In our 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 our financial position as of May 2,August 1, 2020 and May 4,August 3, 2019 and the results of our operations and cash flows for the periods presented. The February 1, 2020 balance sheet information was derived from the audited consolidated financial statements as of that date.

Certain prior year amounts have been reclassified for consistency with the current year presentation.

We are defendants in legal proceedings including a Food and Drug Administration (“FDA”) proceeding and the class, collective, representative and large cases described below as well as individual claims in arbitration. We will vigorously defend ourselves in all matters referred to in this Note 2. 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.

The 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 AugustDecember 2018, a2 former employeeemployees brought suit in California state court as a class action and as a Private Attorney General Act (“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 in principle to settle the matter which will be submitted to the court for approval.

In January 2020, a consumer class action was filed against us in New York alleging Almond Milk sold by us with “Vanilla” featured prominently on its packaging is mislabeled because it does not contain the expected amount, type, and proportion of vanilla relative to

Several 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.

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 preliminary 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 are awaiting courtwaiting for the court’s approval.

Beginning in 2019, a law firm has filed lawsuits around the country, including purported nationwide and state class actions, alleging we violated the public accommodation requirements of the Americans with Disabilities Act or its state law equivalent, by systemically blocking the aisles with merchandise.

In October 2019, a state and federal class action was filed in New York alleging that we sold Zantac containing N-Nitrosodimethylamine, (hereafter “NDMA”), which is classified by the FDA as a probable carcinogen. The suit alleges breach of warranty, fraud, unjust enrichment, and violation of New York’s General Business Law. We believe we are fully indemnified by our supplier.

In January 2017, a customer filed 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. The requested class is limited to the state of Illinois. The court has dismissed the lawsuit.

In the first quarter of fiscal 2020, we paid the remaining $250.0 million outstanding under our Senior Floating Rate Notes due 2020.

Additionally, in the first quarter of fiscal 2020, we preemptively drew 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. At May 2,August 1, 2020, we had $750.0$500.0 million outstanding and $363.4$614.3 million available for borrowing under our Revolving Credit Facility.

As of May 2,August 1, 2020, we were in compliance with our debt covenants.

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.

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 did not record any significant impairment charges during the 13 or 26 weeks ended May 2,August 1, 2020 and May 4,August 3, 2019.

The carrying amounts of Cash and cash equivalents, Restricted cash and Accounts payable as reported in the accompanying unaudited condensed consolidated balance sheets approximate fair value due to their short-term maturities.

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 table above excludes amounts related to our Revolving Credit Facility, as the carrying value approximates fair value because the interest rates vary with market interest rates.

The following table sets forth the calculations of basic and diluted net income per share:

For the 13 and 26 weeks ended May 2,August 1, 2020 and May 4,August 3, 2019, substantially all of the stock options outstanding were included in the calculation of the weighted average number of shares and dilutive potential shares outstanding.

For a discussion of our stock-based compensation plans, refer to “Note 11 - Stock-Based Compensation Plans” of our Annual Report on Form 10-K for the year ended February 1, 2020. Stock-based compensation expense was $32.6$55.7 million and $30.5$44.1 million during the 1326 weeks ended May 2,August 1, 2020 and May 4,August 3, 2019, respectively.

We issue service-based RSUs to employees and officers and issue PSUs to certain 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

The following table summarizes the status of service-based RSUs as of May 2,August 1, 2020 and changes during the 1326 weeks then ended:

The following table summarizes the status of PSUs as of May 2,August 1, 2020 and changes during the 1326 weeks then ended:

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.

The lease cost for operating leases that was recognized in the accompanying unaudited condensed consolidated income statements for the 13 and 26 weeks ended May 2,August 1, 2020 and May 4,August 3, 2019 was as follows:

As of May 2,August 1, 2020, maturities of lease liabilities were as follows:

Information regarding the weighted-average remaining lease term and the weighted-average discount rate for operating leases as of May 2,August 1, 2020 and May 4,August 3, 2019 is as follows:

The following represents supplemental information pertaining to our operating lease arrangements for the 13 and 26 weeks ended May 2,August 1, 2020 and May 4,August 3, 2019:

We did not repurchase any shares of common stock in the 13 and 26 weeks ended May 2,August 1, 2020. We repurchased 960,683881,624 and 1,842,307 shares of common stock on the open market for approximately $100.0$88.4 million and $188.4 million during the 13 and 26 weeks ended May 4,August 3, 2019, respectively. Approximately $49.2 million in share repurchases had not settled as of August 3, 2019 and this amount was accrued in the accompanying unaudited condensed consolidated balance sheet as of August 3, 2019. As of May 2,August 1, 2020, we have $800.0 million remaining under Board repurchase authorization.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act retroactively changed the recovery period for Qualified Improvement Property to 15 years for eligible property placed in service subsequent to December 31, 2017. In the first quarter of 2020, we reclassified an estimated $67.0 million to the Deferred income taxes, net liability from Income taxes payable to reflect the additional currently deductible depreciation associated with the change in recovery period for Qualified Improvement Property.

