resources.
We measure the results of our segments using, among other measures, each segment’s net sales, gross profit and operating income. The CODM reviews these metrics for each of our reporting segments. We may revise the measurement of each segment’s operating income, as determined by the information regularly reviewed by the CODM. If the measurement of a segment changes, prior period amounts and balances are reclassified to be comparable to the current period’s presentation. Corporate, support and Other consists primarily of store support center costs that are considered shared services and therefore these selling, general and administrative costs are excluded from our two reporting business segments. These costs include operating expenses for our store support centers in Chesapeake, Virginia and Matthews, North Carolina. During fiscal 2019, we consolidated our Matthews, North Carolina store support center with our store support center in Chesapeake, Virginia. Corporate, support and Other also includes the results of operations for our Summit Pointe property in Chesapeake, Virginia. Amounts for the years ended February 1, 2020 and February 2, 2019 have been reclassified to be comparable to the current year presentation.
Information for our segments, as well as for Corporate, support and Other, including the reconciliation to Income (loss) before income taxes, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
January 30,
|
|
February 1,
|
|
February 2,
|
(in millions)
|
|
2021
|
|
2020
|
|
2019
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
Dollar Tree
|
|
$
|
13,265.0
|
|
|
$
|
12,507.9
|
|
|
$
|
11,712.1
|
|
Family Dollar
|
|
12,243.4
|
|
|
11,102.9
|
|
|
11,111.2
|
|
Corporate, support and Other
|
|
0.9
|
|
|
—
|
|
|
—
|
|
Consolidated Net sales
|
|
$
|
25,509.3
|
|
|
$
|
23,610.8
|
|
|
$
|
22,823.3
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
Dollar Tree
|
|
$
|
4,543.8
|
|
|
$
|
4,342.9
|
|
|
$
|
4,137.5
|
|
Family Dollar
|
|
3,243.6
|
|
|
2,697.8
|
|
|
2,810.0
|
|
Corporate, support and Other
|
|
0.9
|
|
|
—
|
|
|
—
|
|
Consolidated Gross profit
|
|
$
|
7,788.3
|
|
|
$
|
7,040.7
|
|
|
$
|
6,947.5
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
Dollar Tree
|
|
$
|
1,598.0
|
|
|
$
|
1,670.2
|
|
|
$
|
1,657.4
|
|
Family Dollar
|
|
655.6
|
|
|
(74.9)
|
|
|
(2,312.8)
|
|
Corporate, support and Other
|
|
(365.7)
|
|
|
(333.1)
|
|
|
(284.1)
|
|
Consolidated Operating income (loss)
|
|
1,887.9
|
|
|
1,262.2
|
|
|
(939.5)
|
|
Interest expense, net
|
|
147.3
|
|
|
162.1
|
|
|
370.0
|
|
Other expense (income), net
|
|
0.8
|
|
|
1.4
|
|
|
(0.5)
|
|
Income (loss) before income taxes
|
|
$
|
1,739.8
|
|
|
$
|
1,098.7
|
|
|
$
|
(1,309.0)
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
Dollar Tree
|
|
$
|
302.3
|
|
|
$
|
277.7
|
|
|
$
|
254.0
|
|
Family Dollar
|
|
352.6
|
|
|
337.9
|
|
|
345.3
|
|
Corporate, support and Other
|
|
31.8
|
|
|
30.1
|
|
|
22.1
|
|
Consolidated depreciation and amortization expense
|
|
$
|
686.7
|
|
|
$
|
645.7
|
|
|
$
|
621.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
January 30,
|
|
February 1,
|
(in millions)
|
|
2021
|
|
2020
|
Consolidated Balance Sheet Data:
|
|
|
|
|
Goodwill:
|
|
|
|
|
Dollar Tree
|
|
$
|
424.9
|
|
|
$
|
423.8
|
|
Family Dollar
|
|
1,559.5
|
|
|
1,559.5
|
|
Consolidated Goodwill
|
|
$
|
1,984.4
|
|
|
$
|
1,983.3
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
Dollar Tree
|
|
$
|
8,669.3
|
|
|
$
|
7,694.0
|
|
Family Dollar
|
|
11,562.2
|
|
|
11,484.9
|
|
Corporate, support and Other
|
|
464.5
|
|
|
395.7
|
|
Consolidated Total assets
|
|
$
|
20,696.0
|
|
|
$
|
19,574.6
|
|
|
|
|
|
|
Additions to property, plant and equipment:
|
|
|
|
|
Dollar Tree
|
|
$
|
470.4
|
|
|
$
|
547.5
|
|
Family Dollar
|
|
362.1
|
|
|
425.2
|
|
Corporate, support and Other
|
|
66.3
|
|
|
62.1
|
|
Consolidated additions to property, plant and equipment
|
|
$
|
898.8
|
|
|
$
|
1,034.8
|
|
Goodwill is reassigned between segments when previously acquired stores are re-bannered between segments. The goodwill related to previously acquired re-bannered stores in 2020 was not material. In 2019, we reassigned $47.6 million of goodwill from Family Dollar to Dollar Tree as a result of re-bannering. In addition, in the fourth quarters of 2019 and 2018, we recorded goodwill impairment charges of $313.0 million and $2.73 billion, respectively, to write down the Family Dollar goodwill. Refer to Note 3 for additional detail regarding impairment of the Family Dollar goodwill.
