Dollar General Corporation
DOLLAR GENERAL CORP (Form: 10-Q, Received: 08/30/2011 08:36:33)

 

 

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 July 29, 2011

 

Commission File Number: 001-11421

 

DOLLAR GENERAL CORPORATION

(Exact name of Registrant as specified in its charter)

 

TENNESSEE

 

61-0502302

(State or other jurisdiction of
incorporation or organization)

 

(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  x   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  x

 

Accelerated filer  o

 

 

 

Non-accelerated filer  o

 

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 341,532,297 shares of common stock outstanding on August 26, 2011.

 

 

 



 

PART I—FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS.

 

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

July 29,
2011

 

January 28,
2011

 

 

 

(Unaudited)

 

(see Note 1)

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

113,050

 

$

497,446

 

Merchandise inventories

 

1,973,863

 

1,765,433

 

Income taxes receivable

 

43,435

 

 

Prepaid expenses and other current assets

 

142,433

 

104,946

 

Total current assets

 

2,272,781

 

2,367,825

 

Net property and equipment

 

1,622,991

 

1,524,575

 

Goodwill

 

4,338,589

 

4,338,589

 

Intangible assets, net

 

1,245,773

 

1,256,922

 

Other assets, net

 

48,969

 

58,311

 

Total assets

 

$

9,529,103

 

$

9,546,222

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term obligations

 

$

963

 

$

1,157

 

Accounts payable

 

1,122,949

 

953,641

 

Accrued expenses and other

 

366,623

 

347,741

 

Income taxes payable

 

810

 

25,980

 

Deferred income taxes

 

35,606

 

36,854

 

Total current liabilities

 

1,526,951

 

1,365,373

 

Long-term obligations

 

2,779,408

 

3,287,070

 

Deferred income taxes

 

624,034

 

598,565

 

Other liabilities

 

215,875

 

231,582

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Redeemable common stock

 

9,271

 

9,153

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred stock

 

 

 

Common stock

 

298,842

 

298,819

 

Additional paid-in capital

 

2,951,761

 

2,945,024

 

Retained earnings

 

1,133,943

 

830,932

 

Accumulated other comprehensive loss

 

(10,982

)

(20,296

)

Total shareholders’ equity

 

4,373,564

 

4,054,479

 

Total liabilities and shareholders’ equity

 

$

9,529,103

 

$

9,546,222

 

 

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 26 weeks ended

 

 

 

July 29,
2011

 

July 30,
2010

 

July 29,
2011

 

July 30,
2010

 

Net sales

 

$

3,575,194

 

$

3,214,155

 

$

7,026,891

 

$

6,325,469

 

Cost of goods sold

 

2,426,852

 

2,178,176

 

4,791,152

 

4,289,734

 

Gross profit

 

1,148,342

 

1,035,979

 

2,235,739

 

2,035,735

 

Selling, general and administrative expenses

 

798,313

 

735,222

 

1,564,092

 

1,444,255

 

Operating profit

 

350,029

 

300,757

 

671,647

 

591,480

 

Interest income

 

(26

)

(32

)

(45

)

(38

)

Interest expense

 

60,653

 

69,330

 

126,244

 

141,348

 

Other (income) expense

 

58,239

 

6,526

 

60,511

 

6,671

 

Income before income taxes

 

231,163

 

224,933

 

484,937

 

443,499

 

Income tax expense

 

85,121

 

83,738

 

181,926

 

166,308

 

Net income

 

$

146,042

 

$

141,195

 

$

303,011

 

$

277,191

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.43

 

$

0.41

 

$

0.89

 

$

0.81

 

Diluted

 

$

0.42

 

$

0.41

 

$

0.88

 

$

0.80

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

341,534

 

341,001

 

341,528

 

340,910

 

Diluted

 

345,625

 

344,746

 

345,509

 

344,572

 

 

See notes to condensed consolidated financial statements.

 

2



 

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

For the 26 weeks ended

 

 

 

July 29,
2011

 

July 30,
2010

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

303,011

 

$

277,191

 

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

 

 

 

 

 

Depreciation and amortization

 

135,871

 

126,156

 

Deferred income taxes

 

18,136

 

(4,860

)

Tax benefit of stock options

 

(450

)

(5,387

)

Loss on debt retirement, net

 

60,303

 

6,387

 

Non-cash share-based compensation

 

6,798

 

8,366

 

Other non-cash gains and losses

 

17,709

 

6,466

 

Change in operating assets and liabilities:

 

 

 

 

 

Merchandise inventories

 

(222,669

)

(219,589

)

Prepaid expenses and other current assets

 

(37,136

)

(15,822

)

