Dollar General Corporation
DOLLAR GENERAL CORP (Form: 10-Q, Received: 12/03/2015 07:26:27)

 

 

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 30, 2015

 

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

 

(I.R.S. Employer

incorporation or organization)

 

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 290,934,510 shares of common stock outstanding on November 27, 2015.

 

 

 



 

PART I—FINANCIAL INFORMATION

 

ITEM 1.                 FINANCIAL STATEMENTS.

 

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

October 30,
2015

 

January 30,
2015

 

 

 

(Unaudited)

 

(see Note 1)

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

182,514

 

$

579,823

 

Merchandise inventories

 

3,101,908

 

2,782,521

 

Income taxes receivable

 

11,877

 

 

Prepaid expenses and other current assets

 

192,476

 

170,265

 

Total current assets

 

3,488,775

 

3,532,609

 

Net property and equipment

 

2,237,068

 

2,116,075

 

Goodwill

 

4,338,589

 

4,338,589

 

Other intangible assets, net

 

1,201,110

 

1,201,870

 

Other assets, net

 

22,751

 

19,499

 

Total assets

 

$

11,288,293

 

$

11,208,642

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term obligations

 

$

1,358

 

$

101,158

 

Accounts payable

 

1,470,107

 

1,388,154

 

Accrued expenses and other

 

473,528

 

413,760

 

Income taxes payable

 

30,462

 

59,400

 

Deferred income taxes

 

16,128

 

25,268

 

Total current liabilities

 

1,991,583

 

1,987,740

 

Long-term obligations

 

3,105,332

 

2,623,965

 

Deferred income taxes

 

568,238

 

601,590

 

Other liabilities

 

279,547

 

285,309

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred stock

 

 

 

Common stock

 

254,697

 

265,514

 

Additional paid-in capital

 

3,095,790

 

3,048,806

 

Retained earnings

 

1,999,119

 

2,403,045

 

Accumulated other comprehensive loss

 

(6,013

)

(7,327

)

Total shareholders’ equity

 

5,343,593

 

5,710,038

 

Total liabilities and shareholders’ equity

 

$

11,288,293

 

$

11,208,642

 

 

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 30,
2015

 

October 31,
2014

 

October 30,
2015

 

October 31,
2014

 

Net sales

 

$

5,067,048

 

$

4,724,409

 

$

15,081,624

 

$

13,970,529

 

Cost of goods sold

 

3,530,086

 

3,300,661

 

10,457,802

 

9,733,461

 

Gross profit

 

1,536,962

 

1,423,748

 

4,623,822

 

4,237,068

 

Selling, general and administrative expenses

 

1,113,103

 

1,029,605

 

3,295,957

 

3,034,691

 

Operating profit

 

423,859

 

394,143

 

1,327,865

 

1,202,377

 

Interest expense

 

21,394

 

21,835

 

63,669

 

66,700

 

Other (income) expense

 

326

 

 

326

 

 

Income before income taxes

 

402,139

 

372,308

 

1,263,870

 

1,135,677

 

Income tax expense

 

148,818

 

135,992

 

474,965

 

425,703

 

Net income

 

$

253,321

 

$

236,316

 

$

788,905

 

$

709,974

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.87

 

$

0.78

 

$

2.66

 

$

2.33

 

Diluted

 

$

0.86

 

$

0.78

 

$

2.65

 

$

2.32

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

292,037

 

303,080

 

296,307

 

305,142

 

Diluted

 

292,904

 

304,108

 

297,174

 

306,097

 

 

 

 

 

 

 

 

 

 

 

Dividends per share

 

$

0.22

 

$

 

$

0.66

 

$

 

 

See notes to condensed consolidated financial statements.

 

2



 

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

 

 

For the 13 weeks ended

 

For the 39 weeks ended

 

 

 

October 30,
2015

 

October 31,
2014

 

October 30,
2015

 

October 31,
2014

 

Net income

 

$

253,321

 

$

236,316

 

$

788,905

 

$

709,974

 

Unrealized net gain (loss) on hedged transactions, net of related income tax expense (benefit) of $128, $428, $847, and $1,146, respectively

 

201

 

655

 

1,314

 

1,757

 

Comprehensive income

 

$

253,522

 

$

236,971

 

$

790,219

 

$

711,731

 

 

See notes to condensed consolidated financial statements.

 

3



 

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

For the 39 weeks ended

 

 

 

October 30,
2015

 

October 31,
2014

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

788,905

 

$

709,974

 

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

Depreciation and amortization

 

263,287

 

255,759

 

Deferred income taxes

 

(59,026

)

(35,944

)

Tax benefit of share-based awards

 

(28,569

)

(11,659

)

Loss on debt retirement, net

 

326

 

 

Noncash share-based compensation

 

28,890

 

27,698

 

Other noncash (gains) and losses

 

7,130

 

7,574

 

Change in operating assets and liabilities:

 

 

 

 

 

Merchandise inventories

 

(317,273

)

(239,302

)

Prepaid expenses and other current assets

 

(24,242

)

(29,479

)

Accounts payable

 

75,880

 

100,510

 

Accrued expenses and other liabilities

 

58,701

 

71,035

 

Income taxes

 

(12,246

)

(14,274

)

Other

 

(1,220

)

(1,345

)

Net cash provided by (used in) operating activities

 

780,543

 

840,547

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(386,886

)

(288,537

)

Proceeds from sales of property and equipment

 

813

 

1,588

 

Net cash provided by (used in) investing activities

 

(386,073

)

(286,949

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Issuance of long-term obligations

 

499,220

 

 

Repayments of long-term obligations

 

(502,120

)

(51,914

)

Borrowings under revolving credit facilities

 

1,302,100

 

1,023,000

 

Repayments of borrowings under revolving credit facilities

 

(914,100

)

(1,023,000

)

Debt issuance costs

 

(7,011

)

 

Repurchases of common stock

 

(1,009,411

)

(800,095

)

Payments of cash dividends

 

(195,169

)

 

Other equity and related transactions

 

6,143

 

(2,659

)

Tax benefit of share-based awards

 

28,569

 

11,659

 

Net cash provided by (used in) financing activities

 

(791,779

)

(843,009

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(397,309

)

(289,411

)

Cash and cash equivalents, beginning of period

 

579,823

 

505,566

 

Cash and cash equivalents, end of period

 

$

182,514

 

$

216,155

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

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

 

$

37,659

 

$

34,961

 

 

See notes to condensed consolidated financial statements.

 

4



 

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 for annual financial statements or those normally made in the Company’s Annual Report on Form 10-K, including the condensed consolidated balance sheet as of January 30, 2015 which has been derived from the audited consolidated financial statements at that date. Accordingly, readers 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 30, 2015 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 2015 fiscal year is scheduled to be a 52-week accounting period ending on January 29, 2016, and the 2014 fiscal year was a 52-week accounting period that ended on January 30, 2015.

 

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 30, 2015 and results of operations for the 13-week and 39-week accounting periods ended October 30, 2015 and October 31, 2014 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 or 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 (benefit) of $(1.7) million and $2.2 million in the respective 13-week periods, and $(2.3) million and $3.1 million in the respective 39-week periods, ended October 30, 2015 and October 31, 2014. In addition, ongoing estimates of inventory shrinkage and initial markups and

 

5



 

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.

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued comprehensive new accounting standards related to the recognition of revenue, which specified an effective date for annual reporting periods beginning after December 15, 2016, with early adoption not permitted. In August 2015, the FASB deferred the effective date to annual reporting periods beginning after December 15, 2017, with earlier adoption permitted only for annual reporting periods beginning after December 15, 2016. The new guidance allows for companies to use either a full retrospective or a modified retrospective approach in the adoption of this guidance. The Company is currently evaluating these transition approaches, as well as the effect and potential timing of adoption on its consolidated financial statements.

 

In April 2015, the FASB issued new accounting guidance related to the presentation of debt issuance costs and requires such costs to be presented as a deduction from the corresponding debt liability, consistent with the presentation of debt discounts and/or premiums. This guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. The guidance must be applied retrospectively to all periods presented within the financial statements. The Company adopted this guidance in the third quarter of 2015, which resulted in the reclassification of $19.2 million and $15.5 million of debt issuance costs (net of accumulated amortization) from Other assets, net to Long-term obligations on the condensed consolidated balance sheets as of October 30, 2015 and January 30, 2015, respectively.

 

2.                                       Earnings per share

 

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

 

 

 

13 Weeks Ended October 30, 2015

 

13 Weeks Ended October 31, 2014

 

 

 

Net
Income

 

Shares

 

Per Share
Amount

 

Net
Income

 

Shares

 

Per Share
Amount

 

Basic earnings per share

 

$

253,321

 

292,037

 

$

0.87

 

$

236,316

 

303,080

 

$

0.78

 

Effect of dilutive share-based awards

 

 

 

867

 

 

 

 

 

1,028

 

 

 

Diluted earnings per share

 

$

253,321

 

292,904

 

$

0.86

 

$

236,316

 

304,108

 

$

0.78

 

 

 

 

39 Weeks Ended October 30, 2015

 

39 Weeks Ended October 31, 2014

 

 

 

Net
Income

 

Shares

 

Per Share
Amount

 

Net
Income

 

Shares

 

Per Share
Amount

 

Basic earnings per share

 

$

788,905

 

296,307

 

$

2.66

 

$

709,974

 

305,142

 

$

2.33

 

Effect of dilutive share-based awards

 

 

 

867

 

 

 

 

 

955

 

 

 

Diluted earnings per share

 

$

788,905

 

297,174

 

$

2.65

 

$

709,974

 

306,097

 

$

2.32

 

 

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 share-based awards using the treasury stock method.

 

6



 

Share-based awards 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 awards would be antidilutive, were 1.6 million and 1.0 million in the 2015 and 2014 13-week periods, respectively, and were 1.2 million and 1.4 million in the 2015 and 2014 39-week periods, respectively.

 

3.                                       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 the following 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 Company’s 2010 and earlier tax years are not open for further examination by the Internal Revenue Service (“IRS”). Due to the filing of an amended federal income tax return for the 2011 tax year, the IRS may, to a limited extent, examine the Company’s 2011 income tax filings. The IRS, at its discretion, may also choose to examine the Company’s 2012 through 2014 fiscal year income tax filings. The Company has various state income tax examinations that are currently in progress. Generally, the Company’s 2011 and later tax years remain open for examination by the various state taxing authorities.

 

As of October 30, 2015, the total reserves for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $7.0 million, $0.8 million and $0.5 million, respectively, for a total of $8.3 million. This total amount is reflected in noncurrent Other liabilities in the condensed consolidated balance sheet.

 

The Company believes it is reasonably possible that the reserve for uncertain tax positions may be reduced by approximately $2.6 million in the coming twelve months principally as a result of the effective settlement of uncertain tax positions. As of October 30, 2015, approximately $7.0 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 13-week and 39-week periods ended October 30, 2015 were 37.0% and 37.6%, respectively, compared to rates of 36.5% and 37.5%, respectively, for the 13-week and 39-week periods ended October 31, 2014. Both the 13-week and 39-week effective income tax rates increased primarily due to reduced benefits associated with reductions in uncertain federal and state tax positions.  While both year’s income tax rates benefited by reductions in uncertain tax positions, the reductions recorded in the 2014 periods were greater than those recorded in the 2015 periods.

 

7



 

4.                                       Current and long-term obligations

 

Current and long-term obligations consist of the following:

 

(In thousands)

 

October 30,
2015

 

January 30,
2015

 

Senior unsecured credit facilities

 

 

 

 

 

Term Facility

 

$

425,000

 

$

925,000

 

Revolving Facility

 

388,000

 

 

4.125% Senior Notes due July 15, 2017

 

500,000

 

500,000

 

1.875% Senior Notes due April 15, 2018 (net of discount of $226 and $294)

 

399,774

 

399,706

 

3.250% Senior Notes due April 15, 2023 (net of discount of $1,830 and $1,991)

 

898,170

 

898,009

 

4.150% Senior Notes due Nov 1, 2025 (net of discount of $780)

 

499,220

 

 

Capital lease obligations

 

5,087

 

5,875

 

Tax increment financing due February 1, 2035

 

10,590

 

11,995

 

Debt issuance costs, net

 

(19,151

)

(15,462

)

 

 

3,106,690

 

2,725,123

 

Less: current portion

 

(1,358

)

(101,158

)

Long-term portion

 

$

3,105,332

 

$

2,623,965

 

 

Borrowing Facilities and 2015 Refinancing

 

On October 20, 2015 , the Company consummated a refinancing, pursuant to which the Company amended and restated its senior unsecured credit facilities (and refinanced all borrowings thereunder) and issued senior notes in an aggregate principal amount of $500.0 million, net of discount totaling $0.8 million. The amended and restated senior unsecured credit facilities (the “Facilities”) consist of a $425.0 million senior unsecured term loan facility (the “Term Facility”) and a $1.0 billion senior unsecured revolving credit facility (the “Revolving Facility”) which provides for the issuance of letters of credit up to $175.0 million. The Facilities are scheduled to mature on October 20, 2020. The Company incurred $2.6 million of new debt issuance costs associated with the refinancing of the Facilities.

