10-Q 1 dltr-2016x10x29x10q.htm 10-Q FOR THE QUARTERLY PERIOD ENDED OCTOBER 29, 2016 Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q
(Mark One)
(X)
Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the quarterly period ended October 29, 2016
OR
( )
Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Commission File Number: 0-25464
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DOLLAR TREE, INC.
(Exact name of registrant as specified in its charter)

Virginia
 
26-2018846
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)

500 Volvo Parkway
Chesapeake, Virginia 23320
(Address of principal executive offices)

Telephone Number (757) 321-5000
(Registrant's telephone number, including area code)

Indicate by check mark whether 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 ( )

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).
Yes (X)
No ( )

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.        
Large accelerated filer (X)
Accelerated filer ( )
Non accelerated filer ( )
Smaller reporting company ( )

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ( )
No (X)

As of November 29, 2016, there were 236,071,417 shares of the Registrant's Common Stock outstanding.




DOLLAR TREE, INC.
INDEX
 
 
Page
 
PART I - FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements:
 
 
 
 
 
Unaudited Condensed Consolidated Income Statements for the 13 and 39 Weeks Ended October 29, 2016 and October 31, 2015
 
 
 
 
Unaudited Condensed Consolidated Statements of Comprehensive Income for the 13 and 39 Weeks Ended October 29, 2016 and October 31, 2015
 
 
 
 
Unaudited Condensed Consolidated Balance Sheets as of October 29, 2016, January 30, 2016 and October 31, 2015
 
 
 
 
Unaudited Condensed Consolidated Statements of Cash Flows for the 39 Weeks Ended October 29, 2016 and October 31, 2015
 
 
 
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 3.
Defaults Upon Senior Securities
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits
 
 
 
 
Signatures

2



Part I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

DOLLAR TREE, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
October 29,
 
October 31,
 
October 29,
 
October 31,
(in millions, except per share data)
 
2016
 
2015
 
2016
 
2015
Net sales
 
$
5,001.6

 
$
4,945.2

 
$
15,083.7

 
$
10,133.1

Cost of sales
 
3,481.1

 
3,545.2

 
10,496.3

 
7,129.0

Gross profit
 
1,520.5

 
1,400.0

 
4,587.4

 
3,004.1

Selling, general and administrative expenses
 
1,178.1

 
1,176.3

 
3,469.1

 
2,424.2

Operating income
 
342.4

 
223.7

 
1,118.3

 
579.9

Interest expense, net
 
112.1

 
98.4

 
286.7

 
484.6

Other (income) expense, net
 
0.1

 
0.6

 
(0.1
)
 
(0.4
)
Income before income taxes
 
230.2

 
124.7

 
831.7

 
95.7

Income tax expense
 
58.6

 
42.8

 
257.3

 
42.3

Net income
 
$
171.6

 
$
81.9

 
$
574.4

 
$
53.4

Basic net income per share
 
$
0.73

 
$
0.35

 
$
2.44

 
$
0.24

Diluted net income per share
 
$
0.72

 
$
0.35

 
$
2.43

 
$
0.24

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


3



DOLLAR TREE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
October 29,
 
October 31,
 
October 29,
 
October 31,
(in millions)
 
2016
 
2015
 
2016
 
2015
Net income
 
$
171.6

 
$
81.9

 
$
574.4

 
$
53.4

 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(2.4
)
 
0.1

 
4.2

 
(3.5
)
 
 
 
 
 
 
 
 
 
Total comprehensive income
 
$
169.2

 
$
82.0

 
$
578.6

 
$
49.9


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.



4



DOLLAR TREE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in millions)
 
October 29, 2016
 
January 30, 2016
 
October 31, 2015
ASSETS
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
733.8

 
$
736.1

 
$
1,106.9

Short-term investments
 
4.0

 
4.0

 
4.0

Merchandise inventories, net
 
3,273.9

 
2,885.5

 
3,185.3

Current deferred tax assets, net
 

 

 
96.6

Other current assets
 
330.7

 
310.3

 
235.2

Total current assets
 
4,342.4

 
3,935.9

 
4,628.0

Property, plant and equipment, net of accumulated depreciation
   of $2,567.3, $2,172.0 and $2,026.7, respectively
 
3,176.3

 
3,125.5

 
3,141.0

Assets available for sale
 
11.6

 
12.1

 
10.1

Goodwill
 
5,022.9

 
5,021.7

 
5,024.1

Deferred tax assets, net
 

 

 
19.2

Favorable lease rights, net
 
493.8

 
569.4

 
595.0

Tradename intangible asset
 
3,100.0

 
3,100.0

 
3,100.0

Other intangible assets, net
 
5.2

 
5.8

 
6.1

Other assets
 
42.8

 
130.8

 
175.5

Total assets
 
$
16,195.0

 
$
15,901.2

 
$
16,699.0

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 

 
 

 
 

Current liabilities:
 
 

 
 

 
 

Current portion of long-term debt
 
$
145.8

 
$
108.0

 
$
95.5

Accounts payable
 
1,266.4

 
1,251.9

 
1,259.3

Other current liabilities
 
722.0

 
722.6

 
785.3

Income taxes payable
 

 
12.9

 
21.1

Total current liabilities
 
2,134.2

 
2,095.4

 
2,161.2

Long-term debt, net, excluding current portion
 
6,938.0

 
7,238.4

 
8,248.0

Unfavorable lease rights, net
 
130.2

 
149.3

 
155.5

Deferred tax liabilities, net
 
1,495.5

 
1,586.6

 
1,634.7

Income taxes payable, long-term
 
72.3

 
71.4

 
33.9

Other liabilities
 
377.1

 
353.2

 
323.5

Total liabilities
 
11,147.3

 
11,494.3

 
12,556.8

Commitments and contingencies
 
 
 
 
 
 
Shareholders' equity
 
5,047.7

 
4,406.9

 
4,142.2

Total liabilities and shareholders' equity
 
$
16,195.0

 
$
15,901.2

 
$
16,699.0

 
 
 
 
 
 
 
Common shares outstanding
 
236.0

 
235.0

 
234.8

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.



5



DOLLAR TREE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
39 Weeks Ended
 
 
October 29,
 
October 31,
(in millions)
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net income
 
$
574.4

 
$
53.4

Adjustments to reconcile net income to net cash provided by (used in) operating
   activities:
 
 

 
 

Depreciation and amortization
 
481.8

 
312.5

Provision for deferred taxes
 
(91.1
)
 
(67.4
)
Amortization of debt discount and debt-issuance costs
 
39.5

 
9.8

Other non-cash adjustments to net income
 
58.6

 
47.2

Changes in operating assets and liabilities
 
(407.9
)
 
(384.5
)
Net cash provided by (used in) operating activities
 
655.3

 
(29.0
)
Cash flows from investing activities:
 
 

 
 

Capital expenditures
 
(451.5
)
 
(336.5
)
Acquisition of Family Dollar, net of common stock issued, equity compensation and cash
   acquired
 

 
(6,527.7
)
Purchase of restricted investments
 
(36.1
)
 
(12.0
)
Proceeds from sale of restricted investments
 
118.1

 

Proceeds from (payments for) fixed asset disposition
 
1.2

 
(0.4
)
Net cash used in investing activities
 
(368.3
)
 
