Dollar General Corporation
DOLLAR GENERAL CORP (Form: 10-Q, Received: 12/06/2010 07:22:22)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

QUARTERLY REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended October 29, 2010

 

Commission File Number: 001-11421

 

DOLLAR GENERAL CORPORATION

(Exact name of Registrant as specified in its charter)

 

TENNESSEE
(State or other jurisdiction of
incorporation or organization)

 

61-0502302

(I.R.S. Employer
Identification No.)

 

100 MISSION RIDGE
GOODLETTSVILLE, TN  37072
(Address of principal executive offices, zip code)

 

Registrant’s telephone number, including area code :  (615) 855-4000

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x   No o

 

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 during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).   Yes o   No o

 

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   o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

 

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

 

The registrant had 341,101,600 shares of common stock outstanding on December 3, 2010.

 

 

 



 

PART I—FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS.

 

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

October 29,
2010

 

January 29,
2010

 

 

 

(Unaudited)

 

(see Note 1)

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

237,906

 

$

222,076

 

Merchandise inventories

 

1,885,753

 

1,519,578

 

Income taxes receivable

 

27,677

 

7,543

 

Prepaid expenses and other current assets

 

121,422

 

96,252

 

Total current assets

 

2,272,758

 

1,845,449

 

Net property and equipment

 

1,414,700

 

1,328,386

 

Goodwill

 

4,338,589

 

4,338,589

 

Intangible assets, net

 

1,262,834

 

1,284,283

 

Other assets, net

 

60,693

 

66,812

 

Total assets

 

$

9,349,574

 

$

8,863,519

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term obligations

 

$

1,358

 

$

3,671

 

Accounts payable

 

971,538

 

830,953

 

Accrued expenses and other

 

378,750

 

342,290

 

Income taxes payable

 

14,068

 

4,525

 

Deferred income taxes

 

44,601

 

25,061

 

Total current liabilities

 

1,410,315

 

1,206,500

 

Long-term obligations

 

3,286,907

 

3,399,715

 

Deferred income taxes

 

565,510

 

546,172

 

Other liabilities

 

254,669

 

302,348

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Redeemable common stock

 

14,783

 

18,486

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred stock

 

 

 

Common stock

 

298,459

 

298,013

 

Additional paid-in capital

 

2,937,300

 

2,923,377

 

Retained earnings

 

608,386

 

203,075

 

Accumulated other comprehensive loss

 

(26,755

)

(34,167

)

Total shareholders’ equity

 

3,817,390

 

3,390,298

 

Total liabilities and shareholders’ equity

 

$

9,349,574

 

$

8,863,519

 

 

See notes to condensed consolidated financial statements.

 

1



 

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

 

 

 

For the 13 weeks ended

 

For the 39 weeks ended

 

 

 

October 29,
2010

 

October 30,
2009

 

October 29,
2010

 

October 30,
2009

 

Net sales

 

$

3,223,427

 

$

2,928,751

 

$

9,548,896

 

$

8,610,595

 

Cost of goods sold

 

2,212,759

 

2,025,669

 

6,502,493

 

5,946,113

 

Gross profit

 

1,010,668

 

903,082

 

3,046,403

 

2,664,482

 

Selling, general and administrative expenses

 

736,334

 

686,843

 

2,180,589

 

1,990,157

 

Operating profit

 

274,334

 

216,239

 

865,814

 

674,325

 

Interest income

 

(90

)

(26

)

(128

)

(135

)

Interest expense

 

67,235

 

87,612

 

208,583

 

266,792

 

Other (income) expense

 

8,312

 

513

 

14,983

 

(215

)

Income before income taxes

 

198,877

 

128,140

 

642,376

 

407,883

 

Income taxes

 

70,757

 

52,491

 

237,065

 

155,638

 

Net income

 

$

128,120

 

$

75,649

 

$

405,311

 

$

252,245

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.38

 

$

0.24

 

$

1.19

 

$

0.79

 

Diluted

 

$

0.37

 

$

0.24

 

$

1.18

 

$

0.79

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

341,062

 

317,945

 

340,961

 

317,919

 

Diluted

 

344,739

 

320,558

 

344,628

 

319,454

 

 

See notes to condensed consolidated financial statements .

 

2



 

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

For the 39 weeks ended

 

 

 

October 29,
2010

 

October 30,
2009

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

405,311

 

$

252,245

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

189,739

 

194,045

 

Deferred income taxes

 

31,620

 

40,298

 

Tax benefit of stock options

 

(6,413

)

(308

)

Non-cash share-based compensation

 

11,620

 

9,249

 

Loss on debt retirement, net

 

14,576

 

 

Other non-cash gains and losses

 

7,920

 

9,211

 

Change in operating assets and liabilities:

 

 

 

 

 

Merchandise inventories

 

(366,903

)

(262,993

)

Prepaid expenses and other current assets

 

(26,412

)

(3,048

)

Accounts payable

 

146,933

 

162,867

 

Accrued expenses and other

 

(4,083

)

19,427

 

Income taxes

 

(4,178

)

(28,828

)

Other

 

(1,108

)

(1,038

)

Net cash provided by operating activities

 

398,622

 

391,127

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(259,243

)

(186,859

)

Proceeds from sale of property and equipment

 

868

 

682

 

Net cash used in investing activities

 

(258,375

)

(186,177

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Issuance of common stock

 

599

 

2,018

 

Issuance of long-term obligations

 

 

1,080

 

Repayments of long-term obligations

 

(130,654

)

(7,921

)

Repurchases of equity

 

(825

)

(1,680

)

Proceeds from exercise of stock options

 

50

 

 

Payment of cash dividends and related amounts

 

 

(239,731

)

Tax benefit of stock options

 

6,413

 

308

 

Net cash used in financing activities

 

(124,417

)

(245,926

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

15,830

 

(40,976

)

Cash and cash equivalents, beginning of period

 

222,076

 

377,995

 

Cash and cash equivalents, end of period

 

$

237,906

 

$

337,019

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

Purchases of property and equipment awaiting processing for payment, included in Accounts payable

 

$

24,046

 

$

19,174

 

 

See notes to condensed consolidated financial statements.