 

Borrowings under the Facilities bear interest at a rate equal to an applicable interest rate margin plus, at the Company’s option, either (a) LIBOR or (b) a base rate (which is usually equal to the prime rate). The applicable interest rate margin for borrowings as of October 30, 2015 was 1.10% for LIBOR borrowings and 0.10% for base-rate borrowings . The Company must also pay a facility fee, payable on any used and unused commitment amounts of the Facilities, and customary fees on letters of credit issued under the Revolving Facility.  As of October 30, 2015, the commitment fee rate was 0.15%. The applicable interest rate margins for borrowings, the facility fees and the letter of credit fees under the Facilities are subject to adjustment from time to time based on the Company’s long-term senior unsecured debt ratings. The weighted average all-in interest rate for borrowings under the Facilities was 1.36% as of October 30, 2015.

 

The Facilities can be voluntarily prepaid in whole or in part at any time without penalty. There is no required principal amortization under the Facilities.  The Facilities contain a number of customary affirmative and negative covenants that, among other things, restrict, subject to certain exceptions, the Company’s and its subsidiaries’ ability to: incur additional liens; sell all or substantially all of the Company’s assets; consummate certain fundamental changes or change

 

8



 

in the Company’s lines of business; and incur additional subsidiary indebtedness. The Facilities also contain financial covenants which require the maintenance of a minimum fixed charge coverage ratio and a maximum leverage ratio.  As of October 30, 2015, the Company was in compliance with all such covenants.  The Facilities also contain customary events of default.

 

As of October 30, 2015, under the Revolving Facility, the Company had outstanding borrowings of $388.0 million, and borrowing availability of $582.8 million. In addition, the Company had outstanding letters of credit totaling $43.7 million, $29.2 million of which were issued under the Revolving Facility.

 

The Company incurred a pretax loss of $0.3 million for the write off of debt issuance costs associated with the refinancing of its credit facilities, which is reflected in Other (income) expense in the condensed consolidated statement of income for the 13 and 39-week periods ended October 30, 2015.

 

On October 20, 2015, the Company issued $500.0 million aggregate principal amount of 4.150% senior notes due 2025 (the “2025 Senior Notes”), net of discount of $0.8 million, which are scheduled to mature on November 1, 2025. Interest on the 2025 Senior Notes is payable in cash on May 1 and November 1 of each year, commencing on May 1, 2016. The Company incurred $4.4 million of debt issuance costs associated with the issuance of the 2025 Senior Notes. The net proceeds from the sale of the 2025 Senior Notes were used, together with borrowings under the Facilities, to repay all of the outstanding borrowings under the then-existing credit agreement and for general corporate purposes. In addition, the Company has $500.0 million aggregate principal amount of 4.125% senior notes due 2017 (the “2017 Senior Notes”) which are scheduled to mature on July 15, 2017, $400.0 million aggregate principal amount of 1.875% senior notes due 2018 (the “2018 Senior Notes”), net of discount of $0.2 million, which are scheduled to mature on April 15, 2018; and $900.0 million aggregate principal amount of 3.25% senior notes due 2023 (the “2023 Senior Notes”), net of discount of $1.8 million, which are scheduled to mature on April 15, 2023. Collectively, the 2017 Senior Notes, the 2018 Senior Notes, the 2023 Senior Notes and the 2025 Senior Notes comprise the “Senior Notes”, each of which were issued pursuant to an indenture as supplemented and amended by supplemental indentures relating to each series of Senior Notes (as so supplemented and amended, the “Senior Indenture”).

 

The Company may redeem some or all of its Senior Notes at any time at redemption prices set forth in the Senior Indenture. Upon the occurrence of a change of control triggering event, which is defined in the Senior Indenture, each holder of the Senior Notes has the right to require the Company to repurchase some or all of such holder’s Senior Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.

 

The Senior Indenture contains covenants limiting, among other things, the ability of the Company and its subsidiaries to (subject to certain exceptions): consolidate, merge, sell or otherwise dispose of all or substantially all of the Company’s assets; and to incur or guarantee indebtedness secured by liens on any shares of voting stock of significant subsidiaries.

 

9



 

The Senior Indenture also provides for events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the Senior Notes to become or to be declared due and payable, as applicable.

 

5.                                       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).

 

In connection with accounting standards for fair value measurement, the Company has made an accounting policy election to measure the credit risk of any derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. The Company has determined that the majority of the inputs used to value derivative financial instruments using the income approach fall within Level 2 of the fair value hierarchy. However, the credit valuation adjustments associated with derivatives may utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. Historically, the credit valuation adjustments have not been significant to the overall valuation of the Company’s derivative positions. The Company does not have any fair value measurements categorized within Level 3 as of October 30, 2015.

 

(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 30,
2015

 

Liabilities:

 

 

 

 

 

 

 

 

 

Long-term obligations (a)

 

$

2,276,411 

 

$

823,734 

 

$

 

$

3,100,145

 

Deferred compensation (b)

 

24,281 

 

 

 

24,281

 

 


(a)        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 $3,105,332.

(b)        Reflected at fair value in the condensed consolidated balance sheet as Accrued expenses and other current liabilities of $5,984 and noncurrent Other liabilities of $18,297.

 

6.                                       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

 

10



 

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 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. Changes in the fair value of such derivatives are recorded directly in earnings.

 

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, from time to time, through the use of derivative financial instruments. Specifically, the Company may enter 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 primarily by interest rates.

 

In addition, 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 when using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate changes. To accomplish these objectives, the Company has from time to time used 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 Company also previously entered into treasury locks that were designated as cash flow hedges of interest rate risk prior to its April 2013 issuance of long-term debt.

 

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

 

11



 

forecasted transaction affects earnings. The ineffective portion of the change in fair value of the interest rate swaps, if any, is recognized directly in earnings.

 

The Company had interest rate swaps with a combined notional value of $875.0 million designated as cash flow hedges of interest rate risk that expired on May 31, 2015. Such interest rate swaps were used to hedge the variable cash flows associated with existing variable-rate debt prior to their maturity. Amounts reported in Accumulated other comprehensive income (loss) related to derivatives were reclassified to interest expense as interest payments were made on the Company’s variable-rate debt.

 

In 2013, the Company recorded a loss on the settlement of treasury locks associated with the issuance of long-term debt which was deferred to OCI and is being amortized as an increase to interest expense over the period of the debt’s maturity in 2023. During the 52-week period following October 30, 2015, the Company estimates that approximately $1.3 million will be reclassified as an increase to interest expense related to the amortization of the loss associated with the treasury locks. All of the amounts reflected in Accumulated other comprehensive income (loss) in the condensed consolidated balance sheets for the periods presented are related to cash flow hedges.

 

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification in the condensed consolidated balance sheets as of October 30, 2015 and January 30, 2015:

 

(in thousands)

 

October 30,
2015

 

January 30,
2015

 

Derivatives Designated as Hedging Instruments

 

 

 

 

 

Interest rate swaps classified as Accrued expenses and other

 

$

 

$

1,173

 

 

The table below presents the pre-tax effect of the Company’s derivative financial instruments as reflected in the condensed consolidated statements of comprehensive income for the 13-week and 39-week periods ended October 30, 2015 and October 31, 2014:

 

 

 

13 Weeks Ended

 

39 Weeks Ended

 

(in thousands)

 

October 30,
2015

 

October 31,
2014

 

October 30,
2015

 

October 31,
2014

 

Derivatives in Cash Flow Hedging Relationships

 

 

 

 

 

 

 

 

 

Loss related to effective portion of derivatives recognized in OCI

 

$

 

$

201

 

$

3

 

$

956

 

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

 

$

330

 

$

1,282

 

$

2,164

 

$

3,858

 

 

7.                                       Commitments and contingencies

 

Legal proceedings

 

In September 2011, the Chicago Regional Office of the United States Equal Employment Opportunity Commission (“EEOC” or “Commission”) notified the Company of a cause finding related to the Company’s criminal background check policy.  The cause finding alleges that the

 

12



 

Company’s criminal background check policy, which excludes from employment individuals with certain criminal convictions for specified periods, has a disparate impact on African-American candidates and employees in violation of Title VII of the Civil Rights Act of 1964, as amended (“Title VII”).

 

The Company and the EEOC engaged in the statutorily required conciliation process, and despite the Company’s good faith efforts to resolve the matter, the Commission notified the Company on July 26, 2012 of its view that conciliation had failed.

 

On June 11, 2013, the EEOC filed a lawsuit in the United States District Court for the Northern District of Illinois entitled Equal Opportunity Commission v. Dolgencorp, LLC d/b/a Dollar General (Case No. 1:13-cv-04307) in which the Commission alleges that the Company’s criminal background check policy has a disparate impact on “Black Applicants” in violation of Title VII and seeks to recover monetary damages and injunctive relief on behalf of a class of “Black Applicants.”  The Company filed its answer to the complaint on August 9, 2013.

 

The Court has bifurcated the issues of liability and damages for purposes of discovery and trial.  Fact discovery related to liability is to be completed on or before February 16, 2016.

 

On July 29, 2014 and May 5, 2015, the court entered orders requiring the Company to produce certain documents, information, and electronic data for the period 2004 to present.

 

The Company believes that its criminal background check process is both lawful and necessary to a safe environment for its employees and customers and the protection of its assets and shareholders’ investments.  The Company also does not believe that this matter is amenable to class or similar treatment.  However, at this time, it is not possible to predict whether the action will ultimately be permitted to proceed as a class or in a similar fashion or the size of any putative class.  Likewise, at this time, it is not possible to estimate the value of the claims asserted, and, therefore, the Company cannot estimate the potential exposure or range of potential loss.  If the matter were to proceed successfully as a class or similar action or the Company is unsuccessful in its defense efforts as to the merits of the action, the resolution of this matter could have a material adverse effect on the Company’s consolidated financial statements as a whole.

 

On May 23, 2013, a lawsuit entitled Juan Varela v. Dolgen California and Does 1 through 50 (Case No. RIC 1306158) (“Varela”) was filed in the Superior Court of the State of California for the County of Riverside.  In the original complaint, the Varela plaintiff alleges that he and other “key carriers” were not provided with meal and rest periods in violation of California law and seeks to recover alleged unpaid wages, injunctive relief, consequential damages, pre-judgment interest, statutory penalties and attorneys’ fees and costs and seeks to represent a putative class of California “key carriers” as to these claims.  The Varela plaintiff also asserts a claim for unfair business practices and seeks to proceed under California’s Private Attorney General Act (the “PAGA”).  The Company filed its answer to the complaint on July 1, 2013.

 

On November 4, 2014, the Varela plaintiff filed an amended complaint to add Victoria Lee Dinger Main as a named plaintiff and to add putative class claims on behalf of “key carriers”

 

13



 

for alleged inaccurate wage statements and failure to provide appropriate pay upon termination in violation of California law.  The Company filed its answer to the amended complaint on December 23, 2014.  The parties have been ordered to engage in informal discovery and mediation.  A mediation was held on November 16, 2015, which was unsuccessful.

 

On January 15, 2015, a lawsuit entitled Kendra Pleasant v. Dollar General Corporation, Dolgen California, LLC, and Does 1 through 50 (Case No. CIVDS1500651) (“Pleasant”) was filed in the Superior Court of the State of California for the County of San Bernardino in which the plaintiff seeks to proceed under the PAGA for various alleged violations of California’s Labor Code.  Specifically, the plaintiff alleges that she and other similarly situated non-exempt California store-level employees were not paid for all time worked, provided meal and rest breaks, reimbursed for necessary work related expenses, and provided with accurate wage statements and seeks to recover unpaid wages, civil and statutory penalties, interest, attorneys’ fees and costs. On March 12, 2015, the Company filed a demurrer asking the court to stay all proceedings in the Pleasant matter pending an issuance of a final judgment in the Varela matter.  The court granted the Company’s demurrer and stayed proceedings until resolution of the Varela matter. Subsequently, the Pleasant plaintiff moved to transfer this matter to the Superior Court of the State of California for the County of Riverside where the Varela matter is pending, which the Company opposed.  The court denied the Pleasant plaintiff’s motion to transfer.

 

On February 20, 2015, a lawsuit entitled Julie Sullivan v. Dolgen California and Does 1 through 100 (Case No. RG 15759417) (“Sullivan”) was filed in the Superior Court of the State of California for the County of Alameda in which the plaintiff alleges that she and other similarly situated Dollar General Market store managers in the State of California were improperly classified as exempt employees and were not provided with meal and rest breaks and accurate wage statements in violation of California law.  The Sullivan plaintiff also alleges that she and other California store employees were not provided with printed wage statements, purportedly in violation of California law.  The plaintiff seeks to recover unpaid wages, including overtime pay, civil and statutory penalties, interest, injunctive relief, restitution, and attorneys’ fees and costs.

 

On April 8, 2015, the Company removed this matter to the United States District Court for the Northern District of California (Case No. 3:15-cv-01617-JD) and filed its answer on the same date.  On April 29, 2015, the Sullivan plaintiff amended her complaint to add a claim under the PAGA.  The Company’s response to the amended complaint was filed on May 14, 2015. The plaintiff’s motion for class certification is due to be filed on or before March 11, 2016.  The Company’s response is due to be filed on or about March 25, 2016.

 

The Company believes that its policies and practices comply with California law and that the Varela, Pleasant , and Sullivan actions are not appropriate for class or similar treatment.  The Company intends to vigorously defend these actions; however, at this time, it is not possible to predict whether the Varela, Pleasant , or Sullivan action ultimately will be permitted to proceed as a class, and no assurances can be given that the Company will be successful in its defense of these actions 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 the Varela , Pleasant , or Sullivan action. For these reasons, the Company is unable to estimate any potential loss or range of loss in these matters; however, if the Company is not successful in its defense efforts, the

 

14



 

resolution of any of these actions could have a material adverse effect on the Company’s consolidated 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 consolidated 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.

 

8.                                    Segment reporting

 

The Company manages its business on the basis of one reportable operating segment. As of October 30, 2015, all of the Company’s operations were located within the United States with the exception of certain subsidiaries in Hong Kong and China and a liaison office in India, which collectively are not material to the condensed consolidated financial statements. The following net sales data is presented in accordance with accounting standards related to disclosures about segments of an enterprise.

 

 

 

13 Weeks Ended

 

39 Weeks Ended

 

(in thousands)

 

October 30,
2015

 

October 31,
2014

 

October 30,
2015

 

October 31,
2014

 

Classes of similar products:

 

 

 

 

 

 

 

 

 

Consumables

 

$

3,921,663

 

$

3,645,021

 

$

11,543,276

 

$

10,666,675

 

Seasonal

 

555,862

 

524,623

 

1,784,680

 

1,659,651

 

Home products

 

317,963

 

298,878

 

925,292

 

867,903

 

Apparel

 

271,560

 

255,887

 

828,376

 

776,300

 

Net sales

 

$

5,067,048

 

$

4,724,409

 

$

15,081,624

 

$

13,970,529

 

 

9.                                       Common stock transactions

 

On August 29, 2012, the Company’s Board of Directors authorized a common stock repurchase program, which the Board has increased on several occasions. Most recently, on December 2, 2015, the Company’s Board of Directors authorized a $1.0 billion increase to the existing common stock repurchase program.  Following such increase, as of December 2, 2015 a cumulative total of $4.0 billion had been authorized under the program since its inception and $1.2 billion remained available for repurchase. The repurchase authorization has no expiration date and allows repurchases from time to time in the open market or in privately negotiated transactions. The timing and number of shares purchased depends on a variety of factors, such as price, market conditions, compliance with the covenants and restrictions under the Company’s

 

15



 

debt agreements and other factors. Repurchases under the program may be funded from available cash or borrowings under the Facilities discussed in further detail in Note 4.

 

Pursuant to its common stock repurchase program, during the 39-week periods ended October 30, 2015, and October 31, 2014, the Company repurchased in the open market approximately 13.4 million shares of its common stock at a total cost of $1.0 billion and approximately 14.1 million shares at a total cost of $0.8 billion, respectively.

 

The Company paid quarterly cash dividends of $0.22 per share during each of the first three quarters of 2015. On December 2, 2015, the Company’s Board of Directors approved a quarterly cash dividend of $0.22 per share, which is payable on January 6, 2016 to shareholders of record as of December 23, 2015. The declaration of future cash dividends is subject to the discretion of the Company’s Board of Directors and will depend upon, among other things, the Company’s results of operations, cash requirements, financial condition, contractual restrictions and other factors that the Board may deem relevant in its sole discretion.

 

10.                                Corporate restructuring

 

On October 13, 2015, the Company implemented a restructuring of its corporate support functions, including the elimination of approximately 255 positions, substantially all of which were at the Company’s corporate headquarters and effective immediately. The restructuring is part of a broader initiative aimed at improving efficiencies and reducing expenses.

 

During the third quarter of 2015, the Company incurred pretax expense of $6.1 million associated with this restructuring for severance-related benefits. This expense is reflected in Selling, general, and administrative expenses on the Company’s condensed consolidated statements of income for the 13-week and 39-week periods ended October 30, 2015. As of October 30, 2015, the remaining liability related to these charges is $5.6 million. Additional severance-related benefits costs related to this restructuring subsequent to the third quarter of 2015, if any, are expected to be minimal.

 

16



 

Review Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders of

Dollar General Corporation

 

We have reviewed the condensed consolidated balance sheet of Dollar General Corporation and subsidiaries (the Company) as of October 30, 2015, and the related condensed consolidated statements of income and comprehensive income for the thirteen and thirty-nine week periods ended October 30, 2015 and October 31, 2014, and the condensed consolidated statements of cash flows for the thirty-nine week periods ended October 30, 2015 and October 31, 2014. These financial statements are the responsibility of the Company’s management.

 

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Dollar General Corporation and subsidiaries as of January 30, 2015 and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the fiscal year then ended (not presented herein) and in our report dated March 20, 2015, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the accompanying condensed consolidated balance sheet of Dollar General Corporation and subsidiaries as of January 30, 2015, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

 

/s/ Ernst & Young LLP

 

December 3, 2015

Nashville, Tennessee

 

17



 

ITEM 2.                                                 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

General

 

This discussion and analysis is based on, should be read with, and is qualified in its entirety by, the accompanying unaudited condensed consolidated financial statements and related notes, as well as our consolidated financial statements and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations as contained in our Annual Report on Form 10-K for the year ended January 30, 2015. It also should be read in conjunction with the disclosure under “Cautionary Disclosure Regarding Forward-Looking Statements” in this report.

 

Executive Overview

 

As of October 30, 2015, we operate 12,396 stores located in 43 states, geographically concentrated in the southern, southwestern, midwestern and eastern United States. We offer a broad selection of merchandise, including consumable products such as food, paper and cleaning products, health and beauty products, pet supplies and tobacco products, and non-consumable products such as seasonal merchandise, home decor and domestics, and basic apparel. Our merchandise includes high quality national brands from leading manufacturers, as well as comparable quality and value private brand selections with prices at substantial discounts to national brands. We offer our customers these national brand and private brand products at everyday low prices (typically $10 or less) in our convenient small-box locations, with selling space averaging approximately 7,400 square feet per store.

 

Because the customers we serve are value-conscious, many with low or fixed incomes, we have always been intensely focused on helping our customers make the most of their spending dollars. We believe our convenient store format and broad selection of high quality products at compelling values have driven our substantial growth and financial success over the years. Like other retailers, we have been operating for several years in an environment with ongoing economic difficulties and uncertainties. Our core customers are often the first to be affected by negative or uncertain economic conditions such as unemployment and fluctuating food, energy and medical costs, and the last to feel the effects of improving economic conditions. Although our customer has experienced some positive general economic factors since the middle of 2014, such as lower gasoline prices and unemployment rates, these factors have been inconsistent and their duration is unknown.

 

Our operating priorities continue to evolve as we consistently strive to improve our performance while retaining our customer-centric focus. We are keenly focused on executing the following priorities: 1) driving profitable sales growth, 2) capturing growth opportunities, 3) enhancing our position as a low cost operator, and 4) investing in our people as a competitive advantage.

 

We seek to drive profitable sales growth through initiatives such as improvement in our in-stock position, as well as an ongoing focus on enhancing our margins while maintaining both everyday low price and affordability.

 

18



 

·                   Improving our in-stock position is designed to ensure the right products are available on the shelf when our customers shop in our stores. To support this initiative and improve overall customer satisfaction, we are selectively investing incremental labor hours in those stores where we believe such increases will generate positive financial returns.  As of the end of the 2015 third quarter, this retail labor hour investment has been implemented across nearly 2,400 stores with additional stores scheduled to receive this investment during the 2015 fourth quarter. We have a very disciplined approach to this labor investment and are able to quickly evaluate whether it delivers on our profitability expectations, reallocating resources as necessary.

 

·                   We demonstrate our commitment to the affordability needs of our core customer by pricing more than 75% of our stock-keeping units at $5 or less as of the end of the 2015 third quarter.  However, as we work to provide everyday low prices and meet our customers’ affordability needs, we also remain focused on enhancing our margins through effective category management, inventory shrink reduction initiatives, private brands penetration, efforts to improve distribution and transportation efficiencies, global sourcing, and pricing and markdown optimization. With respect to category management, the mix of sales affects profitability because the gross margin associated with sales within our consumables category generally is lower than that associated with sales within our non-consumables categories.  Even within each category, however, there are varying levels of gross margin associated with the specific items. With respect to inventory shrink reduction, the progress continues to be broad based year to date with shrink declining across all four product categories. For a discussion of the sales mix, as well as the results of certain other margin-related initiatives in the 2015 third quarter, see “Results of Operations” below.

 

The degree of success of these initiatives is often reflected in our same-store sales results and in the level of improvement in shopper frequency and item unit sales and average transaction amount. For the 2015 third quarter, we believe these ongoing initiatives helped to drive the same-store sales growth in all four of our product categories, reflecting increases in both customer traffic and average transaction amount for the 31 st  consecutive quarter when compared to the prior year quarter.

 

To support our other operating priorities we also are focused on capturing growth opportunities and innovating within our channel. We continue to expand our store count, opening 206 and 634 stores for the third quarter and 39-weeks ended October 30, 2015, respectively.  We have also expanded our store remodeling efforts and have remodeled or relocated a total of 857 stores during such 39-week period. In fiscal 2015, we have plans to open 730 stores and to relocate or remodel 875 stores. Our store remodels typically optimize shelf space in many of our older, smaller stores and, in many instances, increase the number of coolers for refrigerated and frozen foods and beverages. We also have plans to accelerate store square footage growth to approximately seven percent in 2016 from six percent in 2015.

 

We have established a position as a low cost operator, continuously seeking ways to control costs that do not affect our customer’s shopping experience. We continued to enhance this position during the 2015 third quarter as we reduced approximately 255 positions within our corporate support function as part of a broader zero-based budgeting initiative, streamlining this portion of our

 

19



 

business while also reducing expenses. In addition, at the store level, we remain committed to simplifying or eliminating various tasks so that those time savings can be reinvested by our store managers in other areas such as customer service, improved in-stock levels, and improved store standards.  We will continue to seek additional opportunities to enhance our low cost position.

 

Our employees are a competitive advantage, and we are always searching for ways to continue investing in them. Our training programs are constantly evolving, as we work to ensure that our employees have the tools necessary to be successful in their positions. We invest in our employees in an effort to create an environment that attracts and retains talented personnel, as we believe, particularly at the store level, employees who are promoted from within generally have longer tenures and are greater contributors to improvements in our financial performance. Furthermore, we believe that reducing our store manager turnover likely results in improved store financial performance in areas such as shrink and sales. We have also implemented training programs for high potential employees, and a college assistance program for those who want to continue their formal education. We believe that our efforts will produce a more stable, engaged workforce.

 

The following include highlights of our 2015 third quarter results of operations compared to the comparable 2014 period in many of our key financial metrics. Basis points amounts referred to below are equal to 0.01% as a percentage of sales.

 

·                   Net sales increased 7.3% to $5.07 billion. Sales in same-stores increased 2.3% driven by increases in customer traffic and average transaction amount. Average sales per square foot for all stores over the 52-week period ended October 30, 2015 was $225.

 

·                   Gross profit, as a percentage of sales, was 30.3% in the 2015 period compared to 30.1% in the 2014 period, an increase of 19 basis points, due in part to an improved shrink rate and lower transportation costs.

 

·                   Selling, general and administrative costs (“SG&A”), as a percentage of sales, was 22.0% in the 2015 period compared to 21.8% in the 2014 period, an increase of 18 basis points, reflecting in part the costs of the corporate restructuring discussed above and increases in certain expenses including incentive compensation and repairs and maintenance.

 

·                   Interest expense decreased by $0.4 million to $21.4 million in the 2015 period due primarily to lower average interest rates.

 

·                   Net income was $253.3 million, or $0.86 per diluted share, in the 2015 period compared to net income of $236.3 million, or $0.78 per diluted share, in the 2014 period. Diluted shares outstanding decreased by 11.2 million shares in the 2015 period primarily as a result of share repurchases under our share repurchase program.

 

Additional highlights for the 39-week period ended October 30, 2015 include:

 

·                   Cash generated from operating activities was $780.5 million for the 2015 39-week period, compared to $840.5 million in the comparable 2014 period, with the change

 

20



 

being due primarily to increased inventory purchases. At October 30, 2015, we had a cash balance of $182.5 million.

 

·                   Total cash dividends of $195.2 million, or $0.66 per share, were paid during the 2015 39-week period.

 

·                   Inventory turnover was 4.8 times on a rolling four-quarter basis. On a per store basis, inventories increased by 5.1% over the balances at October 31, 2014.

 

·                   During the 2015 39-week period, we opened 634 new stores, remodeled or relocated 857 stores and closed 27 stores, resulting in a store count of 12,396 as of October 30, 2015.

 

The above discussion is a summary only. Readers should refer to the detailed discussion of our operating results below for the full analysis of our financial performance in the current year period as compared with the prior year period.

 

Results of Operations

 

Accounting Periods . We utilize a 52-53 week fiscal year convention that ends on the Friday nearest to January 31. The following text contains references to years 2015 and 2014, which represent the 52-week fiscal years ending and ended January 29, 2016 and January 30, 2015, respectively. References to the third quarter accounting periods for 2015 and 2014 contained herein refer to the 13-week accounting periods ended October 30, 2015 and October 31, 2014, respectively.

 

Seasonality. The nature of our business is seasonal to a certain extent. Primarily because of sales of holiday-related merchandise, sales in our fourth quarter (November, December and January) have historically been higher than sales achieved in each of the first three quarters of the fiscal year. Expenses, and to a greater extent operating profit, vary by quarter. Results of a period shorter than a full year may not be indicative of results expected for the entire year. Furthermore, the seasonal nature of our business may affect comparisons between periods.