Accounts payable

 

166,690

 

113,976

 

Accrued expenses and other

 

18,399

 

(35,836

)

Income taxes

 

(68,155

)

23,269

 

Other

 

(68

)

(1,011

)

Net cash provided by operating activities

 

398,439

 

279,306

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(218,123

)

(163,058

)

Proceeds from sale of property and equipment

 

473

 

544

 

Net cash used in investing activities

 

(217,650

)

(162,514

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Issuance of common stock

 

177

 

401

 

Repayments of long-term obligations

 

(911,361

)

(58,137

)

Borrowings under revolving credit agreement

 

371,600

 

 

Repayments of borrowings under revolving credit agreement

 

(25,600

)

 

Repurchases of common stock and settlement of equity awards, net of employee taxes paid

 

(451

)

(5,098

)

Tax benefit of stock options

 

450

 

5,387

 

Net cash used in financing activities

 

(565,185

)

(57,447

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(384,396

)

59,345

 

Cash and cash equivalents, beginning of period

 

497,446

 

222,076

 

Cash and cash equivalents, end of period

 

$

113,050

 

$

281,421

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

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

 

$

32,276

 

$

27,206

 

 

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, including the condensed consolidated balance sheet as of January 28, 2011, which has been derived from the audited consolidated financial statements at that date. 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 28, 2011 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 2011 fiscal year will be a 53-week accounting period that will end on February 3, 2012 and the 2010 fiscal year was a 52-week accounting period that ended on January 28, 2011.

 

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 July 29, 2011 and results of operations for the 13-week and 26-week accounting periods ended July 29, 2011 and July 30, 2010 have been made.

 

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 a LIFO provision of $10.7 million and $0.7 million in the respective 13-week periods, and $14.2 million and $0.7 million in the respective 26-week periods, ended July 29, 2011 and July 30, 2010. 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

 

4



 

moderately seasonal, the results for interim periods are not necessarily indicative of the results to be expected for the entire year.

 

On June 16, 2011, the FASB issued an accounting standards update which revises the manner in which entities present comprehensive income in their financial statements. The new standard removes the presentation options in current guidance and requires entities to report components of comprehensive income in either a continuous statement of comprehensive income or separate but consecutive statements. The new standard does not change the items that must be reported in other comprehensive income. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is in the process of evaluating the effect of this standard on its consolidated financial statements.

 

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

 

2.              Comprehensive income

 

Comprehensive income consists of the following:

 

 

 

13 Weeks Ended

 

26 Weeks Ended

 

(in thousands)

 

July 29,
2011

 

July 30,
2010

 

July 29,
2011

 

July 30,
2010

 

Net income

 

$

146,042

 

$

141,195

 

$

303,011

 

$

277,191

 

Unrealized net gain on hedged transactions, net of income tax expense of $2,973, $66, $5,989, and $3,467, respectively (see Note 7)

 

4,614

 

104

 

9,314

 

4,500

 

Comprehensive income

 

$

150,656

 

$

141,299

 

$

312,325

 

$

281,691

 

 

3.              Earnings per share

 

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

 

 

 

13 Weeks Ended July 29, 2011

 

13 Weeks Ended July 30, 2010

 

 

 

Net
Income

 

Shares

 

Per Share
Amount

 

Net
Income

 

Shares

 

Per Share
Amount

 

Basic earnings per share

 

$

146,042

 

341,534

 

$

0.43

 

$

141,195

 

341,001

 

$

0.41

 

Effect of dilutive share-based awards

 

 

 

4,091

 

 

 

 

 

3,745

 

 

 

Diluted earnings per share

 

$

146,042

 

345,625

 

$

0.42

 

$

141,195

 

344,746

 

$

0.41

 

 

5



 

 

 

26 Weeks Ended July 29, 2011

 

26 Weeks Ended July 30, 2010

 

 

 

Net
Income

 

Shares

 

Per Share
Amount

 

Net
Income

 

Shares

 

Per Share
Amount

 

Basic earnings per share

 

$

303,011

 

341,528

 

$

0.89

 

$

277,191

 

340,910

 

$

0.81

 

Effect of dilutive share-based awards

 

 

 

3,981

 

 

 

 

 

3,662

 

 

 

Diluted earnings per share

 

$

303,011

 

345,509

 

$

0.88

 

$

277,191

 

344,572

 

$

0.80

 

 

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 0.4 million in the periods ended July 29, 2011 and July 30, 2010, 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 and 2010 fiscal years, while not currently under examination, are 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 July 29, 2011, the total reserves for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $26.5 million, $2.4 million and $0.5 million, respectively, for a total of $29.4 million. Of this amount, $0.2 million and $27.9 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 $1.3 million reducing deferred tax assets related to net operating loss carry forwards.

 

6



 

The Company believes it is reasonably possible that the reserve for uncertain tax positions may be reduced by approximately $1.4 million in the coming twelve months principally as a result of the settlement of currently ongoing income tax examinations. The reasonably possible change of $1.4 million is included in current liabilities in Accrued expenses and other in the amount of $0.2 million and in noncurrent Other liabilities in the amount of $1.2 million in the condensed consolidated balance sheet as of July 29, 2011. Also, as of July 29, 2011, approximately $26.5 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 rate for the respective 13-week and 26-week periods ended July 29, 2011 were 36.8% and 37.5%, compared to rates of 37.2% and 37.5% for the respective 13-week and 26-week periods ended July 30, 2010, a net decrease of 0.4% for the 13-week period and unchanged for the 26-week period.

 

5.              Current and long-term obligations

 

On July 15, 2011, the Company redeemed all $839.3 million outstanding aggregate principal amount of its 10.625% Senior Notes due 2015 (the “Senior Notes”) at a redemption price of 105.313% of the principal amount, plus accrued and unpaid interest. The redemption was effected in accordance with the indenture governing the Senior Notes pursuant to a notice dated May 31, 2011.  The pretax loss on this transaction of $58.1 million is reflected in Other (income) expense in the Company’s condensed consolidated statement of income for the 13-week and 26-week periods ended July 29, 2011. The Company funded the redemption price for the Senior Notes with cash on hand and borrowings under its senior secured asset-based revolving credit facility (the “ABL Facility”), which had a balance of $346.0 million at July 29, 2011.

 

On April 29, 2011, the Company repurchased in the open market $25.0 million aggregate principal amount of Senior Notes at a price of 107.0% plus accrued and unpaid interest. The pretax loss on this transaction of $2.2 million is reflected in Other (income) expense in the Company’s condensed consolidated statement of income for the 26-week period ended July 29, 2011.

 

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 July 29, 2011, 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 July 29, 2011.

 

 

(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
July 29,
2011

 

Assets:

 

 

 

 

 

 

 

 

 

Trading securities (a)

 

$

7,170

 

$

 

$

 

$

7,170

 

Liabilities:

 

 

 

 

 

 

 

 

 

Long-term obligations (b)

 

2,818,714

 

20,174

 

 

2,838,888

 

Derivative financial instruments (c)

 

 

20,092

 

 

20,092

 

Deferred compensation (d)

 

18,700

 

 

 

18,700

 

 


(a)

Reflected at fair value in the condensed consolidated balance sheet as Prepaid expenses and other current assets of $1,738 and Other assets, net of $5,432.

(b)

Reflected at book value in the condensed consolidated balance sheet as Current portion of long-term obligations of $963 and Long-term obligations of $2,779,408.

(c)

Reflected in the condensed consolidated balance sheet as Accrued expenses and other current liabilities of $11,156 and non-current Other liabilities of $8,936.

(d)

Reflected at fair value in the condensed consolidated balance sheet as Accrued expenses and other current liabilities of $1,738 and non-current Other liabilities of $16,962.

 

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 26-week periods ended July 29, 2011 and July 30, 2010, 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 July 29, 2011, the Company had three interest rate swaps with a combined notional value of $686.7 million 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 reclassified into

 

9



 

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 $15.4 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 July 29, 2011, and July 30, 2010, the Company had no such non-designated hedges.

 

The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of July 29, 2011 and January 28, 2011 (in thousands):

 

(in thousands)

 

July 29,
2011

 

January 28,
2011

 

Derivatives Designated as Hedging Instruments

 

 

 

 

 

Interest rate swaps classified in current liabilities as Accrued expenses and other

 

$

11,156

 

$

 

Interest rate swaps classified in noncurrent liabilities as Other liabilities

 

$

8,936

 

$

34,923

 

 

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 26-week periods ended July 29, 2011 and July 30, 2010 (in thousands):

 

 

 

13 Weeks Ended

 

26 Weeks Ended

 

(in thousands)

 

July 29,
2011

 

July 30,
2010

 

July 29,
2011

 

July 30,
2010

 

Derivatives in Cash Flow Hedging Relationships

 

 

 

 

 

 

 

 

 

Loss related to effective portion of derivative recognized in OCI

 

$

1,235

 

$

10,893

 

$

2,838

 

$

15,436

 

Loss related to effective portion of derivative reclassified from Accumulated OCI to Interest expense

 

$

8,821

 

$

11,063

 

$

18,141

 

$

23,403

 

Loss related to ineffective portion of derivative recognized in Other (income) expense

 

$

103

 

$

140

 

$

208

 

$

285

 

 

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 July 29, 2011, 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 $20.5 million. If the Company had breached any of these provisions at July 29,

 

10



 

2011, it could have been required to post full collateral or settle its obligations under the agreements at an estimated termination value of $20.5 million. As of July 29, 2011, 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. In May 2011, the court entered an amended scheduling order that governs, among other things, deadlines for fact discovery (November 30, 2011) and the filing of the Company’s anticipated decertification motion (October 14, 2011) and any potentially dispositive motions (December 16, 2011). The court’s scheduling order establishes a trial date of May 21, 2012.  The Company does not anticipate a ruling on its decertification motion before January 2012.

 

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

 

The Company is vigorously defending the Richter matter. However, at this time, it is not possible to predict whether Richter ultimately will be permitted to proceed collectively, and no assurances can be given that the Company will be successful in its defense of the action on the merits or otherwise. Similarly, at this time the Company cannot estimate either the size of any potential class or the value of the claims asserted in Richter . For these reasons, the Company is unable to estimate any potential loss or range of loss in the matter; however, if the Company is not successful in its defense efforts, the resolution of Richter 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

 

11



 

managers who claim to be owed wages (including overtime wages) under those statutes. On February 22, 2011, the court denied the plaintiffs’ class certification motion in its entirety and ordered that the matter proceed only as to the named plaintiffs.  On March 22, 2011, the plaintiffs moved the court for reconsideration of its Order denying their class certification motion.  On March 30, 2011, the plaintiffs’ reconsideration motion was denied, and the plaintiffs did not appeal that ruling. The case will proceed now only as to the named plaintiffs, and the Company does not expect the outcome to be material to its 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”) (now captioned, Wanda Womack, et al. v. Dolgencorp, Inc., Case No. 2:06-cv-00465-VEH). 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 motion remains pending. The Company’s motion to decertify the Equal Pay Act class was denied as premature. If the case proceeds, the Company expects to file a similar motion in due course.

 

The parties agreed to mediate this action, and the court stayed the action pending the results of the mediation.  The mediation occurred in March and April, 2011, and the Company has reached an agreement in principle to settle the matter on behalf of the entire putative class. The proposed settlement, which still must be submitted to and approved by the court, provides for both monetary and equitable relief. Under the proposed terms, the Company will pay $15.5 million into a fund for the class members that will be apportioned and paid out to individual members (less any additional attorneys’ fees or litigation costs approved by the court), upon submission of a valid claim. It will pay an additional $3.25 million for plaintiffs’ legal fees and costs.  Of the total $18.75 million anticipated payment, the Company expects to receive reimbursement from its Employment Practices Liability Insurance (“EPLI”) carrier of approximately $15.9 million, which represents the balance remaining of the $20 million EPLI policy covering the claims.  In addition, the Company has agreed to make certain adjustments to its pay setting policies and procedures for new store managers.  If the settlement is approved, the

 

12



 

Company expects to implement the new pay policies and practices no later than April 2012.  At this time, the Company expects the proposed settlement to be filed with the court by the end of September, 2011 and anticipates the court’s ruling sometime during the fall of 2011. Because it deemed settlement probable and estimable, the Company accrued for the net settlement as well as for certain additional anticipated fees related thereto during the 13-week period ended April 29, 2011, and concurrently recorded a receivable of approximately $15.9 million from its EPLI carrier.

 

At this time, although probable it is not certain that the court will approve the settlement. If it does not, and the case proceeds, it is not possible at this time to predict whether the court ultimately will permit the action to proceed collectively under the Equal Pay Act or as a class under Title VII. Although the Company intends to vigorously defend the action, no assurances can be given that it would be successful in the defense on the merits or otherwise. At this stage in the proceedings, the Company cannot estimate either the size of any potential class or the value of the claims raised in this action if it proceeds. For these reasons, the Company is unable to estimate any potential loss or range of loss in such a scenario; however, if the Company is not successful in defending this 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) (“Gross”) 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) (“Walker”). The Walker complaint was filed on September 16, 2010, and although it added approximately eight additional plaintiffs, it added no substantive allegations beyond those alleged in the Gross complaint. The Company filed a motion to transfer the case back to the Southern District of Mississippi along with a motion to dismiss for lack of personal jurisdiction over two corporate defendants and for failure to state a claim as to Dollar General Corporation. The motion to transfer remains pending, but the plaintiffs agreed to dismiss their claims against Dollar General Corporation and Dolgencorp of Texas, Inc., another corporate defendant, and to dismiss two of the eight named plaintiffs.  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 2, 2011, the court entered a scheduling order that governs, among other things, the deadlines for certification-related discovery (January 31, 2012) and the filing of any motion for conditional certification by the plaintiffs (March 2, 2012).  The Company’s response to any conditional certification motion must be filed within 30 days of such motion, or by March 2, 2012, whichever is later.

 

13



 

At this time, it is not possible to predict whether the court will permit the Walker action to proceed collectively. The Company does not believe that Walker is appropriate for collective treatment and believes that its wage and hour policies and practices comply with both federal and state law. Although the Company plans to vigorously defend Walker, no assurances can be given that the Company will be successful in the defense on the merits or otherwise. Similarly, at this time the Company cannot estimate either the size of any potential class or the value of the claims raised. For these reasons, the Company is unable to estimate any potential loss or range of loss; however if the Company is not successful in its defense efforts, the resolution of this action could have a material adverse effect on the Company’s financial statements as a whole.

 

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)). On May 11, 2011, the Company agreed to resolve the matter for an amount that is not material to its financial statements as a whole.

 

On May 20, 2011, a lawsuit entitled Winn-Dixie Stores, Inc., et al. v. Dolgencorp, LLC was filed in the United States District Court for the Southern District of Florida (Case No. 9:11-cv-80601-DMM) (“Winn-Dixie”) in which the plaintiffs allege that the sale of food and other items in approximately 90 of the Company’s stores, each of which allegedly is or was at some time co-located in a shopping center with one of plaintiffs’ stores, violates restrictive covenants that plaintiffs contend are binding on the occupants of the shopping centers.  Plaintiffs seek damages and an injunction limiting the sale of food and other items in those stores. The Company intends to vigorously defend the Winn-Dixie matter.  However, at this time, no assurances can be given that the Company will be successful in its defense of the action on the merits or otherwise.  Similarly, at this time, because of differences among the leases and the stores involved and certain outstanding threshold issues that will have to be addressed by the court, the Company is unable reasonably to estimate potential losses; however, if the Company is not successful in defending the Winn-Dixie matter, the outcome 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 plus interest, claiming that the 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 participated in the alternative dispute resolution procedures as it believed a reasonable settlement would be in the best interest of the Company to avoid the substantial risk and costs of litigation. In April of 2011, the Company reached a settlement with the counterparty under which the Company paid an additional $9.85 million in exchange for a full release. The Company accrued the settlement amount along with additional expected fees and costs related thereto in the 13-week period ended April 29, 2011. The settlement was finalized and the payment was made in May 2011.

 

14



 

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.              Segment reporting

 

The Company manages its business on the basis of one reportable segment. As of July 29, 2011, 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

 

26 Weeks Ended

 

(In thousands)

 

July 29,
2011

 

July 30,
2010

 

July 29,
2011

 

July 30,
2010

 

Classes of similar products:

 

 

 

 

 

 

 

 

 

Consumables

 

$

2,611,070

 

$

2,297,374

 

$

5,140,140

 

$

4,528,874

 

Seasonal

 

502,569

 

471,185

 

959,626

 

901,236

 

Home products

 

235,803

 

222,459

 

470,011

 

447,326

 

Apparel

 

225,752

 

223,137

 

457,114

 

448,033

 

Net sales

 

$

3,575,194

 

$

3,214,155

 

$

7,026,891

 

$

6,325,469

 

 

10.           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”) with a principal balance as of July 29, 2011 of approximately $1.96 billion. The Company paid approximately $36.8 million and $30.1 million of interest on the Term Loan Facility during the 26-week periods ended July 29, 2011 and July 30, 2010, respectively.

 

Goldman, Sachs & Co. is a counterparty to an amortizing interest rate swap with a $143.3 million notional amount as of July 29, 2011, entered into in connection with the Term Loan Facility. The Company paid Goldman, Sachs & Co. approximately $10.6 million and $9.1

 

15



 

million in the 26-week periods ended July 29, 2011 and July 30, 2010, respectively, pursuant to this swap.

 

Affiliates of KKR and Goldman, Sachs & Co. served as underwriters 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. Certain members of the Company’s management exercised registration rights in connection with such offering.

 

11.           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.

 

16



 

 

 

July 29, 2011

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

BALANCE SHEET:

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

55,434

 

$

36,613

 

$

21,003

 

$

 

$

113,050

 

Merchandise inventories

 

 

1,973,863

 

 

 

1,973,863

 

Income taxes receivable

 

64,469

 

4,700

 

 

(25,734

)

43,435

 

Deferred income taxes

 

9,426

 

 

14,067

 

(23,493

)

 

Prepaid expenses and other current assets

 

846,397

 

4,574,666

 

4,312

 

(5,282,942

)

142,433

 

Total current assets

 

975,726

 

6,589,842

 

39,382

 

(5,332,169

)

2,272,781

 

Net property and equipment

 

108,515

 

1,514,223

 

253

 

 

1,622,991

 

Goodwill

 

4,338,589

 

 

 

 

4,338,589

 

Intangible assets, net

 

1,199,200

 

46,573

 

 

 

1,245,773

 

Deferred income taxes

 

 

 

49,442

 

(49,442

)

 

Other assets, net

 

5,894,512

 

13,071

 

320,935

 

(6,179,549

)

48,969

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

12,516,542

 

$

8,163,709

 

$

410,012

 

$

(11,561,160

)

$

9,529,103

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term obligations

 

$

 

$

963

 

$

 

$

 

$

963

 

Accounts payable

 

4,555,164

 

1,791,240

 

50,718

 

(5,274,173

)

1,122,949

 

Accrued expenses and other

 

63,129

 

251,049

 

61,214

 

(8,769

)

366,623

 

Income taxes payable

 

 

 

26,544

 

(25,734

)

810

 

Deferred income taxes

 

 

59,099

 

 

(23,493

)

35,606

 

Total current liabilities

 

4,618,293

 

2,102,351

 

138,476

 

(5,332,169

)

1,526,951

 

Long-term obligations

 

3,040,467

 

3,162,953

 

 

(3,424,012

)

2,779,408

 

Deferred income taxes

 

429,986

 

243,490

 

 

(49,442

)

624,034

 

Other liabilities

 

44,961

 

29,473

 

141,441

 

 

215,875

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable common stock

 

9,271

 

 

 

 

9,271

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

Common stock

 

298,842

 

23,855

 

100

 

(23,955

)

298,842

 

Additional paid-in capital

 

2,951,761

 

431,253

 

19,900

 

(451,153

)

2,951,761

 

Retained earnings

 

1,133,943

 

2,170,334

 

110,095

 

(2,280,429

)

1,133,943

 

Accumulated other comprehensive loss

 

(10,982

)

 

 

 

(10,982

)

Total shareholders’ equity

 

4,373,564

 

2,625,442

 

130,095

 

(2,755,537

)

4,373,564

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

12,516,542

 

$

8,163,709

 

$

410,012

 

$

(11,561,160

)

$

9,529,103

 

 

17



 

 

 

January 28, 2011

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

BALANCE SHEET:

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

111,545

 

$

364,404

 

$

21,497

 

$

 

$

497,446

 

Merchandise inventories

 

 

1,765,433

 

 

 

1,765,433

 

Income taxes receivable

 

13,529

 

 

 

(13,529

)

 

Deferred income taxes

 

8,877

 

 

6,825

 

(15,702

)

 

Prepaid expenses and other current assets

 

741,352

 

3,698,117

 

4,454

 

(4,338,977

)

104,946

 

Total current assets

 

875,303

 

5,827,954

 

32,776

 

(4,368,208

)

2,367,825

 

Net property and equipment

 

105,155

 

1,419,133

 

287

 

 

1,524,575

 

Goodwill

 

4,338,589

 

 

 

 

4,338,589

 

Intangible assets, net

 

1,199,200

 

57,722

 

 

 

1,256,922

 

Deferred income taxes

 

 

 

47,690

 

(47,690

)

 

Other assets, net

 

5,337,522

 

12,675

 

304,285

 

(5,596,171

)

58,311

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

11,855,769

 

$

7,317,484

 

$

385,038

 

$

(10,012,069

)

$

9,546,222

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term obligations

 

$

 

$

1,157

 

$

 

$

 

$

1,157

 

Accounts payable

 

3,691,564

 

1,541,593

 

50,824

 

(4,330,340

)

953,641

 

Accrued expenses and other

 

68,398

 

226,225

 

61,755

 

(8,637

)

347,741

 

Income taxes payable

 

11,922

 

13,246

 

14,341

 

(13,529

)

25,980

 

Deferred income taxes

 

 

52,556

 

 

(15,702

)

36,854

 

Total current liabilities

 

3,771,884

 

1,834,777

 

126,920

 

(4,368,208

)

1,365,373

 

Long-term obligations

 

3,534,447

 

3,000,877

 

 

(3,248,254

)

3,287,070

 

Deferred income taxes

 

417,874

 

228,381

 

 

(47,690

)

598,565

 

Other liabilities

 

67,932

 

27,250

 

136,400

 

 

231,582

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable common stock

 

9,153

 

 

 

 

9,153

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

Common stock

 

298,819

 

23,855

 

100

 

(23,955

)

298,819

 

Additional paid-in capital

 

2,945,024

 

431,253

 

19,900

 

(451,153

)

2,945,024

 

Retained earnings

 

830,932

 

1,771,091

 

101,718

 

(1,872,809

)

830,932

 

Accumulated other comprehensive loss

 

(20,296

)

 

 

 

(20,296

)

Total shareholders’ equity

 

4,054,479

 

2,226,199

 

121,718

 

(2,347,917

)

4,054,479

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

11,855,769

 

$

7,317,484

 

$

385,038

 

$

(10,012,069

)

$

9,546,222

 

 

18



 

 

 

For the 13-weeks ended July 29, 2011

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF INCOME:

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

74,404

 

$

3,575,194

 

$

22,581

 

$

(96,985

)

$

3,575,194

 

Cost of goods sold

 

 

2,426,852

 

 

 

2,426,852

 

Gross profit

 

74,404

 

1,148,342

 

22,581

 

(96,985

)

1,148,342

 

Selling, general and administrative expenses

 

67,640

 

805,790

 

21,868

 

(96,985

)

798,313

 

Operating profit

 

6,764

 

342,552

 

713

 

 

350,029

 

Interest income

 

(11,688

)

(6,115

)

(5,266

)

23,043

 

(26

)

Interest expense

 

69,292

 

14,396

 

8

 

(23,043

)

60,653

 

Other (income) expense

 

58,239

 

 

 

 

58,239

 

Income (loss) before income taxes

 

(109,079

)

334,271

 

5,971

 

 

231,163

 

Income tax expense (benefit)

 

(40,666

)

124,341

 

1,446

 

 

85,121

 

Equity in subsidiaries’ earnings, net of taxes

 

214,455

 

 

 

(214,455

)

 

Net income

 

$

146,042

 

$

209,930

 

$

4,525

 

$

(214,455

)

$

146,042

 

 

 

 

 

For the 13 weeks ended July 30, 2010

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF INCOME:

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

73,122

 

$

3,214,155

 

$

21,943

 

$

(95,065

)

$

3,214,155

 

Cost of goods sold

 

 

2,178,176

 

 

 

2,178,176

 

Gross profit

 

73,122

 

1,035,979

 

21,943

 

(95,065

)

1,035,979

 

Selling, general and administrative expenses

 

66,453

 

744,212

 

19,622

 

(95,065

)

735,222

 

Operating profit

 

6,669

 

291,767

 

2,321

 

 

300,757

 

Interest income

 

(10,390

)

(3,219

)

(4,954

)

18,531

 

(32

)

Interest expense

 

77,852

 

10,003

 

6

 

(18,531

)

69,330

 

Other (income) expense

 

6,526

 

 

 

 

6,526

 

Income (loss) before income taxes

 

(67,319

)

284,983

 

7,269

 

 

224,933

 

Income tax expense (benefit)

 

(24,106

)

105,772

 

2,072

 

 

83,738

 

Equity in subsidiaries’ earnings, net of taxes

 

184,408

 

 

 

(184,408

)

 

Net income

 

$

141,195

 

$

179,211

 

$

5,197

 

$

(184,408

)

$

141,195

 

 

19



 

 

 

For the 26-weeks ended July 29, 2011

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR

SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF INCOME:

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

161,921

 

$

7,026,891

 

$

41,395

 

$

(203,316

)

$

7,026,891

 

Cost of goods sold

 

 

4,791,152

 

 

 

4,791,152

 

Gross profit

 

161,921

 

2,235,739

 

41,395

 

(203,316

)

2,235,739

 

Selling, general and administrative expenses

 

147,201

 

1,580,358

 

39,849

 

(203,316

)

1,564,092

 

Operating profit

 

14,720

 

655,381

 

1,546

 

 

671,647

 

Interest income

 

(24,110

)

(10,096

)

(10,494

)

44,655

 

(45

)

Interest expense

 

144,038

 

26,847

 

14

 

(44,655

)

126,244

 

Other (income) expense

 

60,511

 

 

 

 

60,511

 

Income (loss) before income taxes

 

(165,719

)

638,630

 

12,026

 

 

484,937

 

Income tax expense (benefit)

 

(61,110

)

239,387

 

3,649

 

 

181,926

 

Equity in subsidiaries’ earnings, net of taxes

 

407,620

 

 

 

(407,620

)

 

Net income

 

$

303,011

 

$

399,243

 

$

8,377

 

$

(407,620

)

$

303,011

 

 

 

 

For the 26-weeks ended July 30, 2010

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF INCOME:

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

160,586

 

$

6,325,469

 

$

41,591

 

$

(202,177

)

$

6,325,469

 

Cost of goods sold

 

 

4,289,734

 

 

 

4,289,734

 

Gross profit

 

160,586

 

2,035,735

 

41,591

 

(202,177

)

2,035,735

 

Selling, general and administrative expenses

 

146,072

 

1,466,075

 

34,285

 

(202,177

)

1,444,255

 

Operating profit

 

14,514

 

569,660

 

7,306

 

 

591,480

 

Interest income

 

(21,407

)

(5,929

)

(9,907

)

37,205

 

(38

)

Interest expense

 

157,309

 

21,233

 

11

 

(37,205

)

141,348

 

Other (income) expense

 

6,671

 

 

 

 

6,671

 

Income (loss) before income taxes

 

(128,059

)

554,356

 

17,202

 

 

443,499

 

Income tax expense (benefit)

 

(46,909

)

207,682

 

5,535

 

 

166,308

 

Equity in subsidiaries’ earnings, net of taxes

 

358,341

 

 

 

(358,341

)

 

Net income

 

$

277,191

 

$

346,674

 

$

11,667

 

$

(358,341

)

$

277,191

 

 

20



 

 

 

For the 26 weeks ended July 29, 2011

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF CASH FLOWS:

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

303,011

 

$

399,243

 

$

8,377

 

$

(407,620

)

$

303,011

 

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

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

16,238

 

119,568

 

65

 

 

135,871

 

Deferred income taxes

 

5,478

 

21,652

 

(8,994

)

 

18,136

 

Tax benefit of stock options

 

(450

)

 

 

 

(450

)

Loss on debt retirement, net

 

60,303

 

 

 

 

60,303

 

Non-cash share-based compensation

 

6,798

 

 

 

 

6,798

 

Other non-cash gains and losses

 

452

 

17,257

 

 

 

17,709

 

Equity in subsidiaries’ earnings, net

 

(407,620

)

 

 

407,620

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Merchandise inventories

 

 

(222,669

)

 

 

(222,669

)

Prepaid expenses and other current assets

 

(14,841

)

(22,654

)

359

 

 

(37,136

)

Accounts payable

 

8,232

 

158,565

 

(107

)

 

166,690

 

Accrued expenses and other

 

(13,540

)

27,439

 

4,500

 

 

18,399

 

Income taxes

 

(62,412

)

(17,946

)

12,203

 

 

(68,155

)

Other

 

1,355

 

(1,425

)

2

 

 

(68

)

Net cash provided by (used in) operating activities

 

(96,996

)

479,030

 

16,405

 

 

398,439

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

(14,330

)

(203,762

)

(31

)

 

(218,123

)

Proceeds from sale of property and equipment

 

12

 

461

 

 

 

473

 

Net cash used in investing activities

 

(14,318

)

(203,301

)

(31

)

 

(217,650

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

177

 

 

 

 

177

 

Repayments of long-term obligations

 

(910,677

)

(684

)

 

 

(911,361

)

Borrowings under revolving credit agreement

 

371,600

 

 

 

 

371,600

 

Repayments of borrowings under revolving credit agreement

 

(25,600

)

 

 

 

(25,600

)

Repurchases of common stock and settlement of equity awards, net of employee taxes paid

 

(451

)

 

 

 

(451

)

Tax benefit of stock options

 

450

 

 

 

 

450

 

Changes in intercompany note balances, net

 

619,704

 

(602,836

)

(16,868

)

 

 

Net cash provided by (used in) financing activities

 

55,203

 

(603,520

)

(16,868

)

 

(565,185

)

Net decrease in cash and cash equivalents

 

(56,111

)

(327,791

)

(494

)

 

(384,396

)

Cash and cash equivalents, beginning of period

 

111,545

 

364,404

 

21,497

 

 

497,446

 

Cash and cash equivalents, end of period

 

$

55,434

 

$

36,613

 

$

21,003

 

$

 

$

113,050

 

 

21



 

 

 

For the 26 weeks ended July 30, 2010

 

 

 

DOLLAR

GENERAL
CORPORATION

 

GUARANTOR

SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF CASH FLOWS:

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

277,191

 

$

346,674

 

$

11,667

 

$

(358,341

)

$

277,191

 

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

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

16,924

 

109,210

 

22

 

 

126,156

 

Deferred income taxes

 

6,952

 

(4,214

)

(7,598

)

 

(4,860

)

Tax benefit of stock options

 

(5,387

)

 

 

 

(5,387

)

Loss on debt retirement, net

 

6,387

 

 

 

 

6,387

 

Non-cash share-based compensation

 

8,366

 

 

 

 

8,366

 

Other non-cash gains and losses

 

652

 

5,814