(6,876.6
)
Cash flows from financing activities:
 
 

 
 

Principal payments for long-term debt
 
(3,258.5
)
 
(956.0
)
Proceeds from long-term debt, net of discount
 
2,962.5

 
8,200.0

Debt-issuance costs
 
(6.1
)
 
(90.0
)
Repayments of revolving credit facility
 
(140.0
)
 

Proceeds from revolving credit facility
 
140.0

 

Proceeds from stock issued pursuant to stock-based compensation plans
 
33.3

 
6.2

Cash paid for taxes on exercises/vesting of stock-based compensation
 
(21.2
)
 
(21.5
)
Tax benefit of exercises/vesting of stock-based compensation
 

 
10.2

Net cash provided by (used in) financing activities
 
(290.0
)
 
7,148.9

Effect of exchange rate changes on cash and cash equivalents
 
0.7

 
(0.5
)
Net increase (decrease) in cash and cash equivalents
 
(2.3
)
 
242.8

Cash and cash equivalents at beginning of period
 
736.1

 
864.1

Cash and cash equivalents at end of period
 
$
733.8

 
$
1,106.9

Supplemental disclosure of cash flow information:
 
 

 
 

Cash paid for:
 
 

 
 

Interest, net of amounts capitalized
 
$
302.8

 
$
443.2

Income taxes
 
$
399.1

 
$
133.7

Non-cash transactions:
 
 
 
 
Accrued capital expenditures
 
$
71.5

 
$
34.3

Acquisition cost paid in common stock
 
$

 
$
2,272.4

 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.


6



DOLLAR TREE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Dollar Tree, Inc. and its wholly-owned subsidiaries (the "Company") have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and are presented in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended January 30, 2016 contained in the Company's Annual Report on Form 10-K filed March 28, 2016. The results of operations for the 13 and 39 weeks ended October 29, 2016 are not necessarily indicative of the results to be expected for the entire fiscal year ending January 28, 2017.
In the Company's opinion, the unaudited condensed consolidated financial statements included herein contain all adjustments (including those of a normal recurring nature) considered necessary for a fair presentation of its financial position as of October 29, 2016 and October 31, 2015 and the results of its operations and cash flows for the periods presented. The January 30, 2016 balance sheet information was derived from the audited consolidated financial statements as of that date.
On July 6, 2015, the Company acquired Family Dollar Stores, Inc. ("Family Dollar") for cash consideration of $6.8 billion and the issuance of 28.5 million shares of the Company's common stock valued at $2.3 billion based on the closing price of the Company's common stock on July 2, 2015 (the "Acquisition"). The results of operations of Family Dollar are included in the Company's results of operations beginning on July 6, 2015 (the "Acquisition Date").
In the first quarter of 2016, the Company adopted Accounting Standards Update ("ASU") No. 2016-09, "Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting." This update provides for simplification of the accounting for share-based payment transactions, including the income tax consequences and classification on the statement of cash flows. Under the update, the excess tax benefits and deficiencies that result from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes should be recognized as income tax expense or benefit in the reporting period in which they occur. Previously, the excess tax benefits were recognized in additional paid-in capital and tax deficiencies were recognized either as an offset to accumulated excess tax benefits, if any, or in the income statement. This amendment has been adopted by the Company on a prospective basis. The update also provides that excess tax benefits should be classified along with other income tax cash flows as an operating activity on the statement of cash flows. Prior to the update, excess tax benefits were separated from other income tax cash flows and classified as a financing activity. This amendment has been adopted by the Company on a prospective transition method basis. Additionally, cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity on the statement of cash flows. Previously, no guidance was provided for cash flow classification of cash paid for tax-withholding purposes for shares withheld for tax purposes. This amendment has been adopted by the Company on a retrospective basis. As a result of the retrospective adoption of this amendment, $21.5 million was reclassified in the accompanying Condensed Consolidated Statements of Cash Flows from "Changes in operating assets and liabilities" to "Cash paid for taxes on exercises/vesting of stock-based compensation" for the 39 weeks ended October 31, 2015. Under the update, an entity can elect to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The Company has elected to account for forfeitures when they occur. All amendments of the update have been adopted for all periods beginning on or after January 31, 2016. The effect of the adoption of ASU No. 2016-09 on Retained earnings was not material.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This update will replace existing revenue recognition guidance in GAAP and requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In July 2015, the FASB deferred the effective date of the new standard to interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, but not before the original effective date for public business entities (interim and annual reporting periods beginning after December 15, 2016). ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. The Company does not expect the adoption of this pronouncement to have a material impact on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases." This update will replace existing lease guidance in GAAP and will require lessees to recognize lease assets and lease liabilities on the balance sheet for all leases and disclose key information about leasing arrangements, such as information about variable lease payments and options to renew and terminate leases. When implemented, lessees and lessors will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The update is effective for interim and annual reporting periods beginning after December

7



15, 2018. Early adoption is permitted. The Company is currently finalizing its implementation plan and evaluating the impact of the new pronouncement on its consolidated financial statements.
2. ACQUISITION
No adjustments to the fair values of the identifiable assets acquired and liabilities assumed as of the Acquisition Date of July 6, 2015 were recorded in fiscal 2016. The measurement period closed during the second quarter of 2016.
Goodwill is calculated as the excess of the purchase price over the net assets acquired. The goodwill recognized is attributable to growth opportunities and expected synergies of at least $300 million annually, which is expected to be achieved by the third year following the Acquisition Date. Expected sources of synergies include the following:
Savings from sourcing and procurement of merchandise and non-merchandise goods and services driven by leveraging the combined volume of the Dollar Tree and Family Dollar banners, among other things;
Rebannering to optimize store formats;
A reduction in overhead and corporate selling, general and administrative expenses by eliminating redundant positions and optimizing processes; and
Savings resulting from the optimization of distribution and logistics networks.
The following unaudited consolidated pro forma summary has been prepared by adjusting the Company's historical data to give effect to the Acquisition as if it had occurred on February 2, 2014:
 
 
Pro Forma - Unaudited
 
 
39 Weeks Ended
(in millions, except per share data)
 
October 31, 2015
Net sales
 
$
14,417.3

Net income
 
$
289.3

Basic net income per share
 
$
1.23

Diluted net income per share
 
$
1.23

The unaudited consolidated pro forma financial information was prepared in accordance with existing standards and is not necessarily indicative of the results of operations that would have occurred if the Acquisition had been completed on the date indicated, nor is it indicative of the future operating results of the Company.
The unaudited pro forma results do not reflect events that either have occurred or may occur after the Acquisition, including, but not limited to, the anticipated realization of ongoing savings from operating synergies in subsequent periods. They also do not give effect to certain charges that the Company incurred in connection with the Acquisition, including, but not limited to, additional professional fees, employee integration, retention and severance costs, potential asset impairments, or product rationalization charges. Material non-recurring adjustments excluded from the pro forma financial information above consist of the effects of the divested stores and the step-up of Family Dollar inventory to its fair value. Acquisition expenses totaled $11.8 million and $38.7 million in the 13 and 39 weeks ended October 31, 2015, respectively.
For more detailed discussions of the Acquisition, please see "Note 2 - Acquisition" of "Item 8. Financial Statements and Supplementary Data" and the "Acquisition” section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K filed March 28, 2016.
3. LONG-TERM DEBT
Acquisition Notes
In 2015, the Company completed the offering of $750.0 million aggregate principal amount of 5.25% senior notes due 2020 (the “2020 Notes”) and $2.5 billion aggregate principal amount of 5.75% senior notes due 2023 (the “2023 Notes,” and together with the 2020 Notes, the “Acquisition Notes”). The Acquisition Notes were offered only to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States, only to non-U.S. investors pursuant to Regulation S under the Securities Act. On August 1, 2016, the Company completed the exchange of the Acquisition Notes for registered notes with substantially identical terms. The Acquisition Notes are fully, unconditionally, jointly and severally guaranteed on an unsecured, unsubordinated basis, subject to certain exceptions, by each of the Company’s subsidiaries