 

21



 

The following table contains results of operations data for the most recent 13-week and 39-week periods of 2015 and 2014, and the dollar and percentage variances among those periods:

 

 

 

13 Weeks Ended

 

2015 vs. 2014

 

39 Weeks Ended

 

2015 vs. 2014

 

(dollars in millions, except
per share amounts)

 

Oct. 30,
2015

 

Oct. 31,
2014

 

Amount
change

 

%
change

 

Oct. 30,
2015

 

Oct. 31,
2014

 

Amount
change

 

%
change

 

Net sales by category:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumables

 

$

3,921.7

 

$

3,645.0

 

$

276.6

 

7.6

%

$

11,543.3

 

$

10,666.7

 

$

876.6

 

8.2

%

% of net sales

 

77.40

%

77.15

%

 

 

 

 

76.54

%

76.35

%

 

 

 

 

Seasonal

 

555.9

 

524.6

 

31.2

 

6.0

 

1,784.7

 

1,659.7

 

125.0

 

7.5

 

% of net sales

 

10.97

%

11.10

%

 

 

 

 

11.83

%

11.88

%

 

 

 

 

Home products

 

318.0

 

298.9

 

19.1

 

6.4

 

925.3

 

867.9

 

57.4

 

6.6

 

% of net sales

 

6.28

%

6.33

%

 

 

 

 

6.14

%

6.21

%

 

 

 

 

Apparel

 

271.6

 

255.9

 

15.7

 

6.1

 

828.4

 

776.3

 

52.1

 

6.7

 

% of net sales

 

5.36

%

5.42

%

 

 

 

 

5.49

%

5.56

%

 

 

 

 

Net sales

 

$

5,067.0

 

$

4,724.4

 

$

342.6

 

7.3

%

$

15,081.6

 

$

13,970.5

 

$

1,111.1

 

8.0

%

Cost of goods sold

 

3,530.1

 

3,300.7

 

229.4

 

7.0

 

10,457.8

 

9,733.5

 

724.3

 

7.4

 

% of net sales

 

69.67

%

69.86

%

 

 

 

 

69.34

%

69.67

%

 

 

 

 

Gross profit

 

1,537.0

 

1,423.7

 

113.2

 

8.0

 

4,623.8

 

4,237.1

 

386.8

 

9.1

 

% of net sales

 

30.33

%

30.14

%

 

 

 

 

30.66

%

30.33

%

 

 

 

 

Selling, general and administrative expenses

 

1,113.1

 

1,029.6

 

83.5

 

8.1

 

3,296.0

 

3,034.7

 

261.3

 

8.6

 

% of net sales

 

21.97

%

21.79

%

 

 

 

 

21.85

%

21.72

%

 

 

 

 

Operating profit

 

423.9

 

394.1

 

29.7

 

7.5

 

1,327.9

 

1,202.4

 

125.5

 

10.4

 

% of net sales

 

8.37

%

8.34

%

 

 

 

 

8.80

%

8.61

%

 

 

 

 

Interest expense

 

21.4

 

21.8

 

(0.4

)

(2.0

)

63.7

 

66.7

 

(3.0

)

(4.5

)

% of net sales

 

0.42

%

0.46

%

 

 

 

 

0.42

%

0.48

%

 

 

 

 

Other (income) expense

 

0.3

 

 

0.3

 

 

0.3

 

 

0.3

 

 

% of net sales

 

0.01

%

0.00

%

 

 

 

 

0.00

%

0.00

%

 

 

 

 

Income before income taxes

 

402.1

 

372.3

 

29.8

 

8.0

 

1,263.9

 

1,135.7

 

128.2

 

11.3

 

% of net sales

 

7.94

%

7.88

%

 

 

 

 

8.38

%

8.13

%

 

 

 

 

Income tax expense

 

148.8

 

136.0

 

12.8

 

9.4

 

475.0

 

425.7

 

49.3

 

11.6

 

% of net sales

 

2.94

%

2.88

%

 

 

 

 

3.15

%

3.05

%

 

 

 

 

Net income

 

$

253.3

 

$

236.3

 

$

17.0

 

7.2

%

$

788.9

 

$

710.0

 

$

78.9

 

11.1

%

% of net sales

 

5.00

%

5.00

%

 

 

 

 

5.23

%

5.08

%

 

 

 

 

Diluted earnings per share

 

$

0.86

 

$

0.78

 

$

0.08

 

10.3

%

$

2.65

 

$

2.32

 

$

0.33

 

14.2

%

 

13 WEEKS ENDED OCTOBER 30, 2015 AND OCTOBER 31, 2014

 

Net Sales . The net sales increase in the 2015 quarter reflects a same-store sales increase of 2.3% compared to the 2014 quarter. Same-stores include stores that have been open for at least 13 months and remain open at the end of the reporting period. For the 2015 quarter, there were 11,551 same-stores which accounted for sales of $4.8 billion. Increases in both customer traffic and average transaction amount contributed to the increase in same-store sales. We experienced same-store sales growth across all four product categories, with higher same-store sales increases in the consumables category compared to the non-consumable categories. Within the consumables category, the most significant growth in same-store sales occurred in candy and snacks, tobacco products and perishables. Within the non-consumables categories, the most significant growth in same-stores was due to sundries, housewares, and hardware, with ladies clothing exhibiting strong growth as well. The net sales increase was also positively affected by sales from new stores, partially offset by sales from closed stores.

 

22



 

Gross Profit. Gross profit increased by 8.0%, and as a percentage of sales increased by 19 basis points to 30.3% in the 2015 quarter as compared to the comparable 2014 period. An improved rate of inventory shrinkage and lower transportation costs were the primary factors in the improved performance, partially offset by a reduction in gross profit due to a change in our sales mix.

 

SG&A. SG&A was 22.0% as a percentage of sales in the 2015 quarter compared to 21.8% in the comparable 2014 period, an increase of 18 basis points. The 2015 quarter results reflect a charge of $6.1 million related to the corporate restructuring, or 12 basis points as a percentage of sales, for severance-related benefits costs. The 2015 quarter results also reflect increases in store incentive compensation expenses, repairs and maintenance, as well as increased occupancy costs and advertising expenses. Partially offsetting these items were lower utilities costs as a percentage of sales and a reduction in employee benefits costs. The 2014 quarter results reflect expenses of $8.2 million, or 17 basis points as a percentage of sales, related to an attempted acquisition that was not completed, partially offset by unrelated insurance proceeds of $3.4 million or 7 basis points as a percentage of sales.

 

Interest Expense . Interest expense decreased moderately by $0.4 million to $21.4 million in the 2015 period due primarily to lower average interest rates. Total outstanding debt (including the current portion of long-term obligations) as of October 30, 2015 was $3.11 billion.

 

Income Taxes. The effective income tax rate for the 2015 period was 37.0% compared to 36.5% for the 2014 period which represents a net increase of 0.5 percentage points. The effective tax rate increase was primarily due to reduced benefits associated with changes in uncertain tax positions in the 2015 period as compared to the 2014 period. Both periods were negatively impacted by the expiration of the federal law authorizing the Work Opportunity Tax Credit or “WOTC.” The WOTC credits were retroactively reenacted in the fourth quarter of our 2014 fiscal year for employees hired during the 2014 calendar year. For financial statement purposes, a change in income tax expense is recorded in the period in which the related law is enacted. Accordingly, the fourth quarter of 2014 reflected the full, favorable impact of the 2014 retroactive reenactment of WOTC. It is uncertain as to whether and, if so, when the WOTC credits will be retroactively renewed for 2015. The Company will receive credits in future periods for employees hired on or before December 31, 2014; however, the future period credit received will be significantly lower than what has been recognized in prior fiscal years without WOTC reenactment.

 

39 WEEKS ENDED OCTOBER 30, 2015 AND OCTOBER 31, 2014

 

Net Sales . The net sales increase in the 2015 period reflects a same-store sales increase of 2.9% compared to the comparable 2014 period. In the 2015 period, our 11,551 same-stores accounted for sales of $14.2 billion. Increases in customer traffic and average transaction amount contributed to the increase in same-store sales. The remainder of the net sales increase was attributable to new stores, partially offset by sales from closed stores.

 

Gross Profit. For the 2015 period, gross profit increased by 9.1%, and as a percentage of sales increased by 33 basis points to 30.7% over the comparable 2014 period. The gross profit rate increase in the 2015 period as compared to the comparable 2014 period primarily reflects lower transportation costs and an improved rate of inventory shrinkage.

 

23



 

SG&A. SG&A was 21.9% as a percentage of sales in the 2015 period compared to 21.7% in the comparable 2014 period, an increase of 13 basis points. The 2015 results reflect increased severance costs, the majority of which were related to the restructuring discussed above, as well as increases in incentive compensation expenses and repairs and maintenance expenses. Partially offsetting these items was a higher volume of cash back transactions resulting in increased convenience fees collected from customers. The comparable 2014 results reflect expenses of $8.2 million related to an attempted acquisition that was not completed.

 

Interest Expense . Interest expense decreased by $3.0 million to $63.7 million in the 2015 period due primarily to lower average debt balances in the 2015 period.

 

Income Taxes. The effective income tax rate for the 2015 period was 37.6% compared to 37.5% for the 2014 period which represents a net increase of 0.1 percentage points. The effective tax rate increase was primarily due to reduced benefits associated with changes in uncertain tax positions in the 2015 period as compared to the 2014 period. Both periods were negatively impacted by the expiration of the federal law authorizing the WOTC. The WOTC credits were retroactively reenacted in the fourth quarter of our 2014 fiscal year for employees hired during the 2014 calendar year. For financial statement purposes, a change in income tax expense is recorded in the period in which the related law is enacted. Accordingly, the fourth quarter of 2014 reflected the full, favorable impact of the 2014 retroactive reenactment of WOTC. It is uncertain as to whether and, if so, when the WOTC credits will be retroactively renewed for 2015. The Company will receive credits in future periods for employees hired on or before December 31, 2014; however, the future period credit received will be significantly lower than what has been recognized in prior fiscal years without WOTC reenactment.

 

Liquidity and Capital Resources

 

We believe our cash flow from operations and existing cash balances, combined with availability under our credit facilities discussed below and access to the debt markets will provide sufficient liquidity to fund our current obligations, projected working capital requirements, capital spending and anticipated dividend payments for a period that includes the next twelve months as well as the next several years.  However, our ability to maintain sufficient liquidity may be affected by numerous factors, many of which are outside of our control.  Depending on our liquidity levels, conditions in the capital markets and other factors, we may from time to time consider the issuance of debt, equity or other securities, the proceeds of which could provide additional liquidity for our operations.

 

Facilities

 

On October 20, 2015 , we consummated a refinancing pursuant to which we amended and restated our senior unsecured credit facilities. The information contained in Note 4 to the unaudited condensed consolidated financial statements under the heading “Borrowing Facilities and 2015 Refinancing” contained in Part I, Item 1 of this report is incorporated herein by reference. The amended and restated senior unsecured credit facilities (the “Facilities”) consist of a $425.0 million senior unsecured term loan facility (the “Term Facility”) and a $1.0 billion senior unsecured revolving credit facility (the “Revolving Facility”) which provides for the

 

24



 

issuance of letters of credit up to $175.0 million. The Facilities are scheduled to mature on October 20, 2020.

 

Borrowings under the Facilities bear interest at a rate equal to an applicable interest rate margin plus, at our option, either (a) LIBOR or (b) a base rate (which is usually equal to the prime rate). The applicable interest rate margin for borrowings as of October 30, 2015 was 1.10% for LIBOR borrowings and 0.10% for base-rate borrowings . We must also pay a facility fee, payable on any used and unused commitment amounts of the Facilities, and customary fees on letters of credit issued under the Revolving Facility.  The applicable interest rate margins for borrowings, the facility fees and the letter of credit fees under the Facilities are subject to adjustment from time to time based on our long-term senior unsecured debt ratings. The weighted average all-in interest rate for borrowings under the Facilities was 1.36% as of October 30, 2015.

 

The Facilities can be voluntarily prepaid in whole or in part at any time without penalty. There will be no required amortization under the Facilities. The Facilities contain a number of customary affirmative and negative covenants that, among other things, restrict, subject to certain exceptions, the Company’s and its subsidiaries ability to: incur additional liens; sell all or substantially all of our assets; consummate certain fundamental changes or change in the Company’s lines of business; and incur additional subsidiary indebtedness. The Facilities also contain financial covenants that require the maintenance of a minimum fixed charge coverage ratio and a maximum leverage ratio.  As of October 30, 2015, we were in compliance with all such covenants.  The Facilities also contain customary events of default.

 

As of October 30, 2015, under the Revolving Facility, the Company had outstanding borrowings of $388.0 million, standby letters of credit of $29.2 million, and borrowing availability of $582.8 million. In addition, we had outstanding commercial letters of credit of $14.5 million.

 

For the remainder of fiscal 2015, we anticipate potential borrowings under the Revolving Facility up to a maximum of approximately $500 million outstanding at any one time, including any anticipated borrowings to fund repurchases of common stock.

 

Senior Notes

 

On October 20, 2015, we issued $500.0 million aggregate principal amount of 4.150% senior notes due 2025 (the “2025 Senior Notes”), net of discount of $0.8 million, which are scheduled to mature on November 1, 2025. The information contained in Note 4 to the unaudited condensed consolidated financial statements under the heading “Borrowing Facilities and 2015 Refinancing” contained in Part I, Item 1 of this report is incorporated herein by reference. In addition, we have $500.0 million aggregate principal amount of 4.125% senior notes due 2017 (the “2017 Senior Notes”) which are scheduled to mature on July 15, 2017, $400.0 million aggregate principal amount of 1.875% senior notes due 2018 (the “2018 Senior Notes”), net of discount of $0.2 million, which are scheduled to mature on April 15, 2018; and $900.0 million aggregate principal amount of 3.25% senior notes due 2023 (the “2023 Senior Notes”), net of discount of $1.8 million, which are scheduled to mature on April 15, 2023. Collectively, the 2017 Senior Notes, the 2018 Senior Notes, the 2023 Senior Notes and the 2025 Senior Notes

 

25



 

comprise the “Senior Notes”, each of which were issued pursuant to an indenture as supplemented and amended by supplemental indentures relating to each series of Senior Notes (as so supplemented and amended, the “Senior Indenture”).  Interest on the 2017 Senior Notes is payable in cash on January 15 and July 15 of each year. Interest on the 2018 Senior Notes and the 2023 Senior Notes is payable in cash on April 15 and October 15 of each year. Interest on the 2025 Senior Notes is payable in cash on May 1 and November 1 of each year, commencing on May 1, 2016. The net proceeds from the sale of the 2025 Senior Notes were used, together with borrowings under the Facilities, to repay all outstanding borrowings under the then-existing credit agreement and for general corporate purposes.

 

We may redeem some or all of the Senior Notes at any time at redemption prices set forth in the Senior Indenture. Upon the occurrence of a change of control triggering event, which is defined in the Senior Indenture, each holder of our Senior Notes has the right to require us to repurchase some or all of such holder’s Senior Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.

 

The Senior Indenture contains covenants limiting, among other things, our ability (subject to certain exceptions) to consolidate, merge, or sell or otherwise dispose of all or substantially all of our assets; and our ability and the ability of our subsidiaries to incur or guarantee indebtedness secured by liens on any shares of voting stock of significant subsidiaries.

 

The Senior Indenture also provides for events of default which, if any of them occurs, would permit or require the principal of and accrued interest on our Senior Notes to become or to be declared due and payable, as applicable.

 

Contractual Obligations

 

The amendments to the Facilities and the issuance of the 2025 Senior Notes discussed above resulted in changes to the contractual obligations reported in our Annual Report on Form 10-K for the fiscal year ended January 30, 2015. The following table summarizes our significant contractual obligations for long-term debt obligations and related interest as of October 30, 2015 (in thousands):

 

 

 

Payments Due by Period

 

Contractual obligations

 

Total

 

1 year

 

1-3 years

 

3-5 years

 

5+ years

 

Long-term debt obligations

 

$

3,123,590

 

$

215

 

$

900,770

 

$

814,080

 

$

1,408,525

 

Capital lease obligations

 

5,087

 

1,143

 

1,595

 

966

 

1,383

 

Interest (a)

 

535,248

 

89,513

 

148,138

 

122,134

 

175,463

 

 


(a)                Represents obligations for interest payments on long-term debt and capital lease obligations, and includes projected interest on variable rate long-term debt, using rates as of October 30, 2015.  Variable rate long-term debt includes the balance of the senior unsecured term loan and the revolving credit facility with a total outstanding balance of $813 million and the balance of our tax increment financing of $10.6 million.

 

26



 

Current Financial Condition / Recent Developments

 

At October 30, 2015, we had total outstanding debt (including the current portion of long-term obligations) of approximately $3.11 billion. We had $582.8 million available for borrowing under our Revolving Facility at that date.

 

Our inventory balance represented approximately 54% of our total assets exclusive of goodwill and other intangible assets as of October 30, 2015. Our ability to effectively manage our inventory balances can have a significant impact on our cash flows from operations during a given fiscal year. Inventory purchases are often somewhat seasonal in nature, such as the purchase of warm-weather or Christmas-related merchandise. Efficient management of our inventory has been and continues to be an area of focus for us.

 

As described in Note 7 to the unaudited condensed consolidated financial statements, we are involved in a number of legal actions and claims, some of which could potentially result in material cash payments. We also have certain income tax-related contingencies as disclosed in Note 3 to the unaudited condensed consolidated financial statements. Future negative developments pertaining to these legal actions and claims or the tax-related contingencies could have a material adverse effect on our liquidity.

 

In October 2015, Standard & Poor’s raised our senior unsecured debt rating and our corporate debt rating to BBB, both with a stable outlook, and Moody’s reaffirmed our senior unsecured debt rating of Baa3 and changed our outlook to positive. Our current credit ratings, as well as future rating agency actions, could (i) impact our ability to finance our operations on satisfactory terms; (ii) affect our financing costs; and (iii) affect our insurance premiums and collateral requirements necessary for our self-insured programs. There can be no assurance that we will maintain or improve our current credit ratings.

 

Unless otherwise noted, all references to the “2015 period” and the “2014 period” in the discussion of “Cash flows from operating activities,” “Cash flows from investing activities,” and “Cash flows from financing activities” below refer to the 39-week periods ended October 30, 2015 and October 31, 2014, respectively.

 

Cash flows from operating activities.  Cash flows from operating activities were $780.5 million in the 2015 period, which was $60.0 million lower than the 2014 period. Changes in merchandise inventories resulted in a $317.3 million decrease in the 2015 period compared to a $239.3 million decrease in the 2014 period, and were a significant contributor to the overall change in cash flows from operating activities as described in greater detail below. In addition, changes in accounts payable resulted in a $75.9 million increase in the 2015 period compared to a $100.5 million increase in the 2014 period, due primarily to the timing of receipts and payments. An offsetting factor was increased net income due primarily to increased sales and operating profit in the 2015 period as described in more detail above under “Results of Operations.”

 

On an ongoing basis, we closely monitor and manage our inventory balances, and they may fluctuate from period to period based on new store openings, the timing of purchases, and other factors. Merchandise inventories increased 11% in the 2015 period

 

27



 

compared to a 9% increase in the 2014 period.  In the 2015 period compared to the 2014 period, changes in inventory balances in our four inventory categories were as follows: the consumables category increased by 15% compared to 13%; the seasonal category increased by 11% compared to 3%; the home products category increased by 15% compared to 7%; and apparel declined by 7% compared to a 1% increase. Factors impacting the increase in inventory include our efforts to improve our in-stock position, the timing of receipts, and sales performance.

 

Cash flows from investing activities . Significant components of property and equipment purchases in the 2015 period included the following approximate amounts: $142 million for improvements, upgrades, remodels and relocations of existing stores; $94 million for distribution and transportation-related capital expenditures; $79 million related to new leased stores, primarily for leasehold improvements, fixtures and equipment; $41 million for stores built by us; and $26 million for information systems upgrades and technology-related projects. The timing of new, remodeled and relocated store openings along with other factors may affect the relationship between such openings and the related property and equipment purchases in any given period. During the 2015 period, we opened 634 new stores and remodeled or relocated 857 stores.

 

Significant components of property and equipment purchases in the 2014 period included the following approximate amounts: $104 million for improvements, upgrades, remodels and relocations of existing stores; $86 million related to new leased stores, primarily for leasehold improvements, fixtures and equipment; $36 million for distribution and transportation-related capital expenditures; $29 million for stores built by us; and $28 million for information systems upgrades and technology-related projects. During the 2014 period, we opened 617 new stores and remodeled or relocated 874 stores.

 

Capital expenditures during 2015 are projected to be in the range of $500 million to $550 million. We anticipate funding 2015 capital requirements with existing cash balances, cash flows from operations, and if necessary, our Revolving Facility. As of October 30, 2015, we have significant availability under our Revolving Facility that can be used to fund capital requirements. As noted above, we plan to continue to invest in store growth through development of new stores and stores to be remodeled or relocated. Capital expenditures in 2015 are anticipated to support our store growth as well as our remodel and relocation initiatives, including capital outlays for leasehold improvements, fixtures and equipment; the construction of new stores; costs to support and enhance our supply chain initiatives including the construction of distribution centers; technology initiatives; as well as routine and ongoing capital requirements.

 

Cash flows from financing activities . Net borrowings under the Revolving Facility during the 2015 period were $388.0 million, compared to net borrowings of zero during the 2014 period. During the 2015 and 2014 periods, we repurchased 13.4 million and 14.1 million outstanding shares of our common stock at a total cost of $1.0 billion and $800.1 million, respectively. During the 2015 period we paid cash dividends totaling $195.2 million.

 

28



 

Share Repurchase Program

 

On December 2, 2015, the Company’s Board of Directors authorized a $1.0 billion increase to our existing common stock repurchase program.  Following such increase, our common stock repurchase program had a total remaining authorization of approximately $1.2 billion at December 2, 2015. Under the authorization, purchases may be made in the open market or in privately negotiated transactions from time to time subject to market and other conditions, and the authorization has no expiration date.

 

ITEM 3.                                                 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

There have been no material changes to the disclosures relating to this item from those set forth in our Annual Report on Form 10-K for the fiscal year ended January 30, 2015, as supplemented by our Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2015.

 

ITEM 4.                                                 CONTROLS AND PROCEDURES.

 

(a)            Disclosure Controls and Procedures .  Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

 

(b)            Changes in Internal Control Over Financial Reporting .  There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the quarter ended October 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

29



 

PART II—OTHER INFORMATION

 

ITEM 1.                                                 LEGAL PROCEEDINGS.

 

The information contained in Note 7 to the unaudited condensed consolidated financial statements under the heading “Legal proceedings” contained in Part I, Item 1 of this report is incorporated herein by this reference.

 

ITEM 1A.                                        RISK FACTORS.

 

There have been no material changes to the disclosures relating to this item from those set forth in our Annual Report on Form 10-K for the fiscal year ended January 30, 2015.

 

ITEM 2.                                                 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

The following table contains information regarding purchases of our common stock made during the quarter ended October 30, 2015 by or on behalf of Dollar General or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act:

 

Issuer Purchases of Equity Securities

 

Period

 

Total Number
of Shares
Purchased

 

Average
Price Paid
per Share
($)

 

Total Number
of Shares Purchased
as Part of Publicly
Announced Plans or
Programs(a)

 

Approximate
Dollar Value
of Shares that May
Yet Be Purchased
Under the Plans
or Programs(a)
($)

 

08/01/15-08/31/15

 

1,200,000

 

74.53

 

1,200,000

 

399,653,000

 

09/01/15-09/30/15

 

2,567,900

 

72.29

 

2,567,900

 

214,007,000

 

10/01/15-10/30/15

 

 

 

 

214,007,000

 

Total

 

3,767,900

 

73.01

 

3,767,900

 

214,007,000

 

 


(a) A $500 million share repurchase program was publicly announced on September 5, 2012, and increases in the authorization under such program were announced on March 25, 2013 ($500 million increase), December 5, 2013 ($1.0 billion increase) and March 12, 2015 ($1.0 billion increase).  Subsequent to the last period reported above, a $1.0 billion increase to the share purchase program was publicly announced on December 3, 2015.  Under the authorization, purchases may be made in the open market or in privately negotiated transactions from time to time subject to market and other conditions. This repurchase authorization has no expiration date.

 

ITEM 6.                                                 EXHIBITS.

 

See the Exhibit Index immediately following the signature page hereto, which Exhibit Index is incorporated by reference as if fully set forth herein.

 

30



 

CAUTIONARY DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

 

We include “forward-looking statements” within the meaning of the federal securities laws throughout this report, particularly under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part I, Item 2, and “Note 7. Commitments and Contingencies” and “Note 4. Current and long-term obligations” included in Part I, Item 1, among others. You can identify these statements because they are not limited to historical fact or they use words such as “may,” “will,” “should,” “expect,” “ believe,” “anticipate,” “project,” “plan,” “estimate,” “objective,” “intend,” “could,” “can,” “would,” “committed,” “are scheduled to,” “predict,” “seek,” “ensure,” “subject to,” “results,” or “continue,” and similar expressions that concern our strategy, plans, initiatives, intentions or beliefs about future occurrences or results. For example, statements relating to estimated and projected expenditures, cash flows, results of operations, financial condition and liquidity; plans and objectives for, and expectations regarding, future operations, growth or initiatives, including the number of planned store openings, remodels and relocations and store square footage growth, progress of labor investment initiatives, trends in sales of consumable and non-consumable products, results of the investment in our personnel and the levels of future costs and expenses; anticipated borrowing under certain of our credit facilities; and the expected outcome or effect of pending or threatened litigation or audits are forward-looking statements.

 

Forward-looking statements are subject to risks and uncertainties that may change at any time, so our actual results may differ materially from those that we expected. We derive many of these statements from our operating budgets and forecasts, which are based on many detailed assumptions that we believe are reasonable. However, it is very difficult to predict the effect of known factors, and we cannot anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from the expectations expressed in our forward-looking statements include, without limitation:

 

·                   economic conditions, including their effect on employment levels, consumer demand, disposable income, credit availability and spending patterns, inflation, commodity prices, fuel prices, interest rates, exchange rate fluctuations and the cost of goods;

·                   failure to successfully execute our strategies and initiatives, including those relating to merchandising, sourcing, inventory shrinkage, private brand, distribution and transportation, store operations, expense reduction and real estate;

·                   failure to open, relocate and remodel stores profitably and on schedule, as well as failure of our new store base to achieve sales and operating levels consistent with our expectations;

·                   levels of inventory shrinkage;

·                   effective response to competitive pressures and changes in the competitive environment and the markets where we operate, including consolidation;

·                   our level of success in gaining and maintaining broad market acceptance of our private brands;

·                   disruptions, unanticipated or unusual expenses or operational failures in our supply chain including, without limitation, a decrease in transportation capacity for overseas shipments, increases in transportation costs (including increased fuel costs and carrier rates or driver wages), work stoppages or other labor disruptions that could impede

 

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                        the receipt of merchandise, or delays in constructing or opening new distribution centers;

·                   risks and challenges associated with sourcing merchandise from suppliers, including, but not limited to, those related to international trade;

·                   unfavorable publicity or consumer perception of our products, including, but not limited to, related product liability and food safety claims;

·                   the impact of changes in or noncompliance with governmental laws and regulations (including, but not limited to, healthcare, product safety, food safety, information security and privacy, and labor and employment laws, as well as tax laws, the interpretation of existing tax laws, or our failure to sustain our reporting positions negatively affecting our tax rate) and developments in or outcomes of private actions, class actions, administrative proceedings, regulatory actions or other litigation;

·                   natural disasters, unusual weather conditions, pandemic outbreaks, terrorist acts and geo-political events;

·                   damage or interruption to our information systems or failure of technology initiatives to deliver desired or timely results;

·                   ability to attract and retain qualified employees, while controlling labor costs (including healthcare costs) and other labor issues;

·                   our loss of key personnel, our inability to hire additional qualified personnel or disruption of executive management as a result of retirements or transitions;

·                   failure to successfully manage inventory balances;

·                   seasonality of our business;

·                   incurrence of material uninsured losses, excessive insurance costs or accident costs;

·                   failure to maintain the security of information that we hold, whether as a result of a data security breach or otherwise;

·                   deterioration in market conditions, including interest rate fluctuations, or a lowering of our credit ratings;

·                   our debt levels and restrictions in our debt agreements;

·                   new accounting guidance, or changes in the interpretation or application of existing guidance, such as changes to lease accounting guidance;

·                   factors disclosed under “Risk Factors” in Part I, Item 1A of our Form 10-K for the fiscal year ended January 30, 2015; and

·                   factors disclosed elsewhere in this document (including, without limitation, in conjunction with the forward-looking statements themselves) and other factors.

 

All forward-looking statements are qualified in their entirety by these and other cautionary statements that we make from time to time in our other Securities and Exchange Commission filings and public communications. You should evaluate forward-looking statements in the context of these risks and uncertainties. These factors may not contain all of the material factors that are important to you. We cannot assure you that we will realize the results or developments we anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking

 

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statements in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 

33



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, both on behalf of the Registrant and in his capacity as principal financial officer of the Registrant.

 

 

DOLLAR GENERAL CORPORATION

 

 

 

 

 

 

Date:

December 3, 2015

 

By:

/s/ John W. Garratt

 

 

John W. Garratt

 

 

Chief Financial Officer

 

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EXHIBIT INDEX

 

4.1

 

Fifth Supplemental Indenture, dated as of October 20, 2015, between Dollar General Corporation and U.S. Bank National Association, as trustee (incorporated by referenced to Exhibit 4.1 to Dollar General Corporation’s Current Report on Form 8-K dated October 15, 2015, filed with the SEC on October 20, 2015 (file no. 001-11421))

 

 

 

4.2

 

Form of 4.150% Senior Notes due 2025 (included in Exhibit 4.1) (incorporated by referenced to Exhibit 4.1 to Dollar General Corporation’s Current Report on Form 8-K dated October 15, 2015, filed with the SEC on October 20, 2015 (file no. 001-11421))

 

 

 

4.3

 

Amended and Restated Credit Agreement, dated as of October 20, 2015, among Dollar General Corporation, as borrower, Citibank, N.A., as administrative agent, and the other credit parties and lenders party thereto (incorporated by reference to Exhibit 4.3 to Dollar General Corporation’s Current Report on Form 8-K dated October 15, 2015, filed with the SEC on October 20, 2015 (file no. 001-11421))

 

 

 

10.1

 

Summary of Non-Employee Director Compensation (effective January 30, 2016)

 

 

 

10.2

 

Dollar General Corporation Executive Relocation Policy, as amended (effective September 22, 2015)

 

 

 

10.3

 

Employment Agreement, effective August 10, 2015, by and between Rhonda M. Taylor and Dollar General Corporation (incorporated by reference to Exhibit 10.4 to Dollar General Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2015, filed with the SEC on August 27, 2015 (file no. 001-11421))

 

 

 

10.4

 

Employment Agreement, effective August 10, 2015, by and between Robert D. Ravener and Dollar General Corporation (incorporated by reference to Exhibit 10.5 to Dollar General Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2015, filed with the SEC on August 27, 2015 (file no. 001-11421))

 

 

 

10.5

 

Employment Agreement, effective August 10, 2015, by and between John W. Flanigan and Dollar General Corporation (incorporated by reference to Exhibit 10.6 to Dollar General Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2015, filed with the SEC on August 27, 2015 (file no. 001-11421))

 

 

 

10.6

 

Employment Agreement, effective August 7, 2015, by and between James W. Thorpe and Dollar General Corporation

 

 

 

10.7

 

Employment Agreement, effective June 15, 2015 and executed November 3, 2015, by and between Jeffery C. Owen and Dollar General Corporation

 

 

 

15

 

Letter re unaudited interim financial information

 

35



 

31

 

Certifications of CEO and CFO under Exchange Act Rule 13a-14(a)

 

 

 

32

 

Certifications of CEO and CFO under 18 U.S.C. 1350

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.LAB

 

XBRL Taxonomy Extension Labels Linkbase Document

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

36


Exhibit 10.1

 

Summary of Non-Employee Director Compensation

(effective January 30, 2016)

 

We do not compensate for Board service any director who also serves as our employee. We will reimburse directors for certain fees and expenses incurred in connection with continuing education seminars and for travel and related expenses related to Dollar General business.

 

Each non-employee director will receive payment (prorated as applicable), in quarterly installments, of the following cash compensation, as applicable:

 

·                         $85,000 annual retainer for service as a Board member;

·                         $27,500 annual retainer for service as Lead Director;

·                         $22,500 annual retainer for service as chairman of the Audit Committee;

·                         $20,000 annual retainer for service as chairman of the Compensation Committee;

·                         $15,000 annual retainer for service as chairman of the Nominating & Governance Committee; and

·                         $1,500 for each Board or committee meeting in excess of an aggregate of 16 that a director attends, as a member, during each fiscal year.

 

In addition, we grant annually to those non-employee directors who are elected or reelected at each applicable shareholders’ meeting an equity award under our Amended and Restated 2007 Stock Incentive Plan with an estimated value of $135,000 on the grant date. This entire value consists of restricted stock units payable in shares of our common stock (“RSUs”). The RSUs will vest as to 100% of the award on the first anniversary of the grant date. Directors may elect to defer receipt of shares underlying the RSUs. They may also elect to defer up to 100% of cash fees earned for Board service under the Non-Employee Director Deferred Compensation Plan filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2014. Any new director appointed after the annual shareholders’ meeting but before February 1 of a given year, will receive a full equity award no later than the first regularly scheduled Compensation Committee meeting following the date on which he or she is appointed. Any new director appointed on or after February 1 of a given year but before the next annual shareholders’ meeting shall be eligible to receive the next regularly scheduled annual award.

 


Exhibit 10.2

 

 



 

Congratulations on your new assignment!

 

In addition to the challenges your new position brings, you and your family will encounter many changes as you leave familiar surroundings, find a new place to live and settle into your new location.

 

The relocation of employees contributes to the Company’s ability to stay flexible and competitive. For that reason, we have partnered with Global Mobility Solutions (GMS), as well as a number of other top rate service providers, to provide you with a program of relocation support to reduce normal move disruptions, and enable you to get settled in your new home and job as quickly as possible.

 

This Relocation Guide outlines the services made available to you to help facilitate your move, including selling your current residence and finding a new community and home.

 

Please take the time to read through this guide and familiarize yourself with the policy and GMS relocation services before you begin planning your relocation. Recognizing that relocating can be a disruptive time, the Company, through your dedicated Relocation Coach will assist you and your family throughout your move.

 

Our best wishes for success in your new location!

 

 

 

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Contents

 

 

 

Benefits at a Glance

3

 

 

Introduction

4

 

 

Relocation Administration

5

 

 

Forms to Complete

5

 

 

Expense Reimbursement

6

 

 

Relocation and Transition Expenses

6

 

 

Miscellaneous Expense Allowance

6

 

 

House Hunting

7

 

 

Home Sale Assistance program

8

 

 

Renters’ Assistance

16

 

 

Destination Location

17

 

 

Home Purchase Closing Cost Assistance

18

 

 

Shipment of Household Goods

19

 

 

Tax Assistance

21

 

 

Tax Treatment Table

23

 

 

 

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BENEFITS AT A GLANCE

 

 

 

 

 

Policy Component

 

 

Description

 

 

 

 

 

 

Eligibility

 

 

·         You are eligible for coverage under the relocation program described in this guide if you are classified as an active full-time current or newly-hired, salaried executive level employee or senior officer; homeowner or renter.  It is your responsibility to work with the Sr. Manager Human Resources to monitor your eligibility for benefits and to ensure your status is accurately reflected in the payroll system.

 

·         Note:  Active Full-time (AF) means not L, LP, or T status.

 

 

 

 

 

 

Miscellaneous Allowance

 

 

·         You will receive an Allowance of $10,000 to cover expenses not provided elsewhere in the policy

 

·         Such payment will not be grossed-up

 

 

 

 

 

 

Home Finding Trip

 

 

·         Professional assistance will be provided by GMS

 

·         The Company will provide you with two home finding trips for up to seven days/six nights, for you, your spouse or one additional family member and for your children.

 

·         Reimbursable expenses include reasonable costs associated with:

 

Airfare or Mileage

 

 

Lodging

 

Meals ($25/day/adult & $15/day/child)

 

·         Rental car (if airfare)

 

 

 

 

 

 

Temporary Housing

 

 

·         Professional assistance will be provided by GMS

 

·         The Company will provide you with temporary housing accommodations for up to 90 days

 

·         Up to 14 days rental car if automobile is being shipped

 

 

 

 

 

 

Home Sale Assistance:

 

GPO/Amended Value Sale

 

 

·         Marketing Assistance

 

·         Appraised Value Offer

 

·         Amended Value Sale

 

·         Independent Sale

 

 

 

 

 

 

Renter Services

 

 

·         Lease Cancellation:

 

o Up to two months’ rent if required to cover lease cancellation or lease break fees

 

 

 

 

 

 

New Home Purchase Assistance

 

 

·         If you decide to purchase a home in the new location, you will be reimbursed for normal and customary new home purchase closing costs

 

 

 

 

 

 

Movement of Household Goods

 

 

·         A professional van line will be selected and coordinated by GMS

 

·         Van line will pack, load, transport, unload goods, and unpack, including normal appliance servicing

 

·         The Company will provide:

 

o Debris pick up

 

o Storage for up to 90 days

 

o Up to $125,000 of valuation coverage

 

o Shipment for up to two automobiles if the distance to the new location is over 300 miles

 

 

 

 

 

 

Final Trip to the Destination Location

 

 

·         You and your family will be reimbursed for en route expenses from the departure location to the destination location. Reimbursable expenses include reasonable costs associated with:

 

o Airfare if vehicle(s) is/are shipped

 

o Lodging – 1 night in origin, en route

 

o Mileage – 1 vehicle if 1 is shipped or 2 vehicles if none are shipped

 

o Meals($25/day/adult & $15/day/child)

 

·         You must travel a minimum of 300 miles per day by the most direct route

 

 

 

 

 

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INTRODUCTION

 

On the Move…

 

This handbook has been designed to help you understand Dollar General’s relocation program and to assist you and your family in relocating as quickly as possible with minimal inconvenience.  You are encouraged to carefully read this handbook in its entirety.  Recognizing that relocating can be a disruptive process, the Company and GMS will assist you and your family throughout your move.

 

Eligibility

 

The relocation program was developed to facilitate the movement of active, full-time newly-hired and current, salaried, executive-level employees or senior officers who are requested to relocate by the Company and designated by the Company to receive the benefits described in this handbook.

 

In order to be eligible for relocation as described in this handbook, your relocation must meet the IRS 50-mile distance test.  The distance between your former residence and your new job site must be at least 50 miles greater than the distance between your former residence and your former job site.

 

Family

 

Your family members eligible for assistance under this policy include your spouse and your dependent household members.  In the event an additional member of your household is asked to relocate by the Company, you are eligible to receive only one set of benefits.

 

Time Limit

 

You are eligible for the benefits extended in this handbook for up to 12 months following your effective date of transfer. All expense reports related to your relocation are required to be submitted within 90 days of the date incurred within this 12-month period.

 

Disclaimer

 

The Company has the sole right at any time to revise, amend or discontinue this policy.  This policy shall not be considered or construed as an employment contract and does not constitute a guarantee of employment for any minimum or specified period of time.

 

Policy Exceptions

 

If you feel an exception is needed, please submit your request in writing to your GMS dedicated Relocation Coach.  They will review and forward your request to the Relocation Department at Dollar General for consideration.  Upon initial receipt, the Relocation Department will present a recommendation along with facts to the appropriate senior level officer for final approval by the Board’s Compensation Committee.  Your dedicated Relocation Coach will communicate the decision to you.

 

 

 

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RELOCATION ADMINISTRATION

 

Upon notification of your relocation, your dedicated Relocation Coach will contact you and be your main point of contact throughout your move.  Your dedicated Relocation Coach will guide you through each step of the relocation process, answer your questions, and help coordinate all aspects of your move.  Listed below are highlights of the services your dedicated Relocation Coach will provide to you:

 

à          general information

 

à          expense report reimbursements

 

à          disposition of your present home

 

à          assistance in finding a new residence

 

à          moving your household goods

 

à          moving you and your family to the new location

 

We encourage you to become fully involved in your move and work closely with the professionals who have been made available to assist you throughout the relocation process.  By working closely with your dedicated Relocation Coach, you will be able to effectively manage your move.

 

Forms to Complete

 

Our goal is to have a relocation process that is as simple and easy to use as possible.  Therefore, there are only two steps that you must complete before receiving your relocation benefits.

 

Step 1.             Complete and return the Relocation Initiation Form

 

The Relocation Initiation Form provides us with important information to pass on to the moving company and for relocation check/reimbursement requests.

 

Step 2.             Complete and return the Employee Reimbursement Form.

 

The Employee Reimbursement Form states that you have read Dollar General’s Relocation policy and understand that you are responsible for any expenses not covered under the policy.  This form may also have a reimbursement schedule you would follow to pay back a pro-rated share of your relocation benefits should you leave the company within a year of the date of your last relocation reimbursement or last relocation expense incurred by Dollar General.

 

Both of these forms can be emailed or faxed to the following:

 

Email:  Relocation@DollarGeneral.com

 

Fax:  (615) 855-8144

 

 

 

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EXPENSE REIMBURSEMENT

 

Most ordinary expenses involved in moving from one location to another are covered under this policy.  Any questions of interpretation should be discussed with your dedicated Relocation Coach before you take action.

 

All relocation expenses must be submitted on the Relocation Expense Report Form (will be provided to you by GMS) and must not be combined with regular business expenses.  In order to determine the federal and state tax liability for reimbursed expenses, all relocation expenses must be reported accurately.

 

Where relocation-related expenses are specifically reimbursable, consistent guidelines apply.

 

à            All reimbursable expenses must be reasonable and appropriate.

 

à            All relocation benefits are reflected in U.S. dollars.

 

à       All reimbursable moving expenses must be incurred within 12 months from the effective date of employment or transfer and submitted for payment within 90 days from the date the expense is incurred.

 

à            Only expenses specifically outlined in the policy will be reimbursed.

 

à            You must submit original receipts for reimbursement.  Your completed expense reports together with your original receipts should be forwarded directly to your dedicated Relocation Coach.

 

à            It is important not to include any business expenses on relocation expense forms.

 

RELOCATION AND TRANSITION EXPENSES

 

Miscellaneous Expense Allowance

 

GRAPHIC

The Company will provide you with an allowance equal to $10,000, to cover many of the incidental expenses not specifically reimbursed under this policy, which may occur as a direct result of your transfer.  Some of these expenses may include:

 

à            driver’s licenses and automobile registrations in the new location,

 

à            meals during temporary living,

 

à            duplicate mortgage,

 

à            utility deposits,

 

à            shipment of pets,

 

à            cleaning or maid service (new or old location),

 

à            non-refundable tuition, memberships, club dues or subscriptions,

 

à            piano tuning,

 

à            tips to movers,

 

à            drapery and carpet installation or alterations,

 

à            television or cable installation or adjustments,

 

à            overnight mail charges,

 

à            tax consulting,

 

à            items unique to your personal move not covered by this policy,

 

à            disassemble/reassemble playground, gym equipment, swimming pools, and similar items.

 

 

 

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For newly hired employees, a check will be processed and deposited into your account within 2 weeks after your start date.

 

Tax Assistance

 

Gross-up will not be provided for the Miscellaneous Expense Allowance.

 

House Hunting

 

Dollar General will provide you and your spouse or one additional household member and your children with two (2) house hunting/apartment hunting trips for a total of seven (7) days.  The House Hunting Trip will include the following:

 

Ø             Hotel accommodations for a maximum six (6) nights.

 

Ø             Airfare or mileage reimbursement at current Company rate if personal vehicle is driven.

 

Ø             Reimbursement for rental car for maximum of seven (7) days.

 

Ø             Reimbursable meal expenses not to exceed $25.00/day per adult, $15.00/day per child (original receipts must be submitted).

 

Tax Assistance

 

Gross-up will be provided for residence hunting expenses.

 

Temporary Living

 

Temporary Living Assistance is intended only for short-term living arrangements at the new location.  Dollar General will reimburse you for up to 90 days of temporary living expenses.  Temporary living assistance includes the following:

 

à          One bedroom fully furnished corporate apartment for employee only.

 

à          If trailing family, a two bedroom fully furnished corporate apartment may be requested in lieu of a one bedroom.

 

à          Reimbursement for full size rental car for a maximum of two (2) weeks.

 

 

If you require temporary living assistance please contact your dedicated Relocation Coach at least two weeks in advance.  He or she will be happy to help you make arrangements and answer any questions you may have.

 

Return Trip

 

If you are required to report to work in your new location prior to your family’s final move, you shall receive coverage of travel expenses for one (1) return trip home per month up to a total of 3 round trips during the temporary living period. One family member may visit you in the new location in lieu of a return trip.

 

Tax Assistance

 

Gross-up will be provided for temporary living and return trip expenses.

 

 

 

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HOME SALE ASSISTANCE PROGRAM

 

Your dedicated Relocation Coach will provide you with the necessary expertise to facilitate the sale of your home through the services described below.

 

Home Eligibility

 

A home eligible for home sale assistance is any completed single-family or two-family residence, including a condominium that is used as your principal residence and that is owned by you, your spouse, any of your dependents residing in the same household, or any combination of those persons at the time you are asked to relocate.  This also includes land customarily considered part of a residential lot and all personal property normally sold with a residence according to local custom.  If your home does not meet these eligibility guidelines, you may qualify for reimbursement of certain home sale closing costs and commission expenses if you sell your primary residence on your own.

 

Homes considered ineligible for home sale assistance (Guaranteed Buyout Offer/Buyer Value Option) include, but are not limited to, the following:

 

        cooperative apartments,

        mobile homes,

        vacation/secondary homes,

        investment properties,

        homes with excessive acreage (+5 acres),

        homes that are partially completed or under substantial renovation,

        homes ineligible for conventional financing,

        houseboats,

        homes deemed ineligible through building inspections, and

        vacant lots appraised as contributory value only.

 

If you have any questions regarding your home’s eligibility, please contact your dedicated Relocation Coach prior to beginning the relocation process.

 

Overview

 

Marketing Your Home

 

 

 

You are required to speak with your dedicated Relocation Coach prior to taking any steps to list or market your home. You are required to market your home for a minimum of 90 days from the date your home is listed with an approved real estate agent.

 

 

The home sale process will begin with the appraisal and listing your home.  Your dedicated Relocation Coach will help you select a qualified real estate agent and together they will determine selling strategies targeted to help you receive the best

 

 

 

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possible offer for your home. The advantage to successfully marketing your home and selling to an outside buyer is that you may receive a greater cash return than the Appraised Value Offer.

 

Appraised Value Offer

 

Two independent appraisers will appraise your home to determine the Appraised Value Offer.  Your relocation coach will provide a list of ERC endorsed appraisers in your area to choose from.  This offer will be your “safety net” providing you with a guaranteed price, should your home not sell on the open market.  Your Appraised Value Offer will be available to you for 90 days.

 

Amended Value Sale

 

If you receive a qualified offer on your home from an outside buyer you have an opportunity to “amend” the Appraised Value Offer from GMS to reflect your buyer’s offer.

 

Marketing Assistance

 

As soon as the Company authorizes your relocation, your dedicated Relocation Coach will contact you to explain the first step—the listing, marketing and appraisal of your home.  Placing your home on the market as advantageously as possible is a critical element in successfully marketing your home.  Throughout the home sale process, your dedicated Relocation Coach will continuously track your agent’s efforts to market your home.  The goal of these efforts is to help you obtain the best offer for your home within a reasonable time frame.

 

Your dedicated Relocation Coach’s objectives are to:

 

        help you identify a qualified and active broker to assist you in marketing and listing your home in a highly effective manner;

 

                                work with your real estate agent to develop a strategic marketing plan to sell your home at the best possible market value;

 

                                in conjunction with your real estate agent, suggest any minor repairs and/or improvements that will increase the marketability of your home; and

 

        work with you throughout the process of you selling your home.

 

How the Marketing Process Works…

 

The following is a step-by-step process of marketing assistance services provided by your dedicated Relocation Coach.

 

Agent Selection

 

Your dedicated Relocation Coach will place a referral with two (2) area real estate agents who will visit your home and prepare a complete Employee Relocation Council (ERC) Market Analysis.  If you would like to designate a particular real estate agent that has not been recommended, please notify your dedicated Relocation Coach.  As long as the real estate agent agrees to the program’s requirements, he or she will be able to work with you as one of your two selected agents.  You may not utilize or ask to have qualified any real estate agent that is a family member; i.e., spouse, child, mother, father, brother, sister or in-laws.  If you have no preference or are not familiar with local brokers, your dedicated Relocation Coach will assist you in the selection.

 

 

 

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Listing Your Home

 

Your dedicated Relocation Coach will ask you to select one real estate agent from the two you have interviewed.  He or she will then work with you and your selected agent to develop a marketing strategy and establish a list price that is both attractive and realistic in the local market.

 

 

You a re required to list your home within 110% Appraised Value. You are required to list your home for a minimum of 90 days from the initial list date before you are eligible to accept the Appraised Value Offer.

 

 

Listing Exclusion Clause

 

When you speak with your dedicated Relocation Coach, he or she will discuss the necessity of including the following language in the listing agreement with your broker. The reason for this clause is to allow for cancellation of the listing agreement if necessary for GMS to close with the buyer.  This clause is considered “standard operating procedure” among agents who work with corporate transferees.  The following Exclusion Clause should be attached as an addendum to the Listing Agreement.

 

“In the event of any conflict or inconsistency between this Addendum and the Listing Agreement, the terms of this Addendum shall control.

 

 

It is understood and agreed that regardless of whether or not an offer is presented by a ready, willing and able buyer:

 

 

1. No commission or compensation shall be earned by, or be due and payable to, broker until the sale of the property has been consummated between seller and buyer, the deed delivered to the buyer and the purchase price delivered to the seller; and

 

 

2. The seller reserves the right to sell the property to GMS or to: ____________ (individually and collectively a “Named Prospective Purchaser”) at any time. Upon the execution by a Named Prospective Purchaser and me (us) of an Agreement of Sale with respect to the property, this listing agreement shall immediately terminate without obligation of my (our) part or on the part of any Named Prospective Purchaser to either pay a commission or to continue this listing.”

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate Agent

 

Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seller

 

Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Seller

 

Date

 

 

 

 

 

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Monitoring the Marketing Process

 

Your dedicated Relocation Coach will work with you and your real estate agent throughout the marketing process to ensure maximum exposure for your home, provide feedback on the marketing process, and recommend strategy modifications, if needed.

 

Negotiating a Sale

 

 

When you have an interested buyer and receive an offer, your dedicated Relocation Coach will be a valuable resource as you negotiate a price and an Offer Letter.  You must submit ALL offers received to your dedicated Relocation Coach for review and consideration. DO NOT SIGN a contract (or any other document) with the buyers or take any money as a deposit from the real estate agent or prospective buyer.

 

Finalizing a Sale

 

Your dedicated Relocation Coach will handle the details of the real estate transaction once the terms of the sales agreement have been finalized.

 

APPRAISED VALUE OFFER

 

Your decision to relocate should not be hampered by concerns about selling your home.  GMS will assist you by making an offer to purchase your home at a value established by independent fee appraisers.  The appraisal process will begin immediately after entering the relocation program.

 

Appraiser Selection

 

Once you have notified your dedicated Relocation Coach of your choice of appraisers, your dedicated Relocation Coach will notify the approved appraisers to contact you in order schedule a convenient time to survey your home.

 

Relocation Appraisal

 

A relocation appraisal is an estimate of the anticipated sales price of your home over a reasonable selling period.  Relocation Appraisers estimate value primarily by comparing your home to the sales of similar properties making detailed adjustments for the differences between those properties and your home.  The appraisers consider location, size, age, condition, and marketability.

 

When the appraisers arrive to inspect your home, you should be prepared to discuss any facts that may be important in determining the value of your home:

 

        any improvements you have made to the home that may or may not be visible to the appraisers; and

 

        any information on similar homes that have recently sold in your area.

 

Your home will be appraised in “as is” condition, so it is important your home shows favorably to maximize the appraised value and resale efforts. Your dedicated

 

 

 

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Relocation Coach and your real estate agent will assist in suggesting specific fix-up items to help maximize your marketing efforts.

 

The appraisers may also ask for a copy of the land survey and a copy of the title policy that you received when you closed on your home.  They will need these items to obtain the correct legal description.

 

Determining the Appraised Value Offer

 

Your Appraised Value Offer will be equal to the average of two independent relocation appraisals.  However, if the variance between the two appraisals is greater than 5% of the higher amount, a third relocation appraisal will be ordered.  In this case, your offer will be determined by averaging the two closest appraisals. Normal and customary home inspections will be ordered at the time of the appraisals.

 

Your dedicated Relocation Coach will present you with your Appraised Value Offer once the inspection and appraisal reports have been received and reviewed.  Your home will have to pass all inspections and/or you must satisfactorily remedy any deficiencies before your offer is finalized.  The entire process should be completed within 30 days from the date of the last inspection.

 

 

 

 

You are required to list your home at no more than 110% of the Appraised Value Offer. This may require you to make an adjustment to your most current list price.

 

 

 

Title Search

 

In addition to arranging for the appraisals and inspections, a title search will be initiated in order to prepare for closing.  You may need to be involved in clearing any title issues should they appear on the title report.  Please inform your real estate agent that GMS is bringing the title up-to-date.  This can avoid a duplicate title search.  Often an agent will arrange for a title search upon notification from a lender of a buyer’s loan approval.

 

Offer Period

 

Your dedicated Relocation Coach will call you with your Appraised Value Offer and outline the timing and process of the home sale program. The Appraised Value Offer has a 90-day acceptance period—90 days to continue marketing your home knowing you have a set “safety net”.  Your 90-day acceptance period begins the day your Offer Letter is postmarked.  You may accept the appraised value offer at any time after marketing your home for 90 days.

 

 

 

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You are required to market your home for 90 days from the list date before you are able to accept the Appraised Value Offer.

 

 

Accepting the Appraised Value Offer

 

If you are unable to sell your home during the 90-day offer period and accept the Appraised Value Offer, you and your spouse should sign the GMS Offer Letter and return both copies to your dedicated Relocation Coach along with the other supporting documents.  Your execution of the Offer Letter is a legal transaction.  You will need to sign and notarize the Offer Letter and other related documents.

 

The signed GMS Offer Letter and related documents must be received by your dedicated Relocation Coach on or prior to the expiration date of your offer.  The contract will be dated on the day all necessary documents are completed and signed by you and your dedicated Relocation Coach.

 

Vacating the Home

 

You have 60 days from the date you sign the GMS Offer Letter in which to vacate the property provided a resale closing does not occur sooner.  If you cannot move within 60 days, please let your dedicated Relocation Coach know and you may be granted additional time to vacate, if circumstances warrant.

 

After you and GMS have signed the Offer Letter, you will continue to be responsible for the costs of maintenance, repairs, utilities, insurance, etc., until you actually vacate.  Prior to vacating, you will be expected to cooperate fully with all attempts by GMS to market the home by allowing prospective purchasers to view the premises by appointment during reasonable hours.

 

From the date you vacate, GMS will make all future mortgage, tax, and other carrying payments on your home.  It will also assume payment of maintenance and utility costs.  Your equity statement will reflect mortgage interest through your executed GMS contract or vacate date, whichever comes last.

 

 

 

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Utilities

Since sudden cold weather can cause damage due to freezing, do not turn off any utilities when you vacate the home.  The utilities must be left in your name until you contract with GMS or vacate the home, whichever is later.  At that time, you should request final readings from the utility companies serving your home.  Your dedicated Relocation Coach will instruct your real estate agent to transfer the utilities into the real estate company’s name until the home closes with new buyers. The day you vacate is customarily the date utilities are transferred to the real estate company.  If you receive a utility bill covering a period of time when payment was not your responsibility, please submit the invoice to your dedicated Relocation Coach for payment.

 

Insurance

You will need to cancel your homeowner’s insurance policy effective when GMS signs the Offer Letter or you vacate, whichever is later.  Any refund due to you from the insurance company will be paid directly to you.  Make note to discuss this with your insurance agent and follow-up if necessary.

 

 

 

If you are vacating your home prior to contracting with GMS, contact your insurance agent to arrange coverage during any periods the home will be unoccupied.  Most homeowner’s insurance policies state coverage is void if the dwelling is unoccupied for a specific period of time.

 

AMENDED VALUE SALE

Achieving an Amended Value Sale is of benefit to you and the Company.  The Company avoids the significant expense of purchasing, maintaining, and reselling your home through GMS and you receive the highest possible price for your home.

 

 

If at any time during your marketing period, you receive an offer through the efforts of your real estate agent, you must submit the offer to your dedicated Relocation Coach. DO NOT SIGN a contract (or any other document) with the buyers or take any money as a deposit from the real estate agent or prospective buyer.

 

 

Advantages of an Amended Value Sale

 

You may receive a greater cash net return than the Appraised Value Offer.

 

 

You will be relieved of the responsibilities of property ownership upon vacate or contract date with GMS, whichever is later.

 

 

You will be relieved of the necessity of closing with the buyer.

 

 

After contracting with GMS, you will be assured of receiving the net proceeds based upon the Amended Value Sale even if the original sale falls through and does not close.

 

 

 

 

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Analyzing the Offer

Your dedicated Relocation Coach will review the terms of the offer in an effort to determine whether the offer is bona fide (made in good faith), and to confirm that it is not subject to the sale of the buyer’s property, does not contain any unusual or unreasonable terms, and is not subject to interim financing.

 

Amending the Offer Letter

Once the final offer has been approved, your dedicated Relocation Coach will ask you to “amend” the amount in your GMS Offer Letter to reflect the buyer’s offer and to sign and return the Offer Letter.

 

Buyer’s Offer Less Than Appraised Value Offer

At its discretion, the Company may also accept offers which are lower than your Appraised Value Offer.  You will remain eligible to receive your equity calculation based on the Appraised Value Offer.

 

Closing an Amended Value Sale

GMS will acquire your home, according to the terms of the amended GMS Offer Letter with you.  GMS will also fully honor the terms of the Purchase Agreement with the buyers.

 

GMS will make every effort to close the transaction with the buyer.  However, since GMS has already purchased your home, you will not be impacted if the sale to the buyer is not eventually consummated.  Your equity payment will be based upon the Amended Value Sale Price.

 

Responsibility for your property remains with you until you contract with GMS or vacate, whichever is later.  This includes maintenance of your home, payments for utilities, mortgage, taxes, and premiums for insurance.

 

Equity

Your equity is calculated as of the GMS contract date or your scheduled vacate date, whichever is later, and is based upon the Amended Value sale price or guaranteed offer price, whichever is greater.  You will need to coordinate the timing of your equity check with your dedicated Relocation Coach. You may be eligible to receive an equity advance once you have signed the GMS Offer Letter and when there is a specific need for funds to close on a new home in the destination area.

 

 

It is important to note that certain items are not covered under the policy and will be deducted from your final equity, if you have agreed to any of these additional seller’s expenses:

 

repairs and improvements requested by the buyer;

 

 

buyer’s closing costs;

 

 

homeowner warranties;

 

 

buyer’s incentives;

 

 

 

 

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real estate commission above the standard rate for your area;

 

 

closing dates beyond 60 days of vacating or contracting with GMS.

 

 

INDEPENDENT SALE

If your home is considered ineligible for the Company’s Home Sale Assistance Program (Buyer Value Option or Amended Value Offer) or you elect to sell your home independently prior to initiation into GMS’ Home Sale Assistance Program, you may be eligible to receive direct reimbursement of normal and customary home sale closing costs and commission when you sell your home on your own. Contact your dedicated Relocation Coach to determine if your home qualifies for this home sale option.

 

 

If your home is eligible for GMS’ home sale assistance (Buyer Value Option or Amended Value Offer) and you sell your home on your own, the Company will not provide tax assistance for your home sale commission and closing cost expenses.

 

 

Reimbursement of Expenses

Normal and customary home sale closing costs and real estate commission at the prevailing rate in your current location (maximum of 6%) will be reimbursed if you sell your home independently within twelve (12) months of your effective date of transfer.

 

Discount points incurred through negotiation with FHA, VA and conventional financing are not reimbursable.

 

Tax Assistance

 

You will receive tax assistance for normal and customary home sale closing costs and eligible commission expenses only if your home is ineligible for the Home Sale Assistance Program (Buyer Value Option or Amended Value Offer).  If you choose to sell your home on your own, no tax assistance will be provided to you.

 

RENTERS’ ASSISTANCE

Lease Cancellation

If you are presently renting your home or apartment at the origination location, you should immediately notify your landlord or lease holder of your move to avoid or minimize penalty charges.  You should attempt to obtain a written waiver of any provisions of the lease requiring fees or penalties due to your transfer.  The Company asks that you make every effort to minimize the penalties by making the best possible arrangements with your landlord.

 

Should you be required to pay a penalty, the Company reimburses up to a maximum of two (2) months’ rent for any combination of lease termination penalty charges, forfeiture of lease deposit, and/or duplicate rent on your former home or apartment.  If necessary, your dedicated Relocation Coach can assist you with lease cancellation arrangements.

 

 

 

 

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New Lease Agreement

 

 

Should you decided to rent a home or apartment in the destination location your new lease should be examined carefully before it is signed.  You should negotiate a cancellation clause that would give you the right to cancel the lease without penalty after giving 30 days’ notice, in the event of a company-initiated transfer.

 

Sample Clause:

 

If tenant’s employer relocates tenant to a location more than fifty (50) miles from the premises that are the subject of this lease, this lease will be automatically terminated without further liability at any time.  Tenant agrees to give landlord at least 30 days’ notice of his/her intention to terminate this lease along with proof of such transfer of employment.

 

Tax Assistance

Gross-up will be provided for renters’ assistance reimbursements.

 

DESTINATION LOCATION

Planning Your House Hunting Trip

Whether you are a homeowner or a renter, selecting a new community and home is one of the most important decisions you will make as a result of your job transfer.  The Company’s relocation program offers you professional home finding counseling through GMS.  The Company encourages you to take advantage of this valuable service.

 

Your dedicated Relocation Coach will discuss your family’s specific needs, preferences, and lifestyle.  After review of your requirements, your dedicated Relocation Coach will select a local real estate professional who is experienced in the areas of interest to you.

 

 

 

 

Remember to contact your dedicated Relocation Coach prior to contacting any real estate agent in the new location.

 

 

Your dedicated Relocation Coach and real estate agent will work together to organize your house hunting trip so it is productive.  By planning in advance, the agent will be prepared to take you on area tours and discuss items of interest to you and your family.  Preparation gives you a better chance of quickly finding a residence to fit your needs at a price you can afford.

 

Once your real estate agent is contacted, he or she will provide the following information:

 

schools, churches, etc.,

 

 

commuting times,

 

 

child and elder care services, and

 

 

pre-selected homes for viewing

 

 

 

 

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If you are a current homeowner, you should delay house hunting in the new location until you have an estimated value on your present home and you have been pre-qualified by a mortgage lender.  Home purchase decisions made with unrealistic expectations of current equity may result in over-commitment at the new location.

 

Internet Home Search

Although the Internet can be a useful tool to gain information on housing in the new area, keep in mind you need to use the approved real estate agent assigned to you to obtain information or to view any home you find on the Internet.  This will avoid confusion as to which agent you are working with and any possible real estate commission disputes.

 

HOME PURCHASE CLOSING COST ASSISTANCE

If you are purchasing a residence in the new location, you will be reimbursed for reasonable and actual home purchase closing costs provided you sign a contract to purchase a home in the new area and close within one year of your employment effective date or effective date of transfer.

 

One time closing costs for permanent financing will be reimbursed including:

 

normal attorney’s fees,

appraisal fees,

tax service fees,

title insurance (lender’s coverage, only),

recording fees (including tax stamps),

credit reports,

survey fees,

flood certification, and

inspections required by the lender

 

The Company does not cover one-time closing adjustments such as property taxes, home hazard insurance, fuel adjustments, or private mortgage insurance (PMI).  The Company does not cover the costs associated with establishing second mortgages, home equity lines of credit or construction loans.

 

Tax Assistance

Gross-up will be provided for non-deductible home purchase closing costs.

 

National Mortgage Lender Program

The Company has selected national mortgage lenders to provide you with a wide variety of mortgage services.  Your dedicated Relocation Coach will provide you with information on participating mortgage companies.

 

Using the services of these preferred lenders offers many advantages:

 

familiarity with the Company’s program,

mortgage loan pre-approval process,

direct billing of closing costs to the Company, and

 

 

 

 

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consideration of current spousal income

 

 

 

 

New Construction

If you elect to build a home in the new location, you may incur additional expenses as opposed to purchasing an existing home. Be aware in making your decision that policy benefits will not be extended if you decide to build.

 

MOVING TO THE NEW LOCATION

To enable you and your family to make an effective transition to the new area, the Company’s relocation program provides for a range of move-related assistance:

 

pre-move survey of your household goods by the moving company;

 

 

complete packing of all items;

 

 

transportation of your household goods to your new residence;

 

 

up to $125,000 in full replacement valuation coverage for your household goods;

 

 

unloading, unpacking, and placement of all furniture in your new residence; and

 

 

storage of your household goods for up to 90 days, if required.

 

Shipment of Household Goods

You, or a representative appointed by you, will need to plan to be present during all phases of your move—pack, load, delivery, and unpacking.  Your own planning, preparation, and involvement during the process will contribute to a successful move.

 

Items Excluded From Shipment

 

 

 

The items listed below are not ordinarily considered household goods and are your responsibility.  The Company, GMS Relocation, and the moving company will not be able to take responsibility for these items.

 

The Miscellaneous Expense Allowance is intended to assist you with expenses unique to your personal move and for items not covered by this policy.  Please note the Company will not pay for the shipping of the following items.  If you have any questions, contact your dedicated Relocation Coach.

 

boats

 

airplanes

 

 

 

 

 

 

 

campers, trailers, motor homes

 

plants, animals

 

 

 

 

 

 

 

farm machinery