We operate a chain of more than 15,30015,400 retail discount stores in 48 states and 5 Canadian provinces. Our operations are conducted in 2 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 at the fixed price of $1.00. The Dollar Tree segment includes our operations under the “Dollar Tree” and “Dollar Tree Canada” brands, 13 distribution centers in the United States and 2 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.

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 and support costs consist primarily of store support center costs that are considered shared services and therefore these selling, general and administrative costs are excluded from our two2 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. We continue to own our facility in Matthews, North Carolina.

Information for our segments, as well as for Corporate and support, including the reconciliation to Income before income taxes, is as follows:

The following table summarizes net sales by merchandise category for our segments:

A forward-looking statement is neither a prediction nor a guarantee of future results, events or circumstances. You should not place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Our forward-looking statements are all based on currently available operating, financial and business information. The outcome of the events described in these forward-looking statements is subject to a variety of factors, including, but not limited to, the risks and uncertainties summarized below and the more detailed discussions in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and elsewhere in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020, our Quarterly Report on Form 10-Q for the quarterly period ended May 2, 2020, and in this Quarterly Report on Form 10-Q.

We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. Moreover, new risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on our forward-looking statements.

We do not undertake to publicly update or revise any forward-looking statements after the date of this Form 10-Q, whether as a result of new information, future events, or otherwise.

Investors should also be aware that while we do, from time to time, communicate with securities analysts and others, it is against our policy to disclose to them any material, nonpublic information or other confidential commercial information. Accordingly, shareholders should not assume that we agree with any statement or report issued by any securities analyst regardless of the content of the statement or report. Furthermore, we have a policy against confirming projections, forecasts or opinions issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.

The COVID-19 pandemic has affected, and likely will continue to affect, our financial condition and results of operations for the foreseeable future. As you review the Management’s Discussion and Analysis of Financial Condition and Results of Operations, please keep in mind the following.

As an essential business, our stores and distribution centers have remained open during the pandemic; however, our business trends and financial results are different than what we expected. We have experienced fewer customer visits and higher average ticket. The mix and profit margin of products being purchased by our customers has been different and has changed during the first quarterhalf of 2020. As demand for essential goods, including cleaning supplies and sanitizer, household products, paper goods, food and over-the-counter medicine, increased to unprecedented levels, both our domestic suppliers and distribution centers were stressed to keep up with the

We have hired more than 25,000 net new associates since early March and we have implemented several changes to support our associates in adhering to Centers for Disease Control and Prevention (CDC) recommendations. We have:

We also made changes to reduce our exposure to potential short-term liquidity risk in the banking system, including preemptively drawing $750 million under our Revolving Credit Facility, of which $250 million was repaid in the second quarter, and suspending share repurchases under the remaining $800 million of Board authorization. We are in compliance with our debt covenants and, based on a continuation of current operating results, we expect to be in compliance for the remainder of fiscal 2020.

Given the level of volatility and uncertainty surrounding the future impact of COVID-19 on our customers, suppliers and the broader economies in the locations that we operate as well as uncertainty around the future impact on our supply chain, it is challenging to predict our future operations and financial results. Following is a discussion of the impacts that we have seen and the factors which could influence our future performance.

During March, our Dollar Tree and Family Dollar stores began to experience a significant increase in customer demand and sales related to essential products and comparable store net sales increased significantly. However, beginning the last week of March and continuing into April during the peak of the Easter selling season, comparable store net sales at our Dollar Tree stores decreased. Beginning in mid-April, comparable store net sales at our Dollar Tree stores increased as the comparable Easter period from 2019 had passed. In the 13 weeks ended May 2, 2020, enterprise comparable store net sales increased 7.0% resulting from an increase in average ticket of 15.5%, partially offset by a decrease in traffic of 7.4%. In the 13 weeks ended August 1, 2020, enterprise comparable store net sales increased 7.2% resulting from an increase in average ticket of 24.7%, partially offset by a decrease in traffic of 14.0%.

The future impact of COVID-19 on our customers is difficult to predict as the effectiveness of economic stabilization efforts is uncertain and government assistance payments may not provide enough funding to support current spending.spending and the incremental unemployment benefits lapsed on July 31, 2020. In addition, we cannot predict the impact of the spread of COVID-19 on the health and well-being of our customers and associates.

The demand for essential supplies has increased and we are dependent on our suppliers to replenish the goods in our stores. Disruptions in our supply chain or sources of supply could adversely impact our sales.

As noted, in the 13 weeks ended May 2, 2020, the demand for essential products, which typically sell at a lower margin than our discretionary products, increased significantly. In addition, Easter sales in our Dollar Tree segment were materially lower than expected resulting in higher merchandise cost, including freight, and higher markdowns to clear the unsold Easter product.