 

3



 

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.                                       Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements of Dollar General Corporation and its subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Such financial statements consequently do not include all of the disclosures normally required by U.S. GAAP or those normally made in the Company’s Annual Report on Form 10-K. Accordingly, the reader of this Quarterly Report on Form 10-Q should refer to the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2010 for additional information.

 

The Company’s fiscal year ends on the Friday closest to January 31. Unless the context requires otherwise, references to years contained herein pertain to the Company’s fiscal year. The Company’s 2010 fiscal year will end on January 28, 2011 and its 2009 fiscal year ended on January 29, 2010.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the Company’s customary accounting practices. In management’s opinion, all adjustments (which are of a normal recurring nature) necessary for a fair presentation of the consolidated financial position as of October 29, 2010 and results of operations for the 13-week and 39-week accounting periods ended October 29, 2010 and October 30, 2009 have been made.

 

The condensed consolidated balance sheet as of January 29, 2010 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by U.S. GAAP for complete financial statements.

 

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

The Company uses the last-in, first-out (LIFO) method of valuing inventory. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels, sales for the year and the expected rate of inflation/deflation for the year. The interim LIFO calculations are subject to adjustment in the final year-end LIFO inventory valuation. The Company recorded LIFO charges (credits) of zero and $(1.0) million in the respective 13-week periods, and $0.7 million and $(0.5) million in the respective 39-week periods, ended October 29, 2010 and October 30, 2009.

 

4



 

In addition, ongoing estimates of inventory shrinkage and initial markups and markdowns are included in the interim cost of goods sold calculation. Because the Company’s business is moderately seasonal, the results for interim periods are not necessarily indicative of the results to be expected for the entire year.

 

Certain financial statement amounts relating to prior periods have been reclassified to conform to the current period presentation.

 

In June 2009, the FASB issued new accounting guidance relating to variable interest entities. This standard amends previous standards and requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity, specifies updated criteria for determining the primary beneficiary, requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity, eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity, amends certain guidance for determining whether an entity is a variable interest entity, requires enhanced disclosures about an enterprise’s involvement in a variable interest entity, and includes other provisions. This standard was effective as of January 30, 2010, the beginning of the Company’s 2010 fiscal year. The impact of the adoption of this guidance on the Company’s condensed consolidated financial statements was not material.

 

2.                                       Comprehensive income

 

Comprehensive income consists of the following:

 

 

 

13 Weeks Ended

 

39 Weeks Ended

 

(in thousands)

 

October 29,
2010

 

October 30,
2009

 

October 29,
2010

 

October 30,
2009

 

Net income

 

$

128,120

 

$

75,649

 

$

405,311

 

$

252,245

 

Unrealized net gain on hedged transactions, net of income tax expense of $1,774, $45, $5,240, and $1,559, respectively (see Note 7)

 

2,912

 

18

 

7,412

 

2,825

 

Comprehensive income

 

$

131,032

 

$

75,667

 

$

412,723

 

$

255,070

 

 

3.                                       Earnings per share

 

Earnings per share is computed as follows (in thousands, except per share data):

 

 

 

13 Weeks Ended October 29, 2010

 

13 Weeks Ended October 30, 2009

 

 

 

Net
Income

 

Shares

 

Per Share
Amount

 

Net
Income

 

Shares

 

Per Share
Amount

 

Basic earnings per share

 

$

128,120

 

341,062

 

$

0.38

 

$

75,649

 

317,945

 

$

0.24

 

Effect of dilutive share-based awards

 

 

 

3,677

 

 

 

 

 

2,613

 

 

 

Diluted earnings per share

 

$

128,120

 

344,739

 

$

0.37

 

$

75,649

 

320,558

 

$

0.24

 

 

5



 

 

 

39 Weeks Ended October 29, 2010

 

39 Weeks Ended October 30, 2009

 

 

 

Net
Income

 

Shares

 

Per Share
Amount

 

Net
Income

 

Shares

 

Per Share
Amount

 

Basic earnings per share

 

$

405,311

 

340,961

 

$

1.19

 

$

252,245

 

317,919

 

$

0.79

 

Effect of dilutive share-based awards

 

 

 

3,667

 

 

 

 

 

1,535

 

 

 

Diluted earnings per share

 

$

405,311

 

344,628

 

$

1.18

 

$

252,245

 

319,454

 

$

0.79

 

 

Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is determined based on the dilutive effect of stock options using the treasury stock method.

 

Options to purchase shares of common stock that were outstanding at the end of the respective periods, but were not included in the computation of diluted earnings per share because the effect of exercising such options would be antidilutive, were 0.3 million and 0.2 million in the 13-week periods ended October 29, 2010 and October 30, 2009, respectively.

 

4.                                       Income taxes

 

Under the accounting standards for income taxes, the asset and liability method is used for computing the future income tax consequences of events that have been recognized in the Company’s consolidated financial statements or income tax returns.

 

Income tax reserves are determined using the methodology established by accounting standards for income taxes which require companies to assess each income tax position taken using a two step approach. A determination is first made as to whether it is more likely than not that the position will be sustained, based upon the technical merits, upon examination by the taxing authorities. If the tax position is expected to meet the more likely than not criteria, the benefit recorded for the tax position equals the largest amount that is greater than 50% likely to be realized upon ultimate settlement of the respective tax position.

 

The Internal Revenue Service (“IRS”) is examining the Company’s federal income tax returns for fiscal years 2006, 2007 and 2008. The 2005 and earlier years are not open for examination. The 2009 fiscal year, while not currently under examination, is subject to examination at the discretion of the IRS. The Company has various state income tax examinations that are currently in progress. The estimated liability related to these state income tax examinations is included in the Company’s reserve for uncertain tax positions. Generally, the Company’s tax years ended in 2007 and later remain open for examination by the various state taxing authorities.

 

As of October 29, 2010, the total reserves for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $35.4 million, $6.3 million and $0.5 million, respectively, for a total of $42.2 million. Of this amount, $2.7 million and $38.4 million are reflected in current liabilities as Accrued expenses and other and in noncurrent Other liabilities, respectively, in the condensed consolidated balance sheet with the remaining $1.1 million reducing deferred tax assets related to net operating loss carry forwards. The reserve for uncertain tax positions decreased during the 39-week period ended October 29, 2010 by $32.2

 

6



 

million due principally to the reduction of a liability associated with an accounting method utilized by the Company for income tax return filing purposes and the elimination (a reduction in income tax expense) of selected income tax reserves upon effective resolution of the respective uncertain tax positions. The Company believes it is reasonably possible that the reserve for uncertain tax positions may be reduced by approximately $9.6 million in the coming twelve months principally as a result of the settlement of currently ongoing income tax examinations. Of this amount, $1.7 million and $7.9 million are included in current liabilities as Accrued expenses and other and in noncurrent Other liabilities, respectively, in the condensed consolidated balance sheet as of October 29, 2010. Also, as of October 29, 2010, approximately $35.4 million of the reserve for uncertain tax positions would impact the Company’s effective income tax rate if the Company were to recognize the tax benefit for these positions.

 

The effective income tax rates for the periods ended October 29, 2010 and October 30, 2009 were 35.6% and 41.0%, respectively, for the 13-week periods, and 36.9% and 38.2%, respectively, for the 39-week periods. The decreases in the income tax rates were primarily associated with income tax examination related activity. In the 2009 periods, income tax expense was increased due to unfavorable income tax examination results while the 2010 period reflected decreases due to the elimination of selected income tax reserves upon the effective resolution of the respective uncertain tax positions.

 

5.                                       Current and long-term obligations

 

On September 29, 2010, the Company repurchased in the open market $65.0 million aggregate principal amount of 10.625% senior notes due 2015 at a price of 110.75% plus accrued and unpaid interest. The pretax loss on this transaction of $8.2 million is reflected in Other (income) expense in the Company’s condensed consolidated statement of income for the 13-week and 39-week periods ended October 29, 2010.

 

On May 6, 2010, the Company repurchased in the open market $50.0 million aggregate principal amount of 10.625% senior notes due 2015 at a price of 111.0% plus accrued and unpaid interest. The pretax loss on this transaction of $6.5 million is reflected in Other (income) expense in the Company’s condensed consolidated statement of income for the 39-week period ended October 29, 2010.

 

6.                                       Assets and liabilities measured at fair value

 

Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

 

7



 

The Company has determined that the majority of the inputs used to value its derivative financial instruments using the income approach fall within Level 2 of the fair value hierarchy. However, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. As of October 29, 2010, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has classified its derivative valuations, as discussed in detail in Note 7, in Level 2 of the fair value hierarchy. The Company’s long-term obligations classified in Level 2 of the fair value hierarchy are valued at cost. The Company does not have any fair value measurements using significant unobservable inputs (Level 3) as of October 29, 2010.

 

(In thousands)

 

Quoted Prices in
Active Markets
for Identical
Assets and
Liabilities
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Balance at
October 29,
2010

 

Assets:

 

 

 

 

 

 

 

 

 

Trading securities (a)

 

$

8,099

 

$

 

$

 

$

8,099

 

Liabilities:

 

 

 

 

 

 

 

 

 

Long-term obligations (b)

 

3,427,241

 

21,385

 

 

3,448,626

 

Derivative financial instruments (c)

 

 

45,298

 

 

45,298

 

Deferred compensation (d)

 

16,347

 

 

 

16,347

 

 

 

 

 

 

 

 

 

 

 

 


(a)         Reflected at fair value in the condensed consolidated balance sheet as Prepaid expenses and other current assets of $1,869 and Other assets, net of $6,230.

(b)        Reflected at book value in the condensed consolidated balance sheet as Current portion of long-term obligations of $1,358 and Long-term obligations of $3,286,907.

(c)         Reflected in the condensed consolidated balance sheet as non-current Other liabilities.

(d)        Reflected at fair value in the condensed consolidated balance sheet as Accrued expenses and other current liabilities of $1,869 and non-current Other liabilities of $14,478.

 

7.                                       Derivatives and hedging activities

 

The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts

 

8



 

that are intended to economically hedge a certain portion of its risk, even though hedge accounting does not apply or the Company elects not to apply the hedge accounting standards.

 

Risk management objective of using derivatives

 

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.

 

The Company is exposed to certain risks arising from uncertainties of future market values caused by the fluctuation in the prices of commodities. From time to time the Company may enter into derivative financial instruments to protect against future price changes related to these commodity prices.

 

Cash flow hedges of interest rate risk

 

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

 

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive income (loss) (also referred to as “OCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the 13-week and 39-week periods ended October 29, 2010 and October 30, 2009, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.

 

As of October 29, 2010, the Company had three interest rate swaps with a combined notional value of $1.05 billion that were designated as cash flow hedges of interest rate risk. Amounts reported in Accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The Company terminated an interest rate swap in October 2008 due to the bankruptcy declaration of the counterparty bank. The Company continues to report the net gain or loss related to the discontinued cash flow hedge in OCI, and such net gain or loss is expected to be

 

9



 

reclassified into earnings during the original contractual terms of the swap agreement as the hedged interest payments are expected to occur as forecasted. During the next 52-week period, the Company estimates that an additional $32.5 million will be reclassified as an increase to interest expense for all of its interest rate swaps.

 

Non-designated hedges of commodity risk

 

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to commodity price risk but do not meet strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As of October 29, 2010, the Company had no such non-designated hedges. As of October 30, 2009, the Company had one diesel fuel commodity swap hedging monthly usage of diesel fuel through January 2010 with a total 3.7 million gallons notional during the remaining term that was not designated as a hedge in a qualifying hedging relationship.