8



which guarantee the obligations under the Company’s senior secured credit facilities or certain other indebtedness, including Family Dollar and certain of its subsidiaries.
The Acquisition Notes were issued pursuant to indentures, which contain covenants that limit the ability of the Company and certain of its subsidiaries to, among other things and subject to certain significant exceptions: (i) incur, assume or guarantee additional indebtedness; (ii) declare or pay dividends or make other distributions with respect to, or purchase or otherwise acquire or retire for value, equity interests; (iii) make any principal payment on, or redeem or repurchase, subordinated debt; (iv) make loans, advances or other investments; (v) incur liens; (vi) sell or otherwise dispose of assets, including capital stock of subsidiaries; (vii) consolidate or merge with or into, or sell all or substantially all assets to, another person; and (viii) enter into transactions with affiliates. The indentures also provide for certain events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Acquisition Notes under the applicable indenture to be declared immediately due and payable.
The restriction in the indentures on the Company's ability to pay dividends is subject to certain significant exceptions, including an exception that permits the Company to pay dividends and make other distributions regardless of dollar amount so long as, after giving pro forma effect thereto, the Company would have a consolidated total net leverage ratio, as defined under the indentures, no greater than 3.50 to 1.00. As of October 29, 2016, the Company's consolidated total net leverage ratio, as defined in the indentures, was below 3.50 to 1.00. So long as the Company's consolidated total net leverage ratio remains below 3.50 to 1.00, the indentures do not restrict the ability of the Company to pay dividends.
Credit Facility and Term Loans
In 2015, the Company entered into a credit agreement, with JPMorgan Chase Bank, N.A., as administrative agent, providing for $6.2 billion in senior secured credit facilities (the “New Senior Secured Credit Facilities”) consisting of a $1.25 billion revolving credit facility (the “New Revolving Credit Facility”) and $4.95 billion of term loan facilities (the “New Term Loan Facilities”).
The New Senior Secured Credit Facilities contain representations and warranties, events of default and affirmative and negative covenants. These include, among other things and subject to certain significant exceptions, restrictions on the Company's ability to declare or pay dividends, repay the Acquisition Notes, create liens, incur additional indebtedness, make investments, dispose of assets and merge or consolidate with any other person. In addition, a financial maintenance covenant based on the Company’s consolidated first lien secured net leverage ratio applies to the New Revolving Credit Facility and the Term Loan A tranche of the New Term Loan Facilities.
The restriction in the New Senior Secured Credit Facilities on the Company's ability to pay dividends is subject to certain significant exceptions, including an exception that permits the Company to pay dividends and make other restricted payments regardless of dollar amount so long as, after giving pro forma effect thereto, the Company would have a consolidated total net leverage ratio, as defined under the New Senior Secured Credit Facilities, no greater than 3.50 to 1.00. As of October 29, 2016, the Company's consolidated total net leverage ratio, as defined in the New Senior Secured Credit Facilities, was below 3.50 to 1.00. So long as the Company's consolidated total net leverage ratio remains below 3.50 to 1.00, the New Senior Secured Credit Facilities do not restrict the ability of the Company to pay dividends.
On August 30, 2016, the Company entered into an amendment (the "Third Amendment") to the New Senior Secured Credit Facilities. The Third Amendment reduced the applicable interest rate margin with respect to the Term Loan A tranche of the Company's New Term Loan Facilities, which had $937.5 million outstanding immediately prior to the date of the Third Amendment, and the Company’s New Revolving Credit Facility, which was undrawn other than letters of credit immediately prior to the date of the Third Amendment. The reduction in the interest rate margins was accomplished by replacing the existing Term Loan A tranche with a new Term Loan A-1 tranche and the New Revolving Credit Facility with new revolving facility commitments (the “Tranche A Revolving Credit Facility”) that, except as set forth below, have terms identical to the existing Term Loan A tranche and New Revolving Credit Facility. As a result, the total amount borrowed under the Third Amendment was unchanged from the total amount borrowed under the New Senior Secured Credit Facilities.
Loans made under the Tranche A Revolving Credit Facility or the Term Loan A-1 tranche will bear interest at LIBOR plus 1.75% annually (or a base rate plus 0.75%) until the Company delivers its quarterly compliance certificate to the lenders outlining its secured net leverage ratio for the quarter ended January 28, 2017. Prior to that date, the Company will pay a commitment fee on the unused portion of the Tranche A Revolving Credit Facility of 0.30% annually. After January 28, 2017, loans made under the Tranche A Revolving Credit Facility or the Term Loan A-1 tranche will bear interest at LIBOR plus 1.50% to 2.25% or at a base rate plus 0.50% to 1.25% and the Company will pay a commitment fee on the unused portion of the Tranche A Revolving Credit Facility ranging from 0.25% to 0.375% (in each case, determined based on the Company’s secured net leverage ratio).
Beginning on January 13, 2017, loans made under the Term Loan A-1 tranche will require quarterly amortization payments of 1.25% of the original principal amount until April 15, 2017 and 1.875% after April 15, 2017.