During the 13 weeks ended August 1, 2020, the higher demand for discretionary products continued in both our Dollar Tree and Family Dollar segment. Whilesegments resulting in a reduction in our merchandise cost compared with the same period in 2019. The favorable mix change has continued into the third quarter of 2020; however, the benefit is not as high as we experienced during the second quarter of 2020, we cannot predict whether it will continue.2020.

InOur distribution costs included $6.4 million and $11.4 million in the 13 weeks ended May 2, 2020 our distribution center payroll costs included $6.2 millionand the 13 weeks ended August 1, 2020, respectively, of incremental wage premiums in recognition of the team’s extraordinary efforts. The incremental wage premium payments will continue for at least the first sixeight weeks of the secondthird quarter of 2020.

TheDuring the COVID-19 pandemic, the trade dispute between the United States and China is ongoing and should additional tariffs or other sanctions be imposed on imported goods, our business or results of operations in fiscal 2020 could be adversely affected.

In the 13 weeks ended May 2, 2020, weWe paid incremental wage premiums to our hourly store associates, minimum guaranteed bonuses and a Thank You bonus to our store managers and other bonuses to certain field operations managers totaling $57.5 million.million and $114.6 million in the 13 weeks ended May 2, 2020 and the 13 weeks ended August 1, 2020, respectively. The incremental wage premium payments were reduced from $2 per hour to $1 per hour beginning in the third quarter of 2020 and minimum guaranteed store manager bonuses will continue for at least the first sixeight weeks of the second quarter of 2020.third quarter.

In addition, for the safety of our associates and customers, in the first quarter of 2020, we installed plexiglass sneeze guards at all registers in our stores and incurred incremental costs for masks, gloves and cleaning supplies. These expenses totaled $8.9 million and $7.8 million in the 13 weeks ended May 2, 2020.2020 and the 13 weeks ended August 1, 2020, respectively.

During the first quarterhalf of fiscal 2020, we opened 67167 new Dollar Tree stores and 3263 new Family Dollar stores; however, we have experienced construction-related delays due to challenges with the permitting process which has resulted in delays in our planned store openings. We now plan to open 325 Dollar Tree stores and 175 Family Dollar stores in fiscal 2020.

As a result of the complications inherent in operating our stores during the COVID-19 pandemic, during the first quarter of 2020, we paused the roll-out of our Snack Zone layout to our Dollar Tree stores; however,stores. We resumed the installation of our Snack Zone layout to Dollar Tree stores during the second quarter of 2020 and we still plan to add this assortment to 300 additional Dollar Tree stores in fiscal 2020.

With the increase in customer activity in our Family Dollar stores and COVID-19-related travel restrictions, we paused the roll-out of our H2 stores during the first quarter of 2020, but resumed the roll-out of the H2 format to Family Dollar stores during the second quarter of 2020. We now expect to renovate approximately 750 stores to this format in fiscal 2020. Also, as a result of permitting delays, we now expect to add adult beverage product to approximately 900800 stores in fiscal 2020.

We are a leading operator of more than 15,30015,400 retail discount stores and we conduct our operations in two reporting segments. Our Dollar Tree segment is the leading operator of discount variety stores offering merchandise at the fixed price of $1.00. Our Family Dollar segment operates general merchandise retail discount stores providing consumers with a selection of competitively-priced merchandise in convenient neighborhood stores.

Our net sales are derived from the sale of merchandise. Two major factors tend to affect our net sales trends. First is our success at opening new stores or adding new stores through mergers or acquisitions. Second is the performance of stores once they are open. Sales vary at our existing stores from one year to the next. We refer to this as a change in comparable store net sales, because we include only those stores that are open throughout both of the periods being compared, beginning after the first fifteen months of operation. We include sales from stores expanded or remodeled during the period in the calculation of comparable store net sales, which has the effect of increasing our comparable store net sales. The term ‘expanded’ also includes stores that are relocated. Stores that have been re-bannered are considered to be new stores and are not included in the calculation of the comparable store net sales change until after the first fifteen months of operation under the new brand.

At May 2,August 1, 2020, we operated stores in 48 states and the District of Columbia, as well as stores in five Canadian provinces. A breakdown of store counts and square footage by segment for the 1326 weeks ended May 2,August 1, 2020 and May 4,August 3, 2019 is as follows:

Stores are included as re-banners when they close or open, respectively. Comparable store net sales for Dollar Tree may be negatively affected when a Family Dollar store is re-bannered near an existing Dollar Tree store.

The average size of stores opened during the 1326 weeks ended May 2,August 1, 2020 was approximately 8,4908,690 selling square feet for the Dollar Tree segment and 7,9908,130 selling square feet for the Family Dollar segment. We believe that these size stores are in the ranges of our optimal sizes operationally and give our customers a shopping environment which invites them to shop longer, buy more and make return visits.

The percentage change in comparable store net sales on a constant currency basis for the 13 and 26 weeks ended May 2,August 1, 2020, as compared with the preceding year, is as follows: