10-Q 1 a11-29897_110q.htm 10-Q

 

 

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 28, 2011

 

Commission File Number: 001-11421

 

DOLLAR GENERAL CORPORATION

(Exact name of Registrant as specified in its charter)

 

TENNESSEE

 

61-0502302

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

100 MISSION RIDGE
GOODLETTSVILLE, TN  37072

(Address of principal executive offices, zip code)

 

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

 

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

 

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

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

 

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

 

The registrant had 342,263,844 shares of common stock outstanding on November 30, 2011.

 

 

 



 

PART I—FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS.

 

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

October 28,
2011

 

January 28,
2011

 

 

 

(Unaudited)

 

(see Note 1)

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

118,580

 

$

497,446

 

Merchandise inventories

 

2,089,722

 

1,765,433

 

Income taxes receivable

 

48,807

 

 

Prepaid expenses and other current assets

 

135,746

 

104,946

 

Total current assets

 

2,392,855

 

2,367,825

 

Net property and equipment

 

1,716,797

 

1,524,575

 

Goodwill

 

4,338,589

 

4,338,589

 

Intangible assets, net

 

1,240,733

 

1,256,922

 

Other assets, net

 

46,908

 

58,311

 

Total assets

 

$

9,735,882

 

$

9,546,222

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term obligations

 

$

763

 

$

1,157

 

Accounts payable

 

1,132,544

 

953,641

 

Accrued expenses and other

 

414,977

 

347,741

 

Income taxes payable

 

1,111

 

25,980

 

Deferred income taxes

 

22,826

 

36,854

 

Total current liabilities

 

1,572,221

 

1,365,373

 

Long-term obligations

 

2,721,061

 

3,287,070

 

Deferred income taxes

 

647,329

 

598,565

 

Other liabilities

 

233,950

 

231,582

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Redeemable common stock

 

7,309

 

9,153

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred stock

 

 

 

Common stock

 

299,514

 

298,819

 

Additional paid-in capital

 

2,957,267

 

2,945,024

 

Retained earnings

 

1,305,107

 

830,932

 

Accumulated other comprehensive loss

 

(7,876

)

(20,296

)

Total shareholders’ equity

 

4,554,012

 

4,054,479

 

Total liabilities and shareholders’ equity

 

$

9,735,882

 

$

9,546,222

 

 

See notes to condensed consolidated financial statements.

 

1



 

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

 

 

 

For the 13 weeks ended

 

For the 39 weeks ended

 

 

 

October 28,
2011

 

October 29,
2010

 

October 28,
2011

 

October 29,
2010

 

Net sales

 

$

3,595,224

 

$

3,223,427

 

$

10,622,115

 

$

9,548,896

 

Cost of goods sold

 

2,479,422

 

2,212,759

 

7,270,574

 

6,502,493

 

Gross profit

 

1,115,802

 

1,010,668

 

3,351,541

 

3,046,403

 

Selling, general and administrative expenses

 

804,885

 

736,334

 

2,368,977

 

2,180,589

 

Operating profit

 

310,917

 

274,334

 

982,564

 

865,814

 

Interest income

 

(10

)

(90

)

(55

)

(128

)

Interest expense

 

38,642

 

67,235

 

164,886

 

208,583

 

Other (income) expense

 

53

 

8,312

 

60,564

 

14,983

 

Income before income taxes

 

272,232

 

198,877

 

757,169

 

642,376

 

Income tax expense

 

101,068

 

70,757

 

282,994

 

237,065

 

Net income

 

$

171,164

 

$

128,120

 

$

474,175

 

$

405,311

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.50

 

$

0.38

 

$

1.39

 

$

1.19

 

Diluted

 

$

0.50

 

$

0.37

 

$

1.37

 

$

1.18

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

341,955

 

341,062

 

341,670

 

340,961

 

Diluted

 

345,777

 

344,739

 

345,598

 

344,628

 

 

See notes to condensed consolidated financial statements.

 

2



 

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

For the 39 weeks ended

 

 

 

October 28,
2011

 

October 29,
2010

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

474,175

 

$

405,311

 

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

 

 

 

 

 

Depreciation and amortization

 

204,771

 

189,739

 

Deferred income taxes

 

23,977

 

31,620

 

Tax benefit of stock options

 

(16,101

)

(6,413

)

Loss on debt retirement, net

 

60,303

 

14,576

 

Non-cash share-based compensation

 

10,969

 

11,620

 

Other non-cash gains and losses

 

31,656

 

7,920

 

Change in operating assets and liabilities:

 

 

 

 

 

Merchandise inventories

 

(350,932

)

(366,903

)

Prepaid expenses and other current assets

 

(30,899

)

(26,412

)

Accounts payable

 

164,336

 

146,933

 

Accrued expenses and other

 

89,993

 

1,091

 

Income taxes

 

(57,575

)

(4,178

)

Other

 

(174

)

(1,108

)

Net cash provided by operating activities

 

604,499

 

403,796

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(363,099

)

(259,243

)

Proceeds from sale of property and equipment

 

729

 

868

 

Net cash used in investing activities

 

(362,370

)

(258,375

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Issuance of common stock

 

177

 

599

 

Repayments of long-term obligations

 

(911,708

)

(130,654

)

Borrowings under revolving credit agreement

 

1,485,000

 

 

Repayments of borrowings under revolving credit agreement

 

(1,197,200

)

 

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

 

(13,365

)

(5,949

)

Tax benefit of stock options

 

16,101

 

6,413

 

Net cash used in financing activities

 

(620,995

)

(129,591

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(378,866

)

15,830

 

Cash and cash equivalents, beginning of period

 

497,446

 

222,076

 

Cash and cash equivalents, end of period

 

$

118,580

 

$

237,906

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

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

 

$

44,225

 

$

24,046

 

 

See notes to condensed consolidated financial statements.