 

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of October 29, 2010 and January 29, 2010 (in thousands):

 

Tabular Disclosure of Fair Values of Derivative Instruments

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance Sheet
Classification

 

Fair Value

 

Balance Sheet
Classification

 

Fair Value

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

Interest rate swaps:

 

 

 

 

 

 

 

 

 

As of October 29, 2010

 

 

 

 

 

Other liabilities

 

$

45,298

 

As of January 29, 2010

 

 

 

 

 

Other liabilities

 

$

57,058

 

 

The tables below present the pre-tax effect of the Company’s derivative financial instruments on the condensed consolidated statement of income (including OCI, see Note 2) for the 13-week and 39-week periods ended October 29, 2010 and October 30, 2009 (in thousands):

 

Tabular Disclosure of the Effect of Derivative Instruments on the Condensed Consolidated Statement of Income
For the 13 weeks ended October 29, 2010

 

Derivatives in
Cash Flow
Hedging
Relationships

 

Amount of
(Gain) or Loss
Recognized in
OCI on
Derivative
(Effective
Portion)

 

Location of Gain or
Loss Reclassified
from Accumulated
OCI into Income
(Effective Portion)

 

Amount of
(Gain) or Loss
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)

 

Location of Gain or
Loss Recognized in
Income on
Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness
Testing)

 

Amount of (Gain)
or Loss Recognized
in Income on
Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness
Testing)

 

Interest Rate Swaps

 

$

5,104

 

Interest expense

 

$

9,790

 

Other (income) expense

 

$

123

 

 

10



 

Tabular Disclosure of the Effect of Derivative Instruments on the Condensed Consolidated Statement of Income
For the 13 weeks ended October 30, 2009

 

Derivatives in
Cash Flow
Hedging
Relationships

 

Amount of
(Gain) or Loss
Recognized in
OCI on
Derivative
(Effective
Portion)

 

Location of Gain or
Loss Reclassified
from Accumulated
OCI into Income
(Effective Portion)

 

Amount of
(Gain) or Loss
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)

 

Location of Gain or
Loss Recognized in
Income on
Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness
Testing)

 

Amount of (Gain)
or Loss Recognized
in Income on
Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness
Testing)

 

Interest Rate Swaps

 

$

12,993

 

Interest expense

 

$

13,056

 

Other (income) expense

 

$

154

 

 

Derivatives Not Designated as Hedging
Instruments

 

Location of Gain or
Loss Recognized in
Income on
Derivative

 

Amount of
(Gain) or Loss
Recognized in
Income on
Derivative

 

Commodity Hedges

 

Other (income) expense

 

$

360

 

 

Tabular Disclosure of the Effect of Derivative Instruments on the Condensed Consolidated Statement of Income
For the 39 weeks ended October 29, 2010

 

Derivatives in
Cash Flow
Hedging
Relationships

 

Amount of
(Gain) or Loss
Recognized in
OCI on
Derivative
(Effective
Portion)

 

Location of Gain or
Loss Reclassified
from Accumulated
OCI into Income
(Effective Portion)

 

Amount of
(Gain) or Loss
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)

 

Location of Gain or
Loss Recognized in
Income on
Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness
Testing)

 

Amount of (Gain)
or Loss Recognized
in Income on
Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness
Testing)

 

Interest Rate Swaps

 

$

20,540

 

Interest expense

 

$

33,192

 

Other (income) expense

 

$

408

 

 

Tabular Disclosure of the Effect of Derivative Instruments on the Condensed Consolidated Statement of Income
For the 39 weeks ended October 30, 2009

 

Derivatives in
Cash Flow
Hedging
Relationships

 

Amount of
(Gain) or Loss
Recognized in
OCI on
Derivative
(Effective
Portion)

 

Location of Gain or
Loss Reclassified
from Accumulated
OCI into Income
(Effective Portion)

 

Amount of
(Gain) or Loss
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)

 

Location of Gain or
Loss Recognized in
Income on
Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness
Testing)

 

Amount of (Gain)
or Loss Recognized
in Income on
Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness
Testing)

 

Interest Rate Swaps

 

$

32,462

 

Interest expense

 

$

36,485

 

Other (income) expense

 

$

468

 

 

Derivatives Not Designated as Hedging
Instruments

 

Location of Gain or
Loss Recognized in
Income on
Derivative

 

Amount of
(Gain) or Loss
Recognized in
Income on
Derivative

 

Commodity Hedges

 

Other (income) expense

 

$

(683

)

 

11



 

Credit-risk-related contingent features

 

The Company has agreements with all of its interest rate swap counterparties that contain a provision providing that the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on such indebtedness.

 

As of October 29, 2010, the fair value of interest rate swaps in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, was $46.7 million. If the Company had breached any of these provisions at October 29, 2010, it could have been required to post full collateral or settle its obligations under the agreements at an estimated termination value of $46.7 million. As of October 29, 2010, the Company had not breached any of these provisions or posted any collateral related to these agreements.

 

8.                                       Commitments and contingencies

 

Legal proceedings

 

On August 7, 2006, a lawsuit entitled Cynthia Richter, et al. v. Dolgencorp, Inc., et al. was filed in the United States District Court for the Northern District of Alabama (Case No. 7:06-cv-01537-LSC) (“Richter”) in which the plaintiff alleges that she and other current and former Dollar General store managers were improperly classified as exempt executive employees under the Fair Labor Standards Act (“FLSA”) and seeks to recover overtime pay, liquidated damages, and attorneys’ fees and costs. On August 15, 2006, the Richter plaintiff filed a motion in which she asked the court to certify a nationwide class of current and former store managers. The Company opposed the plaintiff’s motion. On March 23, 2007, the court conditionally certified a nationwide class. On December 2, 2009, notice was mailed to over 28,000 current or former Dollar General store managers, and approximately 3,860 individuals opted into the lawsuit. Recently, the court entered a scheduling order that will govern, among other things, deadlines for fact discovery (September 30, 2011) and the Company’s anticipated decertification motion (August 15, 2011). The court’s scheduling order establishes a trial date of February 12, 2012.

 

On July 20, 2010, a lawsuit was filed in the judicial district in which the Richter matter is pending in which a former store manager makes allegations substantially similar to those raised in Richter and seeks to represent a nationwide class of current and former store managers ( Lisa Beard v. Dollar General Corporation, et al. , Case No. 7:10-cv-01956-SLB). Like the Richter plaintiff, the plaintiff in Beard seeks to recover overtime pay, liquidated damages, and attorneys’ fees and costs. To date approximately 95 individuals have opted into the Beard lawsuit; however, the plaintiff has not asked the court to certify any class.

 

The Company believes that its store managers are and have been properly classified as exempt employees under the FLSA and that the Richter and Beard actions are not appropriate for collective action treatment. The Company has obtained summary judgment in some, although not all, of its pending store manager exemption cases in which it has filed such a motion. The

 

12



 

Company intends to vigorously defend these actions. However, at this time, it is not possible to predict whether these actions ultimately will be permitted to proceed collectively, and no assurances can be given that the Company will be successful in the defense of either action on the merits or otherwise. If the Company is not successful in its defense efforts, the resolution could have a material adverse effect on the Company’s financial statements as a whole.

 

On May 18, 2006, the Company was served with a lawsuit entitled Tammy Brickey, Becky Norman, Rose Rochow, Sandra Cogswell and Melinda Sappington v. Dolgencorp, Inc. and Dollar General Corporation (Western District of New York, Case No. 6:06-cv-06084-DGL, originally filed on February 9, 2006 and amended on May 12, 2006 (“Brickey”)). The Brickey plaintiffs seek to proceed collectively under the FLSA and as a class under New York, Ohio, Maryland and North Carolina wage and hour statutes on behalf of, among others, assistant store managers who claim to be owed wages (including overtime wages) under those statutes. At this time, it is not possible to predict whether the court will permit this action to proceed collectively or as a class. However, the Company believes that this action is not appropriate for either collective or class treatment and that the Company’s wage and hour policies and practices comply with both federal and state law. The Company plans to vigorously defend this action; however, no assurances can be given that the Company will be successful in the defense on the merits or otherwise, and, if it is not successful, the resolution of this action could have a material adverse effect on the Company’s financial statements as a whole.

 

On March 7, 2006, a complaint was filed in the United States District Court for the Northern District of Alabama ( Janet Calvert v. Dolgencorp, Inc. , Case No. 2:06-cv-00465-VEH (“Calvert”)), in which the plaintiff, a former store manager, alleged that she was paid less than male store managers because of her sex, in violation of the Equal Pay Act and Title VII of the Civil Rights Act of 1964, as amended (“Title VII”). The complaint subsequently was amended to include additional plaintiffs, who also allege to have been paid less than males because of their sex, and to add allegations that the Company’s compensation practices disparately impact females. Under the amended complaint, Plaintiffs seek to proceed collectively under the Equal Pay Act and as a class under Title VII, and request back wages, injunctive and declaratory relief, liquidated damages, punitive damages and attorneys’ fees and costs.

 

On July 9, 2007, the plaintiffs filed a motion in which they asked the court to approve the issuance of notice to a class of current and former female store managers under the Equal Pay Act. The Company opposed plaintiffs’ motion. On November 30, 2007, the court conditionally certified a nationwide class of females under the Equal Pay Act who worked for Dollar General as store managers between November 30, 2004 and November 30, 2007. The notice was issued on January 11, 2008, and persons to whom the notice was sent were required to opt into the suit by March 11, 2008. Approximately 2,100 individuals have opted into the lawsuit.

 

On April 19, 2010, the plaintiffs moved for class certification relating to their Title VII claims. The Company filed its response to the certification motion in June 2010. Briefing has closed, and the parties are awaiting a ruling. The Company’s motion to decertify the Equal Pay Act class was denied as premature. The Company expects to file a similar motion at the appropriate time.

 

13



 

At this time, it is not possible to predict whether the court ultimately will permit the Calvert action to proceed collectively under the Equal Pay Act or as a class under Title VII. However, the Company believes that the case is not appropriate for class or collective treatment and that its policies and practices comply with the Equal Pay Act and Title VII. The Company intends to vigorously defend the action; however, no assurances can be given that the Company will be successful in the defense on the merits or otherwise. If the Company is not successful in defending the Calvert action, its resolution could have a material adverse effect on the Company’s financial statements as a whole.

 

On June 16, 2010, a lawsuit entitled Shaleka Gross, et al v. Dollar General Corporation was filed in the United States District Court for the Southern District of Mississippi (Civil Action No. 3:10CV340WHB-LR) in which three former non-exempt store employees, on behalf of themselves and certain other non-exempt Dollar General store employees, alleged that they were not paid for all hours worked in violation of the FLSA. Specifically, plaintiffs alleged that they were not properly paid for certain breaks and sought back wages (including overtime wages), liquidated damages and attorneys’ fees and costs.

 

Before the Company was served with the Gross complaint, the plaintiffs dismissed the action and re-filed it in the United States District Court for the Northern District of Mississippi, now captioned as Cynthia Walker, et al. v. Dollar General Corporation, et al. (Civil Action No. 4:10-CV119-P-S). The Walker complaint was filed on September 16, 2010, and although it adds approximately eight additional plaintiffs, it adds no substantive allegations beyond those alleged in the Gross complaint. The Company’s motion to transfer the case back to the Southern District of Mississippi is pending. To date, no other individuals have opted into the Walker matter, and the plaintiffs have not asked the court to certify any class.

 

On August 26, 2010, a lawsuit containing allegations substantially similar to those raised in the Walker matter was filed by a single plaintiff in the United States District Court for the Eastern District of Kentucky (Brenda McCown v. Dollar General Corporation , Case No. 210-297 (WOB)). To date, approximately three other individuals have opted into the McCown matter. The plaintiff has not asked the court to certify any class.

 

At this time, it is not possible to predict whether the court will permit the Walker or McCown actions to proceed collectively. However, the Company believes that those actions are not appropriate for collective treatment and that the Company’s wage and hour policies and practices comply with both federal and state law. The Company plans to vigorously defend Walker and McCown ; however, no assurances can be given that the Company will be successful in the defense on the merits or otherwise, and, if it is not successful, their resolution could have a material adverse effect on the Company’s financial statements as a whole.

 

In October 2008, the Company terminated an interest rate swap as a result of the counterparty’s declaration of bankruptcy. This declaration of bankruptcy constituted a default under the contract governing the swap, giving the Company the right to terminate. The Company subsequently settled the swap in November 2008 for approximately $7.6 million, including interest accrued to the date of termination. On May 14, 2010, the Company received a demand from the counterparty for an additional payment of approximately $19 million, claiming that the

 

14



 

valuation used to calculate the $7.6 million was commercially unreasonable, and seeking to invoke the alternative dispute resolution procedures established by the bankruptcy court. The Company is participating in the alternative dispute resolution procedures but does not believe that this additional payment is owed. The Company believes the methodology it used to calculate the settlement amount was commercially reasonable and appropriate; however, no assurances can be given that the Company will be successful in its defense on the merits or otherwise. If the Company is not successful, the resolution of this action could have a material adverse effect on the Company’s financial statements as a whole.

 

From time to time, the Company is a party to various other legal actions involving claims incidental to the conduct of its business, including actions by employees, consumers, suppliers, government agencies, or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation, including without limitation under federal and state employment laws and wage and hour laws. The Company believes, based upon information currently available, that such other litigation and claims, both individually and in the aggregate, will be resolved without a material adverse effect on the Company’s financial statements as a whole. However, litigation involves an element of uncertainty. Future developments could cause these actions or claims to have a material adverse effect on the Company’s results of operations, cash flows, or financial position. In addition, certain of these lawsuits, if decided adversely to the Company or settled by the Company, may result in liability material to the Company’s financial position or may negatively affect operating results if changes to the Company’s business operation are required.

 

9.                                       Share-based payments

 

For the 39-week periods ended October 29, 2010 and October 30, 2009, the Company recorded share-based compensation expense (a component of selling, general and administrative expenses) of $23.1 million and $9.4 million, respectively. The increase in the 2010 period is primarily attributable to certain equity appreciation rights as discussed below.

 

The Company’s Second Amended and Restated Equity Appreciation Rights Plan provides for the granting of equity appreciation rights to nonexecutive managerial employees. During the 39-week period ended October 29, 2010, 679,777 of such equity appreciation rights, affecting 873 employees, vested in conjunction with a secondary offering of the Company’s common stock, resulting in share-based awards expense of $13.3 million as well as expense for related payroll taxes of $1.0 million.

 

15



 

10.                                Segment reporting

 

The Company manages its business on the basis of one reportable segment. As of October 29, 2010, all of the Company’s operations were located within the United States, with the exception of a Hong Kong subsidiary and a liaison office in India, the collective assets and revenues of which are not material. Net sales grouped by classes of similar products are presented below.

 

 

 

13 Weeks Ended

 

39 Weeks Ended

 

(In thousands)

 

October 29,
2010

 

October 30,
2009

 

October 29,
2010

 

October 30,
2009

 

Classes of similar products:

 

 

 

 

 

 

 

 

 

Consumables

 

$

2,378,667

 

$

2,137,504

 

$

6,907,541

 

$

6,186,509

 

Seasonal

 

401,544

 

370,026

 

1,302,780

 

1,149,775

 

Home products

 

223,026

 

207,798

 

670,352

 

636,875

 

Apparel

 

220,190

 

213,423

 

668,223

 

637,436

 

Net sales

 

$

3,223,427

 

$

2,928,751

 

$

9,548,896

 

$

8,610,595

 

 

11.                                Related party transactions

 

Affiliates of Kohlberg Kravis Roberts & Co. (“KKR”) and Goldman, Sachs & Co. indirectly own a substantial portion of the Company’s common stock. A Member and a Director of KKR and a Managing Director of Goldman, Sachs & Co. serve on the Company’s Board of Directors.

 

Affiliates of KKR and Goldman, Sachs & Co. (among other entities) may be lenders under the Company’s senior secured term loan facility (“Term Loan Facility”) which had a $2.3 billion principal amount at inception and a principal balance as of October 29, 2010 of approximately $1.96 billion. The Company paid approximately $45.5 million and $57.8 million of interest on the Term Loan Facility during the 39-week periods ended October 29, 2010 and October 30, 2009, respectively.

 

Goldman, Sachs & Co. is a counterparty to an amortizing interest rate swap with a $323.3 million notional amount as of October 29, 2010, entered into in connection with the Term Loan Facility. The Company paid Goldman, Sachs & Co. approximately $12.9 million and $13.0 million in the 39-week periods ended October 29, 2010 and October 30, 2009, respectively, pursuant to this swap.

 

The Company entered into a sponsor advisory agreement, dated July 6, 2007, with KKR and Goldman, Sachs & Co. pursuant to which those entities provided management and advisory services to the Company. Under the terms of the sponsor advisory agreement, among other things, the Company was obliged to pay to those entities an annual management fee, initially $5.0 million and subject to annual escalation. The Company completed its initial public offering of common stock in November 2009 and concurrently terminated the advisory agreement. In addition, the Company periodically reimburses KKR for incidental expenses incurred on behalf of the Company. The Company reimbursed KKR for incidental expenses of $0.1 million for the 39-week period ended October 29, 2010 and incurred advisory fees and other expenses for the 39-week period ended October 30, 2009 of $4.1 million. In addition, on July 6, 2007, the

 

16



 

Company entered into a separate indemnification agreement with the parties to the sponsor advisory agreement, pursuant to which the Company agreed to provide customary indemnification to such parties and their affiliates.

 

Affiliates of KKR and Goldman, Sachs & Co. served as underwriters in connection with the Company’s initial public offering of its common stock and in connection with the secondary offering of the Company’s common stock held by certain existing shareholders that was completed in April 2010. The Company did not sell shares of common stock, receive proceeds from such shareholders’ sale of shares of common stock or pay any underwriting fees in connection with the secondary offering.

 

12.                                Guarantor subsidiaries

 

Certain of the Company’s subsidiaries (the “Guarantors”) have fully and unconditionally guaranteed on a joint and several basis the Company’s obligations under certain outstanding debt obligations. Each of the Guarantors is a direct or indirect wholly-owned subsidiary of the Company. The following consolidating schedules present condensed financial information on a combined basis, in thousands.

 

17



 

 

 

October 29, 2010

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

BALANCE SHEET:

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

45,332

 

$

169,938

 

$

22,636

 

$

 

$

237,906

 

Merchandise inventories

 

 

1,885,753

 

 

 

1,885,753

 

Income taxes receivable

 

54,265

 

 

 

(26,588

)

27,677

 

Deferred income taxes

 

5,239

 

 

6,115

 

(11,354

)

 

Prepaid expenses and other current assets

 

622,277

 

3,451,419

 

11,208

 

(3,963,482

)

121,422

 

Total current assets

 

727,113

 

5,507,110

 

39,959

 

(4,001,424

)

2,272,758

 

Net property and equipment

 

103,800

 

1,310,668

 

232

 

 

1,414,700

 

Goodwill

 

4,338,589

 

 

 

 

4,338,589

 

Intangible assets, net

 

1,199,257

 

63,577

 

 

 

1,262,834

 

Deferred income taxes

 

 

 

45,023

 

(45,023

)

 

Other assets, net

 

5,023,574

 

13,264

 

301,623

 

(5,277,768

)

60,693

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

11,392,333

 

$

6,894,619

 

$

386,837

 

$

(9,324,215

)

$

9,349,574

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term obligations

 

$

 

$

1,358

 

$

 

$

 

$

1,358

 

Accounts payable

 

3,427,153

 

1,448,216

 

46,072

 

(3,949,903

)

971,538

 

Accrued expenses and other

 

89,552

 

242,614

 

60,163

 

(13,579

)

378,750

 

Income taxes payable

 

2,820

 

11,220

 

26,616

 

(26,588

)

14,068

 

Deferred income taxes

 

 

55,955

 

 

(11,354

)

44,601

 

Total current liabilities

 

3,519,525

 

1,759,363

 

132,851

 

(4,001,424

)

1,410,315

 

Long-term obligations

 

3,533,958

 

2,932,414

 

 

(3,179,465

)

3,286,907

 

Deferred income taxes

 

417,109

 

193,424

 

 

(45,023

)

565,510

 

Other liabilities

 

89,568

 

25,673

 

139,428

 

 

254,669

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable common stock

 

14,783

 

 

 

 

14,783

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

Common stock

 

298,459

 

23,855

 

100

 

(23,955

)

298,459

 

Additional paid-in capital

 

2,937,300

 

431,253

 

19,900

 

(451,153

)

2,937,300

 

Retained earnings

 

608,386

 

1,528,637

 

94,558

 

(1,623,195

)

608,386

 

Accumulated other comprehensive loss

 

(26,755

)

 

 

 

(26,755

)

Total shareholders’ equity

 

3,817,390

 

1,983,745

 

114,558

 

(2,098,303

)

3,817,390

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

11,392,333

 

$

6,894,619

 

$

386,837

 

$

(9,324,215

)

$

9,349,574

 

 

18



 

 

 

January 29, 2010

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

BALANCE SHEET:

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

97,620

 

$

103,001

 

$

21,455

 

$

 

$

222,076

 

Merchandise inventories

 

 

1,519,578

 

 

 

1,519,578

 

Income taxes receivable

 

9,924

 

1,645

 

 

(4,026

)

7,543

 

Deferred income taxes

 

16,066

 

 

3,559

 

(19,625

)

 

Prepaid expenses and other current assets

 

625,157

 

3,040,792

 

704

 

(3,570,401

)

96,252

 

Total current assets

 

748,767

 

4,665,016

 

25,718

 

(3,594,052

)

1,845,449

 

Net property and equipment

 

99,452

 

1,228,829

 

105

 

 

1,328,386

 

Goodwill

 

4,338,589

 

 

 

 

4,338,589

 

Intangible assets, net

 

1,201,223

 

83,060

 

 

 

1,284,283

 

Deferred income taxes

 

 

 

36,405

 

(36,405

)

 

Other assets, net

 

4,288,270

 

8,920

 

297,757

 

(4,528,135

)

66,812

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

10,676,301

 

$

5,985,825

 

$

359,985

 

$

(8,158,592

)

$

8,863,519

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term obligations

 

$

1,822

 

$

1,849

 

$

 

$

 

$

3,671

 

Accounts payable

 

3,033,723

 

1,311,063

 

46,818

 

(3,560,651

)

830,953

 

Accrued expenses and other

 

72,320

 

226,571

 

53,149

 

(9,750

)

342,290

 

Income taxes payable

 

4,086

 

 

4,465

 

(4,026

)

4,525

 

Deferred income taxes

 

 

44,686

 

 

(19,625

)

25,061

 

Total current liabilities

 

3,111,951

 

1,584,169

 

104,432

 

(3,594,052

)

1,206,500

 

Long-term obligations

 

3,645,820

 

2,689,492

 

13,178

 

(2,948,775

)

3,399,715

 

Deferred income taxes

 

394,045

 

188,532

 

 

(36,405

)

546,172

 

Other liabilities

 

115,701

 

40,065

 

146,582

 

 

302,348

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable common stock

 

18,486

 

 

 

 

18,486

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

Common stock

 

298,013

 

23,855

 

100

 

(23,955

)

298,013

 

Additional paid-in capital

 

2,923,377

 

431,253

 

19,900

 

(451,153

)

2,923,377

 

Retained earnings

 

203,075

 

1,028,459

 

75,793

 

(1,104,252

)

203,075

 

Accumulated other comprehensive loss

 

(34,167

)

 

 

 

(34,167

)

Total shareholders’ equity

 

3,390,298

 

1,483,567

 

95,793

 

(1,579,360

)

3,390,298

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

10,676,301

 

$

5,985,825

 

$

359,985

 

$

(8,158,592

)

$

8,863,519

 

 

19



 

 

 

For the 13 weeks ended October 29, 2010

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF INCOME:

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

75,020

 

$

3,223,427

 

$

21,888

 

$

(96,908

)

$

3,223,427

 

Cost of goods sold

 

 

2,212,759

 

 

 

2,212,759

 

Gross profit

 

75,020

 

1,010,668

 

21,888

 

(96,908

)

1,010,668

 

Selling, general and administrative expenses

 

68,201

 

748,432

 

16,609

 

(96,908

)

736,334

 

Operating profit

 

6,819

 

262,236

 

5,279

 

 

274,334

 

Interest income

 

(12,244

)

(3,843

)

(4,898

)

20,895

 

(90

)

Interest expense

 

70,103

 

18,021

 

6

 

(20,895

)

67,235

 

Other (income) expense

 

8,312

 

 

 

 

8,312

 

Income (loss) before income taxes

 

(59,352

)

248,058

 

10,171

 

 

198,877

 

Income tax expense (benefit)

 

(26,871

)

94,555

 

3,073

 

 

70,757

 

Equity in subsidiaries’ earnings, net of taxes

 

160,601

 

 

 

(160,601

)

 

Net income

 

$

128,120

 

$

153,503

 

$

7,098

 

$

(160,601

)

$

128,120

 

 

 

 

For the 13 weeks ended October 30, 2009

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF INCOME:

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

81,305

 

$

2,928,751

 

$

22,910

 

$

(104,215

)

$

2,928,751

 