9



The restrictive covenants and events of default in the Third Amendment are unchanged from the provisions in the New Senior Secured Credit Facilities.
On September 22, 2016, the Company entered into an amendment (the "Fourth Amendment") to the New Senior Secured Credit Facilities. The Fourth Amendment provided for an additional $1,275.0 million in additional principal amounts under the Term Loan A-1 tranche and $750.0 million in total principal amount of Term B-3 Loans. The proceeds of the additional loans under the Term Loan A-1 tranche and the Term B-3 Loans were used to prepay the $2,025.0 million of existing Term B-1 Loans. In addition, the Company used $242.0 million of cash on hand to prepay the remainder of the Term B-1 Loans.
The additional loans under the Term Loan A-1 tranche have terms identical to the Term Loan A-1 tranche made under the Third Amendment to the New Senior Secured Credit Facilities. The Term B-3 Loans have terms identical to the Term B-1 Loans under the New Senior Secured Credit Facilities, except as set forth below.
The Term B-3 Loans will bear interest at LIBOR plus 2.50% annually (or a base rate plus 1.50%).
Beginning on January 13, 2017, the Term B-3 Loans will require quarterly amortization payments of 0.25% of the original principal amount until maturity.
The obligations and additional loans under the Tranche A Revolving Credit Facilities, the Term Loan A-1 tranche and the Term B-3 Loans are secured by the same collateral and subject to the same guarantees as the other classes of loans under the New Senior Secured Credit Facilities. The restrictive covenants and events of default in the Fourth Amendment are substantially the same as the provisions in the New Senior Secured Credit Facilities.
In connection with the Third Amendment and Fourth Amendment to the New Senior Secured Credit Facilities, the Company accelerated the expensing of approximately $26.6 million of amortizable non-cash deferred financing costs and expensed approximately $2.6 million in transaction-related costs.
Debt Covenants
As of October 29, 2016, the Company was in compliance with its debt covenants.
4. INCOME TAXES
The Company's effective tax rate was 25.5% for the 13 weeks ended October 29, 2016 compared with 34.3% for the 13 weeks ended October 31, 2015 and 30.9% for the 39 weeks ended October 29, 2016 compared with 44.2% for the 39 weeks ended October 31, 2015. On August 2, 2016, the state of North Carolina announced that it would lower its corporate income tax rate from 4% to 3% for tax years beginning on or after January 1, 2017. This change in North Carolina’s statutory rate significantly decreased the deferred tax liability related to the trade name intangible asset and resulted in a $21.4 million decrease in tax expense in the third quarter of 2016. The effective tax rate for the 39 weeks ended October 29, 2016 is impacted by the change in North Carolina's corporate income tax rate, a one-time election allowing the Family Dollar acquisition to be treated as an asset purchase for certain state tax purposes and the adoption of ASU No. 2016-09 under which the incremental tax benefit recognized upon RSU vesting is recorded in income tax expense.
5. LEGAL PROCEEDINGS
The Company is a defendant in legal proceedings including those described below and will vigorously defend itself in these matters. The Company does not believe that any of these matters will, individually or in the aggregate, have a material effect on its business or financial condition. The Company cannot give assurance, however, that one or more of these matters will not have a material effect on its results of operations for the quarter or year in which they are resolved.
The Company assesses its legal proceedings and reserves are established if a loss is probable and the amount of such loss can be reasonably estimated. Many if not substantially all of the contingencies described below 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 the Company has determined that a loss is reasonably possible but not probable, the Company is 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. The Company’s 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 the Company 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.

10



Dollar Tree Active Matters
In 2013, a former assistant store manager on behalf of himself and others alleged to be similarly aggrieved filed a representative Private Attorney General Act ("PAGA") claim under California law currently pending in federal court in California. The suit alleges that the Company failed to provide uninterrupted meal periods and rest breaks; failed to pay minimum, regular and overtime wages; failed to maintain accurate time records and wage statements; and failed to pay wages due upon termination of employment. In May 2014, the same assistant store manager filed a putative class action in a California state court for essentially the same conduct alleged in the federal court PAGA case. The parties have reached an agreement to settle the two cases and the proposed settlement amount has been accrued. The two courts must approve the terms of the settlement for it to be binding and final.
In May 2014, the US Consumer Product Safety Commission ("CPSC") began a staff investigation of circumstances related to Letters of Advice that the Company received from the CPSC from 2009 to 2013. The CPSC is now investigating Letters of Advice the Company received in 2014 and 2015. It is possible for a penalty and an injunction to be issued against the Company.
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. The employee filed an amended complaint in which he abandoned his attempt to certify a nation-wide class of non-exempt distribution center employees for alleged improper calculation of overtime compensation. The Company removed this lawsuit to federal court.
In April 2015, a former store manager filed a class action in California state court alleging store managers were improperly classified as exempt employees and, among other things, did not receive overtime compensation and meal and rest periods and alleging PAGA claims on behalf of all store employees, including claims for failure to provide accurate wage statements.
In November 2015, the Company was served in a PAGA representative action under California law in California state court on behalf of former assistant store managers alleging defective wage statements. This case has been stayed pending the outcome of previously filed lawsuits alleging defective wage statements.
In April 2016, the Company was served with a putative class action in Florida state court brought by a former store employee asserting the Company violated the Fair Credit Reporting Act in the way it handled background checks. Specifically, the former employee alleged the Company used disclosure forms that did not meet the statute’s requirements and failed to provide notices accompanied by background reports prior to taking adverse actions against prospective and existing employees based on information in the background reports. The plaintiff is seeking statutory damages of $100 to $1,000 per violation.
In July 2016, a former non-exempt sales associate filed in federal court in Arkansas a putative nationwide collective action alleging the Company forced sales associates and assistant store managers to work off the clock while clocked out for meal breaks and, as a result, underpaid regular and overtime pay. In September 2016, the court granted the Company’s motion to compel arbitration.
In October 2016, a former employee filed a PAGA representative action in California state court alleging the Company failed to provide California employees information concerning the amount of sick leave available to them.
Dollar Tree Resolved Matters
In 2011, an assistant store manager and an hourly associate filed a collective action against the Company alleging they were forced to work off the clock in violation of the Fair Labor Standards Act (“FLSA”) and state law. A federal judge in Virginia ruled that all claims made on behalf of assistant store managers under both the FLSA and state law should be dismissed. The court, however, certified an opt-in collective action under the FLSA on behalf of hourly sales associates. Approximately 4,300 plaintiffs remained in the case. The court approved settlement of the lawsuit which it has now dismissed. The settlement amount has been paid.
In February 2016, the Company was served in a putative collective action under the Fair Labor Standards Act in Florida federal court. The case was resolved without any class being certified.
Family Dollar Active Matters
In 2008, a complaint was filed alleging discriminatory practices with respect to the pay of Family Dollar's female store managers. Among other things, the plaintiffs seek recovery of back pay, monetary and punitive remedies, interest, attorneys' fees, and equitable relief. In June 2016, the United States District Court in North Carolina ordered that the case be continued for merits discovery. The court also certified the case as a class action of approximately 30,000 current and former female store managers employed as far back as July 2002. The court stated that it could modify its order or even decertify the action in the future as the case develops. The Company believes the class action cannot be certified under the principles of Wal-Mart Stores, Inc. v. Dukes and prevailing case law. If the case remains certified, the Company believes the class can only cover Family Dollar store managers

11



beginning in late 2006 under any circumstance. Although the Company believes that insurance is available for this matter, potential losses may materially exceed policy coverage if plaintiffs substantially prevail. The Company disagrees with plaintiffs’ claims, does not believe the class should remain certified, and will vigorously defend itself in this matter.
In 2014, a putative class action was filed in a California Federal Court by a former employee alleging that the Company had a policy of requiring employee bag checks while the employees were not clocked in for work. As a result of those actions, the employee alleges the Company violated California law by failing to provide meal periods and rest breaks, failing to pay regular and overtime wages for work performed off the clock, failing to provide accurate wage statements, failing to timely pay all final wages and by engaging in unfair competition. He has also alleged PAGA claims. The former employee dismissed the individual claims after the court ruled that the claims were subject to arbitration. The court ruled that the PAGA claims may proceed.
In 2014, a former employee brought a putative class action and asserted claims under PAGA alleging the Company failed to provide suitable seating to its California store employees. The case had been stayed pending a ruling by the California Supreme Court on whether a drug store retailer has an obligation to provide suitable seating to drug store cashiers. The California Supreme Court has ruled, the stay has been lifted and the parties are beginning discovery.
In 2015, former employees filed a nationwide class action in federal court in Connecticut alleging the Company had violated ERISA by overcharging employees who purchased supplemental life insurance through a Company sponsored plan. In March, 2016, the district court dismissed the lawsuit. Plaintiffs have appealed the dismissal to the Second Circuit Court of Appeals.
Family Dollar Resolved Matters
In 2008, a Multi-District Litigation forum ("MDL") was created in North Carolina federal court to handle cases alleging FLSA violations against the Company. In the first two cases, the court entered orders finding the plaintiffs were not similarly situated and, therefore, neither nationwide notice nor collective treatment under the FLSA was appropriate. Since that time, the court has granted 60 summary judgments ruling Store Managers are properly classified as exempt from overtime. The remaining plaintiffs have now signed an agreement with the Company to settle all remaining cases. The settlement agreements have been approved by the courts handling the cases and all settlement monies have been fully paid.
In 2013, plaintiffs filed a claim in Massachusetts seeking unpaid overtime for a class of current and former Massachusetts Store Managers whom plaintiffs claim are not properly classified as exempt from overtime under Massachusetts law. The plaintiffs have signed an agreement with the Company to settle the class action. The court approved the settlement and the settlement amount has been paid.
In 2014, the Company was served with a putative class action in Missouri Federal Court alleging the Company sent customers Short Message Service ("SMS") text message advertisements, without providing appropriate express written consent in violation of the Telephone Consumer Protection Act. The plaintiff signed an agreement with the Company to settle the class action. The court approved the settlement and the settlement amount has been paid.
In 2014, a former employee filed a nationwide class action in federal court in Virginia alleging the Company violated the Fair Credit Reporting Act by failing to comply with its requirements to give an individual proper notice and a reasonable time to challenge the results of a background check before taking action to deny the person employment (or terminate existing employment). The plaintiffs were seeking statutory damages of $100 to $1,000 per violation. The district court granted the Company’s motion for summary judgment in July 2016 without any liability to the Company. Plaintiffs did not appeal and this case is now resolved.
6. FAIR VALUE MEASUREMENTS
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. The Company's 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.

12



The following table sets forth the Company's financial assets and liabilities that are accounted for at fair value on a recurring basis:
(in millions)
 
October 29,
2016
 
January 30,
2016
 
October 31,
2015
Level 1
 
 
 
 
 
 
Restricted investments
 
$

 
$
82.0

 
$
82.4

Short-term investments
 
4.0

 
4.0

 
4.0

Long-term debt - Secured Senior Notes and Acquisition Notes
 
3,754.4

 
3,754.6

 
3,728.0

Level 2
 
 
 
 
 
 
Restricted investments
 

 

 
34.0

Diesel fuel swap liabilities
 

 
0.8

 
2.3

Long-term debt - term loans
 
3,617.6

 
3,886.1

 
4,921.1

The Company's cash and cash equivalents are valued at cost, which approximates fair value, due to the short-term maturities of these instruments.
The fair values of the diesel fuel swaps were estimated using discounted cash flow calculations based upon forward interest-rate yield and diesel cost curves. The curves were obtained from independent pricing services reflecting broker market quotes. As of October 29, 2016, the Company did not have any diesel fuel swaps outstanding.
The fair values of the Company's Secured Senior Notes and Acquisition Notes were determined using Level 1 inputs as quoted prices in active markets for identical assets or liabilities are available. The fair values of the Company's term loans were determined using Level 2 inputs as quoted prices are readily available from pricing services, but the prices are not published. The carrying values of the Company's Tranche A Revolving Credit Facility approximated their fair values because the interest rates vary with market interest rates.
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). The Company did not record any significant impairment charges during the 13 or 39 weeks ended October 29, 2016.
7. NET INCOME PER SHARE
The following table sets forth the calculations of basic and diluted net income per share:
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
October 29,
 
October 31,
 
October 29,
 
October 31,
(in millions, except per share data)
 
2016
 
2015
 
2016
 
2015
Basic net income per share:
 
 
 
 
 
 
 
 
Net income
 
$
171.6

 
$
81.9

 
$
574.4

 
$
53.4

Weighted average number of shares outstanding
 
235.8

 
234.7

 
235.6

 
218.4

Basic net income per share
 
$
0.73

 
$
0.35

 
$
2.44

 
$
0.24

Diluted net income per share:
 
 
 
 
 
 
 
 
Net income
 
$
171.6

 
$
81.9

 
$
574.4

 
$
53.4

Weighted average number of shares outstanding
 
235.8

 
234.7

 
235.6

 
218.4

Dilutive effect of stock options and restricted stock (as determined by applying the treasury stock method)
 
1.1

 
1.0

 
1.1

 
1.0

Weighted average number of shares and
dilutive potential shares outstanding
 
236.9

 
235.7

 
236.7

 
219.4

Diluted net income per share
 
$
0.72

 
$
0.35

 
$
2.43

 
$
0.24


13



For the 13 and 39 weeks ended October 29, 2016 and October 31, 2015, substantially all of the stock options outstanding were included in the calculation of the weighted average number of shares and dilutive potential shares outstanding.
8. STOCK-BASED COMPENSATION
The Company's stock-based compensation expense primarily includes the fair value of restricted stock units (RSUs) and employees' purchase rights under the Company's Employee Stock Purchase Plan. Stock-based compensation expense was $11.4 million and $48.7 million during the 13 and 39 weeks ended October 29, 2016, respectively. Stock-based compensation expense was $10.5 million and $38.3 million during the 13 and 39 weeks ended October 31, 2015, respectively.
The Company granted approximately 0.5 million service-based RSUs from the Omnibus Incentive Plan (Omnibus Plan) to employees and officers in the 39 weeks ended October 29, 2016. The estimated $40.2 million fair value of these RSUs is being expensed ratably over the three-year vesting periods, or shorter periods based on the retirement eligibility of certain grantees. The fair value was determined using the Company's closing stock price on the date of grant. The Company recognized $3.0 million and $12.1 million of expense related to these RSUs during the 13 and 39 weeks ended October 29, 2016, respectively.
In the 39 weeks ended October 29, 2016, the Company granted 0.2 million RSUs with a fair value of $17.1 million from the Omnibus Plan to certain officers of the Company, contingent on the Company meeting certain performance targets in fiscal 2016. If the Company meets these performance targets in fiscal 2016, the RSUs will vest ratably over three years. The estimated fair value of these RSUs is being expensed ratably over the three-year vesting periods, or shorter periods based on the retirement eligibility of certain grantees. The Company recognized $0.6 million and $11.0 million of expense related to these RSUs in the 13 and 39 weeks ended October 29, 2016, respectively.
In the 39 weeks ended October 29, 2016, the Company granted RSUs with a fair value of $3.2 million from the Omnibus Plan to certain officers of the Company, contingent on the Company meeting certain performance targets for the period beginning on January 31, 2016 and ending on February 2, 2019. Provided the vesting conditions are satisfied, the awards will vest at the end of the performance period. The estimated fair value of these RSUs is being expensed ratably over the three-year vesting period, or shorter periods based on the retirement eligibility of certain grantees. The Company recognized $0.1 million and $1.8 million of expense related to these RSUs in the 13 and 39 weeks ended October 29, 2016, respectively.
The Company recognized $5.0 million and $18.6 million of expense related to RSUs granted prior to fiscal 2016 in the 13 and 39 weeks ended October 29, 2016, respectively. For the 13 and 39 weeks ended October 31, 2015, respectively, the Company recognized $4.4 million and $14.5 million of expense related to these RSU's.
In the 39 weeks ended October 29, 2016, approximately 0.6 million RSUs vested and approximately 0.4 million shares, net of taxes, were issued. During the 39 weeks ended October 31, 2015, approximately 0.7 million RSUs vested and approximately 0.4 million shares, net of taxes, were issued. In the 13 weeks ended October 29, 2016 less than 0.1 million RSUs vested. Less than 0.1 million RSUs vested in the 13 weeks ended October 31, 2015.
Due to the Acquistion, the Company converted approximately 1.5 million Family Dollar vested and unvested options into equivalent options to purchase Dollar Tree Common Stock at the date of Acquisition and recognized $1.1 million and $2.1 million of expense related to these options during the 13 and 39 weeks ended October 29, 2016, respectively. The Company recognized $1.9 million and $3.0 million of expense related to these options during the 13 and 39 weeks ended October 31, 2015. Stock options are valued using the Black-Scholes option-pricing model and compensation cost is recognized on a straight-line basis over the requisite service period.
9. SEGMENTS
The Company operates a chain of more than 14,200 retail discount stores in 48 states and five Canadian provinces. The Company's operations are conducted in two reporting business segments: Dollar Tree and Family Dollar. The Company defines its segments as those operations whose results its chief operating decision maker ("CODM") regularly reviews to analyze performance and allocate resources. The results of operations of Family Dollar are included in the Company's results of operations beginning on July 6, 2015.
The Dollar Tree segment is the leading operator of discount variety stores offering merchandise at the fixed price of $1.00. The Dollar Tree segment includes the Company's operations under the "Dollar Tree" and "Dollar Tree Canada" brands, eleven distribution centers in the United States, two distribution centers in Canada and a Store Support Center in Chesapeake, Virginia.
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 the Company's operations under the "Family Dollar" brand, eleven distribution centers and a Store Support Center in Matthews, North Carolina.

14



The Company measures the results of its segments using, among other measures, each segment's net sales, gross profit and operating income. The Company may revise the measurement of each segment's operating income, including the allocation of distribution center and Store Support Center costs, as determined by the information regularly reviewed by the CODM. When the measurement of a segment changes, previous period amounts and balances are reclassified to be comparable to the current period's presentation.
Net sales by segment are as follows:
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
October 29,
 
October 31,
 
October 29,
 
October 31,
(in millions)
 
2016
 
2015
 
2016
 
2015
Net sales:
 
 
 
 
 
 
 
 
     Dollar Tree
 
$
2,466.9

 
$
2,271.7

 
$
7,238.9

 
$
6,648.0

Family Dollar
 
2,534.7

 
2,673.5

 
7,844.8

 
3,485.1

Total net sales
 
$
5,001.6

 
$
4,945.2

 
$
15,083.7

 
$
10,133.1

Gross profit by segment is as follows:
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
October 29,
 
October 31,
 
October 29,
 
October 31,
(in millions)
 
2016
 
2015
 
2016
 
2015
Gross profit:
 
 
 
 
 
 
 
 
     Dollar Tree
 
$
857.3

 
$
772.2

 
$
2,496.2

 
$
2,270.4

Family Dollar
 
663.2

 
627.8

 
2,091.2

 
733.7

Total gross profit
 
$
1,520.5

 
$
1,400.0

 
$
4,587.4

 
$
3,004.1

Depreciation and amortization expense by segment is as follows:
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
October 29,
 
October 31,
 
October 29,
 
October 31,
(in millions)
 
2016
 
2015
 
2016
 
2015
Depreciation and amortization expense:
 
 
 
 
 
 
 
 
     Dollar Tree
 
$
61.3

 
$
55.9

 
$
178.1

 
$
162.6

Family Dollar
 
96.5

 
112.8

 
304.2

 
150.2

Total depreciation and amortization expense
 
$
157.8

 
$
168.7

 
$
482.3

 
$
312.8

Operating income (loss) by segment is as follows:
 
 
13 Weeks Ended
 
39 Weeks Ended
 
 
October 29,
 
October 31,
 
October 29,
 
October 31,
(in millions)
 
2016
 
2015
 
2016
 
2015
Operating income (loss):
 
 
 
 
 
 
 
 
     Dollar Tree
 
$
286.0

 
$
224.8

 
$
829.2

 
$
676.0

Family Dollar
 
56.4

 
(1.1
)
 
289.1

 
(96.1
)
Total operating income
 
$
342.4

 
$
223.7

 
$
1,118.3

 
$
579.9


15



Total assets by segment are as follows:
 
 
As of
 
 
October 29,
 
January 30,
 
October 31,
(in millions)
 
2016
 
2016
 
2015
Total assets:
 
 
 
 
 
 
     Dollar Tree
 
$
3,932.2

 
$
3,472.0

 
$
4,136.1

Family Dollar
 
12,262.8

 
12,429.2

 
12,562.9

Total assets
 
$
16,195.0

 
$
15,901.2

 
$
16,699.0

Total goodwill by segment is as follows:
 
 
As of
 
 
October 29,
 
January 30,
 
October 31,
(in millions)
 
2016
 
2016
 
2015
Total goodwill:
 
 
 
 
 
 
     Dollar Tree
 
$
340.1

 
$
283.6

 
$
251.4

Family Dollar
 
4,682.8

 
4,738.1

 
4,772.7

Total goodwill
 
$
5,022.9

 
$
5,021.7

 
$
5,024.1

Goodwill is reassigned between segments when stores are rebannered between segments. In the 39 weeks ended October 29, 2016, the Company reassigned $55.3 million of goodwill from Family Dollar to Dollar Tree as a result of rebannering.
10. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
At October 29, 2016, the Company had outstanding $750.0 million principal amount of 5.25% Acquisition Notes due March 1, 2020 and $2,500.0 million principal amount of 5.75% Acquisition Notes due March 1, 2023, which are unsecured obligations of the Company and are also fully, unconditionally, jointly and severally guaranteed on an unsecured, unsubordinated basis, subject to certain exceptions, by certain of the Company's direct or indirect wholly-owned U.S. subsidiaries, including Family Dollar and certain of its subsidiaries. All of the subsidiaries, guarantor and non-guarantor are 100% owned by the parent. Supplemental condensed consolidated financial information of the Company, including such information for the Guarantors, is presented below. The information is presented in accordance with the requirements of Rule 3-10 under Regulation S-X of the Securities and Exchange Commission (the "SEC"). The financial information may not necessarily be indicative of results of operations, cash flows or financial position had the guarantor or the non-guarantor subsidiaries operated as independent entities. Investments in subsidiaries are presented using the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. Separate financial statements of the Guarantors are not provided as the condensed consolidating financial information contained herein provides a more meaningful disclosure to allow investors to determine the nature of the assets held by, and the operations of, the combined groups. The Company completed the exchange of the Acquisition Notes for registered notes with substantially identical terms on August 1, 2016.