 

3



 

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.             Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements of Dollar General Corporation and its subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Such financial statements consequently do not include all of the disclosures normally required by U.S. GAAP or those normally made in the Company’s Annual Report on Form 10-K, including the condensed consolidated balance sheet as of January 28, 2011, which has been derived from the audited consolidated financial statements at that date. Accordingly, the reader of this Quarterly Report on Form 10-Q should refer to the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2011 for additional information.

 

The Company’s fiscal year ends on the Friday closest to January 31. Unless the context requires otherwise, references to years contained herein pertain to the Company’s fiscal year. The Company’s 2011 fiscal year will be a 53-week accounting period that will end on February 3, 2012 and the 2010 fiscal year was a 52-week accounting period that ended on January 28, 2011.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the Company’s customary accounting practices. In management’s opinion, all adjustments (which are of a normal recurring nature) necessary for a fair presentation of the consolidated financial position as of October 28, 2011 and results of operations for the 13-week and 39-week accounting periods ended October 28, 2011 and October 29, 2010 have been made.

 

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

 

The Company uses the last-in, first-out (LIFO) method of valuing inventory. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels, sales for the year and the expected rate of inflation/deflation for the year. The interim LIFO calculations are subject to adjustment in the final year-end LIFO inventory valuation. The Company recorded a LIFO provision of $11.1 million and zero in the respective 13-week periods, and $25.4 million and $0.7 million in the respective 39-week periods, ended October 28, 2011 and October 29, 2010. In addition, ongoing estimates of inventory shrinkage and initial markups and markdowns are

 

4



 

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.

 

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

 

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

 

2.             Comprehensive income

 

Comprehensive income consists of the following:

 

 

 

13 Weeks Ended

 

39 Weeks Ended

 

(in thousands)

 

October 28,
2011

 

October 29,
2010

 

October 28,
2011

 

October 29,
2010

 

Net income

 

$

171,164

 

$

128,120

 

$

474,175

 

$

405,311

 

Unrealized net gain on hedged transactions, net of income tax expense of $1,983, $1,774, $7,972, and $5,240, respectively (see Note 7)

 

3,105

 

2,912

 

12,419

 

7,412

 

Comprehensive income

 

$

174,269

 

$

131,032

 

$

486,594

 

$

412,723

 

 

3.             Earnings per share

 

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

 

 

 

13 Weeks Ended October 28, 2011

 

13 Weeks Ended October 29, 2010

 

 

 

Net
Income

 

Shares

 

Per Share
Amount

 

Net
Income

 

Shares

 

Per Share
Amount

 

Basic earnings per share

 

$

171,164

 

341,955

 

$

0.50

 

$

128,120

 

341,062

 

$

0.38

 

Effect of dilutive share-based awards

 

 

 

3,822

 

 

 

 

 

3,677

 

 

 

Diluted earnings per share

 

$

171,164

 

345,777

 

$

0.50

 

$

128,120

 

344,739

 

$

0.37

 

 

5



 

 

 

39 Weeks Ended October 28, 2011

 

39 Weeks Ended October 29, 2010

 

 

 

Net
Income

 

Shares

 

Per Share
Amount

 

Net
Income

 

Shares

 

Per Share
Amount

 

Basic earnings per share

 

$

474,175

 

341,670

 

$

1.39

 

$

405,311

 

340,961

 

$

1.19

 

Effect of dilutive share-based awards

 

 

 

3,928

 

 

 

 

 

3,667

 

 

 

Diluted earnings per share

 

$

474,175

 

345,598

 

$

1.37

 

$

405,311

 

344,628

 

$

1.18

 

 

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

 

Options to purchase shares of common stock that were outstanding at the end of the respective periods, but were not included in the computation of diluted earnings per share because the effect of exercising such options would be antidilutive, were 0.3 million in each of the periods ended October 28, 2011 and October 29, 2010, respectively.

 

4.             Income taxes

 

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

 

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

 

The Internal Revenue Service (“IRS”) is examining the Company’s federal income tax returns for fiscal years 2006, 2007, and 2008. The 2005 and earlier years are not open for examination. The 2009 and 2010 fiscal years, while not currently under examination, are subject to examination at the discretion of the IRS. The Company has various state income tax examinations that are currently in progress. Generally, the Company’s tax years ended in 2007 and later remain open for examination by the various state taxing authorities.

 

As of October 28, 2011, the total reserves for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $42.4 million, $1.0 million and $0.6 million, respectively, for a total of $44.0 million. Of this amount, $0.2 million and $41.4 million are reflected in current liabilities as Accrued expenses and other and in noncurrent Other liabilities, respectively, in the condensed consolidated balance sheet with the remaining $2.4 million reducing deferred tax assets related to net operating loss carry forwards.

 

The Company believes it is reasonably possible that the reserve for uncertain tax positions may be reduced by approximately $30.4 million in the coming twelve months

 

6



 

principally as a result of the settlement of currently ongoing income tax examinations. The reasonably possible change of $30.4 million is included in current liabilities in Accrued expenses and other in the amount of $0.2 million and in noncurrent Other liabilities in the amount of $30.2 million in the condensed consolidated balance sheet as of October 28, 2011. Also, as of October 28, 2011, approximately $42.4 million of the reserve for uncertain tax positions would impact the Company’s effective income tax rate if the Company were to recognize the tax benefit for these positions.

 

The effective income tax rates for the respective 13-week and 39-week periods ended October 28, 2011 were 37.1% and 37.4%, compared to rates of 35.6% and 36.9% for the respective 13-week and 39-week periods ended October 29, 2010, a net increase of 1.5% for the 13-week period and 0.5% for the 39-week period. The increase in the income tax expense rates was due principally to a reduction in income tax reserves in the 2010 periods that did not reoccur in the 2011 periods.

 

5.             Current and long-term obligations

 

On July 15, 2011, the Company redeemed all $839.3 million outstanding aggregate principal amount of its 10.625% Senior Notes due 2015 (the “Senior Notes”) at a redemption price of 105.313% of the principal amount, plus accrued and unpaid interest. The redemption was effected in accordance with the indenture governing the Senior Notes pursuant to a notice dated May 31, 2011.  The pretax loss on this transaction of $58.1 million is reflected in Other (income) expense in the Company’s condensed consolidated statement of income for the 39-week period ended October 28, 2011. The Company funded the redemption price for the Senior Notes with cash on hand and borrowings under its senior secured asset-based revolving credit facility (the “ABL Facility”), which had a balance of $287.8 million at October 28, 2011.

 

On April 29, 2011, the Company repurchased in the open market $25.0 million aggregate principal amount of Senior Notes at a price of 107.0% plus accrued and unpaid interest, funded with cash on hand. The pretax loss on this transaction of $2.2 million is reflected in Other (income) expense in the Company’s condensed consolidated statement of income for the 39-week period ended October 28, 2011.

 

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

 

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

 

7



 

6.                                      Assets and liabilities measured at fair value

 

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

 

The Company has determined that the majority of the inputs used to value its derivative financial instruments using the income approach fall within Level 2 of the fair value hierarchy. However, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. As of October 28, 2011, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has classified its derivative valuations, as discussed in detail in Note 7, in Level 2 of the fair value hierarchy. The Company’s long-term obligations classified in Level 2 of the fair value hierarchy are valued at cost. The Company does not have any fair value measurements using significant unobservable inputs (Level 3) as of October 28, 2011.

 

(In thousands)

 

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

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Balance at
October 28,
2011

 

Assets:

 

 

 

 

 

 

 

 

 

Trading securities (a)

 

$

6,741

 

$

 

$

 

$

6,741

 

Liabilities:

 

 

 

 

 

 

 

 

 

Long-term obligations (b)

 

2,760,831

 

19,827

 

 

2,780,658

 

Derivative financial instruments (c)

 

 

15,115

 

 

15,115

 

Deferred compensation (d)

 

18,141

 

 

 

18,141

 

 


(a)        Reflected at fair value in the condensed consolidated balance sheet as Prepaid expenses and other current assets of $1,756 and Other assets, net of $4,985.

(b)       Reflected at book value in the condensed consolidated balance sheet as Current portion of long-term obligations of $763 and Long-term obligations of $2,721,061.

(c)        Reflected in the condensed consolidated balance sheet as Accrued expenses and other current liabilities of $7,842 and non-current Other liabilities of $7,273.

(d)       Reflected at fair value in the condensed consolidated balance sheet as Accrued expenses and other current liabilities of $1,761 and non-current Other liabilities of $16,380.

 

8



 

7.                                      Derivatives and hedging activities

 

The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge a certain portion of its risk, even though hedge accounting does not apply or the Company elects not to apply the hedge accounting standards.

 

Risk management objective of using derivatives

 

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

 

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

 

Cash flow hedges of interest rate risk

 

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

 

9



 

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive income (loss) (also referred to as “OCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the 13-week and 39-week periods ended October 28, 2011 and October 29, 2010, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.

 

As of October 28, 2011, the Company had three interest rate swaps with a combined notional value of $686.7 million that were designated as cash flow hedges of interest rate risk. Amounts reported in Accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The Company terminated an interest rate swap in October 2008 due to the bankruptcy declaration of the counterparty bank.

 

The Company continues to report the net gain or loss related to the discontinued cash flow hedge in OCI, and such net gain or loss is expected to be reclassified into earnings during the original contractual terms of the swap agreement as the hedged interest payments are expected to occur as forecasted. During the next 52-week period, the Company estimates that an additional $11.5 million will be reclassified as an increase to interest expense for all of its interest rate swaps.

 

Non-designated hedges of commodity risk

 

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to commodity price risk but do not meet strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As of October 28, 2011, and October 29, 2010, the Company had no such non-designated hedges.

 

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

 

(in thousands)

 

October 28,
2011

 

January 28,
2011

 

Derivatives Designated as Hedging Instruments

 

 

 

 

 

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

 

$

7,842

 

$

 

Interest rate swaps classified in noncurrent liabilities as Other liabilities

 

$

7,273

 

$

34,923

 

 

The tables below present the pre-tax effect of the Company’s derivative financial instruments on the condensed consolidated statement of income (including OCI, see Note 2) for the 13-week and 39-week periods ended October 28, 2011 and October 29, 2010 (in thousands):

 

10



 

 

 

13 Weeks Ended

 

39 Weeks Ended

 

(in thousands)

 

Oct. 28,
2011

 

Oct. 29,
2010

 

Oct. 28,
2011

 

Oct. 29,
2010

 

Derivatives in Cash Flow Hedging Relationships

 

 

 

 

 

 

 

 

 

Loss related to effective portion of derivative recognized in OCI

 

$

482

 

$

5,104

 

$

3,319

 

$

20,540

 

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

 

$

5,570

 

$

9,790

 

$

23,710

 

$

33,192

 

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

 

$

52

 

$

123

 

$

261

 

$

408

 

 

Credit-risk-related contingent features

 

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

 

As of October 28, 2011, the fair value of interest rate swaps in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, was $19.4 million. If the Company had breached any of these provisions at October 28, 2011, it could have been required to post full collateral or settle its obligations under the agreements at an estimated termination value of $19.4 million. As of October 28, 2011, the Company had not breached any of these provisions or posted any collateral related to these agreements.

 

8.                                      Commitments and contingencies

 

Legal proceedings

 

On August 7, 2006, a lawsuit entitled Cynthia Richter, et al. v. Dolgencorp, Inc., et al. was filed in the United States District Court for the Northern District of Alabama (Case No. 7:06-cv-01537-LSC) (“Richter”) in which the plaintiff alleges that she and other current and former Dollar General store managers were improperly classified as exempt executive employees under the Fair Labor Standards Act (“FLSA”) and seeks to recover overtime pay, liquidated damages, and attorneys’ fees and costs. On August 15, 2006, the Richter plaintiff filed a motion in which she asked the court to certify a nationwide class of current and former store managers. The Company opposed the plaintiff’s motion. On March 23, 2007, the court conditionally certified a nationwide class. On December 2, 2009, notice was mailed to over 28,000 current or former Dollar General store managers, and approximately 3,860 individuals opted into the lawsuit. On September 16, 2011, the court entered an amended scheduling order that governs, among other things, deadlines for fact discovery (December 30, 2011) and any potentially dispositive motions (January 16, 2012) and trial (June 18, 2012). Currently, no filing deadline exists for the Company’s anticipated decertification motion.

 

The Company believes that its store managers are and have been properly classified as exempt employees under the FLSA and that the Richter action is not appropriate for collective action treatment. The Company has obtained summary judgment in some, although not all, of its

 

11



 

pending individual or single-plaintiff store manager exemption cases in which it has filed such a motion.

 

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

 

On May 18, 2006, the Company was served with a lawsuit entitled Tammy Brickey, Becky Norman, Rose Rochow, Sandra Cogswell and Melinda Sappington v. Dolgencorp, Inc. and Dollar General Corporation (Western District of New York, Case No. 6:06-cv-06084-DGL, originally filed on February 9, 2006 and amended on May 12, 2006 (“Brickey”)). The Brickey plaintiffs sought to proceed collectively under the FLSA and as a class under New York, Ohio, Maryland and North Carolina wage and hour statutes on behalf of, among others, assistant store managers who claim to be owed wages (including overtime wages) under those statutes. On February 22, 2011, the court denied the plaintiffs’ class certification motion in its entirety and ordered that the matter proceed only as to the named plaintiffs.  On March 22, 2011, the plaintiffs moved the court for reconsideration of its Order denying their class certification motion.  On March 30, 2011, the plaintiffs’ reconsideration motion was denied, and the plaintiffs did not appeal that ruling. The case will proceed now only as to the named plaintiffs, and the Company does not expect the outcome to be material to its financial statements as a whole.

 

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

 

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

 

12



 

On April 19, 2010, the plaintiffs moved for class certification relating to their Title VII claims. The Company filed its response to the certification motion in June 2010. Briefing has closed, and the motion remains pending. The Company’s motion to decertify the Equal Pay Act class was denied as premature. If the case proceeds, the Company expects to file a similar motion in due course.

 

The parties agreed to mediate this action, and the court stayed the action pending the results of the mediation.  The mediation occurred in March and April, 2011, and the Company has reached an agreement in principle to settle the matter on behalf of the entire putative class. The proposed settlement, which still must be approved by the court, provides for both monetary and equitable relief. Under the proposed terms, the Company will pay $15.5 million into a fund for the class members that will be apportioned and paid out to individual members (less any additional attorneys’ fees or litigation costs approved by the court), upon submission of a valid claim. It will pay an additional $3.25 million for plaintiffs’ legal fees and costs.  Of the total $18.75 million anticipated payment, the Company expects to receive reimbursement from its Employment Practices Liability Insurance (“EPLI”) carrier of approximately $15.9 million, which represents the balance remaining of the $20 million EPLI policy covering the claims.  In addition, the Company has agreed to make certain adjustments to its pay setting policies and procedures for new store managers.  If the settlement is approved, the Company expects to implement the new pay policies and practices no later than April 2012.  Documents related to the parties’ request for preliminary approval of the proposed settlement were filed on October 28, 2011. A hearing on the proposed settlement was conducted on November 29, 2011 and will be continued on a date to be determined by the court. Because it deemed settlement probable and estimable, the Company accrued for the net settlement as well as for certain additional anticipated fees related thereto during the 13-week period ended April 29, 2011, and concurrently recorded a receivable of approximately $15.9 million from its EPLI carrier.

 

At this time, although probable it is not certain that the court will approve the settlement. If it does not, and the case proceeds, it is not possible at this time to predict whether the court ultimately will permit the action to proceed collectively under the Equal Pay Act or as a class under Title VII. Although the Company intends to vigorously defend the action, no assurances can be given that it would be successful in the defense on the merits or otherwise. At this stage in the proceedings, the Company cannot estimate either the size of any potential class or the value of the claims raised in this action if it proceeds. For these reasons, the Company is unable to estimate any potential loss or range of loss in such a scenario; however, if the Company is not successful in defending this action, its resolution could have a material adverse effect on the Company’s financial statements as a whole.

 

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

 

13



 

Before the Company was served with the Gross complaint, the plaintiffs dismissed the action and re-filed it in the United States District Court for the Northern District of Mississippi, now captioned as Cynthia Walker, et al. v. Dollar General Corporation, et al. (Civil Action No. 4:10-CV119-P-S) (“Walker”). The Walker complaint was filed on September 16, 2010, and although it added approximately eight additional plaintiffs, it added no substantive allegations beyond those alleged in the Gross complaint. The Company filed a motion to transfer the case back to the Southern District of Mississippi along with a motion to dismiss for lack of personal jurisdiction over two corporate defendants and for failure to state a claim as to Dollar General Corporation. The motion to transfer remains pending, but the plaintiffs agreed to dismiss their claims against Dollar General Corporation and Dolgencorp of Texas, Inc., another corporate defendant, and to dismiss two of the eight named plaintiffs.  To date, no other individuals have opted into the Walker matter, and the plaintiffs have not asked the court to certify any class.

 

On August 2, 2011, the court entered a scheduling order that governs, among other things, the deadlines for certification-related discovery (January 31, 2012) and the filing of any motion for conditional certification by the plaintiffs (March 2, 2012).  The Company’s response to any conditional certification motion must be filed within 30 days of such motion, or by March 2, 2012, whichever is later.

 

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

 

On May 20, 2011, a lawsuit entitled Winn-Dixie Stores, Inc., et al. v. Dolgencorp, LLC was filed in the United States District Court for the Southern District of Florida (Case No. 9:11-cv-80601-DMM) (“Winn-Dixie”) in which the plaintiffs allege that the sale of food and other items in approximately 70 of the Company’s stores, each of which allegedly is or was at some time co-located in a shopping center with one of plaintiffs’ stores, violates restrictive covenants that plaintiffs contend are binding on the occupants of the shopping centers.  Plaintiffs seek damages and an injunction limiting the sale of food and other items in those stores.  Although plaintiffs have not made a demand for any specific amount of damages at this point in the proceeding, documents prepared and produced by plaintiffs during discovery suggest that plaintiffs may seek as much as $55 million. The Company intends to vigorously defend the Winn-Dixie matter and views that sum as wholly without basis and unsupported by the law and the facts currently available.  The various leases involved in the matter are unique in their terms and/or the factual circumstances surrounding them, and, in some cases, the stores named by plaintiffs are not now and have never been co-located with plaintiffs’ stores. However, at this time, no assurances can be given that the Company will be successful in its defense of the action on the merits or otherwise.  Similarly, at this time, because of certain outstanding threshold issues that have yet to be addressed by the court, the Company is unable to estimate potential

 

14



 

losses; however, if the Company is not successful in defending the Winn-Dixie matter, the outcome could have a material adverse effect on the Company’s financial statements as a whole.

 

In October 2008, the Company terminated an interest rate swap as a result of the counterparty’s declaration of bankruptcy. This declaration of bankruptcy constituted a default under the contract governing the swap, giving the Company the right to terminate. The Company subsequently settled the swap in November 2008 for approximately $7.6 million, including interest accrued to the date of termination. On May 14, 2010, the Company received a demand from the counterparty for an additional payment of approximately $19 million plus interest, claiming that the valuation used to calculate the $7.6 million was commercially unreasonable, and seeking to invoke the alternative dispute resolution procedures established by the bankruptcy court. The Company participated in the alternative dispute resolution procedures as it believed a reasonable settlement would be in the best interest of the Company to avoid the substantial risk and costs of litigation. In April of 2011, the Company reached a settlement with the counterparty under which the Company paid an additional $9.85 million in exchange for a full release. The Company accrued the settlement amount along with additional expected fees and costs related thereto in the 13-week period ended April 29, 2011. The settlement was finalized and the payment was made in May 2011.

 

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

 

15



 

9.                                      Segment reporting

 

The Company manages its business on the basis of one reportable segment. As of October 28, 2011, all of the Company’s operations were located within the United States, with the exception of a Hong Kong subsidiary and a liaison office in India, the collective assets and revenues of which are not material. Net sales grouped by classes of similar products are presented below.

 

 

 

13 Weeks Ended

 

39 Weeks Ended

 

(In thousands)

 

October 28,
2011

 

October 29,
2010

 

October 28,
2011

 

October 29,
2010

 

Classes of similar products:

 

 

 

 

 

 

 

 

 

Consumables

 

$

2,705,765

 

$

2,378,667

 

$

7,845,905

 

$

6,907,541

 

Seasonal

 

433,931

 

401,544

 

1,393,557

 

1,302,780

 

Home products

 

236,951

 

223,026

 

706,962

 

670,352

 

Apparel

 

218,577

 

220,190

 

675,691

 

668,223

 

Net sales

 

$

3,595,224

 

$

3,223,427

 

$

10,622,115

 

$

9,548,896

 

 

10.                               Related party transactions

 

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

 

Affiliates of KKR and Goldman, Sachs & Co. (among other entities) may be lenders under the Company’s senior secured term loan facility (“Term Loan Facility”) with a principal balance as of October 28, 2011 of approximately $1.96 billion. The Company paid approximately $46.4 million and $45.5 million of interest on the Term Loan Facility during the 39-week periods ended October 28, 2011 and October 29, 2010, respectively.

 

Goldman, Sachs & Co. is a counterparty to an amortizing interest rate swap with a $143.3 million notional amount as of October 28, 2011, entered into in connection with the Term Loan Facility. The Company paid Goldman, Sachs & Co. approximately $10.6 million and $12.9 million in the 39-week periods ended October 28, 2011 and October 29, 2010, respectively, pursuant to this swap.

 

Affiliates of KKR and Goldman, Sachs & Co. served as underwriters in connection with the secondary offerings of the Company’s common stock held by certain existing shareholders that were completed in September 2011 and April 2010. The Company did not sell shares of common stock, receive proceeds from such shareholders’ sales of shares of common stock or pay any underwriting fees in connection with these secondary offerings. Certain members of the Company’s management exercised registration rights in connection with such offerings.

 

11.                               Subsequent events

 

On November 30, 2011, the Company’s Board of Directors authorized a $500 million common stock repurchase program. Under the program, shares of the Company’s common stock

 

16



 

may be repurchased from time to time in open market transactions or in privately negotiated purchases, which could include repurchases from the Company’s controlling shareholder, Buck Holdings, L.P. (which is controlled by affiliates of KKR and Goldman Sachs & Co), or other related parties if appropriate. The timing and actual number of shares purchased will depend on a variety of factors, such as price, market conditions and other factors. Repurchases under the program may be funded from available cash or borrowings under the ABL Facility. The repurchase authorization has no expiration date. No shares have been repurchased as of the date of this report.

 

In connection with the repurchase program, on December 4, 2011, the Company entered into an agreement with Buck Holdings, L.P. to repurchase from it approximately $185 million in common stock concurrent with, and conditional upon, the completion of a contemplated December 2011 underwritten secondary offering of shares by certain selling shareholders at a price per share equal to the price to the public in the secondary offering less underwriting discounts and commissions.  The Company expects to fund the purchase price for the share repurchase with borrowings under the ABL Facility.

 

12.                               Guarantor subsidiaries

 

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

 

17



 

 

 

October 28, 2011

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

BALANCE SHEET:

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

767

 

$

94,025

 

$

23,788

 

$

 

$

118,580

 

Merchandise inventories

 

 

2,089,722

 

 

 

2,089,722

 

Income taxes receivable

 

65,785

 

3,398

 

 

(20,376

)

48,807

 

Deferred income taxes

 

8,828

 

 

6,900

 

(15,728

)

 

Prepaid expenses and other current assets

 

758,754

 

4,520,553

 

9,111

 

(5,152,672

)

135,746

 

Total current assets

 

834,134

 

6,707,698

 

39,799

 

(5,188,776

)

2,392,855

 

Net property and equipment

 

110,458

 

1,606,084

 

255

 

 

1,716,797

 

Goodwill

 

4,338,589

 

 

 

 

4,338,589

 

Intangible assets, net

 

1,199,200

 

41,533

 

 

 

1,240,733

 

Deferred income taxes

 

 

 

49,738

 

(49,738

)

 

Other assets, net

 

6,173,056

 

13,998

 

322,233

 

(6,462,379

)

46,908

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

12,655,437

 

$

8,369,313

 

$

412,025

 

$

(11,700,893

)

$

9,735,882

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term obligations

 

$

 

$

763

 

$

 

$

 

$

763

 

Accounts payable

 

4,528,433

 

1,693,176

 

50,944

 

(5,140,009

)

1,132,544

 

Accrued expenses and other

 

92,826

 

272,915

 

61,899

 

(12,663

)

414,977

 

Income taxes payable

 

 

 

21,487

 

(20,376

)

1,111

 

Deferred income taxes

 

 

38,554

 

 

(15,728

)

22,826

 

Total current liabilities

 

4,621,259

 

2,005,408

 

134,330

 

(5,188,776

)

1,572,221

 

Long-term obligations

 

2,982,075

 

3,251,852

 

 

(3,512,866

)

2,721,061

 

Deferred income taxes

 

430,111

 

266,956

 

 

(49,738

)

647,329

 

Other liabilities

 

60,671

 

30,896

 

142,383

 

 

233,950

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable common stock

 

7,309

 

 

 

 

7,309

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

Common stock

 

299,514

 

23,855

 

100

 

(23,955

)

299,514

 

Additional paid-in capital

 

2,957,267

 

431,253

 

19,900

 

(451,153

)

2,957,267

 

Retained earnings

 

1,305,107

 

2,359,093

 

115,312

 

(2,474,405

)

1,305,107

 

Accumulated other comprehensive loss

 

(7,876

)

 

 

 

(7,876

)

Total shareholders’ equity

 

4,554,012

 

2,814,201

 

135,312

 

(2,949,513

)

4,554,012

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

12,655,437

 

$

8,369,313

 

$

412,025

 

$

(11,700,893

)

$

9,735,882

 

 

18



 

 

 

January 28, 2011

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

BALANCE SHEET:

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

111,545

 

$

364,404

 

$

21,497

 

$

 

$

497,446

 

Merchandise inventories

 

 

1,765,433

 

 

 

1,765,433

 

Income taxes receivable

 

13,529

 

 

 

(13,529

)

 

Deferred income taxes

 

8,877

 

 

6,825

 

(15,702

)

 

Prepaid expenses and other current assets

 

741,352

 

3,698,117

 

4,454

 

(4,338,977

)

104,946

 

Total current assets

 

875,303

 

5,827,954

 

32,776

 

(4,368,208

)

2,367,825

 

Net property and equipment

 

105,155

 

1,419,133

 

287

 

 

1,524,575

 

Goodwill

 

4,338,589

 

 

 

 

4,338,589

 

Intangible assets, net

 

1,199,200

 

57,722

 

 

 

1,256,922

 

Deferred income taxes

 

 

 

47,690

 

(47,690

)

 

Other assets, net

 

5,337,522

 

12,675

 

304,285

 

(5,596,171

)

58,311

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

11,855,769

 

$

7,317,484

 

$

385,038

 

$

(10,012,069

)

$

9,546,222

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term obligations

 

$

 

$

1,157

 

$

 

$

 

$

1,157

 

Accounts payable

 

3,691,564

 

1,541,593

 

50,824

 

(4,330,340

)

953,641

 

Accrued expenses and other

 

68,398

 

226,225

 

61,755

 

(8,637

)

347,741

 

Income taxes payable

 

11,922

 

13,246

 

14,341

 

(13,529

)

25,980

 

Deferred income taxes

 

 

52,556

 

 

(15,702

)

36,854

 

Total current liabilities

 

3,771,884

 

1,834,777

 

126,920

 

(4,368,208

)

1,365,373

 

Long-term obligations

 

3,534,447

 

3,000,877

 

 

(3,248,254

)

3,287,070

 

Deferred income taxes

 

417,874

 

228,381

 

 

(47,690

)

598,565

 

Other liabilities

 

67,932

 

27,250

 

136,400

 

 

231,582

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable common stock

 

9,153

 

 

 

 

9,153

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

Common stock

 

298,819

 

23,855

 

100

 

(23,955

)

298,819

 

Additional paid-in capital

 

2,945,024

 

431,253

 

19,900

 

(451,153

)

2,945,024

 

Retained earnings

 

830,932

 

1,771,091

 

101,718

 

(1,872,809

)

830,932

 

Accumulated other comprehensive loss

 

(20,296

)

 

 

 

(20,296

)

Total shareholders’ equity

 

4,054,479

 

2,226,199

 

121,718

 

(2,347,917

)

4,054,479

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

11,855,769

 

$

7,317,484

 

$

385,038

 

$

(10,012,069

)

$

9,546,222

 

 

19



 

 

 

For the 13-weeks ended October 28, 2011

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF INCOME:

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

80,476

 

$

3,595,224

 

$

21,340

 

$

(101,816

)

$

3,595,224

 

Cost of goods sold

 

 

2,479,422

 

 

 

2,479,422

 

Gross profit

 

80,476

 

1,115,802

 

21,340

 

(101,816

)

1,115,802

 

Selling, general and administrative expenses

 

73,160

 

814,281

 

19,260

 

(101,816

)

804,885

 

Operating profit

 

7,316

 

301,521

 

2,080

 

 

310,917

 

Interest income

 

(11,269

)

(7,491

)

(5,146

)

23,896

 

(10

)

Interest expense

 

54,059

 

8,465

 

14

 

(23,896

)

38,642

 

Other (income) expense

 

53

 

 

 

 

53

 

Income (loss) before income taxes

 

(35,527

)

300,547

 

7,212

 

 

272,232

 

Income tax expense (benefit)

 

(12,715

)

111,788

 

1,995

 

 

101,068

 

Equity in subsidiaries’ earnings, net of taxes

 

193,976

 

 

 

(193,976

)

 

Net income

 

$

171,164

 

$

188,759

 

$

5,217

 

$

(193,976

)

$

171,164

 

 

 

 

For the 13 weeks ended October 29, 2010

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF INCOME:

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

75,020

 

$

3,223,427

 

$

21,888

 

$

(96,908

)

$

3,223,427

 

Cost of goods sold

 

 

2,212,759

 

 

 

2,212,759

 

Gross profit

 

75,020

 

1,010,668

 

21,888

 

(96,908

)

1,010,668

 

Selling, general and administrative expenses

 

68,201

 

748,432

 

16,609

 

(96,908

)

736,334

 

Operating profit

 

6,819

 

262,236

 

5,279

 

 

274,334

 

Interest income

 

(12,244

)

(3,843

)

(4,898

)

20,895

 

(90

)

Interest expense

 

70,103

 

18,021

 

6

 

(20,895

)

67,235

 

Other (income) expense

 

8,312

 

 

 

 

8,312

 

Income (loss) before income taxes

 

(59,352

)

248,058

 

10,171

 

 

198,877

 

Income tax expense (benefit)

 

(26,871

)

94,555

 

3,073

 

 

70,757

 

Equity in subsidiaries’ earnings, net of taxes

 

160,601

 

 

 

(160,601

)

 

Net income

 

$

128,120

 

$

153,503

 

$

7,098

 

$

(160,601

)

$

128,120

 

 

20



 

 

 

For the 39-weeks ended October 28, 2011

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF INCOME:

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

242,397

 

$

10,622,115

 

$

62,735

 

$

(305,132

)

$

10,622,115

 

Cost of goods sold

 

 

7,270,574

 

 

 

7,270,574

 

Gross profit

 

242,397

 

3,351,541

 

62,735

 

(305,132

)

3,351,541

 

Selling, general and administrative expenses

 

220,361

 

2,394,639

 

59,109

 

(305,132

)

2,368,977

 

Operating profit

 

22,036

 

956,902

 

3,626

 

 

982,564

 

Interest income

 

(35,379

)

(17,587

)

(15,640

)

68,551

 

(55

)

Interest expense

 

198,097

 

35,312

 

28

 

(68,551

)

164,886

 

Other (income) expense

 

60,564

 

 

 

 

60,564

 

Income (loss) before income taxes

 

(201,246

)

939,177

 

19,238

 

 

757,169

 

Income tax expense (benefit)

 

(73,825

)

351,175

 

5,644

 

 

282,994

 

Equity in subsidiaries’ earnings, net of taxes

 

601,596

 

 

 

(601,596

)

 

Net income

 

$

474,175

 

$

588,002

 

$

13,594

 

$

(601,596

)

$

474,175

 

 

 

 

For the 39-weeks ended October 29, 2010

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF INCOME:

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

235,606

 

$

9,548,896

 

$

63,479

 

$

(299,085

)

$

9,548,896

 

Cost of goods sold

 

 

6,502,493

 

 

 

6,502,493

 

Gross profit

 

235,606

 

3,046,403

 

63,479

 

(299,085

)

3,046,403

 

Selling, general and administrative expenses

 

214,273

 

2,214,507

 

50,894

 

(299,085

)

2,180,589

 

Operating profit

 

21,333

 

831,896

 

12,585

 

 

865,814

 

Interest income

 

(33,651

)

(4,094

)

(14,805

)

52,422

 

(128

)

Interest expense

 

227,412

 

33,576

 

17

 

(52,422

)

208,583

 

Other (income) expense

 

14,983

 

 

 

 

14,983

 

Income (loss) before income taxes

 

(187,411

)

802,414

 

27,373

 

 

642,376

 

Income tax expense (benefit)

 

(73,780

)

302,237

 

8,608

 

 

237,065

 

Equity in subsidiaries’ earnings, net of taxes

 

518,942

 

 

 

(518,942

)

 

Net income

 

$

405,311

 

$

500,177

 

$

18,765

 

$

(518,942

)

$

405,311

 

 

21



 

 

 

For the 39 weeks ended October 28, 2011

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF CASH FLOWS:

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

474,175

 

$

588,002

 

$

13,594

 

$

(601,596

)

$

474,175

 

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

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

24,008

 

180,666

 

97

 

 

204,771

 

Deferred income taxes

 

1,527

 

24,573

 

(2,123

)

 

23,977

 

Tax benefit of stock options

 

(16,101

)

 

 

 

(16,101

)

Loss on debt retirement, net

 

60,303

 

 

 

 

60,303

 

Non-cash share-based compensation

 

10,969

 

 

 

 

10,969

 

Other non-cash gains and losses

 

562

 

31,094

 

 

 

31,656

 

Equity in subsidiaries’ earnings, net

 

(601,596

)

 

 

601,596

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Merchandise inventories

 

 

(350,932

)

 

 

(350,932

)

Prepaid expenses and other current assets

 

(17,129

)

(13,125

)

(645

)

 

(30,899

)

Accounts payable

 

21,248

 

143,080

 

8

 

 

164,336

 

Accrued expenses and other

 

32,950

 

50,916

 

6,127

 

 

89,993

 

Income taxes

 

(48,077

)

(16,644

)

7,146

 

 

(57,575

)

Other

 

(2

)

(100

)

(72

)

 

(174

)

Net cash provided by (used in) operating activities

 

(57,163

)

637,530

 

24,132

 

 

604,499

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

(20,956

)

(342,078

)

(65

)

 

(363,099

)

Proceeds from sale of property and equipment

 

16

 

713

 

 

 

729

 

Net cash provided by (used in) investing activities

 

(20,940

)

(341,365

)

(65

)

 

(362,370

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

177

 

 

 

 

177

 

Repayments of long-term obligations

 

(910,677

)

(1,031

)

 

 

(911,708

)

Borrowings under revolving credit agreement

 

1,485,000

 

 

 

 

1,485,000

 

Repayments of borrowings under revolving credit agreement

 

(1,197,200

)

 

 

 

(1,197,200

)

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

 

(13,365

)

 

 

 

(13,365

)

Tax benefit of stock options

 

16,101

 

 

 

 

16,101

 

Changes in intercompany note balances, net

 

587,289

 

(565,513

)

(21,776

)

 

 

Net cash provided by (used in) financing activities

 

(32,675

)

(566,544

)

(21,776

)

 

(620,995

)

Net increase (decrease) in cash and cash equivalents

 

(110,778

)

(270,379

)

2,291

 

 

(378,866

)

Cash and cash equivalents, beginning of period

 

111,545

 

364,404

 

21,497

 

 

497,446

 

Cash and cash equivalents, end of period

 

$

767

 

$

94,025

 

$

23,788

 

$

 

$

118,580

 

 

22



 

 

 

For the 39 weeks ended October 29, 2010

 

 

 

DOLLAR
GENERAL
CORPORATION

 

GUARANTOR
SUBSIDIARIES

 

OTHER
SUBSIDIARIES

 

ELIMINATIONS

 

CONSOLIDATED
TOTAL

 

STATEMENTS OF CASH FLOWS:

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

405,311

 

$

500,177

 

$

18,765

 

$

(518,942

)

$

405,311

 

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

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

24,906

 

164,795

 

38

 

 

189,739

 

Deferred income taxes

 

26,633

 

16,161

 

(11,174

)

 

31,620

 

Tax benefit of stock options

 

(6,413

)

 

 

 

(6,413

)

Loss on debt retirement, net

 

14,576

 

 

 

 

14,576

 

Non-cash share-based compensation

 

11,620

 

 

 

 

11,620

 

Other non-cash gains and losses

 

953

 

6,967

 

 

 

7,920

 

Equity in subsidiaries’ earnings, net

 

(518,942

)

 

 

518,942

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Merchandise inventories

 

 

(366,903

)

 

 

(366,903

)

Prepaid expenses and other current assets

 

4,601

 

(30,332

)

(681

)

 

(26,412

)

Accounts payable

 

2,301

 

144,634

 

(2

)

 

146,933

 

Accrued expenses and other

 

(969

)

2,200

 

(140

)

 

1,091

 

Income taxes

 

(39,194

)

12,865

 

22,151

 

 

(4,178

)

Other

 

7

 

(1,113

)

(2

)

 

(1,108

)

Net cash provided by (used in) operating activities

 

(74,610

)

449,451

 

28,955

 

 

403,796

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

(16,115

)

(242,963

)

(165

)

 

(259,243

)

Proceeds from sale of property and equipment

 

 

868

 

 

 

868

 

Net cash provided by (used in) investing activities

 

(16,115

)

(242,095

)

(165

)

 

(258,375

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

599

 

 

 

 

599

 

Repayments of long-term obligations