Cost of goods sold

 

 

2,025,669

 

 

 

2,025,669

 

Gross profit

 

81,305

 

903,082

 

22,910

 

(104,215

)

903,082

 

Selling, general and administrative expenses

 

73,916

 

702,070

 

15,072

 

(104,215

)

686,843

 

Operating profit

 

7,389

 

201,012

 

7,838

 

 

216,239

 

Interest income

 

(14,697

)

(862

)

(5,049

)

20,582

 

(26

)

Interest expense

 

93,184

 

15,003

 

7

 

(20,582

)

87,612

 

Other (income) expense

 

513

 

 

 

 

513

 

Income (loss) before income taxes

 

(71,611

)

186,871

 

12,880

 

 

128,140

 

Income tax expense (benefit)

 

(22,595

)

70,589

 

4,497

 

 

52,491

 

Equity in subsidiaries’ earnings, net of taxes

 

124,665

 

 

 

(124,665

)

 

Net income

 

$

75,649

 

$

116,282

 

$

8,383

 

$

(124,665

)

$

75,649

 

 

20



 

 

 

For the 39 weeks ended October 29, 2010

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF INCOME:

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

235,606

 

$

9,548,896

 

$

63,479

 

$

(299,085

)

$

9,548,896

 

Cost of goods sold

 

 

6,502,493

 

 

 

6,502,493

 

Gross profit

 

235,606

 

3,046,403

 

63,479

 

(299,085

)

3,046,403

 

Selling, general and administrative expenses

 

214,273

 

2,214,507

 

50,894

 

(299,085

)

2,180,589

 

Operating profit

 

21,333

 

831,896

 

12,585

 

 

865,814

 

Interest income

 

(33,651

)

(4,094

)

(14,805

)

52,422

 

(128

)

Interest expense

 

227,412

 

33,576

 

17

 

(52,422

)

208,583

 

Other (income) expense

 

14,983

 

 

 

 

14,983

 

Income (loss) before income taxes

 

(187,411

)

802,414

 

27,373

 

 

642,376

 

Income tax expense (benefit)

 

(73,780

)

302,237

 

8,608

 

 

237,065

 

Equity in subsidiaries’ earnings, net of taxes

 

518,942

 

 

 

(518,942

)

 

Net income

 

$

405,311

 

$

500,177

 

$

18,765

 

$

(518,942

)

$

405,311

 

 

 

 

For the 39 weeks ended October 30, 2009

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF INCOME:

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

212,930

 

$

8,610,595

 

$

68,061

 

$

(280,991

)

$

8,610,595

 

Cost of goods sold

 

 

5,946,113

 

 

 

5,946,113

 

Gross profit

 

212,930

 

2,664,482

 

68,061

 

(280,991

)

2,664,482

 

Selling, general and administrative expenses

 

193,586

 

2,028,607

 

48,955

 

(280,991

)

1,990,157

 

Operating profit

 

19,344

 

635,875

 

19,106

 

 

674,325

 

Interest income

 

(41,006

)

(3,007

)

(14,489

)

58,367

 

(135

)

Interest expense

 

283,540

 

41,602

 

17

 

(58,367

)

266,792

 

Other (income) expense

 

(215

)

 

 

 

(215

)

Income (loss) before income taxes

 

(222,975

)

597,280

 

33,578

 

 

407,883

 

Income tax expense (benefit)

 

(79,975

)

224,309

 

11,304

 

 

155,638

 

Equity in subsidiaries’ earnings, net of taxes

 

395,245

 

 

 

(395,245

)

 

Net income

 

$

252,245

 

$

372,971

 

$

22,274

 

$

(395,245

)

$

252,245

 

 

21



 

 

 

For the 39 weeks ended October 29, 2010

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF CASH FLOWS:

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

405,311

 

$

500,177

 

$

18,765

 

$

(518,942

)

$

405,311

 

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

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

24,906

 

164,795

 

38

 

 

189,739

 

Deferred income taxes

 

26,633

 

16,161

 

(11,174

)

 

31,620

 

Tax benefit of stock options

 

(6,413

)

 

 

 

(6,413

)

Non-cash share-based compensation

 

11,620

 

 

 

 

11,620

 

Loss on debt retirement, net

 

14,576

 

 

 

 

14,576

 

Other non-cash gains and losses

 

953

 

6,967

 

 

 

7,920

 

Equity in subsidiaries’ earnings, net

 

(518,942

)

 

 

518,942

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Merchandise inventories

 

 

(366,903

)

 

 

(366,903

)

Prepaid expenses and other current assets

 

4,601

 

(30,332

)

(681

)

 

(26,412

)

Accounts payable

 

2,301

 

144,634

 

(2

)

 

146,933

 

Accrued expenses and other

 

(6,143

)

2,200

 

(140

)

 

(4,083

)

Income taxes

 

(39,194

)

12,865

 

22,151

 

 

(4,178

)

Other

 

7

 

(1,113

)

(2

)

 

(1,108

)

Net cash provided by (used in) operating activities

 

(79,784

)

449,451

 

28,955

 

 

398,622

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

(16,115

)

(242,963

)

(165

)

 

(259,243

)

Proceeds from sale of property and equipment

 

 

868

 

 

 

868

 

Net cash used in investing activities

 

(16,115

)

(242,095

)

(165

)

 

(258,375

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

599

 

 

 

 

599

 

Repayments of long-term obligations

 

(129,217

)

(1,437

)

 

 

(130,654

)

Repurchases of equity

 

(825

)

 

 

 

(825

)

Proceeds from exercise of stock options

 

50

 

 

 

 

50

 

Tax benefit of stock options

 

6,413

 

 

 

 

6,413

 

Changes in intercompany note balances, net

 

166,591

 

(138,982

)

(27,609

)

 

 

Net cash provided by (used in) financing activities

 

43,611

 

(140,419

)

(27,609

)

 

(124,417

)

Net increase (decrease) in cash and cash equivalents

 

(52,288

)

66,937

 

1,181

 

 

15,830

 

Cash and cash equivalents, beginning of period

 

97,620

 

103,001

 

21,455

 

 

222,076

 

Cash and cash equivalents, end of period

 

$

45,332

 

$

169,938

 

$

22,636

 

$

 

$

237,906

 

 

22