16



Condensed Consolidating Statements of Comprehensive Income
 
 
13 Weeks Ended October 29, 2016
 
 
 
 
Guarantor
 
Non-Guarantor
 
Consolidation
 
Consolidated
(in millions)
 
Parent
 
Subsidiaries
 
Subsidiaries
 
Adjustments
 
Company
Net sales
 
$

 
$
4,931.4

 
$
223.3

 
$
(153.1
)
 
$
5,001.6

Cost of sales
 

 
3,427.3

 
153.2

 
(99.4
)
 
3,481.1

Gross profit
 

 
1,504.1

 
70.1

 
(53.7
)
 
1,520.5

Selling, general and administrative
   expenses
 
2.0

 
1,160.2

 
65.2

 
(49.3
)
 
1,178.1

Operating income (loss)
 
(2.0
)
 
343.9

 
4.9

 
(4.4
)
 
342.4

Interest expense (income), net
 
96.9

 
17.2

 
(1.9
)
 
(0.1
)
 
112.1

Other (income) expense, net
 
4.6

 
(0.2
)
 
0.3

 
(4.6
)
 
0.1

Income (loss) before income taxes
 
(103.5
)
 
326.9

 
6.5

 
0.3

 
230.2

Income tax expense (benefit)
 
(53.1
)
 
111.0

 
0.8

 
(0.1
)
 
58.6

Equity in earnings of subsidiaries
 
(222.0
)
 
(2.7
)
 

 
224.7

 

Net income
 
171.6

 
218.6

 
5.7

 
(224.3
)
 
171.6

Other comprehensive loss
 
(2.5
)
 
(0.7
)
 
(2.5
)
 
3.3

 
(2.4
)
Comprehensive income
 
$
169.1

 
$
217.9

 
$
3.2

 
$
(221.0
)
 
$
169.2

 
 
13 Weeks Ended October 31, 2015
 
 
 
 
Guarantor
 
Non-Guarantor
 
Consolidation
 
Consolidated
(in millions)
 
Parent
 
Subsidiaries
 
Subsidiaries
 
Adjustments
 
Company
Net sales
 
$

 
$
4,899.1

 
$
281.1

 
$
(235.0
)
 
$
4,945.2

Cost of sales
 

 
3,542.7

 
255.8

 
(253.3
)
 
3,545.2

Gross profit
 

 
1,356.4

 
25.3

 
18.3

 
1,400.0

Selling, general and administrative
   expenses
 
17.5

 
1,146.6

 
16.2

 
(4.0
)
 
1,176.3

Operating income (loss)
 
(17.5
)
 
209.8

 
9.1

 
22.3

 
223.7

Interest expense (income), net
 
88.8

 
11.5

 
(1.8
)
 
(0.1
)
 
98.4

Other (income) expense, net
 
(3.7
)
 
1.0

 
(0.5
)
 
3.8

 
0.6

Income (loss) before income taxes
 
(102.6
)
 
197.3

 
11.4

 
18.6

 
124.7

Income tax expense (benefit)
 
(53.7
)
 
95.8

 
0.7

 

 
42.8

Equity in earnings of subsidiaries
 
(112.0
)
 
(13.5
)
 

 
125.5

 

Net income
 
63.1

 
115.0

 
10.7

 
(106.9
)
 
81.9

Other comprehensive income (loss)
 
(0.1
)
 

 
(0.1
)
 
0.3

 
0.1

Comprehensive income
 
$
63.0

 
$
115.0

 
$
10.6

 
$
(106.6
)
 
$
82.0


17



Condensed Consolidating Statements of Comprehensive Income (Continued)
 
 
39 Weeks Ended October 29, 2016
 
 
 
 
Guarantor
 
Non-Guarantor
 
Consolidation
 
Consolidated
(in millions)
 
Parent
 
Subsidiaries
 
Subsidiaries
 
Adjustments
 
Company
Net sales
 
$

 
$
14,916.6

 
$
638.4

 
$
(471.3
)
 
$
15,083.7

Cost of sales
 

 
10,385.9

 
524.0

 
(413.6
)
 
10,496.3

Gross profit
 

 
4,530.7

 
114.4

 
(57.7
)
 
4,587.4

Selling, general and administrative
   expenses
 
5.9

 
3,423.3

 
96.0

 
(56.1
)
 
3,469.1

Operating income (loss)
 
(5.9
)
 
1,107.4

 
18.4

 
(1.6
)
 
1,118.3

Interest expense (income), net
 
242.5

 
50.0

 
(5.7
)
 
(0.1
)
 
286.7

Other (income) expense, net
 
1.6

 
(0.5
)
 
0.5

 
(1.7
)
 
(0.1
)
Income (loss) before income taxes
 
(250.0
)
 
1,057.9

 
23.6

 
0.2

 
831.7

Income tax expense (benefit)
 
(117.2
)
 
369.9

 
4.6

 

 
257.3

Equity in earnings of subsidiaries
 
(707.1
)
 
(11.5
)
 

 
718.6

 

Net income
 
574.3

 
699.5

 
19.0

 
(718.4
)
 
574.4

Other comprehensive income
 
4.2

 
1.3

 
4.2

 
(5.5
)
 
4.2

Comprehensive income
 
$
578.5

 
$
700.8

 
$
23.2

 
$
(723.9
)
 
$
578.6

 
 
39 Weeks Ended October 31, 2015
 
 
 
 
Guarantor
 
Non-Guarantor
 
Consolidation
 
Consolidated
(in millions)
 
Parent
 
Subsidiaries
 
Subsidiaries
 
Adjustments
 
Company
Net sales
 
$

 
$
9,998.5

 
$
464.5

 
$
(329.9
)
 
$
10,133.1

Cost of sales
 

 
7,058.6

 
397.8

 
(327.4
)
 
7,129.0

Gross profit
 

 
2,939.9

 
66.7

 
(2.5
)
 
3,004.1

Selling, general and administrative
   expenses
 
46.9

 
2,335.1

 
44.6

 
(2.4
)
 
2,424.2

Operating income (loss)
 
(46.9
)
 
604.8

 
22.1

 
(0.1
)
 
579.9

Interest expense (income), net
 
358.5

 
128.3

 
(2.2
)
 

 
484.6

Other (income) expense, net
 

 
(0.7
)
 
0.3

 

 
(0.4
)
Income (loss) before income taxes
 
(405.4
)
 
477.2

 
24.0

 
(0.1
)
 
95.7

Income tax expense (benefit)
 
(160.5
)
 
198.2

 
4.6

 

 
42.3

Equity in earnings of subsidiaries
 
(298.2
)
 
(31.2
)
 

 
329.4

 

Net income
 
53.3

 
310.2

 
19.4

 
(329.5
)
 
53.4

Other comprehensive loss
 
(3.5
)
 

 
(3.5
)
 
3.5

 
(3.5
)
Comprehensive income
 
$
49.8

 
$
310.2

 
$
15.9

 
$
(326.0
)
 
$
49.9


18



Condensed Consolidating Balance Sheets
 
 
October 29, 2016
 
 
 
 
Guarantor
 
Non-Guarantor
 
Consolidating
 
Consolidated
(in millions)
 
Parent
 
Subsidiaries
 
Subsidiaries
 
Adjustments
 
Company
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
930.4

 
$
129.0

 
$
(325.6
)
 
$
733.8

Short-term investments
 

 

 
4.0

 

 
4.0

Merchandise inventories, net
 

 
3,222.3

 
47.4

 
4.2

 
3,273.9

Current deferred tax assets, net
 

 
(10.6
)
 
10.6

 

 

Due from intercompany, net
 
67.9

 
674.9

 
116.7

 
(859.5
)
 

Other current assets
 
117.3

 
209.3

 
5.7

 
(1.6
)
 
330.7

Total current assets
 
185.2

 
5,026.3

 
313.4

 
(1,182.5
)
 
4,342.4

Property, plant and equipment, net
 

 
3,143.5

 
32.8

 

 
3,176.3

Assets available for sale
 

 
11.6

 

 

 
11.6

Goodwill
 

 
4,993.1

 
29.8

 

 
5,022.9

Favorable lease rights, net
 

 
493.8

 

 

 
493.8

Tradename intangible asset
 

 
3,100.0

 

 

 
3,100.0

Other intangible assets, net
 

 
5.2

 

 

 
5.2

Investment in subsidiaries
 
9,107.7

 
102.1

 

 
(9,209.8
)
 

Intercompany note receivable
 
1,526.4

 

 
188.8

 
(1,715.2
)
 

Due from intercompany, net
 
1,699.1

 

 

 
(1,699.1
)
 

Other assets
 

 
42.4

 
4.0

 
(3.6
)
 
42.8

Total assets
 
$
12,518.4

 
$
16,918.0

 
$
568.8

 
$
(13,810.2
)
 
$
16,195.0

LIABILITIES AND EQUITY
 
 

 
 

 
 

 
 

 
 

Current liabilities:
 
 

 
 

 
 

 
 

 
 

Current portion of long-term debt
 
$
145.8

 
$

 
$

 
$

 
$
145.8

Accounts payable
 
325.7

 
1,211.7

 
52.1

 
(323.1
)
 
1,266.4

Due to intercompany, net
 
343.2

 
451.7

 
64.6

 
(859.5
)
 

Other current liabilities
 
28.8

 
485.6

 
207.6

 

 
722.0

Income taxes payable
 
3.5

 
(9.0
)
 
5.5

 

 

Total current liabilities
 
847.0

 
2,140.0

 
329.8

 
(1,182.6
)
 
2,134.2

Long-term debt, net, excluding
   current portion
 
6,621.7

 
316.3

 

 

 
6,938.0

Unfavorable lease rights, net
 

 
130.2

 

 

 
130.2

Deferred tax liabilities, net
 
1.9

 
1,493.6

 

 

 
1,495.5

Income taxes payable, long-term
 

 
72.3

 

 

 
72.3

Due to intercompany, net
 

 
1,699.1

 

 
(1,699.1
)
 

Intercompany note payable
 

 
1,715.2

 

 
(1,715.2
)
 

Other liabilities
 

 
372.3

 
8.2

 
(3.4
)
 
377.1

Total liabilities
 
7,470.6

 
7,939.0

 
338.0

 
(4,600.3
)
 
11,147.3

Shareholders' equity
 
5,047.8

 
8,979.0

 
230.8

 
(9,209.9
)
 
5,047.7

Total liabilities and equity
 
$
12,518.4

 
$
16,918.0

 
$
568.8

 
$
(13,810.2
)
 
$
16,195.0


19



Condensed Consolidating Balance Sheets (Continued)
 
 
January 30, 2016
 
 
 
 
Guarantor
 
Non-Guarantor
 
Consolidating
 
Consolidated
(in millions)
 
Parent
 
Subsidiaries
 
Subsidiaries
 
Adjustments
 
Company
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
636.9

 
$
116.5

 
$
(17.3
)
 
$
736.1

Short-term investments
 

 

 
4.0

 

 
4.0

Merchandise inventories, net
 

 
2,850.0

 
51.4

 
(15.9
)
 
2,885.5

Due from intercompany, net
 
262.2

 
548.3

 
186.4

 
(996.9
)
 

Other current assets
 
1.0

 
308.7

 
0.6

 

 
310.3

Total current assets
 
263.2

 
4,343.9

 
358.9

 
(1,030.1
)
 
3,935.9

Property, plant and equipment, net
 

 
3,089.5

 
36.0

 

 
3,125.5

Assets available for sale
 

 
12.1

 

 

 
12.1

Goodwill
 

 
4,993.2

 
28.5

 

 
5,021.7

Deferred tax assets, net
 
0.5

 

 
9.6

 
(10.1
)
 

Favorable lease rights, net
 

 
569.4

 

 

 
569.4

Tradename intangible asset
 

 
3,100.0

 

 

 
3,100.0

Other intangible assets, net
 

 
5.5

 
0.3

 

 
5.8

Investment in subsidiaries
 
8,403.9

 
74.4

 

 
(8,478.3
)
 

Intercompany note receivable
 
1,526.4

 

 
188.8

 
(1,715.2
)
 

Due from intercompany, net
 
1,930.3

 

 

 
(1,930.3
)
 

Other assets
 

 
130.6

 
4.6

 
(4.4
)
 
130.8

Total assets
 
$
12,124.3

 
$
16,318.6

 
$
626.7

 
$
(13,168.4
)
 
$
15,901.2

LIABILITIES AND EQUITY
 
 

 
 

 
 

 
 

 
 

Current liabilities:
 
 

 
 

 
 

 
 

 
 

Current portion of long-term debt
 
$
108.0

 
$

 
$

 
$

 
$
108.0

Accounts payable
 
17.5

 
1,136.3

 
131.2

 
(33.1
)
 
1,251.9

Due to intercompany, net
 
582.5

 
369.2

 
45.2

 
(996.9
)
 

Other current liabilities
 
84.9

 
433.5

 
204.2

 

 
722.6

Income taxes payable
 
3.8

 
1.9

 
7.2

 

 
12.9

Total current liabilities
 
796.7

 
1,940.9

 
387.8

 
(1,030.0
)
 
2,095.4

Long-term debt, net, excluding
   current portion
 
6,920.7

 
317.7

 

 

 
7,238.4

Unfavorable lease rights, net
 

 
149.3

 

 

 
149.3

Deferred tax liabilities, net
 

 
1,596.7

 

 
(10.1
)
 
1,586.6

Due to intercompany, net
 

 
1,930.3

 

 
(1,930.3
)
 

Intercompany note payable
 

 
1,715.2

 

 
(1,715.2
)
 

Other liabilities
 

 
421.0

 
8.0

 
(4.4
)
 
424.6

Total liabilities
 
7,717.4

 
8,071.1

 
395.8

 
(4,690.0
)
 
11,494.3

Shareholders' equity
 
4,406.9

 
8,247.5

 
230.9

 
(8,478.4
)
 
4,406.9

Total liabilities and equity
 
$
12,124.3

 
$
16,318.6

 
$
626.7

 
$
(13,168.4
)
 
$
15,901.2


20



Condensed Consolidating Balance Sheets (Continued)
 
 
October 31, 2015
 
 
 
 
Guarantor
 
Non-Guarantor
 
Consolidating
 
Consolidated
(in millions)
 
Parent
 
Subsidiaries