Disaggregated Revenue
The following table summarizes net sales by merchandise category for our segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
January 30,
|
|
February 1,
|
|
February 2,
|
(in millions)
|
|
2021
|
|
2020
|
|
2019
|
Dollar Tree segment net sales by
merchandise category:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumable
|
|
$
|
6,407.0
|
|
|
48.3
|
%
|
|
$
|
6,155.3
|
|
|
49.2
|
%
|
|
$
|
5,703.8
|
|
|
48.7
|
%
|
Variety
|
|
6,194.8
|
|
|
46.7
|
%
|
|
5,732.1
|
|
|
45.8
|
%
|
|
5,457.8
|
|
|
46.6
|
%
|
Seasonal
|
|
663.2
|
|
|
5.0
|
%
|
|
620.5
|
|
|
5.0
|
%
|
|
550.5
|
|
|
4.7
|
%
|
Total Dollar Tree segment net sales
|
|
$
|
13,265.0
|
|
|
100.0
|
%
|
|
$
|
12,507.9
|
|
|
100.0
|
%
|
|
$
|
11,712.1
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Family Dollar segment net sales by
merchandise category:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumable
|
|
$
|
9,367.8
|
|
|
76.5
|
%
|
|
$
|
8,604.7
|
|
|
77.5
|
%
|
|
$
|
8,466.7
|
|
|
76.2
|
%
|
Home products
|
|
1,078.1
|
|
|
8.8
|
%
|
|
866.0
|
|
|
7.8
|
%
|
|
911.1
|
|
|
8.2
|
%
|
Apparel and accessories
|
|
690.1
|
|
|
5.6
|
%
|
|
644.0
|
|
|
5.8
|
%
|
|
700.0
|
|
|
6.3
|
%
|
Seasonal and electronics
|
|
1,107.4
|
|
|
9.1
|
%
|
|
988.2
|
|
|
8.9
|
%
|
|
1,033.4
|
|
|
9.3
|
%
|
Total Family Dollar segment net sales
|
|
$
|
12,243.4
|
|
|
100.0
|
%
|
|
$
|
11,102.9
|
|
|
100.0
|
%
|
|
$
|
11,111.2
|
|
|
100.0
|
%
|
Note 13 - Quarterly Financial Information (Unaudited)
The following table sets forth certain items from our unaudited consolidated statements of operations for each quarter of fiscal year 2020 and 2019. The unaudited information has been prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this report and includes all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of the financial data shown. The operating results for any quarter are not necessarily indicative of results for a full year or for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions, except diluted net income per share data)
|
|
First
Quarter1
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
Fiscal 2020:
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
6,286.8
|
|
|
$
|
6,277.6
|
|
|
$
|
6,177.0
|
|
|
$
|
6,767.9
|
|
Gross profit
|
|
$
|
1,794.9
|
|
|
$
|
1,916.2
|
|
|
$
|
1,924.4
|
|
|
$
|
2,152.8
|
|
Operating income
|
|
$
|
365.9
|
|
|
$
|
374.9
|
|
|
$
|
465.5
|
|
|
$
|
681.6
|
|
Net income
|
|
$
|
247.6
|
|
|
$
|
261.5
|
|
|
$
|
330.0
|
|
|
$
|
502.8
|
|
Diluted net income per share
|
|
$
|
1.04
|
|
|
$
|
1.10
|
|
|
$
|
1.39
|
|
|
$
|
2.13
|
|
Stores open at end of quarter
|
|
15,370
|
|
|
15,479
|
|
|
15,606
|
|
|
15,685
|
|
Comparable store net sales change2
|
|
7.0
|
%
|
|
7.2
|
%
|
|
5.1
|
%
|
|
4.9
|
%
|
Fiscal 2019:
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
5,808.7
|
|
|
$
|
5,740.6
|
|
|
$
|
5,746.2
|
|
|
$
|
6,315.3
|
|
Gross profit
|
|
$
|
1,727.2
|
|
|
$
|
1,648.5
|
|
|
$
|
1,704.5
|
|
|
$
|
1,960.5
|
|
Operating income3,4
|
|
$
|
385.5
|
|
|
$
|
268.9
|
|
|
$
|
358.4
|
|
|
$
|
249.4
|
|
Net income3,4,5
|
|
$
|
267.9
|
|
|
$
|
180.3
|
|
|
$
|
255.8
|
|
|
$
|
123.0
|
|
Diluted net income per share3,4,5
|
|
$
|
1.12
|
|
|
$
|
0.76
|
|
|
$
|
1.08
|
|
|
$
|
0.52
|
|
Stores open at end of quarter
|
|
15,264
|
|
|
15,115
|
|
|
15,262
|
|
|
15,288
|
|
Comparable store net sales change2
|
|
2.2
|
%
|
|
2.4
|
%
|
|
2.5
|
%
|
|
0.4
|
%
|
______________
1 Easter was observed on April 12, 2020 and April 21, 2019.
2 The comparable store net sales change calculation includes only those stores that are open throughout both of the periods being compared, beginning after the first fifteen months of operation.
3 In 2019, the results of the annual goodwill impairment test showed that the fair value of the Family Dollar reporting unit was lower than its carrying value, resulting in a $313.0 million non-cash pre-tax and after-tax goodwill impairment charge in the fourth quarter of fiscal 2019. This goodwill impairment charge reduced diluted net income per share by $1.32 per share in the fourth quarter of 2019.
4 In the fourth quarter of 2019, we recorded an $18.0 million charge to our litigation reserve. The recognition of this liability reduced diluted net income per share in the fourth quarter of 2019 by $0.06.
5 In the fourth quarter of 2019, we evaluated our foreign net operating loss carryforwards and determined that we expect to utilize the carryforwards for which we previously had provided a valuation allowance. The reduction of the valuation allowance increased net income and diluted net income per share in the fourth quarter of 2019 by $24.6 million and $0.10 per share, respectively.